PIlling On

We really hate to do this, but we must take a look at these comments made yesterday by Mark Gorder CEO of IntriCon, who in case anyone has forgotten is the leading supplier for Medtronic’s CGM system;

“Our platform technology currently addresses several high-growth medical markets, including diabetes, drug delivery, surgical navigation, and hearing health. With regards to diabetes, Medtronic is our largest single customer, represented 60% of our total revenue in 2019.

Undoubtedly, we were affected throughout the year by the timing of their ongoing global commercial product launch of the 670G and the competitive pressures domestically that they have highlighted in recent commentary. Coming off two years of robust Medtronic’s diabetes growth of 50% and 58% in 2017 and 2018 respectively, growth slowed notably in 2019 to 5% due to the aforementioned reasons.”

Please read that last sentence one more time as that in a nutshell shows how bad things are at Medtronic.

Now compare that to the comments made by Kim Blickenstaff Tandem’s Executive Chairman of the Board;

“Five years ago, we offered a fantastic insulin pump in the United States and had less than 5% market share. Since that time, we estimate that the U.S. insulin pump market has grown by 40% to 600,000 pumpers of which we have nearly 20% market share.”

Later this afternoon after the market closes Insulet will report what we suspect will be solid results that will only further reinforce what said yesterday after Tandem reported. Namely when it comes to the insulin pump market Tandem and Insulet are killing it while Medtronic is getting killed.

This set of circumstances combined with the recent recall for Medtronic brings up some interesting possibilities. Throw in the fact the Omar Ishrak is leaving Medtronic and it’s no longer a fantasy to believe that Medtronic could exit diabetes, selling off the struggling yet profitable diabetes franchise. That unlike JNJ they could well sell the franchise before this already bad situation gets any worse.

Here are some pesky facts that make this possibility more likely;

1. Sales of the Control IQ from Tandem will continue to accelerate throughout the year and a substantial portion of these sales will likely come from patients converting from the 670G to the Control IQ.

2. Barring a surprise from Insulet their hybrid closed loop system the Horizon will be here sometime in the second half of the year. Like the Control IQ the Horizon works with the Dexcom CGM. We suspect that just as the Control IQ is getting rave reviews the Horizon will have equally good reviews thanks in large part to the fact both the Horizon and Control IQ work with the Dexcom CGM which unlike the Medtronic CGM is reliable and accurate.

3. Even if the 780G does everything Medtronic says it will do it won’t get here soon enough. And quite frankly we aren’t convinced the 780G is all that great. No matter what it will come to market competing against not one but two system both of which that work with Dexcom.

Stop and think just for a moment about where Medtronic is with their CGM which as keep noting is the straw that stirs the closed loop drink. The company continues to talk about getting rid of finger stick calibrations something that Dexcom and Abbott have had for years. We’ve said it before and will say it again while Medtronic continues to offer a flip phone Dexcom and Abbott are offering smartphones.

Medtronic’s lone advantage, formulary position, is being negated thanks to Insulet’s move into the pharmacy channel combined with the OmniPod’s pay as you go pricing. Tandem may compete head to head in the DME space but thanks to the Control IQ’s superior performance patients are finding ways around formulary restrictions. Simply put Medtronic is in for the fight of their lives and are fighting with one hand tied behind their back.

Therefore Medtronic’s incoming CEO just might decide that it’s not worth the fight and better to sell now before the unit loses even more value. Better to get something than to continue to throw more money into what’s becoming a sinkhole.