The Supply Chain

The Supply Chain

As everyone is beginning to learn making reliable accurate glucose sensors isn’t easy, making millions of them is even harder. This is the reason Abbott is investing billions to expand Libre capacity. Dexcom already has a swanky new facility in Mesa but likely will add more capacity to meet their growing demand. Medtronic on the other hand relies on a series of companies when it comes to making their sensors, one of which is called IntriCon, in fact Medtronic is IntriCon’s largest customer.

Today IntriCon lowered revenue guidance stating;

“IntriCon updated its full year 2019 revenue guidance to a range of $115 million to $117.5 million, compared to prior guidance of $128 million to $133 million. The reduced guidance primarily reflects the following anticipated factors:

• lower than anticipated order volume related to its largest customer’s on-going global commercial product launch to continue through at least the third quarter 2019”

The customer is Medtronic and the on-going global commercial product launch is the way cool whiz bang but not so popular 670G. Now we have known that things are not all kibbles and bits for our friends in Northridge, yet this is just further confirmation that when it comes to the truth the folks at Medtronic haven’t quite gotten there.

What’s astonishing really isn’t that the 670G isn’t doing all that well rather how the street seems to believe what the company says. This unit has some major problems, has lost a ton of people, made dramatic cuts and seems to have a leadership void. Yes, we are well aware that there has been no official change at the top but our sources inside the company tells us that a change has been made. Our guess and this is only a guess is that Omar is sticking by his longtime pal and good buddy hoping he can find a buyer for this struggling unit.

This is where the problem kicks in as take a look at this;

Dexcom has a market cap of just under $14 BILLION, Insulet $7.3 BILLION and Tandem almost $4 BILLION.

Even with all the problems Medtronic has and they have a boatload of them there is no way they will sell and not get more what Insulet and Dexcom are worth. Which creates another problem as there is no way private equity the most likely buyer will take on that much debt. Now the idea has been floated around of Medtronic retaining a stake in the unit making the deal more palatable for private equity and we’re also hearing that Medtronic could combine the unit with another unit and spin the combined units off as separate publicly traded entity.

We mention all this as the street seems to think the future will be brighter than the past, that the company will fix all their problems and launch all the new way cool whiz bang toys they have in development. To wit we say fat chance as this unit has become so dysfunctional, we doubt they can make coffee without having a problem.

We have to wonder how Omar feels today with Abbott and Dexcom basking in the glow of CGM land. Miles White and Kevin Sayer look like geniuses while Omar looks like an idiot for his repeated statements that the company’s stand-alone CGM will reach a billion is sales when it can’t even get out of the starting gate. Abbott and Dexcom are gobbling up new patients, bringing out more advanced systems while Medtronic is ….

The facts are these folks Medtronic has one thing and one thing only standing between them and complete disaster, formulary position. Take that away and this house of cards will tumble faster than us downing a cold Miller Lite on a sweltering hot Chicago afternoon. Formulary position is the fire wall for the company, and they will do everything in their power to make sure that wall isn’t breached. For once that goes the whole unit sinks into the abyss.

Frankly the unit reminds us of the Black Knight getting his arms and legs hacked off and saying it’s nothing more than a scratch. (One of the greatest scenes ever

The reality here unless something unexpected comes along is Medtronic is stuck with the unit. And given what they done so far it looks like they will just milk it until the well runs dry. Which given the way the insulin pump CGM markets are developing is the smartest move. The unit with its large be it dwindling installed user base will continue to make money, but it will never replicate past glory.