Round and round we go

Round and round we go

When it comes to wackiness in diabetes devices no area can top what goes on in the insulin pump world.  Each year it seems there are a host of newbies who believe they have built a better mousetrap and that they will be the one company who finally accomplishes what every other insulin pump start-up dreams of doing; dethroning market leader Medtronic (NYSE:MDT).  This dream soon becomes a nightmare when they realize this is a next to impossible task, they then switch gears and begin to reposition their company as an attractive acquisition target. The goal is no longer to beat Medtronic but to make a larger company believe with their technology they can become the new insulin pump leader.

Given that Medtronic has old, out dated and many would say sub-par technology, it would seem that someone who came along with new, modern technology would be able to take share away from Medtronic. Surly these patients must be anxious to use 21st century technology rather than something that was designed when pagers were considered high-tech. While Medtronic does hold a commanding lead owning nearly 70% of the insulin pump market, these companies also look at the growing population of patients with diabetes and begin to believe that these patients not currently using a pump can be converted to pump patients IF the pump is as simple to operate as an iPhone.  Finally they see that pump patients on average test their glucose levels eight times per day, account for nearly 25% of all test strips sold and reason that even if they can’t catch Medtronic they can make some serious money from the sale of test strips.

Roche spent over a billion dollars buying not just one but two insulin pump companies. Johnson and Johnson (NYSE:JNJ) spent nearly a billion to buy Animas and Abbott (NYSE:ABT) has spent millions to develop two insulin pumps neither of which ever made it to market even though they have been approved by the FDA. Smith’s Medical came out with a great pump called the Cozmo only to be bulldozed by the Medtronic intellectual property portfolio which basically forced the company to pull the Cozmo from the market. Along comes Insulet (NASDAQ:PODD) with their innovative OmniPod system which is not just wireless but also comes with a different pricing platform which would seem to make pumping more affordable, yet after hundreds of millions the company is no closer to challenging Medtronic then it was when it first launched the OmniPod.

Today we have a new host of insulin pump wannabes – Tandem, CellNovo and Asante who today announced they were making more executive changes. Each one of these newcomers have a compelling story and their systems each in their own way has some great new features which make insulin pump therapy more patient friendly.  In fact it’s not really a stretch to say that all of these newcomers have better technology and user-interfaces than Medtronic. Unfortunately what they don’t have is a huge installed user base, brand name recognition, wide insurance coverage, a large sales force, established customer service, a patent portfolio that’s larger than the state of Montana and gobs of money that would allow them to effectively compete in this market. A market which is barely growing, becoming more competitive and offers the added bonus of price sensitivity.

As Diabetic Investor has noted before where these newcomers can make hay is not going against Medtronic head to head but taking on current market entrants Animas and Insulet. After paying nearly a billion dollars for Animas JNJ has all of sudden realized that there just might be synergy between the insulin pump company they own and LifeScan the glucose monitoring they also own.  The only problem is this is not exactly a marriage made in heaven and had this not been a shotgun wedding it’s likely these two sides would have never made it to the alter in the first place. Saying the Animas people don’t care much for the LifeScan folk and vice versa is like saying that White Sox and Cubs fan are best buddies, sure there are those rare occasions when it happens but it sure isn’t the norm by a long stretch. The relationship hasn’t been helped much by the many mistakes made by Animas who seems to be getting very good at handling recalls.  Is it any wonder that many are beginning to believe that JNJ has had about enough of these two embattled companies and would be delighted to see someone come along and pay them to take these problems off their hands.

Although the situation isn’t quite as bad at Insulet, it’s not much better. The company continues to wait for their new smaller, less costly to manufacture Eros pod to receive FDA approval. A pod that no one is quite sure even with approval they can manufacture successfully or in quantities large enough so that they would actually see these projected cost savings. Just as Amylin (NASDAQ:AMLN) bet the ranch on Bydureon, Insulet has gone all in with Eros. The big difference between the companies is while Amylin likely will become the focus of a bidding war, no one seems interested in owning Insulet.  This is not for lack of interest thou as many have come, sniffed around but walked away as the company just hasn’t passed the smell test.  Add in the fact they continue to loss experienced sales people and it’s easy to understand why many believe a change in management is coming and coming soon.

Tomorrow when Roche reports earnings we just might get a glimpse of their new diabetes strategy which we hear, and please don’t laugh, a reentry into the insulin pump market. A move which, again hold all laughter until the end, will help reinvigorate their sinking glucose monitoring business. Roche is living proof that the best way to get a small fortune is to start with a big one.

Yet Roche isn’t the only company looking to reenter the market as Nipro Diagnostics, now that they have fully integrated their acquisition of Home Diagnostics, is looking to get back in as well. Diabetic Investor had thought they would be buying Asante but based on the changes made at Asante it looks like Nipro has backed away. These two could eventually dance together however with Tandem and CellNovo also looking to dance Nipro need not be in a hurry to pick a partner.

And let’s not forget the many players who actually want to be in this market which include Sanofi (NYSE:SNY), General Electric (NYSE:GE), Phillips Electronics, Panasonic and Procter and Gamble (NYSE:PG) and these are just a sampling of the names thrown at Diabetic Investor. The main difference between these newcomers and the usual suspects is these newbies see an insulin pump as part of an integrated, interconnected diabetes management platform. Diabetic Investor has no idea what that is in the real world but it sure does sound impressive and it’s likely these newbies who have vast amounts of capital will spend millions trying to prove it actually can do something beyond looking and sounding cool.

Watching all this are the folks at Medtronic who continue to fumble about as they just can’t leave a good thing alone. While the company has done its best to ruin what in reality is license to print money, they continue to own the market and no one has come within spitting distance. MiniMed is living proof that even when a great company is acquired and all the great talent that built this great company has left or been forced out, that even a company as screwed up as Medtronic can succeed largely in spite of itself. Since the acquisition at times it has seemed if Medtronic’s goal was to do the wrong thing, at the wrong time, to provide their competitors with every conceivable opportunity to take away share just to prove it could not be done. Honestly given the numerous mistakes made by Medtronic combined with the fact that no one, not even JNJ, could put a dent in the Medtronic armor should be proof enough that it cannot be done.

However, this is the wacky world of diabetes devices where anything can and usually does happen. A world where people willing throw money at scams like developing a non-invasive glucose monitor or go out and spend billions which they gladly turn into millions. The insulin pump market is living proof that people can steal more money with a great PowerPoint presentation they could with a gun. Insulin pump companies are the crack cocaine of the diabetes device world, an addiction which causes once reasonable people to act irrationally; spend money foolishly and ultimately lose all sense of normality. This is what keeps these newbies going as they know that these addicts cannot go long before they need a fix, a fix they will gladly provide.

Round and round we go……..