Let’s look at this differently

Let’s look at this differently

This morning per a press release we learned;

“EOFLOW CO., Ltd., an emerging medical device manufacturer with offices in Seoul, South Korea and San Jose, California, announced today that its closed loop Automated Insulin Delivery /Artificial Pancreas Device (AID/AP), the EOPancreas System, has received Breakthrough Device Designation by the U.S. Food and Drug Administration.”

EOFLOW is just one of the many insulin pump wannabes seeking to enter the ever-crowded insulin pump market. Anyone who has seen the EOFLOW will notice that it remarkable looks a lot like the OmniPod from Insulet. Now we aren’t sure just how many insulin pump wannabes there as frankly we have stopped counting. But it’s fair to say that poor dead cat is getting a serious workout.

While we don’t understand it the rationale behind all these insulin pump wannabes it appears to be, they can build a better and cheaper mouse trap. What we do understand is that if anyone bothered to look at the insulin pump market from a numbers perspective these wannabes wouldn’t be able to raise a dime.

First and let’s make this crystal clear there is NOT an unmeet medical need here. Insulin pump therapy has been around forever is well accepted and is an effective therapy option.

Second there is nothing wrong with any of the available systems. When it works the 670G is fine as is the OmniPod as is the Basal IQ. These three systems in the hands of an educated patient get the job done very well.

Third Medtronic, Tandem and Insulet are all working on improvements to their existing systems which will make insulin pump therapy even better.

Fourth while payors will welcome more competition as they can use it as leverage to extort lower prices in the end after they have extorted the lowest possible price, they will likely choose an establish player who has capitulated to their demands. Hence the reason Medtronic maintained their exclusive agreement with UnitedHealthcare, they couldn’t afford to lose it.

Fifth this market is BARELY growing. By most estimates the number of new insulin pump patients, those who have NOT used a pump before, is growing in the low single digits. The recent spike we have seen in patients choosing Tandem isn’t from new pump patients rather patients switching from Medtronic.

Sixth and why no one bothers to mention this is a mystery only 35% of Type 1 patients use an insulin pump. A number that has not changed much over the past 10 years. Keep in mind that Type 1 patients MUST use insulin and as effective and established as insulin pump therapy is the majority of Type 1 patients DO NOT use an insulin pump.

Seventh since we began writing Diabetic Investor over 20 years ago, we have sat Shiva for the Cosmo, Asante (now reincarnated as Bigfoot), Disetronic (now reincarnated as the Solo also a patch pump) and most recently Animas (now part of Medtronic). There are probably others in the insulin pump graveyard that we have forgotten to mention but it should say something that the list of companies that have tried and failed is almost as long as the list of insulin pump wannabes.

Eighth as bad as things are in Northridge these days the evil empire still holds a commanding market presence. Try as they might to kill the goose that is laying all those very profitable eggs Medtronic owns nearly 70% of the market and that my friends by any definition means they have a monopoly. They may not have this monopoly for too much longer, but it won’t because any of these insulin pump wannabes has come up with a better or cheaper mouse trap. This monopoly will end because Medtronic screwed up a very good thing.

Ninth while we aren’t huge fans of the mix and match movement it cannot be ignored as it is have an impact on the market. Yet the newbies won’t benefit from this movement for the simple reason these mix and match systems work with existing systems. Sure these very smart people could hack these new systems as they have the existing ones but why bother.

Tenth once Tyler gets here the growth in the insulin pump market will SLOW even more. Tyler can do what a pump does at a fraction of the cost of a pump and yes this ALL about money.

Why then do investors fund all these wannabes what do they see that we don’t? Do they have some sort of secret sauce? Nope what they believe in what drives every decision they make is the greater fool theory. That they will pawn off their company on a larger company walking away with millions in their pockets. And they have every reason to believe this as Roche spent a billion to buy and then destroy Disetronic, JNJ spent almost $600 million to buy then run into the ground Animas and Medtronic spent almost $4 billion to buy and now running into the ground MiniMed.

To fully appreciate how crazy this is just yesterday Jim Cramer, yes that Jim Cramer, wrote;

“I wanted to call CEO Tim Cook of Apple (AAPL) and say: “Eureka! Forget the video-streaming product, buy $13 billion Dexcom and buy $4 billion Tandem Diabetes, paying a 50% premium for both.”

That would cost roughly $28 billion — a fraction of what Apple has bought back in stock over the years. AAPL could make the two companies seamless, then charge diabetics $10 a month to use the devices.

And since the Apple Watch and Apple iPhone can both connect to the glucose monitor, it might pay to just give the hardware away to anyone who needs it — an act of goodness in itself. Then Apple could charge patients a service fee. That arrangement would be an instant hit … and make those who feel Apple’s service stream isn’t growing fast enough have to eat crow.”

Think about that statement for just a moment, then think about this at one-point shares of Dexcom which are now trading at over $140 were trading below $60. Tandem as we all know was just 60 days away from being history and is now trading around $70 per share. Therefore it makes perfect sense that Apple would spend $28 Billion for two companies they could have acquired for a fraction of that sum not that long ago.

What have we said since Tandem began their miraculous recovery that someone will likely come along and buy the company for a few billion when they could have bought them a year or so ago for under $500 million. And not digress here but this just reinforces our belief that JNJ must feel like the biggest idiots ever as they had to pay Medtronic to take Animas off their hands. And people wonder why we have gray hairs you just can’t this stuff up.

To be honest we have no idea if Apple would pull the trigger on this deal. Like so many high-tech cash rich techies Apple is making the deep dive into diabetes so who the hell knows. Listen Google their neighbors in the Valley are seriously considering buying out Sanofi from the Verily/Sanofi partnership at the bargain basement price of a billion bucks. And let’s not forget Amazon who has begun their swim in the pool and last time we looked Amazon isn’t afraid to throw money around to disrupt a market.

Folks this is why we have eight zillion insulin pump wannabes, six zillion CGM wannabes and four zillion “smart” insulin pens. Looked at from a market perspective there is no reasonable rational for 99% of these companies to exist. Diabetes may be growing at epidemic rates but even with this growth there just isn’t enough patients to go around.

By our estimates there are less than 1.5 million insulin pump patients GLOBALLY. There are around 5 or 6 million patients following multiple daily injection (MDI) therapy in the US leaving 20 plus million patients using insulin plus orals, GLP-1’s, oral alone or diet and exercise to treat their diabetes.

Of the 1.5 million insulin pump patients 95% reside here in the US with three companies owning the market Medtronic around 70%, followed by Tandem and Insulet each with about 15%. With the market growing at less than 6% per year how will any of these newbies find patients to use their mouse trap.

With Lilly, Novo Nordisk and Sanofi each working on a Tyler just how the hell do any of these “smart” pen companies hope to acquire enough patients to make a profit. They may have better toys, but the toy doesn’t matter the insulin companies are going to own the Tyler market.

Lately we’ve been writing about the crazy valuations being thrown around these days. Valuations which unless you’ve been downing lots of Grey Goose make no sense whatsoever. But this is the wacky world of diabetes a place where reason and common sense don’t exist. So as Momma Kliff used to say it makes no sense to fight it when everyone else has lost their minds as long as you keep yours intact. We’re doing the best we can Mom but it sure isn’t easy.