TAM: Oligopoly in Diabetes Care – Part-II

In Part-I of this series of articles, we discussed how the US Insulin delivery systems market is an Oligopoly between Tandem, Medtronic & Insulet. In this article, we will discuss the Insulin delivery system’s total addressable market (TAM) and some factors which could grow TAM beyond the usual growth trendline.

TAM: According to industry estimates, the global insulin systems market is expected to grow at a CAGR of 16.3% between CY21-29 from a CY21 market size of $4.1B to $13.7B by 2029. BayFort Capital estimates, the US insulin delivery systems market was at $2.3B in 2021 and is expected to grow at a CAGR of 17% to $6B by 2027. Apart from population growth, there are other growth vectors helping Insulin delivery systems grow in the US. Multiple growth vectors provide a margin of safety in the industry growth estimates since even if one of the growth vectors doesn’t deliver as expected, other vectors could help make up for the shortfall. We discuss a few factors driving TAM & growth in the Insulin delivery systems market apart from growth in-line with population growth:

1. Type 1 Diabetes pumps penetration: Insulin delivery pumps are at about 36% penetration amongst Type 1 diabetes patients; the rest of them use multiple daily injections (MDI). It is this conversion of the MDI (with Type 1 diabetes) user population to pumps that is the growth vector for pump manufacturers. It’s difficult to convert MDI users to pumps and over the last 10 years pump penetration amongst Type 1 patients has only increased from 30% to 36%. However, considering the tubeless as well as artificial pancreas options now available in the market (starting H2-2022, discussed below), we believe this pump usage penetration could grow quicker than in the past. Finally, Type 1 diabetes is growing at a brisk pace in the US. CDC’s 2020 National Diabetes Statistics Report found nearly 1.6 million Americans with Type 1 diabetes —up from 1.25 million people—or a CAGR of 8.6% from 2017.
2. Type 2 Diabetes pumps penetration: About 90% of current pump usage in US is from Type 1 patients and hence all pumps are designed keeping Type 1 patients in mind. Consequently, pump penetration amongst Type 2 patients is a meager 5% of the total Type 2 patients that use MDI (2.1 million Americans). Type 1 diabetes patients’ body doesn’t produce any Insulin whereas Type 2 diabetes is a lot less complicated since for most patients the body does produce some Insulin and injections are used to increase Insulin in the body. Secondly, the average age of a Type 2 patient is 51 years and hence they don’t prefer to change their lifestyle in order to attach an Insulin pump 24x7 to their body. Pumps designed for Type 1 diabetes require too much patient training and inputs; Type 1 pumps are slightly modified and offered to Type 2 patients.?Since Type 2 diabetes care is less complicated patients are averse to wearing a pump. Rather than modifying Type 1 pumps for Type 2, we believe separately designed pumps specifically for Type 2 patients would help increase pump penetration beyond the current 5% levels.
3. Tubeless pumps & Artificial pancreas: 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. Pumps with minimal mechanically moving parts are the safest option with the lowest chances of malfunction. Secondly, lower to no patient input would facilitate higher pump penetration. Tubeless patch pumps with CGMs offer this functionality. They are offered in a small form factor of a patch, don’t require any tubes on a patient’s body, and also monitor and maintain a patient’s glucose levels automatically without any patient input. Consequently, these are also called the artificial pancreas. We believe these patch pumps (which are almost an artificial pancreas), introduced in 2H2022 are a major improvement in Insulin pump technology and could significantly increase pump penetration in Type 1 diabetes patients.

Risks: Insulin delivery systems TAM & growth over the long term is quite attractive. The sector is also one of the lowest volatility segments within the healthcare value chain. However, there are a few near-term risks that may impact the segment. We will discuss near-term risks to the Insulin delivery systems market in Part III of this (Oligopoly in Diabetes Care) series of articles.

Subscribe to our newsletter on LinkedIn to receive updates or join our, open to all, Telegram group where we post quarterly financial data for companies discussed in these articles: https://t.me/bayfortcapital

Links to all articles in this series:

1. Part I: Oligopoly in Insulin Delivery Systems: https://www.dhirubhai.net/posts/ketuls_tandem-medtronic-insulin-activity-6987727948166410241-czpZ?utm_source=share&utm_medium=member_desktop

#tandem #medtronic #insulin #dexcom #stockmarket #stocks #stockstowatch #stockstobuy #stockmarketinvesting #diabetes #diabetescare #diabetesmanagement #insulinpump #cgm?