The end of the white walkers

Anyone who watched the last episode of Game of Thrones knows the white walkers are no more but the battle for the iron throne is still being fought. While it’s anyone’s guess who shall sit on the throne one thing is certain millions are watching, waiting and debating. Although we cannot yet say that same situation is playing out in the insulin pump world it’s getting pretty damn close. Medtronic who now sits on the insulin pump throne appears on the verge of collapse.

With both Tandem and Insulet gaining new patients, the 670G floundering and more advanced systems coming from Tandem and Insulet Medtronic is feeling the heat. So much so that the company has just instituted another round of job cuts, have lost several key personal and as we reported a while back is under new leadership although we have yet to see an official announcement.

Still the company does have a huge installed user base and as we keep mentioning owns the most valuable piece of real estate, formulary position. However this real estate is becoming less valuable by the day as companies like Insulet move from DME to a pharmacy benefit. As we noted yesterday payors are more than ever focused on annualized costs and want to shed the high upfront cost of a durable pump. Medtronic in a desperate attempt to save a sinking ship has been forced to lower this cost just to remain viable.

So how does this all play out well don’t be surprised if Medtronic pulls the trigger and sells the diabetes unit. Here’s why we think this will happen;

1. The company needs the capital as their other operating units also are floundering.

2. They cannot buy their way out of the problem, there is no way in hell the board would approve the purchase of Tandem or Insulet plus such a deal would run into anti-trust issues.

3. As bad as things are the unit with it’s huge installed base remains very valuable.

4. Based on history Medtronic loves to change the narrative and such a deal would take attention away from the problems in their other units.

5. There are plenty of buyers willing to fork over billions.

6. Just as they cannot buy their way out of the problem it would cost millions to fix the problem. Rather than throw good money into a bad situation better to sell now and reinvest this capital in other more promising areas.

In the past we have always prefaced our remarks about Medtronic with the caveat that every time it looked like the golden goose was about to become a dead duck, there was a change in leadership who rights the ship and the goose keeps laying those golden eggs. Well this time around even a change in leadership cannot save the golden goose. There is just too much damage too many problems that will cost too much money to fix.

Once jettisoned from Medtronic the demise of this once great unit will come down to what it always comes down to; arrogance combined with ignorance. Like so many the vision was clear but the execution sucked. The reality is the Evil Empire will not be destroyed by Luke Skywalker but by their own doing. The question then becomes can the new owners rebuild the Death Star or has the universe changed so dramatically making this impossible?

Our gut tells it’s the later over the former. There is no dispute that Tandem with the Control IQ and Insulet once the Horizon arrives will have the superior technology. It is equally clear based on what Insulet is doing the reimbursement environment does not favor the traditional insulin pump model. Should Tandem adopt the Shave Club for Men pricing model, find a way into the pharmacy and get Dexcom to play along it will be the end of the old model.

As we said yesterday change is on its way dramatic change.