The dream that won’t die
No matter how long Diabetic Investor has been covering this wacky world, going on 20 plus years now, it never ceases to amaze us how some ideas and/or companies seem to have nine lives. A perfect example of this has been the never ending quest to develop a non-invasive glucose monitor. Yes this dream began well before we started writing and will likely continue well after we retire. Another dream is the quest to develop a true closed loop insulin delivery system, known to many as the artificial pancreas. Like the non-invasive glucose monitor this dream has been around for quite some time and while advances have been made the goal remains elusive.
Another dream is the belief that if it’s built someone will come along and buy it. This is particularly true in the insulin pump market. For years Medtronic (NYSE:MDT) has dominated this market and while the company has had its fair share of missteps they continue to hold a dominate market position. Still many believe they can build a better mouse-trap, gain a toe-hold in the market and then someone will come along and buy the company. After all Johnson and Johnson (NYSE:JNJ) acquired Animas while Roche acquired Disetronic.
Today this dream is alive and well albeit with a new twist. Given the emergence of interconnected diabetes management (IDM) the newcomers to the insulin pump market are prompting systems which …wait for it… share information with the cloud. Yes these systems which also work with continuous monitoring systems are the latest fad to hit the insulin pump market. Many companies are desperately trying to take advantage of this latest fad among them are Tandem (NASDAQ:TNDM), Insulet (NASDAQ:PODD) and CellNovo.
As we have been reporting it looks as if Tandem is the closet to achieving their goal of being acquired with Medtronic rumored as the buyer. This deal isn’t driven by Tandem’s market share nor is it driven by some whiz bang technology that Tandem owns. No this deal is larger being driven by the fact that Medtronic needs a replacement for their aging Paradigm line and it’s cheaper for Medtronic to buy Tandem than build a replacement.
Insulet which has the only commercially available wireless/tubeless insulin pump on the market seems no closer to being acquired today than they were 10 years ago. The company has built a solid enough installed user base yet continues to struggle with being consistently profitable. As we noted after they reported earnings it’s unlikely an offer will be forthcoming until they can lower COGS which would drive profitability. Like almost everything else in diabetes scale is critical here as the greater the scale the lower the COGS. However achieving scale in the ultra-competitive insulin pump market isn’t easy.
While Insulet’s second quarter results seemed encouraging at first upon closer examination the increase in sales was not tied to increased demand for the OmniPod rather more feet on the street. Hence the problem faced by Insulet. More feet on the street leads to higher SG&A which lowers profitability. Like so many others in this market Insulet has yet to find a cost effective strategy which increases demand. As we have said many times the insulin pump is not large enough nor is it growing fast enough to support all the players in the market. The only way Insulet can truly increase share is to take it away from Medtronic and Animas. Again not a simple task.
CellNovo is the latest entrant who believes they have built a better mousetrap. This now public company, CellNovo is traded on the Euronext Paris exchange (EPA:CLNV), believes in 5 years they will have 45,000 patients using their system. A major goal considering the ultra-competitive nature of the market combined with the fact that the company has no presence in the United States. For the moment the company plans on selling the system in Europe and as of today has not made public when they plan on seeking FDA approval. CellNovo seems to believe they can get a toe-hold in Europe then someone will come along acquire the company and then bring the system to America.
While this may be possible let’s just say Diabetic Investor isn’t buying what CellNovo is selling. The reality is the insulin pump market is becoming over-saturated with products. The market isn’t expanding and pricing is under pressure. Like the BGM market scale is critical yet achieving scale is even more difficult with insulin pumps than it is in BGM. Still the dream of building a better mousetrap and then getting acquired is alive and well.
Too bad for the people who invest in these dreams the reality is this more like a nightmare.