Who’s next?

There are just certain constants in this wacky world, one of which is never ever try and understand some of the deals that are done. As we have said many times no deal no matter how far-fetched no matter how illogical it seems at the time do not question why it’s being done as nine times out ten logic has nothing to do with it. Listen if someone is dumb enough to pay $23 million for a dumb patch pump or invest more money into Bigfoot as Abbott has done anything no matter how wacky it may seem is possible.

This should come as welcome news to the folks at Senseonics who would like nothing better than for someone, heck anyone to come along and buy them out of their misery. With Dexcom and Abbott gobbling up CGM patients faster than an Oscar winner’s acceptance speech, Senseonics is having a tough time getting patients to use their implantable CGM system. So tough that the company is in desperate need of additional capital or better still excuse the expression a sugar daddy.

Now let’s be clear here Senseonics unlike other Dexcom wannabes actually has a product that is not just FDA approved, it’s out in the market and yep works just fine. The problem isn’t getting the damn thing to work, or even the ability to make it in scale. The problem is getting more patients to use it and more payors to cover it. Listen we know that we sometimes sound like a broken record but this CGM business isn’t easy.

Yet buying Senseonics does make sense when you consider their system is almost a perfect fit for a hybrid closed insulin delivery system that’s currently out in the market whose main problem is the sensor that works with this system flat out sucks. The only problem is the makers of this hybrid closed system aren’t exactly the sharpest knives in the drawer. Rather than buy their way out of this problem Medtronic seems content to throw good money into a very bad sensor.

However now that the Control IQ is here and doing exactly what we thought it would do, namely eating the floundering 670G for lunch. Perhaps Medtronic will find religion and do what they should have done a long time ago in a galaxy far, far way. Although Medtronic has not made public how much money they are throwing into attempting to fix their current crappy sensor it’s nothing compared to the lost revenue their experiencing as patients chose the Control IQ over the 670G.

A problem that will get even worse should current 670G patients begin switching to the Control IQ. Granted it’s still early in the Control IQ launch but early evidence suggests that this scenario is already playing out we just don’t know or likely won’t know the extent of these conversions for another few quarters. However Medtronic does not have the luxury to wait around and see if this is a small or large problem. They should act and act now before the ship takes on too much water.

Look Senseonics has a current market cap of just under $200 million and even with a 20% premium would cost Medtronic around $250 million. Which when you think about it is chump change when your franchise is generating over $2 billion per year in revenue. Although the acquisition would not be immediately accretive to Medtronic’s revenues it would pay off in the long run. The fact is Medtronic should make this move for purely defensive reasons as it would show they are serious about protecting the goose that lays all those golden eggs.

Failure to act and act soon will cost the company dearly. The Control IQ is just the beginning of the problem as remember Insulet is set to launch the Horizon their hybrid closed loop system later this year and like the Control IQ the Horizon works with the Dexcom sensor. And no disrespect to either Tandem or Insulet but the sensor is the straw that stirs the closed loop drink, the pump is just the hardware the executes commands from the insulin dosing algorithm. There is nothing wrong with the 670G pump, nor is there a problem with Medtronic’s insulin dosing algorithm, the problem is with their sensor.

A problem which they can solve by buying Senseonics and then reconfiguring that sensor to work with the 670G and upcoming 780G. This by the way does not mean they cannot continue with their efforts to fix their existing sensor. Something we would strongly encourage as with Senseonics under their control they could offer patients multiple sensor options which we believe would be a competitive advantage. As we have stated consistently the biggest advantage of an implantable sensor is that it does not need to be replaced every ten days or two weeks which is why we see it as a perfect piece of the hybrid closed loop puzzle.

This deal makes so much sense that it will likely never get done. Which when you think about it is also another constant in this wacky world of ours. Nope better to do things the hard way. Momma Kliff was right when she said never underestimate people’s propensity to do things the hardest possible way even when there’s an easy solution right in front of them.