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Exit by Johnson Johnson bolsters Medtronic’s insulin pump dominance

November 11, 2017 GMT

Using an insulin pump is an act of profound trust. Diabetic patients wear their insulin pumps at virtually all hours, relying on the medical machinery to administer doses of a potentially lethal hormone to keep their blood-sugar levels from going dangerously out of range.

So it came as a shock to Ed Komp when he learned last month that his pump maker, Johnson Johnson (JNJ), was halting all North American sales of its Animas brand insulin pumps and pushing its customers toward devices and supplies made by Medtronic.

Komp had dropped Medtronic a decade ago, choosing Animas pumps instead. Now he must reconsider his options after getting the Oct. 10 letter from JNJ.

My first response was really one of fear, said Komp, a software engineer at the University of Kansas who has used insulin pumps to treat his Type 1 diabetes for 25 years. Ive made the change once, and its a really hard change, actually. Very small differences have a big impact for me personally.

Minnesota-run Medtronic has emerged as a major winner in the $1.7 billion U.S. market for insulin pumps and supplies, as thousands of letters limiting patient choice have been sent out to diabetics, from both manufacturers and insurers. Insulin pumps typically sell for between $4,000 and $8,000 and deliver small, frequent doses of insulin day and night, which typically benefits Type 1 diabetics, whose immune systems destroy insulin-producing cells. (Type 2 diabetes, involving insulin resistance, is typically treated with manual injections, rather than a pump.)

Coverage policies at UnitedHealthcare and Medicare have given Medtronic a financial edge over other insulin pump makers, and Medtronic last year scored approval for the worlds only pump system that is designed to be able to automatically self-adjust insulin doses based on glucose readings.

The result has been growing market dominance by Medtronic. Industry analyst Paul Desormeaux of Decision Resources Group said Medtronic already controls about 61 percent of the U.S. insulin pump market, and that is expected to grow to 74 percent by 2019. Johnson Johnson controlled about 11 percent of the market before it stopped selling the devices in North America.

Medtronic recorded $1.9 billion in worldwide annual revenue from diabetes products and services in the fiscal year that ended in April. It has struggled to keep up with the increased demand for its latest pumps and glucose sensors. But JPMorgan Chase healthcare stock analyst Mike Weinstein said the backlog appears to be only a short-term problem for Medtronic.

For patients and doctors, the rapid contraction in the pumps market is a cause for concern. We think competition is good for innovation, said Cynthia Rice, senior vice president of policy at the Type 1 diabetes advocacy organization JDRF. Were disappointed that there are now fewer (insulin pump models) on the market. We think that is not good for patients.

Medtronic said its goal is not market dominance, but rather to make insulin pumps the global standard of care. Currently only 1 in 3 patients with Type 1 diabetes use a pump at all, while the rest use daily injections from a syringe.

Whether theres two other pump competitors, or three ... doesnt really factor into our drive for innovation and making this therapy more available to customers and getting better outcomes for patients, said Mike Hill, a vice president with Medtronic Diabetes. Were trying to drive to a broader goal.

Dr. Laura Gandrud, a pediatric endocrinologist with Childrens Minnesota, said no pump offers every feature, so families choose among the options that are most important to them, whether its comfort, remote-dosing of insulin, automated dosing adjustments, or compatibility with other companies sensors.

Dr. William Cefalu, chief scientific and medical officer at the American Diabetes Association, said in an e-mail that the association supports having a variety of different pumps on the market. A reduction in the commercially available insulin pumps further limits viable treatment options for people with diabetes, he said.

In 2015, patients in North America could have chosen among insulin pumps made by companies including Asante Solutions, Insulet Corp., Johnson Johnsons Animas division, Medtronic Diabetes, Roche Diabetes Care and Tandem Diabetes Care.

Asante stopped selling its Snap insulin pump and closed down in 2015. Earlier this year, Roche stopped selling its Accu-Chek insulin pumps and referred patients to Medtronic to get supplies for pumps still in use. Then in October, Johnson Johnson told customers that it was stopping North American sales of its Animas pumps and supplies, and encouraging its customers to transition to Medtronic.

Insulet still makes its OmniPod pump, which is different from any other pump on the market because it is worn for three days and then thrown away. More than 2,000 Minnesotans use this tubeless device, but company CEO Patrick Sullivan noted that it can be a challenge for older patients because Medicare wont cover it.

That leaves Tandem. The California-based company sells the t:slim and t:flex pumps, and after JNJ took Animas out of the North American market, Tandem declared to investors that it now had the United States only alternative to Medtronic in durable insulin pumps. Tandem recently opened new facilities to meet the demand for its touchscreen-enabled pumps, and it is launching international sales next year.

But investors are skittish. Tandem stock has dropped from $250 per share about four years ago to around $2.50 today. A company spokesman said Tandem plans to support customers for years to come with a robust pipeline of innovations, but Tandems latest quarterly-earnings report noted that management is busy raising capital because of a substantial doubt about our ability to continue as a going concern within one year.

Any future company that is going to succeed in the insulin-pump world has to have footholds in several aspects of the business, not just pumps, according to Jeffrey Brewer, who is chief executive of an aspiring diabetes therapy company, Bigfoot Biomedical.

California-based Bigfoot is aiming to combine advanced machine learning and cloud connectivity, with automated diabetes pumps and glucose monitoring tools to create a system that is accessible through a secure mobile app and paid for through a monthly subscription service. Other companies developing products include Massachusetts-based Beta Bionics, which aims to build a bionic pancreas that administers both insulin and another hormone that regulates blood-sugar, glucagon.

An insulin pump is not enough, Brewer said. The future is systems that will have software and continuous glucose monitors and pumps ... and use decision-support and artificial intelligence to help people take the right amounts. Thats what the future looks like. And frankly Medtronic is the only company in the world that has an approved product that does any of that, and so they are the only game in town.

Joe Carlson 612-673-4779