Looking for clues

Yesterday IntriCon reported third quarter results. Now if that name doesn’t ring a bell it should as they supply Medtronic with key components for their CGM system. As the company noted during their call yesterday;

“The company remains very well positioned with Medtronic for 2018 and beyond, providing key system components, including CGM systems, sensor assembly, and related accessories. We anticipate system demand will continue to increase throughout the remainder of 2018 and into 2019. To support the medical volume increases, we expanded our operations footprint earlier this year leasing a 37,000 square foot manufacturing and clean room space located near our headquarters in Arden Hills.”

Obviously, the company isn’t too worried about the future and believes Medtronic will become a serious player in the stand-alone CGM market. We obviously disagree given the many issues with the sensor but that’s what makes America great as people are entitled to have differences of opinion. Yet the call had more interesting tidbits.

During the Q&A the company was asked about how the coming of Tyler would impact future insulin pumps sales. They noted;

“I won’t speak for Medtronic I’ll just speak for myself. We view that target population for instant pumps and connected pins are different. Patients that use insulin pumps are looking to personally manage their diabetics I think when you look at products like continuous glucose monitors that’s allowing technology to be more heavily used in managing in individuals blood sugar levels. So, we think they’re not really competing products in the marketplace.”

Here too we disagree as Tyler is the biggest threat to insulin pump market growth. Not to be redundant but this isn’t never has been and never will be about patient outcomes, this is all about money. The simple fact is Tyler will produce pump like outcomes at fraction of the cost of an insulin pump. This does not mean that patients will stop choosing insulin pumps. What it means is that payors will soon have another cheaper option to offer intensively managed patients.

As everyone knows we think it’s foolish for companies like Lilly, Sanofi and the rest of the insulin pump wannabes to enter this market. However, the same cannot be said of entering the Tyler market and all of these insulin pump wannabes plus Novo Nordisk are also working on a Tyler. They all see the same thing we do, Tyler is as good as a pump from an outcome’s perspective and much cheaper than a conventional pump.

Let’s go beyond the startup costs of a pump vs a Tyler. Let’s also move beyond the fact Tyler does not require the patient to buy any supplies like a pump patient does which increases the cost for payors. Let’s instead look at sales and support costs which are a fraction of what it costs to sell and support an insulin pump. This is where the rubber meets the road as any company with a Tyler actually stands a chance of making money in this market something that isn’t going to happen in the insulin pump market.

It’s no accident that Medtronic is also looking at having a Tyler of their own. Bigfoot is moving in this direction too and we suspect Tandem and Insulet will eventually venture down this road as well. There are hundreds of connected pens both disposable and durable. Dexcom not only has the best sensor on the planet but now owns the best insulin dosing algorithm. Bigfoot is working with Abbott and while they have yet to announce which insulin dosing algorithm, they will use it shouldn’t be a problem finding one that works.

There will always be a percentage of the intensively managed population that prefers a pump to a multiple daily injection (MDI) therapy. But consider this in spite of all the advancements in insulin pumps only about 35% of Type 1’s uses a pump and this number hasn’t substantially changed in years. The fact is, yes, those pesky facts again, is the insulin pump is not growing at rates that can support all the existing players let alone the many insulin pump wannabes.

Now let’s get back to IntriCon and their overly rosy outlook for the Medtronic sensor. Never mind the FDA investigation, let’s instead talk about the ability to manufacture sensors on a massive scale. This in essence is the problem facing Medtronic. The fact is the Medtronic sensor is not easy to make which is one reason there is so much inconsistency with how the sensors perform. Dexcom and Abbott do not have this problem.

This problem is not simple to solve either as the ultimate fix would be to redesign the sensor. This isn’t just a costly issue but a time consuming one given the FDA approval process for what ultimately would be a new sensor. The only reason IntriCon can be optimistic is Medtronic has a huge installed user base of insulin pump patients. Yet here as well the numbers are misleading as a growing percentage of this installed base are ditching the Medtronic sensor.

Perhaps someone should explain to the folks at IntriCon that the problems with Medtronic sensor are well known and that their stand-alone system is DOA. Dexcom and Abbott are growing making it next to impossible for Medtronic to gain even a toe-hold in the stand-alone CGM market. Dexcom may not have the resources to fight Medtronic should they go nuclear with price, but Abbott certainly does.

Earlier today we spoke of what happens when a company strays from their core competency. Well we don’t think it’s a coincidence that many of Medtronic’s current problems began when they too ventured from their core competency. We can’t blame the company for attempting to expand beyond insulin pumps however they should have only done so after making sure the goose that lays those golden eggs was healthy as a horse. The fact is they took their eye off the ball and whiffed.