A Closer Look

A Closer Look

The more we think about Johnson and Johnson (NYSE: JNJ) decision to shut down Animas the more it hits us just how much the insulin pump is about to change. As we noted earlier today Animas was no fly by night company they were the number 2 player in the insulin pump market with over 120,000 patients. They had, until recently, the backing of JNJ and still could not compete.

Now we know some are going to blame Medtronic (NYSE: MDT) for this so let’s put an end to that, Medtronic did not run Animas into the ground JNJ did that. Actually, Animas when it was an independent company before it was acquired by JNJ was already in trouble and in danger. Had JNJ not come in and bought the company it’s likely this would have happened only much sooner. JNJ didn’t necessarily buy Animas because they thought the insulin pump was all that great, no they bought the company as they were already heavily invested and didn’t want their investment to crumble.

Once part of the JNJ mothership the company spent months fixing the many issues Animas had. Once these issues were fixed JNJ found their own unique way to screw things up. One just assumed that JNJ would fully integrate Animas with LifeScan but that didn’t happen, in fact the two units were often at odds. This set up some interesting dynamics which only strained what was already a very strange relationship between the two units.

JNJ finally capitulated and fully integrated the two units but by then it was too late. So, in an about face JNJ then reverses once again and decides ok we just can’t compete with Medtronic (NYSE: MDT) let’s get out of the insulin pump business. Animas was all set to be sold when new leadership team comes in and says no let’s keep Animas as it’s part of our way cool whiz bang diabetes eco-system. So, they reverse course yet again and then reserve again when the company announces they are exploring strategic options for the diabetes franchise, not just Animas but LifeScan too.

This did not end the screw up as by telling everyone they wanted out of diabetes devices entirely JNJ effectively killed any chance they had at getting any real value for Animas. At first, they wanted to find a buyer who wanted to buy LifeScan and Animas. When that didn’t work they indicated they were willing to sell each unit independently. Yet, this wasn’t the end of the screw up as they vastly over-valued Animas, a unit which has NEVER EVER made money for the mothership.

Potential buyers sensing that JNJ was getting desperate to sell came in kicked the tires and then made low ball offers believing JNJ would rather get something then nothing. It’s shocking to believe that when the end finally did come that when they crunched the numbers JNJ saved money by shutting the unit down rather than accept one of these low ball offers.

It does amaze us how dense JNJ was to what was going on. They knew that Tandem (NASDAQ: TNDM) was also in major trouble and for sale. They should have known that the same buyers who were kicking the tires at Animas were also kicking the tires at Tandem. Although Animas had a much larger installed user base and fewer financial issues than Tandem, it was a much cheaper option and only strengthened the resolve of possible buyers not to raise their offers. These buyers figured that JNJ would wake up smell the coffee and capitulate again believing something is better than nothing.

JNJ closure of Animas had nothing whatsoever to do with Medtronic and while many believe Medtronic is the evil empire they did not create this mess JNJ did.

This scenario is about to play out again as Tandem is on life support and about to runout of money. As we noted earlier today this news has killed any chance at all the company had. It is now a question of when not if Tandem follows JNJ and ceases operations. Which of course will be windfall for Medtronic. And just as some will blame the evil empire for Animas demise so too they will blame them when Tandem goes under.

Like Animas the wounds inflicted on Tandem were created by Tandem not Medtronic. When Tandem entered this market with their way cool iPhone like t: slim they knew what they were up against. They knew that Medtronic had a monopoly in the insulin pump market. they knew that Animas and Insulet (NASDAQ: PODD) stood between them and success. Yet they proceeded believing like so many others they had built a better mouse trap.

It was not Medtronic that spent money recklessly, Tandem management did that. Medtronic may have played hardball with payors but Tandem could have but did not match Medtronic. Listen the insulin pump business is not a charity and as Momma Kliff used to say; “If you want to play in the big leagues you better be prepared to hit major league pitching.” The fact is Tandem was outgunned from the start and falsely believed they would acquired just by building their installed base. Frankly they should have known better as this is the same trap Insulet fell into.

When Insult first started they too falsely believed that if they built it someone would buy it. When that didn’t happen, it hit the fan. Just as JNJ inherited somewhat of a mess when they bought Animas, the new management team at Insulet inherited a huge mess left from the previous management team. A mess which to their credit they cleaned up.

We’ve said it before and will say it again because it’s getting proven more with each of these announcements; ANY IDIOT CAN BUILD AN INSULIN PUMP THAT IS NOT THE HARD PART. THE HARD PART IS RUNNING AN INSULIN PUMP COMPANY.

Listen we get that many see Medtronic as the evil empire but they are not the ones who created this mess. Each of these companies knew full well what they were up against. They knew Medtronic had a monopoly yet THEY WENT FORWARD BELIEVEING THEY COULD COMPETE. Yet when they find they cannot compete when they really do not have a better mouse trap who do they blame, the evil empire.

We wonder how the West Coast Mafia will handle this news. Will they finally acknowledge that diabetes is a business a very serious business. Will they wake up and realize that way cool whiz bang is meaningless when the company with this toy is completely clueless on how to run a viable business. Will they stop falling in love with every damn new toy that comes out and realize this is not about the toys. DIABETES IS A BUSINESS AND THESE COMPANIES ARE NOT CHAITABLE INSTUTIONS THEY ARE NOT BEHOLDEN TO ANYONE BUT THEIR STAKEHOLDERS. STAKEHOLDERS WHO EXPECT THEM TO MAKE A PROFIT.

So here we are today in October of 2017 with one company effectively in complete control of the insulin pump market. A company that will get blamed for this mess, a mess they did not create. This mess was created by hubris, greed, ineptitude and utter stupidity.

As Momma Kliff said; “One of the most difficult things anyone can do is to see things as they really are. It is so much easier to blame everyone else for problems they themselves created. Yet this does not disguise the fact that there is no cure for stupid.”