JPM Day Three Afternoon Session
Diabetic Investor was hoping today’s afternoon session would yield some excitement and we weren’t disappointed. The afternoon session got off to a rousing start when Insulet (NASDAQ:PODD) presented. Although the company didn’t reveal anything that exciting there were some notable pieces of news. Most importantly we learned that the new, smaller pod- which according to the company should push gross margins beyond 60% – won’t hit the market until at least 2012. Like so many others in the space, the timeline has little to do with the company rather the requirements being placed upon them by our friends at the FDA.
Although there was no mention of the relationship with Dexcom (NASDAQ:DXCM) during the company prepared remarks, the subject was brought up during the breakout session. Earlier in the day Dexcom indicated that it was Insulet who was holding up the integration of the Dexcom CGM and the OmniPod, stating- “the ball is in their court.” Insulet returned serve this afternoon when they noted the reason for the delay is Dexcom’s FTC wavier for their transmission frequency expires in 2013 and they weren’t sure if Dexcom would receive an extension beyond 2013.
According to Dexcom officials this extension, if needed, shouldn’t be a problem and putting the ball back in Insulet’s court.
The real story here is money, who will make it and who will spend it. Given the growing popularity of CGM, it seems like a no-brainer that both Insulet and Dexcom would benefit from this relationship. An integrated systems gives Insulet the capability to compete more effectively with market leader Medtronic (NYSE:MDT) who already has an integrated system; while Dexcom would likely see increased sensor sales from Insulet’s installed user base which according to Insulet now stands at 25,000 patients. Common sense says this is the classic win-win relationship. However when it comes to diabetes devices common sense gets thrown out the window when money is at stake.
The simple fact is while an integrated system would help Insulet more effectively compete with Medtronic; this does come at a cost. Simply put any existing OmniPod patient who decides to use this integrated system would need a new PDM, the device that controls the OmniPod. While Insulet has stated that it’s no big deal to swap out the older PDM with the new PDM that works with the Dexcom sensor, it will cost the company money, money they appear unwilling to spend at this point.
Although there is no way to know for sure Diabetic Investor suspects that patients interested in an integrated system would be willing to pay a small fee for the new PDM, which at minimum would offset Insulet’s cost. We further suspect that such a system would not only help Insulet compete with Medtronic but would give them a leg up on Animas. While Animas also has an agreement with Dexcom, Insulet would have first to market advantage. Given that every patient counts in the highly competitive insulin pump market and Insulet needs every patient they can get, we’re not sure of the logic behind their actions here.
Equally exciting was MannKind (NASDAQ:MNKD) although company founder Al Mann was not as bombastic as in the past. While Mr. Mann noted that Afrezza® could be a blockbuster even a super blockbuster, his body language seemed to disagree. While he remains “cautiously optimistic” that the FDA will approve Afrezza, the tone of his prepared remarks was subdued compared to previous public forums. Rarely missing an opportunity to extoll the virtues of Afrezza, Diabetic Investor was surprised that the prepared remarks lasted only fifteen minutes and the new larger presentation room was not need as the small crowd would have easily fit, with room to spare, in the smaller presentation rooms used in the past.
Although Diabetic Investor has no direct knowledge that the FDA will not approve Afrezza, we’re even less optimistic than we were before. In the past we pegged the odds of approval at 50-50, based on today’s presentation alone we see those odds as overly optimistic.
One company that should be optimistic is Intuity Medical as it looks like they solved the mystery we call the FDA and will soon be submitting their all in one glucose monitoring system, Pogo™ for FDA approval. Although the Pogo is not a revolutionary device, Diabetic Investor believes the device will quickly gain traction in the marketplace. The simple fact is patients with diabetes have too many things to carry around and the Pogo not only makes glucose monitoring simple and easy, but is contained in one nice neat device.
Diabetic Investor also believes the company is planning a wise strategy for marketing Pogo once it gains approval. Perhaps taking a page from the Insulet playbook, Intuity plans a limited commercial rollout directed primarily at Medicare patients. This limited rollout allows the company to work through any kinks in the system and Medicare already has reimbursement codes in place. This strategy also provides two additional benefits as the company does not need to overspend on a national sales force and will show possible suitors they can execute.
In another ironic similarity to Insulet the keys for Intuity are; system reliability and COGS.
In the ultimate irony of all, Intuity, a company just a few years old, could well be acquired before Insulet who’s been around for ten years. We’ve said it before and we’ll say it again – welcome to the wacky world of diabetes devices, where anything can happen and usually does happen.