Time to deep breathe

Sometimes you realize that we are on the cusp of a structural change, a tipping point if you will. Given what we have witnessed over the past few weeks we sense that we have reached such a point when it comes to intensive and semi-intensive insulin management. The results from Abbott, Dexcom, Tandem, Insulet and even Medtronic have painted a graphic picture of the future.

We’re not sure when we said it, but it wasn’t that long ago that we stated it will soon be easier to be an insulin using patient then a non-insulin using patient. That with CGM and insulin dosing algorithms much of the heavy lifting done by the patient much of the worry over hypoglycemia will be mitigated or go away because of these tools. What the 670G and 630G proved is that there is an appetite for systems which help the dose their insulin and shuts down to prevent hypoglycemic events. When these systems worked as designed, they are a thing of beauty.

The problem as we all know is that Medtronic has a CGM problem so these systems, the 670G in particular, did not work as designed. This opened the door for Tandem with the Basal IQ and will push Tandem higher when the Control IQ comes later this year. These systems not only work with the Dexcom sensor they aren’t in any way associated with Medtronic. People think we are just beating up on the evil empire, but the fact is take away their formulary stranglehold and Medtronic would be toast. Physicians, CDE’s and lots of patients literally hate the company.

The surprise to us is how well Insulet is doing but then again is it really a surprise given that we have long maintained that closed loop insulin delivery systems are over-hyped. Insulet is the only major insulin pump that is not yet integrated with any CGM. Yet sales are exploding. And while the DASH is a nice upgrade from the old clunky PDM it’s not a game changer. Yet Insulet is kicking ass and taking names, how could that be in world that supposedly dominated by sensor augmented systems?

What do we say day in and day when it comes to our wacky world it’s all about money – who makes it – who spends it and who saves it. Insulet with their pay as you go pricing model combined with their increasing presence in the pharmacy proves that money and easy patient access drive sales even when the product isn’t as way cool and whiz bang as the other products in the category. Frankly Abbott also proved this with Libre, as by all standards it is not as good as Dexcom, but it is cheaper and available in the pharmacy.

Before we go on a little irony as just yesterday Walgreens announced they would be closing 200 stores in a cost saving move. And you can’t swing that poor dead cat without hitting an article or TV spot about how Amazon is taking over, soon brick and mortar pharmacy will go the way of the doodoo bird. So as the diabetes device world embraces the pharmacy channel this channel is slowly become extinct?

A few thoughts here:

1. To paraphrase Mark Twain reports over the death of the retail pharmacy are greatly exaggerated. Yes there will be fewer retail outlets in the future and yes at home delivery of drugs and devices will increase but brick and mortar retail is far from dead. Heck we have ATM’s on every corner, multiple electronic options to send money and yet many still use an old-fashioned human bank teller.

2. Once Amazon figures out the diabetes space, they will have a major impact and yes, we expect all the device players to approach Amazon as they’d be foolish not to. As Momma Kliff used to say, “The more options you have to get your stuff into the hands of consumers the better.”

3. Let us not forget our other friends in techie land as Google and Apple are watching this too and looking for additional, predictable, regular income streams. And let us not forget that Dexcom is working with booth Google and Apple. It is NOT out of the realm of possibility that these techies flush with billions in cash could do what we have long wanted to do buy Tandem, Insulet and Dexcom and start selling an Austin. (Austin just in case anyone has forgotten is our term for a complete diabetes management system. Unlike his brother Tyler which is a connected insulin pen, CGM, insulin dosing algorithm and app.)

Now let’s get back to the insulin pump CGM insulin delivery world. And not like we need it but even MannKind with Afrezza is jumping on the algorithm bandwagon as they announced a deal with OneDrop. The fact is that poor dead cat is swinging and hitting these systems regularly.

Still we have to get back to Tandem and Insulet as we see different reasons for their success. For better or worse Tandem has Medtronic to thank for their success. Tandem is getting the Animas conversions, they are winning when it comes to new patient adds and they are slowly chipping away at the Medtronic user base. Tandem has become the preference for intensively managed insulin patients.

Insulet on the flip side is becoming the preference for patients who are semi-intensive insulin patients most of whom follow multiple daily injection (MDI) therapy. These patients and their physicians like the pay as you go pricing model not because it’s cheaper than a conventional pump, but it allows a trial period. Thankfully for Insulet patients are excuse the expression sticking with the OmniPod after this trial period. It also provides comfort that the patient can get their PODS at a pharmacy. In an ironic twist here making the OmniPod available at a pharmacy legitimizes the OmniPod in the eyes of the patient and takes away some of the stigma of insulin pump therapy. Throw in the discreet nature of the OmniPod, a critical factor for patients converting from MDI and it becoming clearly why Insulet is doing so well.

The question becomes what happens when Tyler gets here? As well as Insulet and Tandem are doing we still see Tyler as a major threat because he’ll be so much cheaper than pumping, available at the pharmacy and this is a huge factor won’t require much in the way of patient training. MDI patients already know how to use a pen, most have used or are familiar with CGM and all have a smartphone.

Tyler is also a major threat because Lilly, Novo Nordisk and Sanofi desperately need him to save their branded insulin’s. They will give away the connected pen, the app which includes the algorithm and connectivity to the Dexcom CGM so they can continue to sell insulin. Take away the cost of a connected pen combine it with a no cost app then add in the Dexcom sensor which is already covered what additional cost is being added? ZERO!

So where does this place Medtronic who still with all the mistakes they have made and as crappy as their sensor is still is the insulin pump market leader. Insulet now with a market cap approaching $9 BILLION it’s becoming increasingly difficult for Medtronic to sell the unit to private equity. However the possibility still exists that they could given the demand for IPO’s spin out this unit as a separate company perhaps combining it with another unit.

The unit has already gone the slash and burn route cutting costs and jettisoning people. They are protecting the golden goose but understand that the clock is ticking. Their lone bright spot is formulary position which they are also protecting with every breathe. Take that away and its game over. Worse it will cost millions to fix the issues with the sensor and launch all the way cool whiz-bang new systems in the pipeline which by the time they get here will be inferior to the newer technologies coming out from the competition.

Looking back while JNJ did it poorly they did make the correct decision to exit the insulin pump market. The fact is JNJ was never truly committed to Animas but let’s not digress.

Quite frankly we aren’t sure which direction Medtronic will go but we aren’t alone as we think they aren’t sure either. They have taken the easy steps so far, but these are short term actions not long-term solutions.

Looking towards the future a few final thoughts;

1. This change to insulin delivery as great as it will be won’t unfortunately happen quickly. The fact is Tyler should be here already but thanks to how these companies operate he’s still in the womb.

2. As wounded and vulnerable as Medtronic is, THEY ARE NOT DEAD.

3. CGM is and shall be for some time Abbott’s and Dexcom’s domain. Yes, we’ll eventually have others fighting for scraps but that won’t happen anytime soon.

4. Tandem and Insulet are kicking butt and likely will continue to do the happy dance over the near term.

5. Don’t be surprised if someone else comes along NOT an insulin company, and makes Tyler happen – stay tuned.