Worth a second look
Yesterday Medtronic (NYSE: MDT) announced a value-based deal with Aetna. Per a company issued press release;
“Medtronic plc (NYSE:MDT), the global leader in medical technology, today announced a new outcomes-based agreement with Aetna (NYSE: AET) for type 1 and type 2 diabetes patients currently on multiple daily insulin injections for their diabetes management. The agreement will measure health outcomes for those patients that choose to transition to pump therapy using a Medtronic insulin pump featuring SmartGuard(TM) Technology, including the new MiniMed(TM) 670G system* – the first and only system that constantly self-adjusts to keep patients’ blood sugar levels in range based on their personalized needs.”
Now value-based deals are nothing new anymore and this is not the first value based deal Aetna has made with an insulin pump company. Animas, Johnson and Johnson’s (NYSE: JNJ) insulin pump unit, also has a similar deal with Aetna which went into effect this past February.
While we have nothing against value based deals the real question is will this deal have any material impact on what counts, sales. What Medtronic is hoping for is they will be able to prove that their system does a better job than multiple daily injection (MDI) therapy. That Aetna will ultimately save money by switching MDI patients to the 670G. Savings which will come from fewer hospitalizations.
Even if we assume this to be true the real question is just how many pumps will Medtronic sell as a result. According to the Aetna web site the company covers 23.1 million lives. Assuming traditional statistical norms apply that translates into approximately 1.8 members who have diabetes. Of which, again assuming statistical norms 180,000 use insulin. Based on averages we estimate that 70% of these insulin using patients do not use a pump. So, at first glance it would seem that if successful Medtronic could significantly increase sales.
Yet as often is the case what seems promising at first glance gets less promising when looked at a second time. Let’s say that Medtronic is correct in their belief that the 670G will produce better outcomes and Aetna will save money from fewer patient hospitalizations. Can Aetna then force these MDI patients onto a pump? Or perhaps looked at another way could Aetna not also find a cheaper tool than an insulin pump to more effectively manage these MDI patients? A tool that would ultimately decrease patient hospitalizations therefore generating the savings they desire?
Today there are a plethora of insulin dosing apps which help the patient more effectively dose their insulin. There are also a bunch of way cool cloud enabled insulin pens which can be linked to these apps. Throw in a CGM which can also communicate with the app and what do you have? A system that’s just as effective as an insulin pump but at a much lower price point to Aetna.
Yet this system isn’t just cheaper because the tools used to manage the patient are cheaper. The cost savings of this app/pen/cgm system extend to patient training and support. There is no question that insulin pump therapy is very effective however insulin pump therapy also brings with it a host of additional costs. Costs that extend beyond the cost of the hardware.
What gets lost when people talk about pumps even the advanced 670G system is these are not slap it on turn it on systems. They are complex devices which require hours of patient training combined with 24x7x365 patient support. Whereas by comparison the app/pen/cgm system requires minutes of training and limited patient support. Looked at realistically the real training for such a system is teaching the patient how to use the CGM, not a complex task which can be taught in a matter of minutes.
Patients following MDI, Medtronic’s target market here, are already used to injecting and we would guess many if not most are familiar with using an insulin pen. Even those who aren’t it doesn’t take an advanced degree to understand how an insulin pen works. It’s also very safe to assume that most of these patients also have a smartphone and are well schooled in using apps, so again no training needed. And once the Dexcom (NASDAQ: DXCM)/Google slap it on turn it on sensor gets here learning how this system works will also be a snap. Even the current Dexcom system isn’t that difficult to use and can be learned quickly.
Another factor not considered but should be is the fact that while insulin pump therapy is very effective it is also a much different lifestyle for the patient and the patient’s physician. We have long contended that insulin pump therapy is as much a lifestyle choice as it is a therapy choice. The fact is many patients don’t want to be attached to a machine, a machine which delivers a life saving but also lethal drug. Machines which can and do malfunction. Nor do they want to go through the hours of training needed. What patients want more than anything is simplicity and even advanced pumps aren’t that simple.
So once again this deal is all about what else, money. Who spends it, who saves it and who makes it. Looked at realistically Aetna would achieve much greater savings with a app/pen/cgm system than they would converting these patients to the 670G. There is nothing wrong with the 670G and there is no question some patients would benefit from converting. However, when looked at strictly from a total cost perspective the app/pen/cgm system achieves the greatest potential savings.