The Dog Days – Medtronic Flat-lining
This morning Medtronic (NYSE:MDT) reported first quarter results and looking at their diabetes franchise it appears the unit continues to flat line. Looking at quarter over quarter revenues it’s becoming fairly obvious the company has settled into the preserve and protect mode. While the company publicly states the unit is growing, the reality and numbers tell us the unit is basically maintaining their existing customer base, while occasionally adding a new patient.
This matches what Diabetic Investor is seeing in the marketplace, where patients new to insulin pump therapy continue to select either an Animas or Insulet (NASDAQ:PODD) system over Medtronic. Market trends also tell us that while sensor augmented systems have created patient interest; they have not yet driven patients from injection therapy to insulin pump therapy. The majority of patients who have moved to sensor augmented systems were already on an insulin pump. Given their huge installed patient base it does not surprise Diabetic Investor that Medtronic has converted a portion of this base to sensor augmented systems. Just as Dexcom (NASDAQ:DXCM) is benefiting from improved reimbursement for continuous glucose monitoring systems, so too is Medtronic.
Medtronic results should also send a message to the many companies who are looking to enter the insulin pump market. Unfortunately this message will fall on deaf ears. It seems all these insulin pump wannabes, whether they are coming to market with a conventional wired pump or an OmniPod wannabe; believe they have built a better mouse trap. It’s common among these newcomers to hear phrases like; “we’ve got lower cost of goods” or “our patient interface is way cool”. You also hear how patients who’ve seen these new systems would switch from their existing system, typically a Medtronic pump, to this new much better yet un-built and untested system.
What you don’t hear from any of these newcomers is just how they plan on getting their systems reimbursed or how they plan on getting their system in front of patients. Granted these are small details but it would be nice to know just how they plan to sell and support these great new systems. It constantly amazes Diabetic Investor how these newcomers act like politicians when asked how they plan to sell and support their new system in an environment where you have one company controlling nearly 70% of the market and two other well established competitors already doing battle with Medtronic. Talk about your Texas Two Step – frankly Diabetic Investor thinks it’s easier to get a politician running for office to answer the abortion question than to get these newcomers to provide a clear answer on just how they plan to sell and support their systems; and that’s really saying something.
Meanwhile Medtronic continues to plod along without doing anything all that exciting. No mention of the much hyped but forever delayed patch pump. No mention of the much hyped but never seen new system that’s supposed to replace the aging and out of date Paradigm line of pumps. Frankly Diabetic Investor can’t blame the company for playing a prevent defense as they have such a huge lead there’s little reason to spend millions on new systems. The reality is if something really good came along Medtronic has the resources to buy it.
Although Diabetic Investor has been underwhelmed with what’s been going on at Medtronic, it would downright foolish to question their preserve and protect strategy. Looking ahead the company knows they stand a greater chance of losing market share than gaining share. They also know that once a patient finds a pump their comfortable with, the patient will likely remain on that system even when newer, supposedly better systems come along. They also know just how expensive it is to actually run an insulin pump company and finally they have their ace in the hole with the strongest IP in the insulin pump world.
Fans may like it when their team plays prevent but the only thing that matters is winning the game and right now Medtronic is winning the insulin pump game by a wide margin.