Medtronic wins 2, loses 1

Medtronic wins 2, loses 1

This morning Medtronic (NYSE:MDT) gained FDA approval for their 530G with Enlite® which according to the company is “a first-generation artificial pancreas device system with Threshold Suspend automation for people with diabetes.” While Diabetic Investor believes it’s premature to call this system an artificial pancreas it is a step in that direction and shows the company’s commitment to become the first company to successfully commercialize a true artificial pancreas.

This is the second piece of good news the company received this week as earlier this week we learned that Insulet (NASDAQ:PODD) would be paying the company $10 million as part of the settlement the two companies reached. According to an Insulet press release; “The settlement agreement provides for a cross-license of certain patent claims, as well as an agreement between the companies not to sue the other for patent infringement based on any existing product, or any feature, element or component in any currently existing commercially available products.  The agreement also provides for a one-time cash payment from Insulet to Medtronic MiniMed.  Insulet expects that this payment, together with legal fees associated with the lawsuit, will result in an expense to the Company of up to $10 million. “

Frankly Diabetic Investor isn’t surprised by the terms of this settlement which in fact is really a victory for Medtronic. Again nothing all that surprising, as besides being the market leader in insulin pumps, the company also has an impressive track record when it comes to intellectual property litigation.  It’s fair to say that the Medtronic patent portfolio is as valuable as their 70%+ market share.

Yet looming on the horizon could be a much bigger problem for the company as Diabetic Investor has learned that the Office of Inspector General (OIG) is investigating the company for illegally shipping product to patients who did not order them. To be very clear here at this stage this is an investigation and no formal charges have been filed. Additionally it is possible after the investigation is complete no charges will be filed. However the investigation appears to be serious as the OIG has in its possession internal Medtronic correspondence from high level management. Additionally the OIG has been interviewing current and former Medtronic sales reps.

Now before every one presumes the company is guilty of something sinister, it should be noted that Medtronic is not the only company that has been investigated by the OIG and that shenanigans to boost sales numbers are nothing new to the diabetes device world. Insulet has also been investigated by the OIG and glucose monitoring companies have been notorious of the many ways they play with the numbers.  Recently Diabetic Investor wrote about accusation’s that Abbott (NYSE:ABT) diabetes had been shipping product that wasn’t ordered and when informed of this delayed issuing credits in attempt to boost sales numbers.

The one factor that could hurt Medtronic is the OIG just loves to make an example of market leaders. Based on past investigations by the OIG Diabetic Investor suspects the case will come down to what we like to call the Watergate factor, what did the company know, when did they know it and did they endorse the practice.  The fact that the OIG has internal company correspondence also tells Diabetic Investor this could be a whistleblower involved.

Obviously Diabetic Investor contacted both the OIG and Medtronic for comment and obviously no one is saying anything other than no comment. Medtronic for their part has stated they are not aware of any investigation and this is quite possible as the OIG is just investigating at this point. According to individuals familiar with past OIG investigations the agency likes to build a strong case before filing any formal charges or informing the target of their investigation. On the flip side the agency also knows that the investigation may not yield anything substantive and therefore there is no reason to make anything public.

It goes without saying that Diabetic Investor will continue to follow this situation and cautions not to read too much into what could happen to Medtronic if in fact they are found to be guilty. Having been around these situations in the past the OIG loves the headlines but fines for transgressions typically aren’t onerous. The fact is the diabetes device industry is not a bastion of purity or honesty.