The Insulin Pump Conundrum
What do you do when you’re a small player in an established market, a market where growth has slowed and the market is dominated by a well-established player who in spite of your best efforts continues to hold onto their existing customer base?
This is the conundrum if your Insulet (NASDAQ:PODD) or Animas, a unit of Johnson and Johnson (NYSE:JNJ), and your major competitor is Medtronic (NYSE:MDT).
Looking at the insulin pump market there are several notable facts:
- Medtronic owns 70% of the market.
- Medtronic’s most valuable asset, other than their extensive patent portfolio, is their installed user base.
- While Insulet and Animas are winning the majority of new patient adds (patients new to pump therapy), Medtronic continues to hold onto their existing patients.
- The insulin pump market for new patients is not growing fast enough nor is it large enough for Insulet and Animas to reach profitability.
- Without finding a way to convert existing Medtronic patients neither Insulet nor Animas stands much of a chance of long term success.
This is reality facing Insulet, Animas and the many newcomers entering the insulin pump market. Until someone, anyone finds a way to chip away at Medtronic’s installed user base all this talk about new technologies, smarter pumps and closed loop systems is just that, talk. Medtronic understands the market realities. Which is the reason the company is in no hurry to develop a replacement for their successful Paradigm line of insulin pumps nor are they in a hurry to bring their much hyped yet much delayed patch pump to the market. The simple fact is the Medtronic installed user is a highly profitable annuity and until this annuity starts to yield lower payments why mess with a good thing.
Some wonder why when Insulet and Animas have better systems than Medtronic why patients don’t switch to these systems. After all, they reason, aren’t insulin pump patients the most educated diabetes patients on the planet, who crave the latest greatest technology? Does it not make sense after a patient has gone through all the trouble and training to understand insulin pump therapy they would want the best system available? It would seem logical that a patient who’s pump is about to lose warranty protection would replace their old Medtronic pump with either the OmniPod or an Animas pump. What makes the Medtronic system so special and unique, that makes patients so loyal? Is it their customer service? Is it their upgrade program? Or is there another factor?
The reality is it’s a combination of these factors with one standing above the rest; once comfortable with a system, a system that is doing a good job managing the patient’s diabetes, there is no compelling reason for a patient to switch even when there is a “better” system available. While there are many who would argue that insulin pump therapy is superior to multiple daily injection (MDI) therapy, and in some cases this is true, for the majority of insulin pump patients using a pump is not a, therapy choice but a lifestyle choice. For every study that shows patients on insulin pumps achieving better outcomes over MDI, there is another that shows MDI patients achieving solid outcomes. The fact is when it comes to intensive insulin therapy how the insulin is delivered is less important than how well the patient is educated on to effectively manage intensive insulin therapy. Take a well-educated patient who understands intensive insulin therapy and outcomes won’t vary much whether they use a pump, syringe or insulin pen to deliver their insulin. The exact opposite is also true; take an under-educated patient and more than likely they won’t achieve solid outcomes. In spite of what many in the industry believe solid outcomes do not happen by chance and technology is merely a means to an end and not the answer to the question. Technology can make the patient’s quality of life better but it cannot by itself achieve better outcomes.
Diabetic Investor would also argue that while a pump is a pump is a pump, they all deliver insulin on a continuous basis and come with lots of tools to help the patient more effectively manage their diabetes, there are nuance’s to each system and most patients aren’t in the mode to learn a new system once they have become comfortable with their existing system. These nuances can literally be as small as how a bolus is delivered, is it a simple push of a button on the pump or does the patient need to manually enter the amount of bolus and then press a button. This may seem inconsequential to a non-pumper but when a patient is doing this several times each day it makes a big difference.
Perhaps the best way to illustrate this point to a non-pumper is to look at the market for mobile phones. Today most mobile phones are more than just a phone but mini-computers equipped with cameras and lots of tools or apps. Although not difficult to operate users do become comfortable with their phones once they understand how they work. This is one reason why so many users remain platform committed. Once they’ve learned how to use their iPhone or Blackberry and have become comfortable with it, it would take a major improvement from the competition for the user to switch platforms. It’s far easier just to upgrade to the newer version of the iPhone or Blackberry than it is to learn a whole new platform. Even if the competition does come out with a vastly superior system or platform, many users will still remain platform committed reasoning that it’s just a matter of time before their platform provider will copy the innovations of the competition.
In the insulin pump world the burden is not on Medtronic to improve their platform rather it’s on Insulet and Animas to develop a platform so superior that it gives the existing Medtronic patient a compelling reason to switch. This is not an impossible task however as market share tells us it’s not an easy task by any means. And it should be noted superiority is not limited to technology, a common mistake made by Medtronic competitors.
Take for example the OmniPod, the only commercially available wireless insulin pump. While there are many benefits to the patient not being tethered to their pump, this fact by itself is not enough to make patients switch. This is clear as Insulet acknowledges the majority of their patients have not come from patient switching systems rather from patients switching from MDI therapy to insulin pump therapy.
Considering the complexities of insulin pump therapy it might just be time for Insulet or Animas to look for other ways beyond technology to make the pumpers life easier. Or perhaps use different forms of technology to make the patient’s life easier. This is not unlike what Medtronic has done with their automatic supply refill system. Patients using Medtronic insulin pumps can sign up for a system that will automatically send them their pump supplies every three months. Medtronic automatically sends the supplies, bills the patients insurance and collects the co-payments with the patient’s credit card on fill. Nearly 70% of Medtronic’s patients use this feature as it’s really a no-brainer; the patient sign up once and forgets about it. Every three months supplies show up at their doorstep.
Why not apply this type of system to actually collecting data from the pump and helping the patient more effectively manage their diabetes. The company does not have to take over the role of diabetes educator nor do they need to replace the role of the physician. However, they can save the patient time and money by actively assisting the patient. For example using the information gathered with the patient’s approval, the company could make recommendations on dosing patterns, tweaking pump settings, more effective use of the extended bolus feature, etc. Basically the company would play the role of the patient’s diabetes coach. Not like it’s done today with general education material but using the patient’s actual data so that this enhanced education or coaching provides a tangible benefit to the patient.
Although it would change the dynamics of a company’s revenue stream another option would be to shift from a buy to lease model. Rather than charge the patient and by default the insurer one price for the pump and another for pump supplies, charge one reasonable monthly fee for everything. Besides generating a predictable revenue steam for the company it also provides a fixed cost for the insurer. Wrapped into this fee would be future upgrades, basically whenever a new pump becomes available it’s sent to the patient free of charge and the leasing fee continues. Simply put this pricing model more closely binds the patient to a platform and takes away the worry of losing patients should the competition develop a superior platform. While the newer system may be better due to the higher upfront costs to switch its unlikely insurers would reimburse for the newer system.
There are other ideas but the main point here is unless someone figures out how to loosen Medtronic’s grip on their installed users, adding patients new to insulin pump therapy just won’t cut it. The key isn’t whiz bang technology, the key is making the patient’s life easier and helping them more effectively manage their diabetes. Given that Medtronic has been able to maintain their dominate market share all these years it would seem rather obvious that technology alone is not the answer and it’s time to look elsewhere. Otherwise, Insulet and Animas are just spinning their wheels while Medtronic continues to collect their annuity checks.