The kids aren’t kids anymore

While reading through the transcript of the Insulet call we couldn’t help but feel just a little nostalgic as literally we have seen this company from the very beginning. We watched as they took their first steps, we watched as they stumbled picked themselves back up and now have witnessed their transition to adulthood.

Over the years whenever we meet with an insulin pump wannabee, we stated that they wouldn’t be a real insulin pump company until two things happened. They had to face an intellectual property lawsuit and they stopped disclosing publicly the number of patients using their system. Insulet has now achieved both milestones.

That being said as Insulet moves into adulthood like many young adults it’s full of spit and vinegar. The company is methodically rolling out their new DASH system, their pipeline is robust, and they are transitioning to a new pay as you go revenue model, a model which we believe will drive even greater OmniPod adoption.

While we would prefer a faster pace for the pipeline it was nice to hear that the Horizon is set to be launched in the second half of next year. It would be foolish to underestimate the significance of eliminating the PDM entirely and having the Horizon controlled by a patient’s smartphone, ask any OmniPod user which improvement they want to see most, and smartphone control tops the list by a wide margin. The fact that Horizon will also incorporate other enhancements, I.e. low glucose suspend is just a bonus.

Insulet is also the first insulin pump company to embrace the pharmacy distribution channel which with their pay as you go pricing model should also drive greater OmniPod adoption. Yes, the company is sacrificing PDM revenue but as they noted this revenue shortfall will be made up with a higher per Pod price.

Later today Tandem will report their results which we believe will come in on the higher side of expectations. Which when combined with the results already announced by Medtronic and Insulet tells us a few things about where the insulin pump market is going.

1. Medtronic is in major trouble.

The company can tap dance all they want, they can talk about their pipeline all they want but they cannot ignore that big pink elephant in the room unless they do something about their CGM sensor they will continue to lose to Tandem and Insulet in terms of new patient adds, patients new to pump therapy. The company can only churn their existing patient base so far.

2. Insulet and Tandem must keep the pedal to the medal.

While Insulet and Tandem have more advanced patient friendly systems than Medtronic they must press the advantage they have as Medtronic won’t be down forever. Having more than a few gray hairs we have seen this dynamic before, we have seen Medtronic on the ropes getting hit with haymakers only to regain their footing and hit back harder than before.

3. Add a Tyler for purely defensive reasons.

With Novo Nordisk announcing their working with Dexcom and Abbott, with Lilly and Sanofi working with Dexcom it’s no longer a question of if Tyler will get here but when will he get here. Given that all the insulin companies have invested heavily into their version of a Tyler and their lone goal is to sell insulin, all the insulin pump companies better pay attention.

Therefore, we believe rather than fight this Tyler trend better to have a Tyler of their very own. There are plenty of “smart” pen companies to work with or acquire so the hardware isn’t a problem. The pump companies already have insulin dosing algorithms and relationships with Dexcom and Abbott. Plus, Tyler is an easy way to capture patients who could become future pumpers.

To us we think it’s time all the insulin pump companies begin acting like insulin delivery companies and be not so concerned about how the insulin is delivered but capturing as many insulin using patients as possible. When the study results come in, they will show that Tyler produces pump like outcomes. When the payors do the math, they will see Tyler does this at a fraction of the cost of an insulin pump.

As we have noted before this will not kill insulin pump adoption however it will slow the growth in the market even further. No matter how way cool and whiz bang the new pumps will be they cannot come close to being as cheap as Tyler will be. Insulet with their new pay as you go model stands the best chance at fending off Tyler but even with the pay as you go model, we doubt it will be as cheap as Tyler.

When it comes to the insulin/insulin delivery market this is all about scale and scale means having as many patients as possible. Every insulin company knows it’s only a matter of time before we have a biosimilar short-acting insulin which will devastate the pricing dynamic. This is why they have invested so heavily in a Tyler. There is nothing that says an insulin pump cannot add a Tyler hook up with a biosimilar insulin manufacturer and compete directly against the insulin companies who are moving into the insulin delivery business.

Keep in mind that Lilly and Sanofi both are looking to enter the insulin pump market and their lone goal is to sell more insulin. One maybe both will go nuclear, give their pumps away, make some money from supplies but make more from selling insulin or not losing a patient to a biosimilar insulin.

The real question for all the insulin pump companies is can they adapt to the impact Tyler will definitely have on the market. Will they be proactive or reactive?