Round and round, we go

After Tandem and Dexcom reported stronger than anticipated second quarter growth everyone just assumed that Insulet would follow suit. Shares of the company were up strong today over 4%. Well so much for assumptions as Insulet has revised their full year guidance downward. Per the earnings press release;

“For the year ending December 31, 2018, the Company is revising its revenue guidance to a range of $547 to $562 million, representing growth of approximately 18% to 21% (previously $565 to $580 million), compared to 2017 revenue of $463.8 million. The Company is revising its expectations for its International Omnipod product line due to the short-term impact of transitioning to direct operations in Europe. The Company is raising its revenue expectations for U.S. Omnipod and Drug Delivery.”

Not surprisingly in aftermarket trading shares of the Insulet are getting hammered.

The question on everyone’s mind is this a short-term hiccup or is this a sign growth is slowing. During the call and in the release, this change of guidance is being attributed to the company’s decision to take over international operations.

With the DASH set to officially hit the market we suspect this is not a sign growth is slowing. However, the company still lags well behind Tandem in getting their closed loop system to market. It’s critical that the company do everything in their power to get this system to the FDA as quickly as possible. Any delays here would severally handicap the company as sensor augmented systems are beginning to dominate the insulin pump market.

We are less concerned with the what’s happening overseas and more concerned about long-term growth. The DASH while a good start just isn’t enough. The reality is the longer it takes the closed loop system to market the worse it gets for Insulet. Medtronic continues to take full advantage of their hybrid closed-loop system and Tandem is about to launch their closed loop system which by all indications will be superior to the Medtronic system.

A wild card here is what Tandem decides to do with their system. The company this announced this afternoon they would be going back to the market for yet another offering. Given the incredible run up in Tandem shares we cannot blame them, and this capital will be put to good use cleaning up their balance sheet while providing additional capital to fight Medtronic.
Here’s where things getting even wackier, as an alliance could be developing between Dexcom Tandem and Insulet.

Yesterday Dexcom noted that while their results were outstanding Abbott isn’t sitting around doing nothing. To combat what everyone expects to be a price war, think of what would happen should these three partners hook-up and approach payors with some attractive pricing options. This would be a win for all involved while also helping fend off Medtronic who has no choice but to use price as weapon with the Guardian Connect stand alone CGM.

Dexcom wins on the sensor side while Tandem and Insulet win on the pump side. Keep in mind that Abbott does have a relationship with Bigfoot, but the Bigfoot system is still a year or so away. Simply put the time is now to strike such a deal, which could be expanded should Lilly launch their pump which is also connected to the Dexcom sensor. As we have often note one of Dexcom’s many strengthens is their relationship with their insulin pump partners. Something Medtronic cannot do and something Abbott does not yet have.

Going forward we believe it’s a mistake to view the CGM and pump markets as two separate markets. The fact is these two devices are joined at the hip and in the future, you cannot have one without the other. Sensor augmented systems are becoming the standard and we cannot imagine any pump being sold 3 years from today that is not connected with a sensor. Don’t be surprised when Medtronic announces at some point soon that they will no longer support their older systems which are not connected with their sensor. This is just a natural progression of pump/CGM technology.

The facts indicate the battle lines are being drawn and the players clearly defined. There is Medtronic the current insulin pump market leader – there is Abbott who’s aligned with Bigfoot and Dexcom who is aligned with Tandem, Insulet and Lilly. These three players will fight for dominance in the pump/CGM space. Medtronic and Abbott going it alone – we are just assuming they will eventually buy Bigfoot – and Dexcom Tandem Insulet and Lilly marshalling their resources. Oh, we should mention that Dexcom is also aligned with OnDuo should they ever get their act together and launch their patch pump.

As we have noted recently from a technology perspective Medtronic is in the worst possible position. However, they still own the most valuable piece of real estate, but this advantage is becoming tenuous. Again, as we noted after Tandem reported should this become a level playing field, should this formulary advantage be neutralized Medtronic is going to lose.

All signs point to a knock down drag out full blown fight. Medtronic, Abbott, Lilly and by default Onduo have the resources for this battle. Dexcom, Tandem and Insulet to some extent can use creativity to offset the capital advantages. Simply put this is going to be a ton of fun to watch. Best of all for the first time in a long time, may be ever, patients will end up winners too. There will be more insulin pump choices, better, cheaper CGM systems and some damn good algorithms which will make life much easier for an insulin pump patient.

So, stick around folks, this is definitely worth watching. Round and Round, we go.