Oligopoly in Insulin Delivery Systems – Part-I

The US Insulin delivery system space is dominated by three players Tandem, Insulet, and Medtronic. DexCom and a few other companies provide Continuous Glucose Monitoring (CGM) devices used by Insulin delivery systems. In this article, we will discuss this niche and many times overlooked part of Diabetes Care, i.e Insulin Delivery Systems. All patients on Insulin have two options: use the multiple daily injections method or Insulin delivery systems. The usage of Insulin delivery systems is higher (36% of Type 1 patients) in Type 1 diabetes patients while Type 2 patients prefer multiple daily injections (95% of Type 2 patients). In this article, we will focus on Type 1 diabetes patients since they form 90% of the users of Insulin Delivery Systems. If a patient decides to go with an Insulin delivery system, he/she has multiple options in terms of devices which can range from semi-automatic to fully automated systems which even qualify as “Artificial Pancreas”. An Insulin delivery system is made up of two parts A) Continuous Glucose Monitoring device (CGM): A blood glucose monitoring device & B) Insulin Delivery Pump: A device to deliver Insulin based on the CGM reading and food intake. Every Insulin Pump requires a specific CGM and is not interchangeable with a different brand CGM. Tandem, Insulet & Medtronic own the bulk of the market share for Insulin delivery systems in the US, and DexCom is the largest CGM provider in the US.??We will explain the main reasons for this type of stronghold (by these vendors) in the Insulin delivery space.

1. Contracted Patients: Insulin delivery pumps & CGMs are covered by insurance (almost always for Type 1 diabetes and sometimes for Type 2). The average cost of a Pump in the US is around $4,000 and consumables cost about $1,100 per year.?Since it’s a one-time upfront cost, insurance will only pay for it once in four years which is when the patient can get a new system. Attrition rates are in the 15% range when a pump is up for renewal. Such contractual nature of the industry increases entry barriers for new players.
2. Pump durability: Since it’s a high upfront cost product, insurance companies require the manufacturer to provide a warranty of four years on the pump; it means the pump manufacturer has to design pumps to withstand daily usage wear and tear for four years. The pump is attached to the patient’s body, moves with the patient 24x7, and cannot fail as the patient’s life depends on it (in the case of Type 1 diabetes). It’s a difficult situation if the pump has to be recalled after say two years since it fails in one particular scenario, it could make the entire business unprofitable, quickly. New entrants have to ensure their pumps will work in every possible scenario hundreds of thousands of people are going to endure over a four-year period. Think about a cell phone that can work without breaking or service for four years. If a pump fails to deliver insulin from a simple issue such as the pump being detached from the body due to a loose connection, for a type 1 diabetes patient (about 90% of all pump users) it is an emergency. The patient (of type 1 diabetes) can sustain without Insulin only for six hours after which the patient gets into a life-threatening condition called diabetic ketoacidosis (DKA). The life expectancy of type 1 diabetic patients is on average 12 years less than that of the general population. Johnson & Johnson offered a pump (Animas) but exited the insulin pump business in 2018; they couldn’t make the pump business profitable due to warranty service requirements.
3. Complexity and getting used to a device: Once patients are used to a pump for four years on such a daily usage device (multiple times a day), patients have formed a habit of using it. Insulin pumps require patients to keep track of their food intake as well as CGM readings and update it with the pump so that the pumps can release insulin appropriately. Pumps from different companies also use different CGMs (Continuous Glucose Monitoring Systems) which requires some patient training. Combined with CGM & Pump usage training, it is quite a complex process for a patient to learn and execute it correctly on a daily basis. For Type 1 diabetes patients, their life depends on it so mistakes could be fatal and/or require expensive hospitalization. Once a patient is used to one brand of pumps, they may not want to change it altogether to a new brand since it will require them to train on a new pump & CGM all over again. So, patients may not change pumps for minor upgrades and even if they do, as long as they are getting similar features from their current brand of pumps, they will just upgrade to the latest one from the same brand. E.g iPhone users will simply upgrade to the next iPhone rather than buy an Android even if some Android phones may be much more technologically advanced compared to an iPhone.?
4. Distribution network & after-sales service: Unlike other devices, the Insulin delivery system requires education and training of both doctors and patients which makes the task at least twice as difficult and expensive, if not more. A patient’s Endocrinologist (for Type 1) is most likely to recommend an Insulin delivery pump. This is the first barrier to entry into the distribution system. Some doctors prefer a particular brand due to their familiarity and the results they have achieved with it; they will not change that preference for minor improvements in a competing pump. As you can imagine, Endocrinologists are very busy and don’t like unhappy patients coming back to them due to an after-sales service or training issue. Such issues hurt their reputation and cost more of their time to fix the issue or train the patients in using the new pump. Hence doctors may recommend a technologically inferior pump if it has better after-sales service; established players would generally have better after-sales service compared to a new entrant. Finally, availability and insurance approval also play a role in pump selection. A doctor may not want to wait for a month if one is available within a few days.

Conclusion: It may be difficult to break the Oligopoly in Insulin Delivery Systems in the short to mid-term since it is such a niche industry with high entry barriers. However, that raises the question of how big is the Total Addressable Market (TAM) and its growth; is it even worthwhile investing in the space if it’s so small? How long is the growth runway or is it a stagnant industry? We will focus on all these issues in Part-II of this series of articles.

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Links to similar Oligopoly in Chip Design Tools Industry articles:

1. Part I: Chip Design Tools, Triopoly - https://www.dhirubhai.net/posts/ketuls_nvidia-synopsys-cadence-activity-6975015392578555905-qYc-?utm_source=share&utm_medium=member_desktop
2. Part II: EDA TAM - https://www.dhirubhai.net/posts/ketuls_synopsys-cadence-mentorgraphics-activity-6977506349010038784-ir2R?utm_source=share&utm_medium=member_desktop
3. Part III: EDA Risks - https://www.dhirubhai.net/posts/ketuls_semiconductors-eda-nvda-activity-6981552643856846848-YtUr?utm_source=share&utm_medium=member_desktop
4. Part IV: AI in Chip Design - https://www.dhirubhai.net/pulse/ai-simulation-next-frontier-chip-design-software-eda-ketul