Guest Post by David Kliff, Diabetic Investor Newsletter.
This morning I learned of yet another closed-loop insulin delivery system, i.e. artificial pancreas, under development. Per a post on the Drug Delivery web site: Cellnovo and Diabeloop said this week they are launching a CE Mark cross-over registration study for an artificial pancreas device Diabeloop is developing which uses Cellnovo’s insulin pump.
Now keep in mind that Medtronic is currently launching the 670G, the artificial pancreas that really isn’t an artificial pancreas. Animas, Insulet, and Tandem all have closed-loop projects under way and the premise behind Bigfoot is a closed-loop system.
Is it possible that this way-cool whiz-bang device could end up like every other whiz-bang way-cool diabetes device and become a commodity? Yep! Is it possible that when it becomes a commodity there will be a price war? Yep! Do we really need 5 or 6 of these suckers? Nope. Will that stop anyone from trying? Nope.
The reality is we are still trying to figure out how anyone is going to make money in this market. Just looking at the 670G from Medtronic and all the additional expense this system demands, it does make one wonder. So far patient reaction to the 670G has been what I have anticipated, a love-hate affair. When it works, patients love it; when it doesn’t, it’s just another pump. Also, as I anticipated, the pump itself is nothing special and the love-hate scenario rests solely on sensor performance.
Based on everything I have seen and read so far, the new Enlite sensor is better than the old one. That was a low bar to jump over. Is it as accurate and reliable as the Dexcom G5? That’s debatable.
Yet, let’s look beyond which sensor is “better” or which pump has a more patient-friendly user interface and let’s look at the bottom line: what’s the potential market size, or just how many patients will opt for a closed-loop system? At Medtronic, I suspect that after they work out all the kinks, the 670G will become the dominant system for patients new to pump therapy, as well as the replacement for out-of-warranty pumps. I do not, however, see any closed-loop systems expanding the overall insulin pump market by any significant amount.
Cost is one reason why, but not the only reason. Cheaper technology that produces similar or better outcomes is another. As I have been writing, a “smart” insulin pen/CGM/app combo will do as good a job at a much lower cost. And cost is what matters here. Look, insulin pump therapy is great, everyone knows that; but only a third of type 1 patients use a pump, and barely 5% of insulin-using type 2’s use a pump. The question that should be asked is: why aren’t these numbers higher if insulin pump therapy is clearly better?
This is the question no one is asking, because if they did they would not like the answer. The fact is, insulin pump therapy is a lifestyle choice NOT a therapy choice. For every study that shows insulin pump therapy is better than multiple daily injection (MDI) therapy, there is one that shows the reverse to be true. Heck, look at Medtronic’s own statements about the 670G and why patients liked it so much in the clinical trials. It wasn’t that they necessarily achieved better outcomes; no, the 670G made their lives easier; they spent less time thinking and/or worrying about their diabetes.
There is no question this a positive aspect of the 670G, but for all these closed-loop systems under development, they must do more than make the patient’s life easier, as payors don’t pay for making a patient’s life easier. Heck, payors don’t even pay for outcomes yet, and even if they did, Medtronic will have a huge edge as they will have more data and more experience. Listen, I know everyone hates when I say this, but this is all about money — who makes it and who saves it. For any of these newcomers to the closed-loop world to stand any chance at all, they MUST show payors they can do what Medtronic does — but they can do it cheaper.
This is where the problem comes, as none of these newcomers have the huge installed user base that Medtronic does. They must build the expensive infrastructure that Medtronic already has. They must establish the payor relationships Medtronic has, build trust with physicians, CDE’s and patients. Then they must hope that after they sit with the payors and tell them, “Hey, we can do this better and cheaper than Medtronic,” that Medtronic does not then come back and say, “OK, we’ll lower our price in exchange for exclusivity.”
This is exactly what happened at UnitedHealthCare and will happen again IF these newcomers ever get their closed-loop system to the market.
When it comes to the insulin pump market and making money, size not only matters, it’s critical. Look at Tandem, which is bleeding cash on the verge of bankruptcy, who has approximately 50,000 patients. Animas, a unit of Johnson and Johnson, has more than twice as many patients than Tandem and the unit has NEVER made money for the mothership. Insulet has approximately 100,000 patients and is struggling after more than 11 years on the market to get their margins into an acceptable range.
The facts, yes, those pesky facts, tell us that when it comes to making money in the insulin pump market whiz-bang way-cool means NOTHING — scale is what matters.
What I would love to ask a company like CellNovo — which has no presence in the U.S., the market they must play in to have any chance at all at being successful — is how they will achieve the scale needed to make money. How will they overcome not just Medtronic, but every other company in this space?
The fact is, yes, those pesky facts once more, a closed-system has the same issues as a plain old insulin pump has; how can any company not named Medtronic make money? What do they have other than a lower price that will attract the attention of the people that matter most: payors?
As a lifelong Chicago White Sox fan, it pains me to write this, but right now the Cubs are the team to emulate. They have an abundance of young talent and unless something goes seriously wrong they look to be contenders for years to come. So, what are my Sox doing? Exactly what the Cubs did, getting bad before they can get better. The plan that worked for the Cubs isn’t hard to grasp and easy to emulate.
Well, the same cannot be said for the insulin pump market. Medtronic, actually MiniMed, was at the right place, at the right time with an ultra-talented team. These market conditions will not come along again. Many have tried to emulate MiniMed’s success, but so far no one has been able to figure out the recipe of the secret sauce. Given how this market is developing, I cannot imagine anyone coming even close to Medtronic.
What I do know is they won’t get there by having another way-cool whiz-bang toy. Now if they had a way cheaper way-cool whiz-bang toy that might work. Only problem is no one has yet figured out how to have a cheaper way-cool whiz-bang toy and make money so they can stay in business.
David Kliff – Publisher – Diabetic Investor – www.diabeticinvestor.com
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