Erich Fromm once wrote; “Man is the only animal that can be bored.” The amazing thing about this statement, which was written back in 1955, is that Mr. Fromm never had to listen to conference calls by diabetes devices companies. While Diabetic Investor has deemed 2011 a transitional year in the diabetes world, it is also quickly becoming a boring year when it comes to earnings calls. Unfortunately this morning’s call by insulin pump market leader Medtronic (NYSE:MDT) joins a long list of exceedingly boring diabetes device conferenced calls.
Looking at the results for their diabetes unit Medtronic continues to plod along. The simple fact is this unit will continue to deliver boring rather predictable results as long as they don’t screw up. Unlike their competition who must find a way to steal share from Medtronic, all Medtronic has to do is keep their huge installed user base happy so they don’t switch systems when their pumps go off warranty. This is the key to the business and adding a patient new to pump therapy is just a bonus.
The company knows this which is why they are in no hurry to introduce any new systems. The stark reality is new systems cost money and given the way things are going in the insulin pump market the company sees no need to invest major amounts as they just aren’t sure they’ll see an adequate return on their investment.
Perhaps this why the company is no longer providing regular updates on when we’ll see their much hyped and much delayed patch pump or when we just might see a replacement for their aging Paradigm line of conventional pumps. Nor are we hearing anything about when we might see their next generation continuous glucose monitors (CGM).
The reality is the company actually faces a larger threat in CGM from Dexcom (NASDAQ:DXCM) who continues to push forward with newer more advanced systems, than they do from Animas or Insulet (NASDAQ:PODD) in the insulin pump business.
This conservative approach is also bad news for the many insulin pump startup companies whose primary goal was to sell their companies to Medtronic. They too see Medtronic plodding along and figured that at some point the company would need a new system to replace the out-dated Paradigm line. These companies figured that it would quicker and more cost effective for Medtronic to buy their systems as a Paradigm replacement.
The bottom line here is until someone figures out a way to convert existing Medtronic patients to a competing system the company will never be in a hurry to do anything. They know that their huge installed user base is basically an annuity that generates a consistent and highly profitable revenue stream. They also control a huge amount of insulin pump intellectual property and can blunt newcomers from reaching the market. Finally they see what’s going on at the FDA and realize that getting a new device to market continues to be problematic and costly.
The real problem at Medtronic is complacency. While there is no hurry today to invest in new and better technologies threats do loom on the horizon. It is well known that Sanofi-Aventis is on the prowl in the insulin pump arena as they see insulin pumps as another avenue to sell more insulin. It is also true that Johnson and Johnson (NYSE:JNJ), who owns Animas, is not happy with how that unit is performing and could make an acquisition of their own. Diabetic Investor is also aware of several companies who are looking to turn the insulin pump market upside down by following the glucose monitoring market model by giving away pumps for free and making their money through the continual sales of pump supplies. Whether this model works is another story but the fact that companies are willing to try it should give Medtronic cause for concern.
Still much of this is wishful thinking from Diabetic Investor as it’s becoming difficult to stay awake during these boring calls.