Medtronic announced better than expected Q1 fiscal year 2024 results yesterday. The diabetes segment of the business generated quarterly sales of $578M, more than 6% higher than the prior year. CEO Geoff Martha confirmed that the turnaround in diabetes is real and underway. He reiterated what Medtronic shared at the American Diabetes Association briefing in June.
“We're just at the beginning of this inflection point for the business. As we shared with you at our ADA investor briefing in June, we see the intensive insulin space moving from primarily stand-alone CGM today to one that is smart dosing through either AID systems or smart MDI.”
Geoff Martha - Medtronic CEO
In our last note (read here), we discussed a market shift happening in insulin delivery. Medtronic believes that over the next six years, insulin pumps will see increased adoption as more diabetes patients move to smart dosing systems that include using a CGM monitor in tandem with insulin pumps and insulin pens. This tailwind was confirmed by Medtronic during their FY Q1 2024 update.
Currently at 20% penetration, Medtronic sees insulin delivery hitting 65% adoption among the intensive insulin patient population. That’s approximately 4.6M total users worldwide. Today this number is 1.3M, so Medtronic expects about 3M diabetes patients to convert into pump users over the next 6 years.
Medtronic expects to close their EOFlow acquisition at the end of 2023 (more on this below). Non-U.S. diabetes grew 18%, the highest growth in 4yrs. In 71 markets around the world, Medtronic’s insulin pump is the only pump approved, so the lack of competition is assisting adoption.
According to CEO Martha, GLP-1 drugs from Novo Nordisk & Eli Lilly have no impact in type 1 diabetes patients, which is the vast majority of MDT diabetes business. Overall, Medtronic does not see GLP-1 having a material impact on Medtronic’s business and medical devices.
Insulet Suing EOFlow & Medtronic
In an attempt to address glaring holes in their product lineup, and to compete with pump leader Insulet (PODD), Medtronic made a bolt on acquisition to add a patch pump to their product offering. In May 2023, Medtronic announced the acquisition of EOFlow for $738M. EOFlow makes a patch pump similar to Insulet’s Omnipod. So similar, in fact, that Insulet filed a lawsuit against EOFlow for intellectual property infringement and unfair competition. Insulet alleged that EOFlow developed their insulin pump with the help of former Insulet employees and Insulet’s contract manufacturer.
Insulet’s full complaint can be read here. Few interesting tidbits from the complaint:
- Patch pumps are the most rapidly growing segment of the insulin pump market (listen to MDT CEO CNBC Interview)
- Medtronic’s internal developments failed to develop a commercial patch pump product
- Medtronic was reportedly in advanced negotiations to acquire an Israeli patch pump company Triple Jump, for $300 million in October 2021.
- EOFlow’s total R&D expenditure was approx. $10-15 million, compared to Insulet’s Omnipod which cost "hundreds of millions" to develop.
EOFlow submitted a 510(k) for their patch pump at the end of December 2022. Almost 9 months later and the FDA has not yet granted the EOPatch clearance to commercialize in the US. On average, the FDA takes approximately six months to approve devices submitted through the 510(k) process. Approximately 95% of devices are approved within 12-months. Tandem’s newest insulin pump, called Mobi, took 9 months for the FDA to clear the submission. According to this schedule, EOFlow should get clearance shortly.
Modular Medical’s Active Week
In the last week, Modular Medical (MODD) has traded over 18M shares, almost totaling their 21M shares outstanding number. The trading activity was triggered by an announcement that MODD partnered with Phillips-Medisize to design, develop, manufacture and assemble their insulin pump. This demonstrates that MODD is moving closer to market launch readiness and the ability to scale insulin pump production.
Having a reliable manufacturing line ready for creating products for FDA inspection is usually an overlooked move, especially since CMC is often the snag for smaller companies dealing with FDA clearance/approval. MODD & Phillips-Medisize have been working together for over a year. Announcing the deal now is indicative that Phillips-Medizise sees MODD as a long-term client with commercial potential.
MODD currently trades at a $25M market cap, likely because it remains a pre-clearance pump and has experienced several delays with their FDA submission. The planned 510(k) submission with the FDA by year end 2023 could prove to be a catalyst that ignites interest in the company as it would put MODD one step closer to commercialization and restore credibility by overcoming the submission hurdle that has paused progress. The Phillips-Medisize announcement is a step in the right direction for MODD's credibility.
If pump takeouts are any indication, MODD should see higher upside as it approaches 510(k) submission and subsequent clearance. Pumps without FDA clearance have received >$200M takeouts in recent transactions. MODD trades at a fraction with their ~$25M market cap.
- Oct 2021: Medtronic was reportedly in advanced negotiations to acquire an Israeli patch pump company Triple Jump, for $300M. The Triple Jump Pump was pre-clearance.
- Dec 2022: Tandem purchased AMF Medical, maker of Sigi Patch Pump, for up to $212M, including milestones and earnouts. The Sigi Patch Pump is in pre-clearance with submission expected by late 2026.
- May 2023: Medtronic announced the acquisition of EOFlow for $738M. EOFlow makes a patch pump similar to Insulet’s Omnipod. It is cleared in over 10 countries globally, but not yet approved in the US. EOFlow submitted a 510(k) to the NDA in December 2022 and generated approximately $5M in device sales in other countries.
PropThink contributors do not hold positions in any of the names mentioned.
Disclaimer:
PropThink has been previously compensated fifteen thousand dollars by Modular Medical Inc. ("Company") for conceptualizing, marketing and hosting a digital conference. The prior compensation forms a bias to remain objective in our communication regarding Modular Medical Inc. PropThink has not been compensated for additional content of Modular Medical Inc.. PropThink is not a registered investment advisor in any jurisdiction. We do not publish investment advice and remind readers that investing involves considerable risk. PropThink urges all readers to carefully review the Company's regulatory filings and consult with an investment professional before making any investment decisions. Please read our full disclaimer at https://propthink.com/disclaimer
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