The movers and shakers of the diabetes/insulin market are having...

The movers and shakers of the diabetes/insulin market are having a major shake up.

This article in the Wall Street Journal is a great summary of where the market is at. It also suggests that Sanofi-Aventis should partner up with a small time player who is looking to make a transdermal insulin patch in coming years.

The article also speaks of a product called 'Insulet' as a leading insulin device but in the future how could such a thing compare with 'Insulpatch'.

reads..........

WALL STREET JOURNAL

March 26, 2010, 4:41 PM GMT

Razors and Blades, Devices and Drugs
It makes sense for a company that sells printers to sell the ink cartridges. Why shouldnt the company that sells the devices that diabetics use glucose monitors and insulin pumps also sell the insulin that they consume to control their disease?
Sanofi-Aventis CEO Christopher Viehbacher may have been thinking along these lines when he said in a recent interview that his drug company might make a little foray into the device side of the diabetes business. Sanofi sold $4.1 billion of insulin, and almost $1 billion in other diabetes treatments, last year.
Yet there are challenges to vertical integration that are unique to the diabetes business. Viehbacher and his team must proceed with care.
The first challenge is the competitive terrain in diabetes. The big players in the space are Roche ($2.8 billion in annual diabetes equipment sales), Johnson & Johnson ($2.4 billion), Abbott Laboratories ($1.2 billion) and Medtronic ($1.2 billion). Thats a top-notch roster of well-run health-care companies you dont want to compete against.
Viehbacher noted this point, and suggested that a partnership or joint venture, rather than an acquisition, might be the best way in.
If Sanofi formed a partnership with one of the big players in diabetes devices, it would not be a first. Novo-Nordisk and J&J teamed up early this decade in an effort to drive sales. They jointly released the InDuo device, which combined blood-glucose monitoring with an insulin-dosing tool, in 2001. The fit was not perfect: the device is no longer on the market.
One industry executive recently highlighted the difficulty of generating sales synergy by marketing insulin and equipment together. It is hard enough to deliver a focused marketing message on a single product in the small amount of face-time salespeople get with doctors. Adding a second product of a totally different kind adds another layer of complexity.
Despite the challenges, there could still be logic to a device/insulin tie-up. The biggest insulin manufacturers Sanofi, Novo and Eli Lilly have huge sales forces. Value will be optimized if selling power is married with a device company with outstanding technology but a limited commercial organization. Partnerships with small, highly innovative firms may make the most sense.
Insulet Corporation or DexCom might therefore make good partners for Sanofi. Both companies have enterprise value a bit over a half billion dollars. Insulet had 2009 revenue of $66 million, DexCom, $30 million. But growth is torrid: Insulet has guided to 2010 growth of at least 36%; analysts expect 66% growth at DexCom.
Each companys technology is well differentiated: Insulet has the only marketed disposable, tubeless insulin pump, a so called pod or patch technology that is less cumbersome to use than traditional pumps. DexComs continuous glucose monitors are small and are approved for longer use between replacements than competing products. The company also has a partnership with Johnson & Johnson, making its monitors.
Steve Pacelli, chief administrative officer at DexCom, thinks a partnership with an insulin maker would make a lot of sense, particularly if the partnership funded clinical outcomes studies showing that the two products work well together.
Sanofi could easily buy either company. But both have valuations as high as their growth rates, and Sanofi might shy away from committing too much capital to an industry where competition continues unabated: Medtronic plans to bring an insulin patch to market within the next few years, to compete with Insulet, and is integrating its pumps and continuous glucose monitors more and more, keeping the pressure on DexCom.