The 530G isn’t the answer and might just be the problem

The 530G isn’t the answer and might just be the problem

This morning Medtronic (NYSE:MDT) released their fourth quarter results which for their diabetes franchise was nothing short of more disappointing news. As Diabetic Investor has been reporting for some time the company is already losing the battle when it comes to new pump starts, that is patients new to insulin pump therapy, and now we’re beginning to see signs that they are losing more of their installed user base. Again as we have noted previously while losing the battle for new pump starts hurts, shrinkage in the installed user base really hurts as this group of patients is basically an annuity for the company.

In typical Medtronic fashion the company seems to believe that their new 530G system, which is still awaiting FDA approval, will reinvigorate sales once it’s approved. Although it seems the company has absolutely no idea when or if this approval will come. When asked about this during this morning’s call all the company could say is they think it should be approved before the year is over. This lack of clarity reminded Diabetic Investor of their much hyped and very much delayed (more likely dead) patch pump program. One would think the company would have learned from the patch pump debacle; apparently not.

What’s more disturbing is the company’s belief that the 530G, if approved, will turn things around, which it won’t. The harsh reality which the company seems incapable of understanding is Medtronic pump technology is becoming substandard and their design inferior to the competition. Add in the high turnover rate of their sales force and this has all the elements of a looming disaster. For years Diabetic Investor has been stating that with 70%+ market, Medtronic’s primary job was not to kill the goose that lays the golden eggs. While the competition was designing better systems with better technology, the harsh reality was Medtronic was basically embedded as the market leader and baring a major mistake there was nothing much the competition could do to eat away at the company’s installed user base.

Although we cannot exactly pinpoint when things began to change we believe the company became overly fascinated with developing a closed loop system and forgot about everything else. As we have stated consistently while we don’t have a problem with a closed loop system, we doubt it will ever become commercially viable. Additionally their singular focus on this quest has cost them dearly as the competition has now surpassed Medtronic in terms of technology and design. Existing Medtronic patients are beginning to realize that they don’t have to have a pump which hasn’t changed since the days of the Regan administration

Thanks to companies like Insulet (NASDAQ:PODD) and their wireless OmniPod system, Tandem and their iPhone like t:slim and Animas, a unit of Johnson and Johnson (NYSE:JNJ) insulin pump patients have more choices than ever and are realizing that when put side by side Medtronic systems just don’t stake up. The reality is for the all hype by all the insulin pump companies, insulin pumps are like glucose monitors in that they do basically the same thing, the same way. Yes there are some differences in systems but these differences are only important to a handful of patients. This commoditization of insulin pumps has made the design of pump a distinguishing factor, while Medtronic continues to live in world where pagers and VCR’s were popular, the competition is living in the 21st Century in world with iPhones and tablet computers. The bottom line is when two systems do basically the same thing, the same way the patient is likely to choose the system which is more patient friendly and right now that isn’t what Medtronic has and likely won’t have as they are just too focused on their quest for a closed loop system.

Short of buying a company like Tandem and/or Insulet we’re not sure what the company can do to stop their slide. Each day the 530G is not available the Medtronic sales team has nothing to sell and unlike the days gone by they are consistently playing defense not offense. Even when the 530G does get here there will questions about the quality of the sensor and the real value of system that so far seems like more hype than substance.

In all honesty Diabetic Investor didn’t think it was even remotely possible that Medtronic would not maintain their dominance in the insulin pump world. The company literally owned the market and the battle we thought was who would end up in the number two spot. Yet the unthinkable has now become a very real possibility and the door is wide open for the competition to chip away at Medtronic’s installed user base. The goose that lays the golden eggs isn’t dead yet, but it’s seriously ill and if not taken care of will die a very slow and very painful death.