Pin the tail on the donkey

Pin the tail on the donkey

As we head into the final stretch of 2016 it appears a game of pin the tail on the donkey is being played in the wacky world. With Tandem (NASDAQ: TNDM) floundering and Insulet (NASDAQ: PODD) under a short attack everyone is trying to figure out if Tandem will be bought or whether the allegations made against Insulet are true. Like children playing pin the tail on the donkey most are blindfolded trying to pin the tail without knowing where the donkey is.

Let’s look at Insulet first as the allegations made against the company are very serious and if proven true there would have serious consequences. However, as we have noted even if untrue the company is still facing some very serious challenges. Let’s be clear we have no clue whether any of the allegations made hold water. Our gut and 20 plus years in this wacky world make us believe where there is smoke there is fire. Whether this is a small fire that can be extinguished easily or raging forest fire we don’t know. On the surface, we would say that some of the allegations seem crazy but this is the wacky world which creates a moment of pause.

The business issues facing Insulet however are very real as it will be at least another 2 years until the company comes out with anything new and in the insulin pump world two years is a lifetime. Keep in mind that even if Insulet has no delays they will have another wireless/tubeless pump to compete with by the time their new system comes to market. Although we are still wondering why Becton Dickinson (NYSE: BDX) wants to be in the insulin pump business they too have wireless/tubeless OmniPod like system coming to market.

The short-term goal for Insulet is to improve margins, hold onto to their existing users until the new system gets here. While we believe, they will improve margins holding onto existing users and adding new ones will be much tougher. Even if BD wasn’t coming out with their own OmniPod like system, Medtronic (NYSE: MDT) the 800-pound gorilla in the space is on a roll right now. Medtronic senses they can deliver a knockout blow with Tandem on life support and Animas, a unit of Johnson and Johnson (NYSE: JNJ) going nowhere in a hurry.

Yes, we sound like a broken record but sensor augmented pumps are the future and Insulet doesn’t have one. Nor have the solved the Medicare reimbursement issue. Insulet lone value proposition continues to be what it was 11 years ago, when they started selling the OmniPod, wireless/tubeless pumping.

Tandem is a much different story as they either find more money or they are history it’s that simple. As we have noted the company has bought some time by drawing down their line of credit but this will only take them so far. For Tandem to successfully compete they must out gun Medtronic and that isn’t going to happen without money, lots of money.

The wild card here could be a company that doesn’t even have a system commercially available, Bigfoot. Bigfoot understands this is no longer a battle over who has the best hardware, that hardware is basically a commodity. What Bigfoot understands is how payors think which is why they are using the Shave Club for Men pricing model, a model which scares Medtronic. A model which seems to fit within the strategy of how the Valley sees the future of diabetes management.

Should Bigfoot partner with or be acquired by one of their neighbors this would have serious repercussions. For the Shave Club for Men pricing model to work Bigfoot needs money, lots of money. Well if there is anything the Valley has in abundance its money. As we keep saying these companies do not need to be in diabetes, they want to be in diabetes. They aren’t looking at the short term they are looking long term.

Listen we’ve been covering the insulin pump market forever and over all these years no one has come close to Medtronic. Billions have spent trying but to date no one has come within spitting distance of Medtronic. Even when it looked like Medtronic was intentionally trying to kill the goose that lays the golden eggs no one came close. Well those days are over and once again Medtronic has an engaged management team. A team that has a plan. Whether the plan works or not is still up in the air. But one thing that won’t happen with this team is they will nurture that golden goose and do nothing to harm it.