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MINIMED – Wall Street Optimistic Over MiniMed’s Coming Device

MiniMed Inc. has once again caught fire on Wall Street, with its stock more than doubling from $50 in December to $115 as of last week. Analysts say the frenzy is due to increased sales of the company’s insulin pump for diabetics, as well as inroads being made into the European market. But the story might get even better. Well along in the pipeline is a product that could take the Sylmar-based biomedical company through the roof: A patch pump designed to treat people with the most common form of diabetes. “We think this is a tremendous opportunity,” said Kevin Sayer, chief financial officer for MiniMed. The disposable patch, which is slightly thicker than a nicotine patch, contains a computer chip, insulin, a small pump and a needle. Doctors can program how much insulin the patch will release, and officials say the needle is painless. “It’s like a pill that you wear,” said Bill Van Antwerp, chief scientific officer at MiniMed. “This will be totally unique.” And profitable. Analysts project that the new device, combined with increased sales of MiniMed’s original insulin pump, is expected to increase earnings per share by 40 percent a year for the next five years. MiniMed has done so well over the past few months that ING Barings analyst Kevin Kotler recently downgraded the stock from “strong buy” to “buy” because it exceeded ING’s near-term target of $88. That $88 target is 55 times ING Barings’ projected 2001 earnings per share for MiniMed. “Our near-term execution risk from these new product opportunities (including the insulin patch) and stock valuation risk are the two drivers for our downgrading the shares,” wrote Kotler in his report. Sizable potential market The new product, which MiniMed officials say will be submitted for FDA approval later this year, holds particular potential because it targets a segment of the diabetic population that currently has no treatment options beyond injections. There are two types of diabetes, types 1 and 2. People born with the disease have type 1 and must constantly monitor their glucose and adjust their insulin intake. MiniMed’s existing devices are aimed at treating type 1 diabetes. People with type 2 are struck with the disease later in life and can sometimes go long periods without insulin and not feel any physical effects. Many type 2 diabetics can manage the disease with oral medication, but experts say roughly 3 million people in the United States with type 2 need insulin injections to prevent the more damaging consequences of diabetes, such as blindness and amputation. Of the 16 million people in the United States who have diabetes, 95 percent have type 2, according to the American Diabetes Association. And MiniMed’s new insulin patch is geared to that population. “The market is so huge,” said Robert Faulkner, an analyst with Chase H & Q.; “If everyone with type 2 diabetes used one of these (insulin patches), it would be well over a billion-dollar market.” In the mid-’80s, MiniMed changed the way people thought of diabetes treatment with the introduction of its first insulin pump. Worn at the waist, it consists of a computer that can be programmed to release insulin through a syringe pushed into the skin at set times. Before 1985, MiniMed was part of Pacesetter Systems Inc. Founded by Alfred Mann, Pacesetter was one of the leading manufacturers of cardiac pacemakers. That company was sold to German conglomerate Siemens for about $150 million and MiniMed was spun off as its own company. Since then, MiniMed revenues have reached $212.3 million. But it is almost entirely reliant on one product. “The company is the type 1 pump,” said Faulkner. “Almost all of their sales come from the pump product. It’s led to a spectacular growth.” The growth from sales of the type 1 pump could be a fraction of what the company might see from sales of the new type 2 patch. Key acquisition MiniMed acquired the technology from the Irish company Elan Corp. plc in June 1999. Sayer said the company paid Elan $10 million to $15 million in licensing fees and Elan will receive royalties from sales of the patch. Additionally, MiniMed will become the main manufacturer of the patch, which Elan plans to market to other companies for the treatment of other diseases, according to Sayer. MiniMed will soon be moving to a 505,000-square-foot site on the campus of Cal State Northridge, but Sayer said production of the patch will remain in Chatsworth. “This is going to be a very significant product for us,” said Sayer. But MiniMed faces some marketing challenges. People with type 1 diabetes risk immediate physical problems if they do not take insulin which, according to Van Antwerp, means they are very aggressive about their care. People with type 2 are more likely to skip insulin injections because they do not feel physically ill, despite the damage that skipping those injections can do over the long run. “Taking insulin is not difficult but people (with type 2) are not as compliant as they could be,” said Van Antwerp. Although type 2 patients can use MiniMed’s original pump, many don’t. The hope is that the simplicity of the new product will inspire people who currently are not managing their disease to take a more active role. “It will probably be good for elderly people or people with physical disabilities who have trouble giving themselves injections,” said Marian Parrott, vice president of clinical affairs for the American Diabetes Association. But Sayer pointed out that the market for the product is so large, MiniMed will only need a small percentage of that market to be successful. Still, there is competition. A number of other firms are working on alternative treatments for diabetes, including an inhalant, long-acting insulin that would reduce the number of injections diabetics must take per day, and treatments that target the disease on a genetic level. MiniMed’s closest competitor is Disetronic Medical Systems, a German company that also produces insulin pumps. Another is San Carlos-based Inhale Therapeutic Systems, which is working on an inhalable form of insulin that could eliminate the need for injections altogether.

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