Only in the wacky world
This afternoon the Huston Astros will celebrate their first World Series championship in 55 years. Last year it was the Chicago Cubs who celebrated their first World Series championship in 108 years. Yesterday Insulet (NASDAQ: PODD) reported excellent results and has solidified themselves as the number two player behind market leader Medtronic (NYSE: MDT) in the insulin pump market. To say this is a stunning development is somewhat of an overstatement.
Yes, as well as Insulet is doing their good fortune is partly their doing and partly being in the right place at the right time. There is no question that Insulet has found their sea legs and is beginning to look like an insulin pump company that knows what they are doing. Kudos to Pat Sullivan and his team for executing something that they were not always known for.
Yet on the flip side they like Medtronic have been and will be the beneficiary of everyone else in the market screwing up. Although Tandem (NASDAQ: TNDM) isn’t officially out of business that day is coming and could come early in 2018. This event will boost both Medtronic and Insulet and officially make the insulin pump market a two-horse race.
The real question for Insulet is can they eat away at Medtronic’s installed user base and make a real game of it. As they noted yesterday during the call most of their new patients are converting from multiple daily injection (MDI) to the OmniPod. While this is not a bad thing it does show they have a way to go before hitting the motherload which would be stealing share from Medtronic.
With the help of Dexcom (NASDAQ: DXCM) they have made a strong pitch to Animas patients, offering them a FREE conversion to the OmniPod combined with a $200 credit towards the Dexcom system. An offer that will likely be repeated when Tandem finally throws in the towel.
It also helps Insulet that there is serious animosity towards Medtronic and many patients will never ever use a Medtronic system. It’s astonishing to us this level of hate towards the evil empire but it is very real and will help Insulet. This also leads to an interesting possibility as Tandem, who as everyone knows also hates the evil empire, could make a deal with Insulet when the end comes. Just as Johnson and Johnson (NYSE: JNJ) worked out a deal with Medtronic to take on Animas patients it is not outside the realm of possibility that Tandem would do the same with Insulet.
As crazy as this may sound but Insulet, a company that was built on wireless pumping, would benefit from having a wired pump. This would not just make them a more formidable competitor to Medtronic but would also create a nice and very profitable revenue stream from the sale of pump supplies. While we don’t see Insulet coming to the rescue and buying Tandem. We can envision a scenario where the two companies work out some sort of arrangement which favors Insulet and prevents patients from going to the evil empire.
Heck even Ypsomed could play a role here with their new pump. Insulet and Ypsomed have worked together in the past and could reignite that relationship with the Ypsomed conventional pump. Insulet could if they choose to do so build a platform all of which work with the Dexcom sensor and go head to head against Medtronic. They could use the installed base from Tandem as the launching pad for this effort.
And guess what, payors would cheer them on. The last thing payors want is Medtronic controlling the insulin pump market. If Insulet had a portfolio of pumps, both wired and wireless, payors would maintain leverage against Medtronic. Without another wired player in the market payors would lose some of this leverage and would be forced to combat Medtronic using other tactics, tactics that would benefit no one.
The good news here is that Insulet after several stumbles is finally growing up and becoming an insulin pump company. Perhaps they have learned that the key to getting acquired is not building the damn thing but running a commercially viable insulin pump company. They are also being helped by the incompetence of others and could get another boost as Medtronic even with their strong market presence is vulnerable.
So, Kudos to Insulet for hanging in there, learning from past mistakes and surviving. Good job it’s now a two-horse race and as Momma Kliff used to say; “Enjoy your success as your job just got tougher.”
