This is just a little scary.
At first
glance about the only thing Dexcom (NASDAQ:DXCM) and Insulet (NASDAQ:PODD) have
in common is an agreement between the two companies that will allow the Dexcom
continuous glucose monitoring system to work with the OmniPod. Taking a deeper
look the two companies they have much more in common. Consider the following
facts; over the past 62 trading days shares of both companies have risen nearly
50%, while the NASDAQ is up just over 10%. Over that time frame average daily
share volume for Insulet was 248,886 shares, Dexcom 389,468 shares- volume in
Insulet shares exceed their average daily volume number on 19 days, Dexcom 18
days.
Although it’s
not an apples to apples comparison shares of Medtronic (NYSE:MDT) are up just
under 20% while shares of Johnson and Johnson (NYSE:JNJ) are up slightly less
than 10%.
Considering
how the insulin pump market continues to change Diabetic Investor sees the
future of all four companies intertwined. Already we have seen Smiths Medical
exit the business and there are signals coming from Roche that they too will
soon exit at least the US market. Medingo has received FDA approval for their
wireless pump but won’t start selling the system until January of next year and
even then it will only be available in limited quantities. This leaves the
insulin pump market a three horse race between Medtronic, Animas (a unit of
Johnson and Johnson) and Insulet.
Looking
toward the future we already know that Medtronic will be introducing their version
of a wireless/patch pump sometime next year, although the launch date seems to
change with each earnings call.
Just as Insulet
is working with Dexcom, Animas has a similar agreement. These two agreements
are in direct response to Medtronic’s attempt to develop a closed-loop insulin
delivery system.
Finally Animas
has become increasingly aggressive in their attempt to cut into Medtronic’s
huge market share. Given that Medtronic will soon enter Insulet’s domain with a
patch pump and both Animas and Insulet will soon enter Medtronic’s domain with
a pump/cgm combination it would seem like a no-brainer that there’s some
wheeling and dealing to be done here and that JNJ has the resources to make it
all happen.
Perhaps this
is the reason shares of Dexcom and Insulet are trading with such scary
similarity. With Insulet’s market cap at $302 million and Dexcom’s at $389
million, JNJ could acquire both companies without breaking a sweet. But then again
as we have seen many times before deals that make perfect sense don’t always
happen. Still the diabetes market is notorious for deals that make absolutely
no sense whatsoever (see Diabetic Investor’s recent email alert on the MannKind
(NASDAQ:MNKD) rumors) so maybe it’s time for a deal that makes perfect sense.
