Worst Case Scenario

Worst Case Scenario

At first glance, one just might think our friends at Medtronic (NYSE: MDT) are salivating at the moment. Tandem (NASDAQ: TNDM) is running out of money. Animas is twisting in the wind while Johnson and Johnson (NYSE: JNJ) decides what to do. Insulet (NASDAQ: PODD) is doing ok but lacks the resources to compete head on with the big kahuna. Roche, yes Roche does sell pumps but seriously this is Roche.

So, think for just a moment what would happen if Tandem implodes as expected and JNJ decides to sell Animas. Just as a quick note while selling Animas may be the best option for this unit it won’t solve its many near term problems. Already we’re hearing of patients, physicians and CDE’s who are backing off selecting an Animas pump as they are worried about the unit’s long-term viability.

It is not an unrealistic scenario that in less than a year it will be Medtronic, Insulet and ?. It is also not unrealistic to expect that when Tandem implodes Medtronic will pick-up 80%+ of the installed base, approximately 43,000 or so patients. Should Animas continue to remain in limbo we would anticipate that their patient base will begin the switch to Medtronic.

Now while this may be a good thing financially for Medtronic, this dream could quickly turn into a nightmare. A never-ending nightmare is more like it. Yes, it is true that Medtronic has the infrastructure in place already but could this infrastructure handle this sudden increase in patients. As we have noted many times when it comes to customer service insulin pump patients are the most difficult. And although their customer service has improved somewhat it’s not what it used to be.

Perhaps a way to look at this is to think of mobile phone service the night the Chicago Cubs won the World Series. With the Cubs winning game 7 fans started gravitating towards Wrigley Field only to find that the game was headed to extra innings. A situation which set off panic not just because it was possible the Cubs might lose but with so many fans in one area cell service crashed. Cub fans couldn’t track the game on their smartphones and became desperate for news on what was going on.

Fans many of whom who couldn’t imagine life without a smartphone were suddenly in the dark ages. Some tried to get a glimpse of TV’s at the bars in Wrigelyville which were already overflowing with fans. Others resorted to finding …wait for it … a radio, any radio. For most their main source of information became the famous marquee outside of Wrigley, no video, no voice, nothing but a simple score which was updated inning by inning not pitch by pitch.

Now we all know what happened in the end, the Cubs won, Cub Nation went nuts and one hell of a party began.

But the ending might not be so happy for Medtronic should their infrastructure be unable to handle the load factor. Keep in mind this is not a baseball game this is an insulin pump a life sustaining device that delivers a lethal drug. It certainly doesn’t help matters much that the company is still in the initial stages of launching the 670G and based on what we’re hearing is already having capacity issues.

Customer service is just one issue when it comes to capacity, having enough product on hand is another. Again, we hate to be redundant here but it would be foolish to believe that Medtronic could suddenly ramp up production to meet this influx of patients.

Now just as the Cubs ended up winning Medtronic would eventually integrate these patients into the fold. The question is at what cost and we’re not just talking more people or more products but this being America where suing is national pastime just like baseball, any failure could end up in court. Listen even if Medtronic did everything correct, did the best to accommodate all these new customers something will go wrong. This is a medical device and medical devices can and do fail or malfunction. And again, not be redundant but this medical device can kill a patient when it fails or malfunctions.

Let’s be very clear given the current situation in the insulin pump market this a very real and very distinct possibility. Baring a miracle Tandem will run out of money and go under. Given that JNJ can’t seem to tie it shoes when it comes to diabetes these days who knows what and when or if anything will be done with Animas. Heck one just might think that the folks in New Jersey just might wake up and realize the longer Animas remains in limbo the worse the situation becomes. Insulet could handle some new patients but like Medtronic they too would run into capacity constraints. Given that Tandem and Animas are both conventional pumps common sense says Medtronic will get the lions share.

Yes, life is blissful for Medtronic now but just as a married couple must eventually come home from their honeymoon and get back to the real world; so too must Medtronic understand that what they thought would be a dream scenario could easily become a very scary nightmare. As Momma Kliff said often; “Be very careful what you wish for as you might get it.”