Approximately, 347 million people worldwide currently suffer from diabetes, including 8.3% of Americans. The CDC believes that as many as one in every three adults in America will have diabetes by 2050, a sobering figure that reminds us that despite all the treatments we have for the disease, there is still no cure. However, technological advances have steadily improved the lives of diabetics by making the disease more manageable.
Medtronic's artificial pancreas
Medtronic (NYSE: MDT ) recently made history when its wearable artificial pancreas, the first of its kind, was approved by the Food and Drug Administration. The device is designed for type 1 diabetics whose bodies cannot produce any insulin, in contrast to type 2 diabetes, which is characterized by insulin deficiency. Approximately, 5% to 10% of diabetics are classified as type 1.
Type 1 diabetics need to monitor their blood sugar levels continuously throughout the day with pinpricks and insulin injections. To decrease this burden, companies have made wearable insulin pumps and continuous glucose monitoring devices, but the two devices must be used independently.
Medtronic's artificial pancreas, the MiniMed 530G, is different. In a clinical trial, patients were found to be 31.8% less likely to suffer acute events while wearing the device. The device can also automatically stop insulin delivery when glucose levels reach a low preset threshold.
Last quarter, Medtronic's diabetes group reported revenue of $369 million, a 1% year-over-year gain that accounted for 9% of the company's top line. The segment's top-selling products were its Veo insulin pump and its Enlite continuous glucose monitoring sensor. Medtronic stated that insulin pump sales in the United States had declined due to the anticipated launch of the MiniMed 530G.
Letting bygones be bygones
Medtronic also recently signed a cross-licensing deal with Insulet (NASDAQ: PODD ) , which it took to court last year over the alleged patent infringement of its MiniMed patents. Insulet's primary product is the OmniPod Insulin Management System, which features a disposable, tube-free pod that can be worn on the body for three days at a time. The device communicates wirelessly with a handheld personal diabetes manager. Unlike Medtronic's MiniMed 530G, however, it is a manually operated system.
Since Insulet is a pure play on "smart" insulin pumps, compared to Medtronic's diversified medical device operations, it has generated a lot of excitement among investors. The stock is up more than 70% over the past 12 months, although the company has yet to post a profit. Insulet's revenue rose 18% year over year last quarter.
Others aren't that far behind
The game-changing nature of Medtronic's artificial pancreas hasn't gone unnoticed in the medical device industry. The market for glucose monitors and insulin pumps generates $2.4 billion in annual revenue -- which could be disrupted by Medtronic's new device.
DexCom (NASDAQ: DXCM ) , which manufactures continuous glucose monitors, could be hit by this technological shift. The company has built its entire business on extended use continuous glucose monitors, the latest of which can be used continuously for up to seven days. Like Insulet, expectations for DexCom are high, and shares have risen 87% over the past 12 months. DexCom is also unprofitable, although its annual revenue has steadily risen 150% over the past three years. Rather than create its own artificial pancreas; however, DexCom is helping Johnson & Johnson (NYSE: JNJ ) create one.
Johnson & Johnson, whose medical device business accounted for 40% of its revenue last quarter, has also been developing its own artificial pancreas, Animas. The device is integrated with DexCom's continuous glucose monitoring technology, and is expected to be approved and launched next year.
Last quarter, the diabetes care segment of J&J's medical device business reported a 12.5% year-over-year decline in revenue, and only accounted for 8.2% of the segment's total sales. The diabetes care business was a laggard in the medical device segment, which grew 9.6% last quarter -- a decline that Animas could rectify.
The Foolish bottom line
It isn't surprising that Medtronic was the first company to create the first artificial pancreas. After all, this is the same company which created the first battery-powered external pacemaker in 1957 and introduced the first insulin pump in 1983.
If Medtronic can capitalize on its head start over J&J and DexCom over the next few months to establish a firm foothold in medical facilities across the country, the MiniMed 530G could significantly boost its lagging diabetes business and improve the lives of millions of diabetics.
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Editor's Note: A previous version of this article included a sentence that didn't clearly explain the MiniMed 530G's technology. The Fool regrets the error.