The delusion
The fallout from Johnson and Johnson’s (NYSE: JNJ) decision to shut down their insulin pump unit Animas continues to reverberate through the diabetes landscape. Yesterday Tandem (NASDAQ: TNDM) another insulin pump on the verge of collapsing announced they will attempt sell more shares in what likely is their last-ditch effort to stave off bankruptcy. Even if this effort is successful, and we are having a very difficult time defining just what success would be, the company is just delaying the inventible.
Our best guess is that Tandem baring a miracle will be history sometime in mid-2018, assuming of course this latest effort to bilk investors out of a few more million works. Per a press release issued this morning the company is attempting to raise $16.2 million before underwriting costs. This amount, a mere pittance given what they really need, confirms to us the end will come sooner than later.
Insulet (NASDAQ: PODD) looks to be ok but given the competitive landscape who knows for how long. The fact is when a patient is used to a tethered pump they would prefer staying with a tethered pump. Some Animas patients will switch to the wireless OmniPod but we suspect the majority will move to Medtronic (NYSE: MDT).
And no help is not coming either. Right now, Ypsomed has a system that could be brought to market quickly but Bigfoot is still two years away if not longer. Yes, there are others but no one and we mean no one has the three things they need to compete which are – vast financial resources, competitive technology, a talented management team and patience. Ok that’s four things and no one expects the Spanish Inquisition. (Really miss Monty Python but we digress.)
Yes, Google, Apple or Amazon could do it but why would they. Dexcom (NASDAQ: DXCM) has the talent but would this be a wise allocation of their resources? Lilly (NYSE: LLY), Novo Nordisk (NYSE: NVO) and as we noted yesterday Sanofi (NYSE: SNY) have all toyed with the idea but drug companies rarely, if ever, do well in the device world. Novo may be the one exception but insulin pens are an entirely different animal than an insulin pump.
Think about this just for a moment Medtronic is becoming the insulin pump equivalent of Google in internet search. Now we’re sure there are other search engines people can use but we dare you to name them and do it quickly. Yes, in the not so distant future patients will have two choices Medtronic or Insulet.
This will create an interest dynamic, which is an understatement given the wackiness going on. Payors who play a key role here and care only about what a pump costs them will act. With Animas and Tandem around they had some leverage and could force Medtronic to be price competitive. With Animas gone and Tandem about to be gone it would seem they have lost this leverage. Yet they will find another way to force Medtronic and Insulet to lower prices.
A perfect example is how Anthem handled the new 670G, a device they decided not to cover as they deemed it an investigational device. Now how any payor could deem an FDA approved device investigational is beyond us. The reality is Anthem needed leverage with Medtronic and this is how they are getting it. This is a scenario that will play out with greater frequency in the future.
The fact is payors hate insulin pump patients, not because the therapy doesn’t work rather because these patients are so damn expensive. This is one reason payors require so much paperwork before reimbursing pump therapy. Well if you think the requirements are bad today just wait. This is how payors will fight back.
Let’s be honest there is a reason 80% of pumps are placed by 20% of physicians. There is a reason why primary care providers hate prescribing pumps, they don’t want to spend all their time, time they are not paid for, filling out all the damn forms. Everyone knows that pump therapy is very effective but they also know pump patients are major pain in the rear. Bottom line physicians are in the business to make money too and pump patients for the majority of physicians are not money makers.
So, who gets screwed here- yep the patient. Is anyone surprised? Medtronic will still make money as will Insulet. Sure, they would make more if payors stopped asking for everything under sun but nonetheless these companies will still make money.
Just wait until someone comes out with a viable smart insulin pen/CGM/App system something that is not far away. A system which will produce pump like outcomes at a fraction of the cost of a pump. Remember payors do not care about outcomes or whiz bang way cool, they care about money. And once such a system is shown to be effective they will have the ammo they need to justify making pump therapy even tougher to get.
Instead playing one pump company off the other they will pit them against a much cheaper alternative. Sure, Medtronic and Insulet could fight back but say goodbye to any quality customer support. Both Medtronic and Insulet would be forced to lower costs and customer support is any easy target. In the future it’s possible, we would say likely, that patients who want human support will have to pay to get it.
Think about banks that do not charge for accounts where the consumer performs all their transactions electronically, deposits made at ATM’s, etc. Yet charges higher fees when the consumer wants to use a human teller. This is the world we now live in.
This is the future and it’s arriving faster than anyone thought. A future where one thing hasn’t changed it’s the patient who’s getting the short end of the stick. Patients who don’t deserve to get screwed but have no control so they are easy to screw. Yep this is the future and frankly it sucks.
