Lots of news yet no surprises

Lots of news yet no surprises

As the toy makers gather in Berlin for ATTD to display their toys there’s lots of news flow this week. So, let’s have it.

This morning Novo Nordisk and Abbott announced a partnership which according to a press release;

“Abbott and Novo Nordisk today announced a non-exclusive partnership that will integrate insulin dose data from Novo Nordisk pre-filled and durable connected pens directly into the digital health tools compatible with the FreeStyle Libre system (FreeStyle LibreLink[2] mobile app and LibreView[3] cloud-based system). The partnership reflects both companies’ commitment to make diabetes management easier by connecting key technologies such as continuous glucose monitoring (CGM) and connected insulin pens.”

This move was not unexpected for several reasons – first while Novo also has an agreement with Dexcom to integrate the G6 with their connected pen Novo knows that Libre has a substantial patient base and it would be foolish not to also work with the Libre – keep in mind Novo’s goal here is simple sell more insulin and given that Lilly also has an agreement with Dexcom this move makes perfect sense.

Second as we predicted it’s no longer a question of IF Tyler would get here but when. This announcement is just further confirmation that Tyler’s arrival is imminent. It won’t be long before every insulin company, Sanofi is also connected with Dexcom, offers their version of a Tyler.

Third given that all the insulin companies will have a Tyler the battle for supremacy will come down to which Tyler is the most patient friendly and of course formulary position. Based on what we know so far, we suspect that all the insulin companies will either give away their connected pen or at minimum price at on the low range to garner greater adoption. Remember their goal isn’t to make money on the pen their goal is to sell more insulin.

Fourth the coming of Tyler will also have a major impact on the insulin pump market which is also going through some serious changes. All along we have contended that the arrival of Tyler will adversely impact the adoption of insulin pump technology. Tyler will not prevent patients from using a pump, but it will slow the growth of new pump starts, patients who have not used a pump before. Studies will soon show that patients using a Tyler will achieve pump like outcomes which will pave the way for greater adoption.

Tyler will also be well received by payors given its low cost compared to insulin pump therapy. Add in the fact that Tyler also brings with him lower patient training and patient support costs and you can see why insulin pump companies are a little worried. Even with all the advancements that are being made or in the works with hybrid closed loop insulin delivery systems the huge cost differential between a Tyler and these advance systems will tilt the windmill in favor of Tyler. For as we say consistently this is all about money, who spends it, who saves it and who makes it.

The emergence of Tyler will force every insulin pump company to rethink their current business model. It could well push these companies to transition from their current revenue model to the Shave Club for Men revenue model. Let’s be very clear here Tyler will NOT kill the insulin pump market, patients will still use insulin pumps. However, there is no question in our mind that Tyler will slow the growth of the market.

The cost difference is just too large to be ignored and when the studies show solid outcomes for a patient using a Tyler payors will have the cover, they need to adjust their reimbursement policies in favor of Tyler. Pumps will still be reimbursed but the hoops a patient must go through to receive this reimbursement will not go away and, in some cases, may become more onerous.

This set of circumstances would seem to favor Medtronic with their huge installed user base. If we’re right and new pump starts slowing this huge installed base of customers SHOULD make it easier for Medtronic to handle this new world. Yet as we predicted, and the company confirmed yesterday when they released earnings yesterday all is not well in Northridge. There is really no need to cover the actual numbers what caught our attention was all the new way cool whiz bang stuff the company talked about.

In what we see as a desperate attempt to change the narrative the company is doing the old Texas two-step. When things aren’t going well don’t focus on the present instead look to the future. Yesterday the company provided an unusual amount of information on their pipeline which to us is a signal they are in bigger trouble then we thought. Here are just a few of the items they mentioned during the call;

“In Diabetes, we’re continuing the introduction of 670G into new geographies around the world. In FY 2020, we expect to launch our advanced hybrid closed loop system with Bluetooth, which we’re calling the MiniMed 780G.

The 780G will feature next-generation algorithms, designed to improve time in range to over 80% by automating insulin delivery following a snack or a meal. In addition, the system will reduce the burden of carb counting and enable remote monitoring and remote software downloads. We also expect to submit our application for non-injective designation for our Guardian Sensor 3 in the next few months.”

They went onto say;

“In Diabetes, I hope you saw our announcement this morning that the FDA has granted breakthrough device designation through our personalized closed-loop system. This system will feature real-time personalized algorithms that are designed to automate insulin delivery on a personalized basis that continuously adapts to the user.
The system will also provide insights and predictive diagnostics, unique to the individual, all of which will dramatically simplify diabetes management for the patient.

In addition to this product, we’re also advancing our CGM sensor pipeline by reducing the need for calibration and making the census smaller and longer lasting, all while using cognitive computing to enhance personalized insights.”

Here are our takeaways from all this;

1. The company is playing catch up and could well be creating a future problem. While it’s good to hear that the 780G will finally at long last have Bluetooth technology, this creates an interesting scenario for all the patients they are now converting to the 670G. Just how will they handle the upgrade, traditionally the company has charged patients for system upgrades, but this may not be possible when the 780G arrives. As we noted earlier the pricing dynamics in the insulin pump will change when Tyler gets here plus Tandem is well ahead of Medtronic in the connectivity area plus they have the Control IQ coming BEFORE the 780G.

Simply put in terms of technology Tandem will have the superior system and it will be Medtronic who is playing catch up. Given the data we have seen for the Control IQ the burden will be on Medtronic to prove the 780G is as good as the Control IQ.

2. It’s also welcome news that finally at long last will join Dexcom and Abbott and not require any fingerstick calibrations for their sensor plus add a non-injective designation. Once again, the company is running from behind. Simply put should they receive these approvals they will be ON PAR with Dexcom and Abbott NOT better than Dexcom or Abbott.

3. Pay attention here as this is THE MOST IMPORTANT FACT – all these way cool whiz bang improvements are predicated on the sensor being accurate and reliable. We hate to be redundant but none of this way cool whiz bang stuff can happen if the sensor is not accurate and reliable. The sensor is the engine which drives these systems and if the engine isn’t working properly the ENTIRE SYSTEM FALLS APART.

Medtronic can make all the improvements they want to the insulin dosing algorithm but when you put garbage in you get garbage out. The biggest issue with the 670G isn’t the pump or the algorithm, the biggest issue is the sensor is not accurate and reliable. An issue which is directly related to the design of the current sensor, a design which makes manufacturing the sensor difficult. Keep in mind that sensors are manufactured on a massive scale and the ability to make accurate and reliable sensors on this scale isn’t easy.

Until Medtronic can solve this major problem all this talk about these way cool whiz bang systems which do all these way cool whiz bangs things is just that – talk.

4. Time for a reality check as all these way cool whiz bang improvements aren’t here yet and there is no guarantee the FDA will approve them either. Keep in mind the FDA is already investigating the company, isn’t all that thrilled with the company and the last thing they want is another 670G issue on their hands. Therefore, we suspect the agency will be ultra-critical when they look at all these improvements and could well make the company jump through additional hoops to get approval.

5. Reality check number two as what does the company do until the 780G gets here. Simply put they will continue to churn their existing user base. The harsh reality for Medtronic is they are no longer leading in terms of technology as we have noted Tandem is moving ahead of the company while Insulet will soon have the DASH in wider distribution. When it comes to new patient starts, patients who are brand new to insulin pump therapy, Medtronic is losing the battle.

This is the reason they renewed their exclusive relationship with UnitedHealthcare, as they couldn’t afford not to. Medtronic is many things but dumb isn’t among them, they know they must protect at all cost their formulary advantage for if they lose that all bets are off.

The company will also do whatever it takes to keep their current customers in the fold. Should these patients leave the reservation in big numbers and switch to a competing system that goose that now lays all those golden eggs will become a dead duck. Going back to something we said earlier this is why the upgrade program for the 780G is mission critical. Should they handle this upgrade as they did when the 670G came out the 780G could end up as a heavy and costly albatross around their neck.

Throw all this into a mixing bowl – the coming of Tyler – the competitive dynamic of the insulin pump market – the emergence of mix and match systems – the FDA investigation – the fact that Medtronic has the worst reputation in the insulin pump market (they are not called the Evil Empire by accident) and most critically all this way cool whiz bang new stuff is relying on a new and hopefully improved sensor and it’s easy to understand why the company might just do what was once unthinkable and sell their diabetes franchise.

Oh, and not to digress we also thought it was interesting they did not mention the stand-alone CGM market which they claimed at one point would be a billion-dollar business. Perhaps they are getting tired of looking foolish when they make these outrageous statements.

Frankly none of what Medtronic said surprised us as they are following their standard playbook, when the present situation isn’t a pretty picture start painting a new picture of the future. A future filled with way cool whiz bang. Yet as Momma Kliff used to say you can talk all you want about the future, what might be. But as bright as that future MIGHT be it does not change the reality of what is. Or as we’re fond of saying you can put lipstick on a pig, put that pig in a fancy new dress splash it with perfume but in the end all that pig is good for is bacon.