Lost in the wilderness
With all that’s going in the insulin pump market, Medtronic (NYSE:MDT) the market leader appears to be lost in the wilderness. The year is almost over yet still no patch pump nor do we have any clue when their new conventional pump platform will be here. Meanwhile, while Medtronic wonders aimlessly through the forest looking for grandma’s house, the competition is set to take action. This begs the question; does the company have a coherent strategy other then milking the unit for every possible penny of profit.
Granted the folks in Minneapolis have been preoccupied with the Twins playoff run and wondering whether Brett Favre can bring the Vikings back into the playoff picture, it just might be wise for them to step away from the television set and consider that if they are to have any hope at all of limiting share erosion and keeping those hefty supply margins, they just might want to do something other than talk about all the stuff their working on and actually do something.
The situation at Medtronic reminds Diabetic Investor of how Abbott (NYSE:ABT) handled Navigator. For those with short memories, Abbott’s responses to questions while the Navigator was awaiting FDA approval became almost comical. Perhaps realizing they were suffering from a severe case of foot in mouth disease, Abbott stopped talking about the Navigator until they actually received approval.
It appears that while Abbott found a cure, Medtronic is experiencing an even worse case of open mouth and insert foot. The much hyped patch pump, you remember their patch pump, the one that was supposed to be here two years ago. Or maybe you remember the super secret X series that was supposed to replace the Paradigm line of pumps, a series so secret and so great that Medtronic feared showing even a picture at investor events, fearing that this super secret super great system would be copied by the competition.
Since not much appears to be going on with either the over-hyped yet nowhere to be seen much delayed patch pump or the super secret super great X series, what is going on at the company. Layoffs for one thing, as the company has said goodbye to experienced, well liked and well respected reps, with younger inexperienced and unknown reps. Reps who constantly complain about management and their unachievable sales quotas and lack of field support. These Ken and Barbie doll reps that have alienated the very physicians they are supposed to working with. Not sure what Medtronic’s sales philosophy is but we doubt it’s go out and piss off the people your selling too. As they say when in sales this isn’t exactly how you win friends and influence people.
The truly amazing fact is even with an old technologically obsolete platform and reps that spend more time texting than selling, the company still holds an enormous market share. Animas, a unit of Johnson and Johnson (NYSE:JNJ) and Insulet (NASDAQ:PODD) may have better technology but the stark reality is, existing Medtronic patients are, excuse the play on words, sticking with Medtronic. Management knows this and also knows the many hurdles facing the many companies getting ready to enter the market. Realizing that even under the best conditions their market share will decrease in the future, why through good money into R&D when if need be they can go out an acquire new technology.
The gaping hole in this strategy is what happens if these newcomers get it right and figure out how to beat Medtronic not just with better technology but better sales systems. This reminds Diabetic Investor of how Microsoft missed a huge opportunity, wasted millions of dollars when it came to web browsers and internet search engines. Fat and happy with profits from their enormously successful Office Suite of products, the company misread where the market was going and today finds themselves playing catch up to Google.
Now there are some who say, Medtronic could easily buy their way out of this problem by simply acquiring one of the many newcomers who would be more than delighted to take Medtronic’s money. The issue here becomes, while these newcomers may not have the clout of Medtronic, they are not dim either. They see Medtronic floundering, they understand what’s going on out in the real world, they see where Sanofi-Aventis (NYSE:SNY) is headed and finally they know that Sanofi isn’t the only company on the acquisition trail. Or put another way, Medtronic’s acquisition costs are going up.
To slow the process Medtronic will try and stymie the competition using their most valuable asset, their patent portfolio. As Diabetic Investor has noted previously when it comes to IP protection, this is a full contact sport. Yet here too, the company is overplaying their hand as recent court decisions and innovative companies are finding ways around the huge vault of Medtronic patents.
Just as Little Red Riding Hood couldn’t understand why grandma had such huge teeth, Medtronic fails to acknowledge the many threats that surround them. Unlike the fairy tale that has a happy ending; Medtronic remains asleep believing this is all just a dream. Well this is not a dream and if they don’t wake up soon this dream will turn into a nightmare. Or as Naomi Epel, slightly modified, stated; “People have recurrent dreams because they haven’t gotten the message.”
