Consumer electronics juggernaut Samsung Electronics Co. (NASDAQOTH:SSNLF) and medical device powerhouse Medtronic PLC (NYSE:MDT) have been in the news recently after they announced a joint partnership at the American Diabetes Association 75th Scientific Sessions. The goal of the partnership is to combine each of their areas of expertise to make it easier for people with diabetes to successfully manage their disease. The companies have stated their intentions to develop a range of future solutions that will allow for patients with diabetes to have easier access to viewing their data, with the ultimate goal of fully integrating mobile and wearable devices into a complete diabetes management system.
For Samsung, this partnership will provide a foot in the door in the important health-related wearables market, as they are desperately trying to keep pace with Apple. Apple is pushing hard to be an important player in the space, as is evident from the company's recent product launches like Health Kit, Research Kit, and the Apple Watch. Establishing a direct relationship with a medical device giant like Medtronic appears to be a sound strategy for carving out a space in the market.
This deal also makes a lot of sense for Medtronic, as Samsung is a huge player in the consumer electronics market, and it's likely that a huge number of patients using Medtronic's devices already have a Samsung device. Medtronic is currently a huge player in the diabetes device market -- the company rang up more than $1.6 billion in sales in 2014 from the sale of its insulin pump and continuous glucose monitoring devices.
In a separate but related announcement, Medtronic also stated that it received FDA approval for the MiniMed Connect. The Connect consists of a small uploader device that allows for data from Medtronic's insulin pump or continuous glucose sensor to talk directly to a mobile phone. This data can then be viewed directly on the phone itself or relayed to the cloud for viewing on a variety of Internet-enabled devices. Once in the cloud the data could then be shared with a variety of healthcare providers like family members, school nurses, or physicians.
The Minimed Connect will go on sale for $199 this fall, and will initially be rolled out on only to iOS devices like the iPhone and iPod touch in the U.S. Medtronic did mention they plan to make the device available for Android users as well, and the company is planning on taking additional steps with Samsung mobile devices specifically, which includes developing their custom own app to optimize the experience.
If this idea sounds familiar, it should, as Medtronic's smaller but faster growing glucose sensor rival Dexcom (NASDAQ:DXCM) recently launched a similar product. The Dexcom G4 Platinum with Share went on sale earlier this year, and the device allows for Dexcom's receiver device to communicate with Apple's iOS product directly. Dexcom's system doesn't require a separate uploader like Medtronic does, and Dexcom's system is already integrated into the Apple Watch as well.
However, Medtronic's device may be more useful to providers than Dexcom's currently is, as the Connect will share insulin pump related data as well. Perhaps that extra data will be enough of an advantage to entice their users to carry yet another device on them all the time.
Will this move the needle for Medtronic?
It's hard to imagine that this device's $199 price tag will come close to directly impacting Medtronic's financial statements. Diabetes Forecast magazine noted that in 2014 only about 350,000 U.S. patients currently used an insulin pump. Even if you assume that, say, 300,000 of those use Medtronic and 100% of them get the Connect, that's only $60 million or so in revenue, which is a rounding error for the company. After all, Medtronic rang up more than $17 billion in total sales in 2014, and the diabetes division contributed $1.6 billion to that number.
However, the diabetes division remains important to Medtronic, as it is one of the company's fastest growing segments, so its good to see them investing in this kind of innovation. While the Connect itself doesn't appear to be a huge money maker for the company, it could be a nice piece of technology that helps to expand Medtronic's diabetes ecosystem. Keeping users inside that ecosystem is vital to helping the diabetes division grow. Medtronic faces some serious competition on this front from the likes of Johnson & Johnson's Animas division, which recently launched a competing sensor augmented pump of their own. There are also several smaller insulin pump rivals in the space like Insulet Corporation and Tandem Diabetes Care Inc, who have been eating away market share.
This partnership seems like a great deal for both Medtronic and Samsung, and if it even slightly works to help keep patients inside the Medtronic ecosystem, it sounds like a big win for the company. However, if you are interested in investing in the diabetes market, I think there are much better companies out there for you to focus your attention on.
Brian Feroldi owns shares of Insulet. The Motley Fool recommends Insulet and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.