This Remarkable Device Revolutionizes Diabetes Treatment

By Markets

This could be a game-changer for type 1 diabetics: The FDA surprisingly approvedMedtronic's (NYSE: MDT) "artificial pancreas" earlier than expected. Following that approval, Medtronic plans to begin selling the system to type 1 diabetes patients next spring.Medtronic's MiniMed 670G couldsignificantly reduce patient burden and improve glycemic control, soanalyst Kristine Harjes andcontributor Todd Campbell discuss how itworks, what it will cost, and whatits potentialimpact maybeon this disease inthis episode of The Motley Fool's Industry Focus: Healthcarepodcast.

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Harjes and Campbell also discuss a recent study showingthat medical marijuana may help seniors remain in the workforce longer and update investors on marijuana legalization efforts ahead of November's ballot.

A full transcript follows the video.

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This podcast was recorded on Oct. 5, 2016.

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Kristine Harjes: ThisMotley Fool podcast is brought to you byPearl Auto, which makes rearviewcameras for your car that retrofitaround your license plate and sync with your smartphoneso you can drive more safely. Check it out at and get free two-day shippingapplied at checkout.

Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It'sOctober 5th. My name is Kristine Harjes,and I have Motley Fool healthcare contributor Todd Campbellon the line. How are you, Todd?

Todd Campbell: I'm doing great. I'm getting excitedwith Halloween right around the corner.

Harjes: I can't believe it's already October. But it feels like it.

Campbell: Yeah,it's getting kind of chilly.

Harjes: I like it. This is my kind of weather.

Campbell: It'sgood sleeping weather.

Harjes: That's true. It'salways good sleeping weather, though.(laughs) We have twotopics to cover today. They really don't have anything in common. I was trying to think of a way to tie them to each other, andthey're just different. The one we'll get to later in the showis about medical marijuanaand some updates there. The first thing we want to talk aboutisMedtronic(NYSE: MDT), who hadsome exciting news recently.

Campbell: Ifyou're trying to find a common thread, they both start with the letter M.

Harjes: They actually both start with "med," if you say medical marijuana. I thought of that and I was like, "That's great!" ButI can't use that because we're the healthcare show -- everything starts with "med."

Campbell: Very good, yeah, M&M. TheMedtronic news ispotentially game-changing. This is something that diabeticshave been looking for more than a decade. What we'retalking about is the approval of the first so-calledartificial pancreas or, basically, a system that will do more naturally or automatically the job ofevaluating a patient's blood sugar, delivering insulin asnecessaryto that patient.

Harjes: Right. Andthe reason it's called an artificial pancreas is becauseyour pancreas usually produces all the enzymesand the hormones that break down food. One of these is insulin, which most people secrete into the blood streamto help regulate your blood glucose levels. But if you're atype 1 diabetic,you have little or no insulin productionfrom your pancreas.

Campbell: Right. We'retalking about a small subset of the total diabetespopulation. A lot of times, when people think about diabetes,they think about late-onsetdiabetes that occurs later in life. We're actually talking aboutjuvenile diabetes, orearly onset diabetes. In these patients,there's roughly 1.25 million of themhere in the United States, theirpancreas, for one reason or another,just stops producinginsulin at a very young age. As a result, these patients are facedwith a very high burdenthroughout their entire life ofevaluating their blood sugar,taking insulin as necessary. This is a serious disease. It can be life-shorteningif it's not treated and taken care ofappropriately. Unfortunately,because of, up until now, the drawbacks of limited technology,many of these patients,a majority of these patients,spend a majority of their day outside of their desiredblood sugar ranges. That's worrisome becausethat can lead to comorbidities, things like heart disease,that can pose big problemslater on in life.

So, this is viewed asa significant advancement in the treatment of type 1 diabetes, period. It's kind of surprising. Medtronic did file for approval,and people were aware of the trial resultsevaluating this system. It's called the 670G, forpeople who are keeping track at home. So, it wasn't a surprisethat it got approved. It was a surprise that it got approved as soon as it did. In fact,Medtronichasn't even finished laying all the groundworkto be able to deliver this system to patients. They expected thatthey'll be able to do that at the beginning of next year.

Harjes: Right,it came to six months ahead of schedule. You mentioned that it wasn't really surprisingthat it was approved. That makes sense if you look atsome of the numbers from the trial. This received approvalafter being tested on 123patients. There wereno complications reported. Of those patients, they werekept within their desired range73.4%of the time. This is ascompared to 67.8% who were not using the system. This wasactually even betterat night, which is traditionallya very dangerous time.

To really emphasizewhat this means for the patient,I want to describe a little bit about how it actually works. This is the first closed-loop systemapproved anywhere. What that means is, as opposed to an open loop,in which you have your continuous glucose monitorand you also have a pump,and there's no interaction, there's no automation there. Thishybrid closed systemmeans that the sensor and the infusion device can talk to each other. So,you could insulin pump continuouslywhen you need it day and night, based on the data from the monitor, which is really, really cool and atremendous boostin convenience for patients.

Campbell: It'svery cool. Patients and investorsshould both remember that this isn't a fullyautomated system. There are still some things that patients are going to needto be responsible for. For example,setting up the system initially,the patient and the doctor or going to have to inputinformation about how your bodydeals with carbohydrates. And prior to meals, you're going to have to tellthe system, "I'm about to eat, this is the number of carbs I'm about to eat," so it knows to adjust your insulin to that specific pre-specified level. So,it's not completely hands-off. There's a sensor, the sensor is going to need to be changedevery week. You have the pump itself for the insulin. You'll have to add insulin to that every three days or so. There's somerecalibrationthat needs to be done. So it's not fully automated, that's why I call it a "so-called"artificial pancreas. There's stillsome human activities that needs to be going on here.

Butit could be a big advance becauseanything that you can doto keep your blood sugar within the desired range is a plus, that could extend your life. If you can take that 70% out of range and turn it into in-range amajority of time,potentially, you're going to suffer fromless health complications later on in life. This is a big issue, particularly for teenagers. Teens have a very hard time,traditionally, sticking to the regimen,making sure they have the appropriate insulindosage from what it is that they're eating. Whilethis device isn't approved yet for kids under 14, it is for 14 and up. If you look at adults, there's about a million type 1 patients that areadults over 18. About 200,000 are below 18. It'll serve a very large portion of thisaddressable population.

Harjes: And thisdevice is also being tested on ages seven through 13. So, that population could alsolook forward to being able to use it as well.

Campbell: Right. We shouldprobably also talk aboutthe fact that there's going to be a cost associated with this.

Harjes: That'sexactly where I was about to go. Go for it.

Campbell: It'snot going to be a free device. Patients are going to have to pay for it. They're stillironing out all the details with payers. Wedon't know what the copayment or coinsurance might befor the device. But what Medtronichas said is that if youalready own a prior-generationdevice,you can go in and order this device for next year now, turn in your other device, which costs about $500, and pay anadditional $299. So, if you add all that together, you'relooking at a price of about $799 list. That'snot necessarilywhat the out of pocket would be for this device.

Harjes: Plus,there's also the disposable sensors.

Campbell: Yeah,then you have the ongoing cost of the sensors. Those can run hundreds of dollars per month. So, you have some consumables therethat you're going to have to pay for as well. From an investment standpoint,it's that razor-blade model: You sell the system,you get the system in place with the patient,and then you can collect thatongoing annuity streamof the sensor revenue. I think that's important for investorsto be looking at. It's not just a one-time buy. It could be a good source of additional revenue growth forMedtronic in the future. Time will tellhow all those pay relationships getbroken out,and how quickly people who feel likethey're already been well controlledusingcontinuous glucose monitor and those type of things now,how quickly they decide they want to switch to it.

Harjes: Toexpand upon how investors should look at this,Medtronicis the world's largest medical device maker. They make so much more than diabetes products. They havethings in cardiac, spine, knee problems. They'reall over the place in a really good, built-up way. Whatdo you think about the stock? Does this make it more of a buy? What do you think?

Campbell: I think it's a very attractive market. Estimates are that this is a $14 billion market for type 1diabetes healthcare spend annually.

Harjes: That's overall,that's not just for this product.

Campbell: Right, overall. So,it's an attractive market, butMedtronic is a huge company. So, is this going to move the needlesignificantly for the company? No. But will it provide another tailwind that will help it deliver on its single-digitrevenue growth? Yes. So, investors shouldn't be going out and buying this companybecause they think that all of a sudden they'll see 20-30% revenue growth. That's not going to happen. They're too big and too diversified. So, it's a huge potential advance for patients. And it's a nice tailwind forinvestors who want to go out and own a medical device company like Medtronic.

Harjes: Sounds good. Thispodcast is brought to you by Pearl Auto, which makes wireless rearview cameras for your car thatretrofit around your license plate. It syncs with your smartphoneso you can drive more safely. You can check it out at and get free two-day shipping applied at checkout.I recently got to test outthe product, and I was actuallyreally impressed with the quality of the image. It's pretty cool. It's very quick and easy to install, and it's solar powered, which is super cool. And it'll even warn you when there are obstacles in your way. You can learn more about it at Thanks again to Pearl Auto forsupporting our show.

Asalluded to in the beginningof the episode, the second half of the show today,we wanted to do a little bit of an updateabout some recent findings aboutmedical marijuana and maybe touch base,since we're almost heading into November,about what the election landscape could look like surrounding this issue.

Campbell: Yeah. We'vetalked about, in the past, using the statesas a laboratoryfor beingable to evaluate the role that marijuana may play in healthcare and what itsimpact may be on state populations andbeing able to extrapolate that to the national population. Yougo back in time,things like cigarettes, we didn't reallyrealize all the health drawbacksto cigarettes until later on. Opponents to medical marijuanajumping in with both feetwould be saying, "We don'tfully understand all the impactof approving marijuana, having marijuana use become moremainstream." So,let's look at the states that have already approved medical marijuana,and see what kind of outcomes they're getting.Fortunately, we've had enough years go bysince the first states started to approve medical marijuanathat you can take a look at health data and be able to overlay that in the states that approve medicalmarijuana and see if you can draw any conclusions.

What I found it really interesting was,last month, one studythat was done as part of theNational Bureau of Economic Research funded grant thatcame out of Johns Hopkins and Temple, looked at theimpacts on the elderly as far as workforce participation. What they found is thatin states that passed medical marijuanalegislation, there was a higherpercentage of elderly workers, seniors, older workers thatremained in the workforce. And those people who did remainin the workforce, worked more hours. I think that's interesting.

Harjes: They alsoreported that they thought they were in better health. This is a really interesting study. As you mentioned, we have enough data now that you can look at states pre and post-legalizationand compare them with similar non-legallyapproved states and compare the trajectories and see what you get. In this study, they found that people age 50 or older weremore likely to be employedin the marijuana-legal states. Men were likely to say thatthey were in very good or excellent health, and werereportedly in less pain. That stood out to me as particularly interesting,because it was actually just for men. There was another study that showed,recently, that marijuana provides morepain relief for men than women. They're not really sure why. That was a head-scratcher for me.

Campbell: Yeah. Again,this is what we're trying to figure out. We're trying to figure out, inreal-world applications,what is the impact of medical marijuana? It's a holistic look at things. It's not just saying, "Do you feel betterbecause you have less chronic pain?" It's "Do you feel betterand are actually able to go out into the workforceand contribute to societyrather than sitting in your house in pain?" One of theother things that came out of this studywas that they determined that there's some switching that goes on instates the pass medical marijuanalegislation, where patients are nowswitching fromdrugs for anxiety or nausea medications orpsychosis medications to medical marijuana treatment. That's something to keep an eye on as well, because there's good and bad to that. The good part could be you'rereducing use of drugs thatcould expose you to more side effects, likeopiates for pain. Maybe you would prefer to have medical marijuanathat could control your pain better,rather than exposing yourself to the risksassociated with opiates.

Harjes: Justto play devil's advocate there,it's kind of an unknown vs. a known thing to worry about. If you have a drug that you know for a fact has some side effects but it has a track record and you knowmore or less what you're getting yourself into,is that better or worse than takingmedical marijuana, wherewe don't think there are any side effects,but it really doesn't have the robust, long-term studies?

Campbell: Right. Hopefully,we're going to get those over time. You're correct that what we've seen so farin placebo-controlled studieshas been limited, andwhen we've tried to study it in larger populationsinvolving thousands of patients,it's been kind of a toss-up vs. placebo. However,what we're saying here, I don't know if it's the placebo effector what the effect is, but what we're seeing here is thatpeople feel good enoughwhere they are transitioning fromsome of these prescription drugsto medical marijuana. And, obviously, the outcomes aresolid enough that they feel like they can return to the workforce.The other devil's advocate end of this would be,if someone feels betterand they discontinuea treatment for a chronic disease,medical marijuana is treating the symptom and not the cause. None of these decisions should be made in a vacuum, period. They should all be made with the helpof a doctor,so that you know you're not causing yourselflong-term harm by discontinuingtreatment that's addressingthe cause of your problem rather than the symptoms. That being said, this is still avery intriguing study andhints at some of the things we may seeas far as information coming out of all of these approvalsthat are occurring throughout the nation.

Harjes: Right. And we'relooking at a few more potentialapprovals. Right now,recreational marijuana is legal in a handful of states, there's four of them andalso Washington DC. Five more Statescould join after November elections.There's California, Maine, Nevada, Massachusettsand Arizona. Meanwhile, medical marijuana is legal in 25 states, and four morecould be joining in November. Those are Montana, North Dakota, Florida, and Arkansas. Going back to the recreational legalization, I think California, to me, at least,is the most interesting of those five thatcould potentially be joining the list of full recreational-legal states with their Prop 64.

Campbell: Yeah, they were reallyat the forefrontof adopting medical marijuanalegislation. They have not yetapproved recreational. A lot of people think this will be the year they do it. If it's approved, California already has a very robust infrastructure,they have hundreds of dispensaries already set upbecause of the medical marijuana legislation that passed years ago. Andthey're also one of the largestproduction centersfor marijuana in the United States.

Harjes: As a stand-alone economy, they're huge. Whenyou look at the scale that we're talking about here, it's enormous. Supposedly, the passage ofthis bill couldlead to $1 billion a year in tax revenue.

Campbell: Yeah. Honestly,that might be conservative. We're seeing very big numberscoming out of places like Colorado. It remains to be seen how this plays out. But it wouldn't shock me if, down the road, the peak number was a lot higher than that. If you look at the five statesconsidering the recreational front -- Arizona, California, Maine, Massachusetts, and Nevada,I think -- California probably has the best shot. Maine, maybe. Arizona, eh.Massachusetts, eh. Nevada, maybe.

Harjes:If you'relooking at latest approval percentage is, you have California60%, Nevada is 57%,Maine and Massachusetts are both53%,and Arizona is at 50% in favorof approval.

Campbell: Right. Youalso have to look atthe percentage convictionopposed. When you get a place likeMassachusetts when you have that number around 47%, that's pretty high.

Harjes: Right,the margin of difference is big.

Campbell: Especiallycompared to some other states where it's in the 30s.

Harjes: Yeah. So, when youlook at the medical legalizationside of things, which statesstand out to you there?

Campbell: We have 25 states already. Like you mentioned, we have Florida,Arkansas,Montana, North Dakota all consideringvarious medical marijuana thingson their ballots. Florida is the biggie, without a doubt. It's the largest population. It has a huge population ofseniors who would have chronic conditionsthat would benefit frommedical marijuana,conceivably. In 2014,there was a vote that unfortunately did not pass --in Florida, you have to change the Constitution and you need a 60% vote to do that. So, it's not just a simple majority -- you have to get over 60%. They fell shy by about 2% in 2014. But most of the studies and polls out now are pegging way more than 60%. So,I think Florida has a very good shot ofgetting medical marijuanaon the books this year.

Harjes: Right. And asmore and more states get added to this list, hopefully, we will continue to get moredetailed studies and a longer-termprofile for how exactlymarijuana works. Todd, thank you so much, as always, for your thoughts today. Folks,thanks for listening!

As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks for listening and Fool on!

Kristine Harjes has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. 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.