Unlike the other businesses, Lothson said, MiniMed's problems do not result from a slowing economy. Diabetics need insulin, even in recessions. Rather, MiniMed faces a period of slower sales growth because of its market penetration. At the same time, research-and-development expenses and the cost of launching new products will drag income growth down as the company attempts to expand. MiniMed's future offerings include glucose sensors and disposable insulin pumps, as well as implantable pumps and sensors.
Lothson believes that MiniMed's earnings growth will slide into the 20% range during the first half of this year but will pick up in the fall when the company starts to sell a new model of its external insulin pump, resuming a 30%-plus growth track next year. He believes that the share price will bounce back too, growing by about a third to $42 over the next year. MiniMed shares closed at $30.69 on Nasdaq on Friday, down from a high of $92.56 in September.
One key product in MiniMed's expansion strategy is the continuous glucose monitor that would enable patients to escape the pain and inconvenience of using multiple finger-stick tests daily to determine whether they need insulin. Though it is approved for use by physicians, the product has faced delays in obtaining FDA approval, in part because of problems with glucose-measuring devices made by competitors.
In December, Johnson & Johnson agreed to pay $60 million in fines and settlement fees when it pleaded guilty to three misdemeanor charges for hiding problems with its LifeScan Surestep Blood Glucose Meter and for other regulatory violations.
"The FDA has become very cautious with these types of devices," said Keay Nakae, an analyst with Wedbush Morgan Securities in Los Angeles. "And the FDA wants to be careful to make sure that the patient will understand how to use the data from the device."
Getting the monitor to market is just one of multiple challenges the company faces.
With 90% of its sales domestic, it's yet to become an international company, Lothson said. Mann said MiniMed opened a European headquarters in Belgium last year and is starting to make headway.
Lothson also noted that MiniMed's strategy of adding products will require high levels of research-and-development spending and significant expenditures to expand manufacturing, sales and marketing.
But if it executes properly, MiniMed could top $1 billion in sales by 2005, Lothson said.
The question, Lothson and other analysts ask, is whether MiniMed's management is up to the complex task of simultaneously developing new products and marketing them effectively to new customers.
"What is holding MiniMed back right now is getting their products clinically tested, through the FDA and out into the market where they can compete," Nakae said.
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MiniMed's shares have dropped 67% since reaching a high in September, even though the company controls 80% of the market for infusion pumps used by diabetics and has posted strong gains in sales and profit.
MiniMed, weekly closes on Nasdaq
Source: Bloomberg News