When all else fails sue

When all else fails sue

There are two things that are constant in the wacky world of diabetes devices. First, protecting intellectual property is a contact sport normally used with a take no prisoner’s attitude. Second, when a company can’t come up with their own version of a particular product and your competition is well established in the market, sue them. Medtronic (NYSE:MDT), the insulin pump market leader is once again is using their vast intellectual property portfolio in attempt to cover up their own shortcomings.

According to a story posted on the Mass Device web site, Medtronic is suing Insulet (NASDAQ:PODD) the makers of the OmniPod insulin delivery system and currently the only wireless system on the market. According to the article; “The lawsuit, filed Sept. 18 in the U.S. District Court for Central California, alleges that Bedford, Mass.-based Insulet’s OmniPod, a wireless insulin delivery system for diabetes, trespasses on a pair of patents that are licensed to Medtronic MiniMed. Both the so-called “‘276 patent” and the “‘878 patent” are called “External Infusion Device With Remote Programming, Bolus Estimator And/Or Vibration Alarm Capabilities.”

The irony here is that for years Medtronic has been telling everyone that they would soon have their own wireless system on the market. Although recently the company has gone silent on the subject, rarely mentioning the project. Perhaps Medtronic learned a valuable lesson from Abbott (NYSE:ABT) who back in the day used to tell everyone that the Navigator, their continuous glucose monitoring system, would be approved by the FDA shortly. In call after call, Abbott officials kept repeating this line to such an extent that it became the joke of the diabetes device industry.

Well the joke this time is on Medtronic and their silence on the subject cannot cover-up the many missteps for this much hyped and very much delayed project.  The laughter only grows louder with news of this lawsuit. Many, including Diabetic Investor, have believed that the company was never truly series about this project and only mentioned it to blunt any progress made by Insulet. While Insulet has their own share of issues, they have proved there is market for wireless pumping.

Still one cannot simply dismiss the lawsuit as Medtronic has proven to be a formidable force in court; just ask the folks at Smiths Medical who made the Cozmo insulin pump. Back in the day when Medtronic realized that Animas (before they were owned by Johnson and Johnson (NYSE:JNJ) and the Cozmo were gaining traction in the marketplace, the company decided to make an example out of the Cozmo and like they are doing now with Insulet, sued them over intellectual property issues. Smith’s eventually settled with Medtronic, a settlement which made it virtually impossible for Smith’s to make any money in the market and eventually lead to Smith’s decision to exit the insulin pump business.

Now Diabetic Investor is not an expert on intellectual property law and has no idea whether this suit against Insulet has any true merit. What we do know is that Medtronic has the financial resources to fight this to the bitter end and that the last thing Insulet needs as they await FDA approval for their Eros pod is to be distracted from brining Eros to market. Not to mention the financial resources a legal fight will drain from the company which by all accounts is already bleeding money to begin with.

Lawsuit or not, one thing is pretty clear as Medtronic is becoming increasingly desperate. As we have noted previously the company is losing the battle in gaining patients new to pump therapy and is beginning to see erosion in their huge installed user base. With the approval of the G4 system at Dexcom (NASDAQ:DXCM) they are clearly behind the eight ball in the continuous glucose monitoring market. Tandem and CellNovo are coming to market with better, more advanced and more patient friendly systems and it would foolish to ignore Insulet even with their much documented issues as wireless pumping is here to stay.

To Diabetic Investor the clearest sign of desperation did not come with this lawsuit but when the company launched their new comp plan for sales reps which emphasized converting Type 2 patients to insulin pump therapy. Medtronic is well known for the churn’em and burn’em philosophy when it comes to their field sales force with one of the highest, if not the highest turnover rates.  Without question insulin pump sales is the most difficult job in diabetes, where it’s not unusual to see reps putting in 80 plus hour work weeks. Frankly the only difference between an insulin pump rep and a physician who prescribes pump therapy is that physicians don’t work weekends and don’t have patients calling their cell phones at all hours of the day and night.

Years ago Medtronic in an effort to improve margins basically fired their experienced reps replacing them with younger, cheaper reps. In a perfect example of corporate hubris the company figured that anyone could sell their pumps and a reps relationship with a physicians didn’t matter all that much. As if that wasn’t bad enough the company has given these new and inexperienced reps ever increasing sales quotas making it next to impossible for them to hit their bonus numbers. Is it any wonder the turnover rate is so high and this isn’t exactly a good economy where six-figure jobs are waiting for reps who can’t take it anymore.

Keep in mind this the same company who foolishly cut the number of customer service reps shortly after they bought MiniMed. Only later when they realized this cost cutting move was hurting sales did they reverse course.

Back in June during the ADA conference Diabetic Investor was told that Medtronic would be bringing back the MiniMed name. The fact is the company needs more than a name change; it needs a serious attitude adjustment combined with an equally serious reality check. Instead of bringing back the MiniMed name why not bring back the MiniMed attitude where rule number one was the patient comes first and rule number two was to reread rule number one. Without some serious changes this rebranding is nothing more than a sham.  As old farmer John used to say, “You can paint it pretty colors, put fancy shades on the windows and call it whatever you want; but no matter how you try and hide it a horse barn is horse barn and that smell ain’t going away.”