Some tidbits

Some tidbits

After Abbott (NYSE: ABT) reported earnings we noted that Dexcom (NASDAQ: DXCM) would not sit around and do nothing, that they would find a way to fight back. Well the fight has begun as Dexcom along with OmniPod maker Insulet (NASDAQ: PODD) announced a program to entice Animas patients to switch to the OmniPod system. Now the patients who convert to the OmniPod will receive a $200 gift card that can used towards the purchase of Dexcom’s G5 system.

For the moment Dexcom has not announced a similar program with their other insulin pump partner Tandem (NASDAQ: TNDM) who as everyone knows is on the verge of collapse. Facing very serious financial issues it’s debatable whether Dexcom should help Tandem as they could be akin to throwing good money down the drain. Tandem needs help and needs it now, yet given the current dynamic in the insulin pump market and the extent of the company’s problems the prospects of rescue diminish with each passing day.

From what we are hearing the end for Tandem may be closer than many thinks. Even with their recent capital raise the company’s creditors are getting ready to step in. Fearing that no one will come along and save the day these creditors are considering taking over the company, ceasing the sale of any new systems yet continuing to supply current patients. Their hope is either Medtronic (NYSE: MDT) will come along and make an offer for the existing patient base or perhaps a new buyer will emerge.

We highly doubt Medtronic who already has their hands full will step in and quite frankly they have little incentive to do so. We also doubt new buyers will emerge even if the creditors purge the current management team and replace them with a new team. The fact is Tandem needs at minimum another $150 million to remain viable and given the current dynamics of the insulin pump market even with that capital the road is tenuous.

The fact is even a miracle does happen and Tandem stays in the market Insulet is the only company that is financial viable and able to compete with Medtronic. The damage inflicted by the current Tandem management team just may be irreversible.

Novo Nordisk (NYSE: NVO) got some good news with an FDA panel voting 16-0 in favor of approving their once weekly GLP-1 semaglutide. However, as we noted Semaglutide is now the fourth long-acting GLP-1 to gain approval and only will be third on the market. We see an uphill battle for Novo as they will be forced to use heavy discounts and large rebates just to get on formulary. There is nothing wrong with the drug it’s just payors already have two other options and it’s an open question whether they need a third option.

Roche reported results which as excepted were lousy for their diabetes care unit. Not sure why we are even mentioning this as it’s not a surprise. Perhaps its just a habit but the fact is it is no longer necessary to cover Roche or Johnson and Johnson (NYSE: JNJ) that closely. These two companies who once ruled the BGM universe are no longer relevant in diabetes, a universe that now belongs to Abbott (and I can’t believe I just wrote that) and Dexcom.

The question we are now considering is not whether the diabetes device world has hit an inflexion point. There is no question that a changing of the guard has taken place. No, the question we are pondering is will anyone come along and blow up the current way of doing things and adapt to the new way of doing business. Secondarily another question and this applies more to the insulin pump market is it worth the investment. The fact is Medtronic has a stranglehold on the market and not just in terms of market share. The company also has vault full of IP.

But lost in this discussion is the market itself, the fact is insulin pump growth has stagnated. Try as they might no insulin pump company not even Medtronic has been able to expand the market. With all the advances in technology only 30% of Type 1’s uses a pump and less than 5% of insulin using Type 2’s and those numbers haven’t changed all that much. The fact is this market is barley growing and the only way any company can survive financially is take share from Medtronic and that is incredibly difficult to do.

Even wackier is the fact that while Medtronic is in a commanding position they are not immune to be taken down. That a new system with the right backing and different methodology could slay this Goliath. The fact is there is nothing special about Medtronic systems not even the 670G. All insulin pumps do basically the same thing the same way and this includes sensor augmented systems. Technology is not and quite frankly has never been the issue here. No, the issue is how a company sells and supports their systems.

Just so we are crystal clear here Animas and Tandem did not fail because they had inferior technology. Nor was this reason the Cozmo is no longer here or why Roche left the market. Medtronic did not win because they had better or superior technology. Perhaps the best way to look at this is MiniMed built an elegant system with a low cost of goods, outdueled Disetronic and grabbed all the low hanging fruit on the insulin pump tree. Then they were the beneficiary of everyone else’s screw ups.

Medtronic was already on the 5-yard line when Animas fumbled the ball in the end zone. Medtronic just fell on the ball for an easy touchdown. It’s not like Medtronic did anything to force the fumble Animas simply quit.

The really irony here is that since being acquired by Medtronic MiniMed has made several blunders of their own. That at times it seemed as if they were going out of their way to kill the goose that was laying the golden eggs. Yet only in this wacky world would their competition screw up even more and not be able to take advantage of these blunders. Yep Medtronic fumbles and instead of picking up the ball and running with it, the competition picked up the ball and fumbled it right back.

This could only happen in the wacky world of diabetes a place where the Keystone Cops have more talent than the teams that have mismanaged insulin pump companies. Teams that failed in large part as they were fascinated with whiz bang way cool, the toy, when they should have been focused on running a toy company. Even today all the insulin pump wannabes, and yes, they just won’t go away, are focused on the toy. They can’t or won’t focus on building a commercially viable insulin pump company and it can be done but not with their backward thinking.

So, Medtronic now stands alone at the top with only Insulet standing between them and complete domination. They have vanquished the competition not because they were better but because they screwed up less than everyone else. As Momma Kliff used to say; “It’s better to be lucky than good.” And when it comes to the insulin pump market Medtronic at times has been good but they have also been very lucky.