Sandbox or Quicksand?

Sandbox or Quicksand?

Consider the following – back in April of 2010 Roche acquired Medingo for $160 million saying that their Solo patch pump would be available by 2012. Tandem (NASDAQ: TNDM) went public back in November of 2013 raising $120 million, not to mention all the capital that was dumped into the company prior to the IPO. In May 2007 Insulet (NASDAQ: PODD) went public raising $120 million and like Tandem that does not count all the money that was dumped onto the company prior to the IPO. We could go on here but why.

We could talk about how the Deltec Cozmo was forced off the market or how Johnson and Johnson (NYSE: JNJ) after dumping money into Animas was basically forced to buy the company or risk seeing this investment evaporate. Oh, and should we mention that besides buying Medingo back in 2003 Roche also acquired Disetronic then the number 2 player for the tidy sum of $1.2 Billion and yes that’s Billion with a B.

Anyone noticing a pattern here? And more companies want to be in the insulin pump market why?

Today Tandem is on the verge of collapse, Animas is for sale, Insulet while viable is struggling to compete and Roche seems to believe they can finally launch the Solo. Oh, and we almost forgot that Abbott (NYSE: ABT) paid millions to have a pump developed and approved by the FDA but never launched it.

Given these pesky facts we think it’s fair to ask is the insulin pump market a sandbox to played in or more like quicksand that is one huge waste of money. Yet there are companies who think they have the magic potion, CellNovo, remember them, they want to jump in as does Bigfoot. Oh, and what about Beta Bionics and their way cool whiz bang toy.

Based on these pesky facts one just might believe that the insulin pump business is the perfect example that the surest way to accumulate a small fortune it’s best to start with a big one. That if you’re looking for nothing but headaches and heartache, yep start an insulin pump company.

Is this market not also the perfect example that it’s not about who has the coolest toy in the sandbox but who has the talent to run an insulin pump company. That making an insulin pump is the easy part and running a commercially successful insulin pump company is the hard part.

So, we’ll ask again these companies want to play in this sandbox why?

What’s astonishing here is that investors and companies not currently in the market want to play in this sandbox. Yep, Sanofi (NYSE: SNY) a company that would screw up the winning lottery ticket and whose track record in diabetes consists of failure after failure for anything in diabetes not named Lantus, could spend billions to make what, millions.

Now we hate to point out the obvious but this is the wacky world of diabetes so we must point out the obvious but this isn’t exactly an easy market to make money in. On the flip side if you’re looking to lose millions this is the perfect market to be in.

To us the insulin pump market besides being the perfect example for how to lose money is also the perfect example of how investors and companies are focused on the toys in the sandbox and not who’s playing in the sandbox. They fail to see that Medtronic (NYSE: MDT) besides having some way cool toys to play with also controls the most territory in the sandbox. Sure, this territory can be taken away provided someone has a big shovel filled with tons of money because that’s what it will take to have any chance at all. Even with a huge bankroll there is no guarantee this bankroll will be spent wisely or that talent will be attached to this bankroll.

Think of it this way the Chicago Cubs after 108 years won the World Series but not before completely rebuilding the entire organization and bringing in some talent, not just the players on the field but also the top front office people too. The same can said for my beloved Chicago Blackhawks, a team that has won 3 Stanley Cups in the span of eight years. The Hawks not only have great talent on the ice but also great talent off the ice. Or let’s go back in time and remember how great the Chicago Bulls were, sure they had the best player on the planet with MJ, but it wasn’t until he was surrounded with a better supporting cast and the Zen master took over as coach did they win all their titles.

Success in the insulin pump market is not about the toy, it’s about a combination of talent and money. And as the examples we have noted make clear money is not the problem. Millions, heck billions have been thrown into the insulin pump sandbox.

Is it not about time that we stop this fascination with who has the coolest toy in the sandbox.  Is it not time that we understand that all the money in the world won’t make a damn bit of difference if not spent wisely. Is it not clear that talent is in short supply these days?

As Momma Kliff used to say; “All the money in the world may make someone wealthy but it does not mean they are wise.”