Speculation, Rumors and

Speculation, Rumors and

No disrespect to any company presenting today but for all practical purposes JPM ended last night. Yes, we know there a few remaining presentations today, but the reality is the cab lines are back to normal, Uber is no longer up charging rides and you can get a hotel room in San Francisco without sacrificing the kid’s college fund.

Not to get too far off the track but with hotel rates being what they are and the homeless issue which is very prevalent in the downtown area being what is, many attendees have been questioning the value of returning next year. Add in the daily protests, the crazy rates charged by Uber and the other conferences which piggyback on the popularity of JPM it’s somewhat understandable why this sentiment was very prevalent. San Francisco is one great city and JPM is one outstanding conference, but our sense is next year could see a drop-in attendance.

Now back to the juicy stuff that everyone is thinking about as they head home. See JPM is not just about presentations, breakout sessions and champagne vending machines. JPM is the ultimate rumor mill so let’s share some of the juicier rumors that were floating around JPM.

This really isn’t a new rumor, but it did resurface again at JPM. With Omar stepping down in a little over two months once again we’re hearing that Medtronic might exit the diabetes business. Basically we heard two ways this might happen; sell it to private equity or combine the diabetes unit with another unit and spin the combined units off as a separate publicly held entity.

The issue we have noted before is one of valuation. Even in its current state the diabetes unit is very valuable and under new ownership would likely be more effective at fixing the issues facing the unit. To make this happen Medtronic could help finance the sale while retaining a partial ownership stake. This makes the cost more palatable and offers Medtronic upside on the backend should the new owners turn things around then recapitalize the unit at a later date.

The fact is the 670G and the systems in the pipeline will have major issues until the company fixes their sensor issue. The fastest way to solve this issue is to allow Medtronic systems to communicate with Dexcom or Abbott sensors, to move away from the proprietary approach. While this should happen now, we doubt it will happen as long as the unit remains with the mothership.

The fact is with their huge installed user base, a user base which is very loyal Medtronic is about the only insulin pump company who could successfully move to a monthly subscription model. They may not be winning when it comes to adding new patients but even with the recent erosion in their installed base, they remain the biggest player in the space. A monthly subscription model would offer several advantages and not just a large and predictable revenue stream.

By eliminating the high upfront cost they would more effectively compete with Tandem and Insulet. Insulet proved cost does matter and their no heavy upfront cost approach combined with their move to the pharmacy channel is a reason they are kicking some serious ass and will likely keep kicking it.

Next a monthly subscription approach would reduce erosion in the installed base as under this approach patients would be offered, either at no cost or at a low cost, upgrades to new systems as they become available.

Finally such a move would please the people who control patient access, payors. As hybrid closed loop insulin systems become more and more popular a monthly subscription model would make access to these systems easier as payors wouldn’t have to shell the huge upfront cost which exists primarily because of the pump itself which is the only durable component of the system.

Not to get off topic but it will intriguing to see what happens when Insulet with their no upfront cost model launches their Horizon system. Given that both the Control IQ from Tandem and the Horizon work with the Dexcom sensor it will be interesting to see which system patients prefer. We suspect the Horizons performance will be on par with Control IQ and with no upfront startup costs will also be cheaper. The fact is a patient can try the Horizon without shelling out a small fortune unlike the Control IQ which requires a larger upfront investment. This fact alone gives Insulet a huge competitive advantage and could well make Tandem go from playing offense as they are today to playing defense.

As that last paragraph points out the landscape is changing when it comes to insulin pumps which is one more reason Medtronic should be considering some dramatic changes. Changes which unfortunately aren’t likely to come from current management. Nothing against the current team but changes such as we are talking about are risky and these people aren’t exactly known for being forward thinking or dynamic. More like let’s not rock the boat, even though the ship is sinking.

We’re not sure this is a rumor as almost everyone expects it to happen. With Verily presenting it’s pretty much a forgone conclusion that Alphabet/Google will jettison the unit which paves the way for an IPO.

Falling into that same category it’s seems a forgone conclusion that Mr. Hudson will complete what he started and sell the diabetes unit. Like Medtronic, Sanofi diabetes still carries value and is saleable.

By far the biggest speculation is the future of digital health and by extension digital diabetes. As we noted during the show publicly everyone is wildly optimistic. Privately everyone wonders if digital health is one large house of cards that will collapse. As so often happens the truth likely lies somewhere in the middle, time will tell.

That’s all folks. Another CES and JPM in the books time for some well-earned time off. Our prediction the Chiefs over the over-achieving and very pesky Titans. The 49er’s over those cheese heads from Wisconsin (hey did you think a Chicago guy would pick the Packers) setting up a Chiefs Niners Superbowl in sunny Miami. Enjoy everyone.