Why the fascination?

Why the fascination?

It seems like hardly a day goes by when we don’t see yet another company entering the patch pump market. Now before we go on here let’s clarify just what we’re talking about so no one is confused. The patch pumps everyone seems interested in are nothing at all like the OmniPod from Insulet (NASDAQ:PODD) the only commercially available wireless/tubeless true insulin pump. When we say true insulin pump we are referring to pumps that are basically mini-computers programmed and controlled by the patient. These are not the patch pumps we are referring to today.

The patch pumps that are fascinating everyone come in two basic configurations. The first is the ultimate dumb patch pump which only delivers insulin when the patient interacts with the device. Think the Finesse pump from Calibra now owned by Johnson and Johnson (NYSE:JNJ). The Finesse does not deliver insulin continuously rather it delivers a preset amount of insulin each time the patient squeezes the two buttons on the device. The newer more sophisticated dumb patch pumps deliver a preset amount of insulin continuously, the basal rate, and also allows the patient to deliver additional insulin, also in preset amounts, via the touch of a button, the bolus. The best example of this would be the V-Go from Valeritas, yes that company which was supposed to go public but never did.

The case being made for pumps like the Finesse is that the patient will only inject, actually insert is more accurate, the cannula of the pump once every three days rather than injecting insulin multiple times per day.  The main competition for the Finesse are syringes and insulin pens. The target market for the Finesse are insulin using Type 2 patients currently following multiple daily injection (MDI) therapy. The selling proposition, less is more, improved therapy compliance and ultimately better outcomes.

The case being made for the more advanced dumb pumps is similar to that of less sophisticated dumb pumps as they both try and do the same thing just in slightly different way. The main competition besides syringes and insulin pens, plus real insulin pumps. The target market insulin using Type 2 patients currently following MDI. The selling proposition, less is more, improved therapy compliance and ultimately better outcomes.

With a really dumb pump like the Finesse there are some notable drawbacks, the most obvious being what happens when the patient needs an odd amount of insulin. Since the Finesse only delivers a preset amount of insulin when the patient squeezes it, what happens when they need an amount of insulin that does not correspond to the settings? Do they under dose and risk hyperglycemia or do the over dose and risk hypoglycemia?

We’re also not sure that using the Finesse is actually easier than a syringe or insulin pen. Like a syringe it must be filled with insulin before the cannula is inserted. Insulin pens are actually the most patient friendly as they either come pre-filled or come with cartridges that are pre-filled. Pens and syringes allow a patient to dose the exact amount of insulin they need, the Finese does not.

Looked at from a patient training perspective again pens come out on top. Dial out the dose, remove the needle cover and inject. The Finesse would come in second place as it only needs to be filled once and the cannula only needs to be inserted once every three days. Syringes are actually the least patient friendly as they must be filled each time and requires the patient to carry around a vial of insulin.

Although this may seem odd the Finesse has the highest risk of malfunction. Anyone who’s used a real insulin pump hates the term inclusion, which basically means insulin is not getting through the cannula. Simply put the tubing is clogged up. While it’s possible that a pen or syringe could malfunction the likelihood is far less than a patch pump.

The case for the more advanced dumb patch pump is even more confusing as the patient will need to be trained all over again. Anyone who has transitioned from MDI to a real insulin pump gets this, as there is a major difference in how the patient manages their diabetes when insulin is being continuously infused into the body. We would actually argue that if a physician is going to go this far a real insulin pump is actually easier to use than an advanced dumb patch pump. As we noted before a real insulin pump is basically a mini-computer which helps the patient make dosing decision. While it’s true an app could do the same for a system like the V-Go, a real insulin pump does not require the patient to be near their smartphone.

While we can somewhat see the niche for a dumb patch pump, we fail to see the niche for an advanced dumb patch pump. The way we see it if the advanced dumb patch pump is an option why not go the whole nine yards and get the patient a real insulin pump. Now here’s where a company like Valeritas will argue that the V-Go is cheaper than a real insulin pump, a true statement, and works as well as a real insulin pump, a highly debatable statement.

This is where we would interject and state hey if it’s cheap you want than syringes and insulin pens are the way to go. And ladies and gentlemen this is where the rubber meets the road. What payors care about is cost and right now syringes are the cheapest followed by insulin pens. Even if these companies priced their dumb pumps on par with syringes or pens, which is possible, they would face formidable entrenched competition. The fact is payors, physicians and most importantly patients have become very comfortable with syringes and pens.

As much as we hate to say this but the insulin delivery market is no different than any other diabetes market in that scale is critical. Whether it’s the Finesse o V-Go profitability only comes with scale. Simply put since these are disposable systems the more of these suckers you make the cheaper you make them for. Scale provides the efficiencies needed to achieve profitability. Just in case anyone thinks this isn’t important look at why Insulet has not been acquired. The bottom line is they can’t make PODS cheap enough even with the scale they achieved being on the market for ten years. Insulet has shown there is a market for wireless/tubeless pumping, they just haven’t shown this market can be profitable.

We hate to say this about the only so-called true selling point these dumb patch pumps have, no matter which configuration, is less frequent injections. These companies cannot claim superior outcomes nor can they claim their systems are cheaper nor are they more patient friendly. As we have seen with Afrezza, whose lone advantage is its not injected, payors do not pay a premium nor do they provide preferred formulary placement for patient convenience.

The reality here is we have looked at these systems six ways from Sunday and still cannot figure out how they will make money. Is there a place for these systems, perhaps, but like Afrezza they are nothing more than niche products. Like Afrezza they are niche products facing entrenched, established and far cheaper competitors. Unlike Afrezza which is the lone inhaled insulin, these dumb patch pumps are also competing against each other.

Right now there are some very smart companies who see these dumb patch pumps as part of their long term strategy. That the insulin delivery market, already over-crowded and ultra-competitive, can sustain a profitable business unit. That there is an unmet medical need, that patients and their physicians want dumb patch pumps. Even worse they believe payors will accept these system with open arms, that when priced at par with syringes or pens they have a chance.

Seriously we are really trying to give these companies the benefit of the doubt but at the end of the day all we can conclude is that some very smart companies do some very dumb things.