Medtronic decimates their diabetes division.

Medtronic decimates their diabetes division.

Diabetic Investor has learned that Medtronic (NYSE:MDT) has decimated their division axing hundreds of employees. According to sources with knowledge of the situation no area inside the diabetes division was spared as the layoffs included sales, sales support as well as research and development positions. Frankly Diabetic Investor is not surprised by this news given the increasingly dismal market dynamics in the insulin pump market.

Given the severity of these cuts one has to wonder how the company can continue to move forward with several projects currently under development. Does this mean that much hyped and much delayed patch pump will be delayed even longer? What about the equally hyped new pump that was supposed to be a replacement for the aging Paradigm line? Or what about their over-hyped continuous glucose monitoring system that has never lived up to expectations? Finally does this signal the end to their dream product, a closed loop insulin delivery system?

As Diabetic Investor has been saying for years when it comes to the insulin pump market, the market is not large enough nor is it growing fast enough to support all the existing players, let alone the many new companies who want to enter the market.

The truly surprising aspect here is that Medtronic acted at all given their dominate market position and strong customer loyalty.  Diabetic Investor did not anticipate any drastic cuts until someone, anyone figured out a way to convert existing Medtronic patients to a competing system. As we have noted on several occasions while the company is not doing very well securing patients new to insulin pump therapy, the real money maker is their huge installed user base which is basically an annuity. With an extraordinarily low attrition rate, the company can virtually count on a steady and very profitable revenue stream as these existing patients continue to order pump supplies.

Given the depth of the cuts Diabetic Investor suspects the company is trying to accomplish a different goal; create an ultra-lean organization which produces huge profits that can then be sold. The company, like Diabetic Investor, realizes that with 70% market share and the increasingly competitive nature of the insulin pump market, where new companies seem to pop up on a daily basis, that over the next five to ten years it is more likely they will lose share rather than gain share. They also realize that like the BGM market, pricing pressure is intensifying. Finally they see an FDA coming down hard on insulin pump companies making the future regulatory environment problematic for their dream product, the closed loop insulin delivery system.

Still this must be a very sad time for the many former MiniMed executives and employees who built the company into the dominate player in the insulin pump market. Once considered the gold standard by which all other insulin pump companies were measured, the company in the hands of Medtronic is a now a mere shell of its former self.

Given what Medtronic has done to this once great company we’re not surprised this day has arrived, we’re just surprised it arrived this soon.