Medtronic Reports – Some Strange Alliance’s

Medtronic Reports – Some Strange Alliance’s

Late this afternoon Medtronic (NYSE:MDT) announced first quarter results for fiscal year 2008. Compared to FY 07 1st quarter diabetes revenue grew 23%.

The company also announced two alliances that will allow their Paradigm insulin pumps to communicate wirelessly with major blood glucose meters. LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) gets the United States market, while the Bayer (NYSE:BAY) Contour gets markets outside the United States. Diabetic Investor isn’t sure what to make of these alliances as it appears to be a change in strategy for Medtronic.

Prior to these alliances it appeared Medtronic was committed to selling semi-closed loop systems such as the Paradigm 722, which combines the Paradigm insulin pump with the company’s continuous glucose monitoring system.

Stranger still is LifeScan being the preferred meter for the US market. JNJ spent over $500 million to acquire Animas, a Medtronic competitor in the insulin pump market and currently number two in terms of market share. One would think that JNJ would get LifeScan meters to communicate with Animas pumps before communicating with the pump of their number one competitor.

While there are less than 500,000 insulin pumps used worldwide, insulin pump patients account for nearly 25% of test strip usage. Unlike non-insulin using patients or patients on multiple daily injection therapy who test infrequently, the average insulin pump patient tests 8 times each day. While this is good news for LifeScan and Bayer, Diabetic Investor fails to see how either alliance will benefit for Medtronic. In reality this move could backfire and actually help their closest competitor in the US pump market.

Diabetic Investor has seen many strange events in the diabetes market but none stranger than what Medtronic announced today.

David Kliff
Diabetic Investor
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224-715-3761 mobile