Medtronic Investor Day

Medtronic Investor Day

Yesterday Medtronic (NYSE:MDT) provided investors with a long term outlook for their diabetes franchise. As everyone knows Medtronic has been the market leader in insulin pumps holding nearly 75% of the market. Based on their comments yesterday it’s clear the company has no intention of resting on their laurels.

As Diabetic Investor has previously reported the insulin pump market has becoming increasingly competitive over the past few years. Johnson and Johnson (NYSE:JNJ), now owns Animas the number two player in insulin pumps and newcomer Insulet (NASDAQ:PODD), with their innovative OmniPod Insulin Management system is quickly gaining market share.

The one thing that has changed over the past few years is the increasing adoption of insulin pump therapy. For some time Diabetic Investor has stated that the insulin pump market was not growing fast enough to support all the current players in the market let alone the many newcomers who plan on entering the market. Based on all available evidence the insulin pump market is growing faster than in previous years. However, Diabetic Investor maintains our belief that even with this increased adoption of insulin pump therapy the market already has enough players and it is likely will see further consolidation in the years ahead. Frankly with Medtronic’s commitment to the space and commanding lead in terms of installed users it’s difficult to imagine a scenario where a new player could gain significant traction in the space. Just as the blood glucose monitoring space has consolidated over the past few years, the insulin pump market is headed down that same path.

That being said it was interesting to hear just how aggressive Medtronic plans to be in the next few years. The company plans on introducing one new system a year over the next three years, including a patch pump and a replacement for their successful Paradigm pump. All of these systems will be integrated with the company continuous glucose monitoring system. It’s quite clear that the company sees the combination of CGM and insulin pump technology as one unit, not two stand alone units.

Basically what the company has decided to do is offer a wide array of systems so patients can chose the system that best fits their lifestyle. This is not unlike the path chosen by the BGM companies who now offer patients a wide array of monitors. Simply put Medtronic has awakened to the fact that using an insulin pump is more than just a therapy choice but a lifestyle choice as well.

They are also moving in this same direction with their CGM system, investing heavily to make their systems not only more reliable but more patient friendly too. The company also announced they would be developing a CGM system for the hospital market and they, like Diabetic Investor, see this marker as highly lucrative.

Diabetic Investor is encouraged by these moves as it signals something we have been saying for years, diabetes is not a one size fits all market. The fact is diabetes is a very complex market where each patient and their healthcare team designs a different method for managing diabetes.

This move is also further confirmation of Diabetic Investor’s belief that as the diabetes market expands patients and their healthcare team want simplicity and would prefer to work with one company for all their diabetes management needs, rather than multiple companies. Patients don’t want a monitor from one company, insulin from another and an insulin delivery system from another. It’s much easier to deal with just one company who can handle all of these products under one roof.

Finally it cannot go unnoticed that when it comes to the diabetes market size does matter. With more than 22 million Americans having diabetes and another 55 million with pre-diabetes, the diabetes market is not a niche market. Besides spending large amounts of capital on research and development, companies in the space must spend equally large amounts of capital on customer support, sales and marketing. This does not mean that smaller companies cannot be successful in the space. What it does say is that these smaller companies must do more than just come up with me-too products to succeed.

The diabetes market is too large, too capital intensive and too competitive for me-too products to make it. Innovation, superior product design and performance are needed to compete.

The message sent by Medtronic yesterday can be best summed up by something William Randolph Hearst said, “Whatever begins to be tranquil is gobbled up by something that is not tranquil.” Let the competition begin.

David Kliff
Diabetic Investor
847-634-4646 fax
224-715-3761 mobile