Let’s Pump It Up

Let’s Pump It Up

While listening to the earnings calls for Insulet (NASDAQ: PODD) and Tandem Diabetes (NASDAQ: TNDM) it occurred to Diabetic Investor that the most important driver for the insulin pump market is not a pump at all. Rather the most critical factor in the insulin pump is which continuous glucose sensor a pump works with. It’s also becoming increasingly obvious that if Medtronic (NYSE: MDT) the insulin pump market leader is to stay in that position they must improve their sensor. That should they fail to do so they will risk seeing a slow and steady share erosion as patient’s move towards pumps that work with the Dexcom (NASDAQ: DXCM) sensor.

There is where things get a little wacky for every pump company that is partnered with Dexcom. Even when Animas, a unit of Johnson and Johnson (NYSE: JNJ), is thrown into the mix their combined market share isn’t even within spitting distance of Medtronic. The reality is Medtronic thanks to their commanding lead in the market has time on their side. While they work on improving sensor performance they are happy to watch Animas, Insulet and Tandem try and convince patients that it is their pump that works best with the Dexcom CGM.

This is how crazy the insulin pump market has become. As we have noted previously all insulin pumps do basically the same thing the same way. The differences between systems isn’t performance rather design. Want an iPhone like design that works with Dexcom, Tandem is the obvious choice. Want to have a tubeless pump that works with the Dexcom sensor the OmniPod from Insulet is the only choice. Want a conventional pump that works with the Dexcom from a company that isn’t bleeding cash than the Animas Vibe is the logical option.

This is why Tandem and Insulet are racing to upgrade their systems, get them …wait for it …cloud enabled. This is why Tandem and Insulet are … wait for it … designing way cool whiz bang apps that will …wait for it .,.help patients use their insulin pumps more effectively.

In the meantime, Medtronic is doing whatever they can to keep existing patients from converting to any pump that works with a Dexcom sensor. Dexcom on the flip side is laughing all the way to the bank as they know they have the best CGM on the market.

Looking at performance Insulet actually had a better quarter than Tandem. While we wouldn’t say that Insulet has turned the corner just yet they are in better shape than Tandem. Tandem may have the slickest design but they continue to bleed cash and without a major cash infusion in the future they may have to tap the capital markets once again.

The fact is the insulin pump market really hasn’t changed all that much as everyone is still trying to find a profitable way to take users away from Medtronic. Yes, we have said it many times but it bears repeating; the insulin pump market is not large enough nor is it growing fast enough to support not just the existing players in the market but the many who are getting set to enter the market. It is also true that barring a major consolidation Medtronic will continue to hold onto their users.

About the only way this changes is if Animas buys Tandem and Insulet. Under this scenario Animas would take the very patient friendly Tandem user interface as a replacement for their aging platform. They would also use this interface with a new PDM for the OmniPod which would also contain a LifeScan, another JNJ diabetes unit, glucose monitor. Basically Animas would walk into a physician’s office with a full complement of insulin pumps, conventional and tubeless, that work with the Dexcom CGM sensor. Which when looked at from this perspective they should also spend a few extra billion and buy Dexcom too.

The reality here is that the winner in the insulin pump market is not a pump company at all but Dexcom. Medtronic will be a winner too provided they improve their sensor and can keep existing patients on a Medtronic system. They are perfectly content to let Animas, Insulet and Tandem battle it out over patients who want a pump that works with a Dexcom sensor.

Tandem and Insulet had good quarters and for Insulet anyway seems to be on the right path. Yet looking longer term this market really hasn’t changed all that much. It’s Medtronic’s game to lose and we just don’t see that happening. Not yet anyway as this is the wacky world of diabetes where anything can and usually does happen.