Why someone else stands a chance

Why someone else stands a chance

One just might think that when one company has a virtual lock on any market they would be on easy street. We don’t think Google worries much about other internet search engines or that Amazon worries all that much about other online merchants. And to be honest we’re not sure that Medtronic (NYSE: MDT) is all that worried about other insulin pump companies. But maybe they should be.

Yes, we know that with Animas going off the market the company will command a market share of nearly 80%+. We also know that Tandem (NASDAQ: TNDM), no matter what they say to the public is on deaths doorstep and could soon join Animas. This leaves Insulet (NASDAQ: PODD) as their main competition which is good for Insulet but not cause for concern at Medtronic.

Why then do we think Medtronic should be worried? Well to put it simply there is a real hatred towards Medtronic and that more than few believe they are the evil empire. This is not just coming from patients, although they are a very vocal group. No, this hatred extends to endocrinologists too. And believe us when we say this hatred is no joke and very real.

This is the one saving grace for Tandem as a private equity group just might make a play for the company believing with the right management team in place this ship can be turned around and they would make a nice profit. They might look at the problems with Tandem and the cost to turn things around, which we peg as at minimum $200 million, and believe it’s worth it. We know these groups have not just been sniffing around but also seeking advice from others on just this possibility.

See buying the company isn’t the problem, quite frankly that’s the easy part. The problem is first finding the right management team and then being patient. The reality is even with a good management team with additional capital it will take time not just to fix the issues left behind by the current management team but also take share away from the evil empire. If you don’t believe this just look at Insulet.

As we wrote recently Insulet should be much further long than they are, that the problems created by the previous management team, which for the most part have been fixed by the current team, are still holding the company back. The OmniPod is still not covered by Medicare, the OmniPod is still not integrated with the Dexcom (NASDAQ: DXCM) sensor and margins still aren’t good enough. All three of these problems were created by the previous management team.

Insulet as we have said before did not earn their way into second position behind Medtronic, they got there because everyone else screwed up. The same goes for the evil empire they are not organically growing to an 80%+ market share, their getting there because Animas is going out of business and barring a last-minute reprieve Tandem will soon join them.

Still we do believe that if someone came along and truly put patients first they could take share away from Medtronic. And let’s be very clear this has NOTHING to do with coming up with a “better” insulin pump. Nor does it have anything to do with having an artificial pancreas. No this means making the insulin pump experience easier, more patient friendly and more payor friendly. This means investing in technology and no not pump technology but technology which will make the customer service experience less painful.

See the problems with Medtronic have nothing to do with their systems no their problem stem from what we call the insulin pump experience. An experience which goes beyond the patient and extends to physicians and payors. This is the companies Achilles Heel.

For years we have watched as all the Medtronic competitors tried to build a better mouse trap, that this was a battle about which company had the “best” toy. Scant attention was paid to keeping COGS low, building relationships with payors or coming up with ways to make customer service less painful. No, it was all about the toy and nothing about running a commercially viable toy company. Classic if we build it someone will come along and buy it thinking.

This is what doomed Tandem. Animas, Asante and has hampered Insulet. Medtronic for all their issues has an elegant solution with low cogs, a huge installed user base and a very profitable revenue stream from the sale of pump supplies. Even with these major advantages they are vulnerable. The question isn’t even about money, the question is will anyone have the patience to see this all the way through.