Medtronic Reports, More Problems for Avandia and other items of note

Medtronic Reports, More Problems for Avandia and other items of note

Yesterday Medtronic (NYSE:MDT) reported third quarter results with an impressive results for their diabetes unit were sales grew by 24%. This growth is particularly noteworthy as many had expected Roche’s reentry into the US pump market to adversely impact sales. Diabetic Investor never quite understood why people were worried about Roche’s return to the US market as their Spirit pump offers no major advantages over the many pumps already on the market. True Roche has a large sales force however in the US pump market it takes much more than an army of sales people to be successful. The fact of the matter is the pump market is now following the same path as the blood glucose monitoring market in that with a few exceptions all the players have the human and financial resources to compete.

As Diabetic Investor reported last week with Insulet, the makers of the OmniPod, set to go public they soon will have the additional resources they need as well. These additional resources will allow Insulet to rollout OmniPod on a national basis, hire more sales people and more cost effectively manufacture the system. The company also has an agreement with Abbott (NYSE:ABT) that could allow them to integrate Abbott’s Navigator continuous glucose monitoring system, still awaiting approval at the FDA, into future versions of the OmniPod. Abbott as well has already received approval for their Aviator insulin pump but has yet to decide when or if they will bring Aviator to market. Given that Aviator is comparable to conventional pumps the company may instead decide their future in the insulin pump market lies with Insulet.

No matter who hooks up with whom in the insulin pump market, Medtronic is not sitting on their huge lead. The company continues to move forward with new products announcing yesterday that the Mini-Link™, their next generation sensor transmitter for the Guardian RT and Paradigm 722, received FDA approval and is set to be launched later this quarter. The Mini-Link has no cable, is about one third the size of the previous version and is rechargeable. This news comes on top of the company’s already stated position that they should have a semi-closed loop system ready by 2008.

Medtronic should be commended by the way they have handled their continuous glucose monitoring technology. Unlike others in this category the company understood that CGMS is a perfect fit for pump patients and first generation devices would serve as stepping stones to their eventual goal of a closed loop insulin delivery system. By getting their system to market in a timely fashion they have learned a great deal from the early adopters and are incorporating this experience into future versions of the technology. The company also has the most realistic outlook when it comes to reimbursement understanding that it could several years for reimbursement to come. In January the company began enrolling patients in the STAR III trial which will compare sensor-augmented pump therapy to multiple daily injections. As Diabetic Investor previously stated it’s likely that reimbursement for CGM will likely come in stages with pump patients to be the first to receive reimbursement, followed by MDI and finally all insulin using patients.

Perhaps this is why some are speculating that Johnson and Johnson (NYSE:JNJ) will eventually acquire Dexcom (NASDAQ:DXCM) and combine Dexcom’s STS system with their Animas line of insulin pumps. It is well known that Dexcom is experiencing a host of issues with the STS and lacks the resources to effectively compete until reimbursement arrives. With a market cap of less than $250 million JNJ could easily afford to acquire Dexcom. JNJ has added incentive to acquire Dexcom as it would prevent Roche who has little in the way of CGM technology from combining the STS with future versions of the Spirit pump.

The fact remains that the insulin pump market belongs to Medtronic and barring a major blunder by the company the real battle is for second place.

Switching to the type 2 market more bad news for GlaxoSmithKline (NYSE:GSK) and their lead oral drug Avandia. The company has written US physicians warning of increased bone fracture risk associated with Avandia. This previously unknown side effect came from the ADOPT study and has since been confirmed by other studies.

This news continues Merck’s (NYSE:MRK) stretch of luck since they launched Januvia. Januvia continues to gain share and now Merck reps have even more ammo when speaking with physicians. Merck could be in store for even more good luck as rumors are rampant that the FDA will further delay the approval of Galvus from Novartis (NYSE:NVS). Although both Januvia and Galvus are from the same class of drugs known as DPPIV’s, the FDA appears to be concerned with a skin lesson issue that appeared in Galvus during trials. Some have speculated that the FDA is concerned with more than skin lessons and it could as long as a one year to sort everything out. Should rumors become reality and Galvus is delayed for one year it would effectively kill any chances the drug had to compete with Januvia.

Moving onto the blood glucose monitoring market Diabetic Investor has learned that JNJ now owns nearly 15% of Universal Biosensors (ASX:UBI.AX). Universal has a technology allowing for test strips to be manufactured more economically and deliver a more accurate result. Faced with increased pricing pressure and the prospect of competitive bidding all the major BGM companies are looking for methods to lower costs. Should Universal’s technology bear fruit JNJ could save millions in manufacturing costs giving them a leg up on their competitors.

Moving back to CGM for a moment, Nellcor a division of Tyco (NYSE:TYC) has filed 8 patents for CGM technology. It is not known if the company plans on entering this crowded field by itself or with an established player in diabetes. It is also not known if they are looking at the diabetes or hospital market. Diabetic Investor is following developments closely.

Finally for the remainder of this week Diabetic Investor is headed to the Big Apple for the American Diabetes Association (ADA) Post-Graduate conference.

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