Long live the Force!

Now that all the major insulin pump companies have reported it’s time to acknowledge some of those pesky facts with the biggest one of all being that goose that lays all those very profitable eggs for Medtronic is wounded. Yesterday’s stunning results from Tandem was just further evidence of what’s becoming clearer each day, that yes even though we have seen this movie before this time the ending just might be different.

Before we move on a huge shout out to the folks at Tandem as it cannot be understated what this team has done. Although it seems like a distant memory this was a company that was literally on deaths doorstep, they were running out of money, no one wanted to buy the company and the prospect of declaring bankruptcy was very real. Management took desperate measures and a ton of heat (to say we were less than kind is a vast understatement we were brutal) but never gave up.

Today Tandem is kicking ass and taking names. Only once before have we seen such a dramatic turnaround as way back in the day Bayer was in serious trouble in the BGM business, in comes Sandra Peterson and next thing you know they are alive and well. So, Kudos to the entire Tandem team you took some serious heat yet never wavered.

Now that Tandem is hotter than Georgia asphalt combined with Insulet reaching adulthood the folks in Northridge are the ones feeling some serious heat. As per usual the problems at the Empire were self-created but this time around recovery won’t be so easy. Yet Tandem’s resurgence and Insulet’s execution aren’t the only cause for concern. The biggest problem of all is Medtronic is well behind in terms of technology and their lead product the 670G hasn’t lived up to expectations.

The company continues to churn their installed base converting existing patients to the 670G, but they aren’t growing where they need to grow, they aren’t adding new patients, worse as the results from Tandem and Insulet prove they are beginning to lose patients in large numbers. From the beginning we have always stated that for any insulin pump company not named Medtronic to be successful they had to steal share away from the Empire. The insulin pump market just isn’t large enough nor is it growing fast enough to grow just by adding patients new to pump therapy.

When Animas shut down, and not to digress but the folks at JNJ must be feeling pretty foolish today as how the hell is it that Tandem and Insulet could be doing so well and they couldn’t even sell a company with almost 100,000 customers seriously their inability to sell Animas will go down as one of the biggest blunders in diabetes device history and that’s saying something. Anyway, the Animas shutdown was supposed to drive growth at Medtronic as everyone including us believed they would pick up the majority of this patient base. Something that hasn’t happened.

The company also ignored what was obvious to everyone else, as way cool and whiz bang as the 670G was this way cool whiz bang system was dependent on a CGM sensor that was unreliable. As we have stated consistently when the damn thing worked it was awesome only problem being it didn’t work consistently which became a huge problem. Think about this just for a moment everyone was falling all over themselves to praise the 670G when it was approved by the FDA. The West Coast Mafia, the JDRF became de facto sales people for Medtronic hailing the 670G as the greatest thing to hit diabetes since the invention of insulin.

So here the Empire stands today with the golden goose seriously wounded. The company has taken the usual steps cutting expenses and people. They are attempting to divert attention from their very real problems by talking about the future. Yet this future may never materialize if they don’t fix their current problems and do so like yesterday. But here’s the kicker given how quarterly driven the company is we doubt they’ll be able to do what’s necessary. Or put more simply rather than suffer some short-term pain and fix the problems they will continue to churn their base and let the chips fall where they may.

This is one reason we are taking these rumors about private equity buying the unit very seriously. As we have noted before a quick and easy solution to their sensor problem would be to eat some crow and do a deal with Dexcom. A company they actually wanted to buy back in the day yet never pulled the trigger on the deal even though their own bankers had given their blessing to do the deal. This is what happens when you combine hubris with arrogance.

The company also had the chance, as did many, to buy Tandem when it was on death’s doorstep. And again, not to digress here why Lilly didn’t buy Tandem at the time remains a mystery nope let’s buy a pump that’s been sold four other times and start from ground zero when we have no experience in the insulin pump market. Had Medtronic bought them the Control IQ which we believe will eat the 670G for lunch would have become Medtronic’s replacement for the aging Paradigm line.

The harsh reality for Medtronic is their diabetes franchise is just one piece of a larger puzzle and decisions about this franchise are driven by financial reasons. Management is not focused on the future they are focused on the next quarter. They have ignored some very real very obvious problems as they know when these problems come home to roost, they will either be at another Medtronic unit or gone from the company. Simply put it will someone’s else’s problem.

This is so corporate America it makes us want to puke. Yep when things are good management takes all the credit even though they didn’t make things great. When things go bad, they blame the other guy for creating the problem. This is one reason we have respect for what Pat Sullivan did at Insulet, Pat like Kim Blickenstaff at Tandem was a favorite punching bag for Diabetic Investor, yet he brought in his team and went about fixing the problems the previous team left behind. Today Insulet is on solid ground thanks to what Pat did.

We don’t see the Medtronic team having the same tenacity. Many have already jumped from this ship before it takes on even more water. Others will soon be gone either by choice or circumstances.

Many times, as we have watched this saga playout, we noted that we have seen this movie before. That just when it looked like the Death Star was about to be destroyed that the rebels had found their Luke Skywalker strong with the force, the Empire rebuilds the Death Star. Yet as we have also noted this time around it just felt different that at long last the rebels would win the day and peace would reign in the Galaxy.

The force is now strong with Tandem and Insulet and it’s the Empire that’s reeling. The final chapter in this saga seems to be taking shape before our very eyes. While once unthinkable that the great company formerly known as MiniMed is about to be destroyed. This is one time we don’t see Medtronic finding religion and fixing the many problems they face. This time around they might just say enough already, sell the unit and move on.

Long live the force.