Snappy Attitude

Snappy Attitude

Last week we wrote about the upcoming IPO for Asante Solutions, Inc. the makers of the Snap™ insulin pump. We noted that based on article published in the Silicon Valley Business Journal the company had raised the amount of capital they planned on raising from $45 to $60 million. It seems as though the company was misquoted in the article and they had planned on raising $60 million all along. This was brought to our attention by someone from the company who stated in an email to Diabetic Investor; “Contrary to your recent commentary, our target raise did not change.  The source you quoted got it wrong.  While a sucker may be born every minute,   fewer are born who can properly digest an s1 or simply fact check.”

Since we were basically being called an idiot for not reading the S1 we decided to do so just to see if there was anything else we missed by not checking the facts. (The S1 can be found at www.sec.gov) Now for those who have never read an S1 they are incredibly boring and this one wasn’t much different and quite frankly nothing stood out as all that unusual.

To be honest what truly upset this reader wasn’t that we got the numbers wrong, it was we basically implied in our post that investors should tread carefully before investing in Asante. We noted that the Snap system isn’t a bad system however nor is that revolutionary. We’ve said it before and we’ll say it again, while there small differences between systems all pumps do basically the same thing the same way. We’ve also consistently stated that the insulin pump market is not large enough nor is it growing fast enough to support not just the current players in the market but the many who seek to enter the market, a statement we will stand behind.

The fact is Asante is playing in a very crowded sandbox and while it’s great they have the ability to raise additional capital through an IPO this by no means guarantees they will be successful over the long term. The insulin pump market is dominated by Medtronic (NYSE:MDT) with a 65% share, followed by Animas a unit of Johnson and Johnson (NYSE:JNJ) with approximately 20% share, next comes Insulet (NASDAQ:PODD) with about 10% share and newcomer Tandem Diabetes (NASDAQ:TNDM) with less than 5% share. Also playing in this market is Roche, yes Roche does have a pump, and rumored to enter this market is Abbott (NYSE:ABT) who has never marketed a pump that was approved long ago.

The insulin pump is incredibly complex and is NOT technology driven. As one executive once stated; “Anyone can build an insulin pump, it takes real talent to run an insulin pump company.”

Think about this for a moment, JNJ has never ever made a profit with Animas. Yes with all their financial and human capital they have never made money in the insulin pump business. It took Insulet nearly 10 years to show real profits and as we just learned things aren’t exactly as advertised the way previous management claimed it was. While early results have been impressive Tandem has also had their fair share of ups and downs. Then there is now dead Cozmo that was basically forced out of the business due to a settlement over an intellectual lawsuit brought by Medtronic.

Now consider that JNJ, yes JNJ has seriously considered getting out of the business altogether. For the moment JNJ has decided to remain in the business but don’t think for a moment that if a solid offer came along they wouldn’t sell. Same goes for Insulet and Tandem. The insulin pump business is not for the faint of heart and market dynamics will only make things tougher going forward. As we have noted pricing pressure is intensifying and competitive bidding looms on the horizon.

As we have stated several times the only way someone other than Medtronic can succeed in the pump market is to profitably take share away from Medtronic. While there have been cracks in the Medtronic armor the fact remains they still command a huge and dominating market share. Yes Animas, Insulet and Tandem have captured share but to be honest they are fighting over the scarps Medtronic leaves behind. It also doesn’t help that Medtronic now under new leadership seems refocused and once again ready to do battle.

This is the market Asante is willingly walking into so they must believe they have something special, that they can do what no one else has come close to doing, namely making money while taking share away from Medtronic. For if they believe that a bigger player will come along and buy them, if that is the exit strategy we’d head for the exits today. Animas was the last pump company to be acquired and the fact that JNJ has seriously considered getting rid of this unit should send a message.

Diabetic Investor also finds it difficult to believe they can take share away from Medtronic. Yes everyone new to insulin pumps says they can but as they say action speaks louder than words. Or put more bluntly we’d like to Asante back this up in the real world.

Listen we hope Asante has a successful IPO and they succeed where so many others have failed. However we also have seen this movie before and rarely are remakes better than the original. Just as with Afrezza, it’s up to investors to choose who they want to believe. Those with a vested interest in the outcome, or an idiot like Diabetic Investor.