MiniMed Investments Strengthen Market Advantage.

Following a strategy that has been successfully employed by such high-tech giants as Microsoft, Intel and Cisco Systems, Northridge-based MiniMed Inc. is solidifying its dominance in the field of diabetes-related technologies by making judicious investments in various developers of complementary products and services.

In short, if a company is developing a product that may help sell more of MiniMed's existing or upcoming products, it's a candidate for a capital infusion.

An example of the strategy can be seen in MiniMed's $3 million investment in late February in DMCare Inc., which provides on-demand intervention and educational Web-based services to assist diabetes patients and their physicians.

The investment was key for MiniMed because DMCare, based in Colorado Springs, Colo., is developing services based on treatments using a number of MiniMed products.

"We invested in DMCare because they have already developed a business, (rather than being) a dot-cam diabetic company that is only a theory," said Terry Gregg, MiniMed's president and chief operating officer. "We want to build an (Internet) portal that will help patients better manage their disease."

DMCare offers automated dosing support services (within physician-set guidelines) for diabetes patients who take insulin injections, as well as a wide range of treatments, educational and online nurse counseling services.

In addition, DMCare is developing an automated dosing support algorithm that can be accessed and utilized exclusively by patients who use MiniMed insulin pumps, and their physicians.

To optimally control their diabetes, insulin-using patients must organize and analyze a tremendous volume of information. By building an Internet site, Gregg said, the company could assist patients with that task, and thereby help them to better control their disease.

The investment is the second, and smaller, of two that MiniMed has made in recent months.

In November, the company agreed to make a $30 million investment in Medical Research Group Inc., which is developing a long-term implantable glucose sensor. MiniMed also exercised its option to acquire the worldwide marketing rights to the company's glucose sensor for an additional $30 million.

Massive market potential

The, two recent investments were just the first of several the company hopes to make over the next year to better position itself to dominate the exploding diabetes marketplace.

According to statistics from the Centers for Disease Control and Prevention in Atlanta, more than 15.7 million Americans, or 5.9 percent of the U.S. population, suffers from diabetes. The agency estimates that 798,000 new cases are diagnosed each year.

Kurt Kruger, an analyst with Banc of America Securities LLC in San Francisco, said the investment in DMCare will allow MiniMed to reach and develop new customers. MiniMed already controls about 85 percent of the U.S. market and 35 percent of the European market for external insulin pumps.

The company expects to introduce a number of new products over the next couple years, including a disposable infusion system for Type 2 diabetes and a prefilled insulin cartridge.

"These deals and new products will allow them to develop their markets even further," said Kruger. "MiniMed is the hands-down leader and essentially the only company in the market."

Added Ahmed Enany, executive director of the Southern California Biomedical Counsel: "Every investment that MiniMed makes is all about the management of the disease. We are all assuming that there will be no cure for diabetes. There are researchers currently looking for a cure, which secures MiniMed's market position for at least the next decade."

Investment strategy

Alfred Mann, MiniMed's executive chairman, said the company has a simple investment strategy.

"We don't have a set fund (in terms of dollars) for investing," said Mann. "We make investments in companies that we find to be very synergistic with our business."

Gregg said that MiniMed typically looks for companies that are about three years away from putting a product on the market.

Medical Research Group, for example, is currently conducting human clinical trials of its glucose sensor. Mann described these trials as another milestone toward implanting an artificial pancreas.

"After a company is brought to our attention, Al and I look at where it might strategically fit within our organization," Gregg said. "We also look closely at their financing, because we don't want to be put in the position of being the sole financier of the project. If we are satisfied with what we find, then we make an investment."

Gregg said that MiniMed is interested in companies that are conducting diabetes research or that have a drug that can't be administered orally. "In other words, if it has to be injected, we will look at those entities as an opportunity to develop commercially for use with our insulin pump," he said.