A whole lot of wackiness going on

A whole lot of wackiness going on

Just when it seems like things can’t any wackier in the wacky world of diabetes along comes several items that remind every one of just how wacky this world is.  Let’s start with two recent earnings calls, Johnson and Johnson (NYSE:JNJ) and Abbott (NYSE:JNJ) both of whom who reported earlier this week. As expected the results for their respective blood glucose monitoring units were less than stellular. For the second quarter JNJ reported a 14.3% decline in US sales, while Abbott reported a whopping 27.3% decline. Frankly this isn’t all that surprising as both companies are still dealing with the fallout from competitive bidding.

The real surprise was in how each company sees the future, let’s start with JNJ.  Now Diabetic Investor is pretty sure that JNJ still sells meters and insulin pumps although one might not know this looking at the presentation the company gave with their earnings call. Out of 56 slides in the deck here is what the company had to say about diabetes devices; “Lower price in US related to competitive bidding partially offset by volume growth; OUS growth in emerging markets & Animas® Vibe™ rollout.”  It’s not surprising with this lack of attention that during the Q&A JNJ CEO Alex Gorsky made the following comment;

“One is, we remain committed to the diabetes space and I think as you know, the significant I think it was 72% price reduction took place in the United States occurred in the first half of the year, so we do expect to be lapping that. If we look at the underlying dynamics of the market, I’d like to commend our team because we continue to see very good performance in SMDG both in the U.S. as well as outside. Also with our insulin pump business, Animas, we’ve seen proving performance. We do have Viario under review by the FDA, I don’t believe we’re projecting an approval time at this point, but we certainly think that that’s going to offer a nice addition for patients as well as for physicians. And the other important dynamic, Rick is that our diabetes business has also been involved in launch of INVOKANA. And when you consider the strong relationships that we’ve had for a number of years with the endocrinologists, part of our early success with INVOKANA has been because of the way we’ve been able to bring a broader more comprehensive offering to those specialists and frankly that’s better for patients that’s better for the physicians and better for our business.”

Now the fact that the CEO of JNJ has to state that the company remains committed to the diabetes space is significant. Many, including Diabetic Investor, have speculated that given current market dynamics JNJ was seriously considering getting out of the diabetes device market.  Speculation which took on greater credence after the company’s latest restructuring.  The simple fact is when it comes to JNJ and diabetes the story is no longer devices but Invokana, which continues to perform very well.

Think about this for a moment as for years it was devices, glucose monitoring in particular, that was the goose that laid the golden eggs for JNJ. To their credit JNJ realizes that the goose is cooked and it’s time to allocate resources to profitable areas like Invokana. This is also the reason the company, no matter what Mr. Gorsky says, will sell or spin off Animas.

Abbott on the other hand seems a bit more optimistic as CEO Miles White had this to say about their diabetes device unit;

“I think that business has done a great job of managing its costs and its expenses and so forth. We still have a very healthy gross margin in the business, and so it’s sort of tale of two businesses, and particularly in the U.S. I’d say that because it remains profitable and cash generating, et cetera, you’ve got this older legacy circumstance of strategy market channels, products, et cetera that clearly is under pressure from competitive bidding and what CMS has done.

Then you’ve got very new innovative products that, frankly, really matter and make a significant difference for patients, like Libre which is coming first in Europe. That, we believe, will be a significant growth driver for this business here over time, and it will come to the U.S. and it will be a global product, just like our core base business. So you’ve got a transition here of the core base business as we grow the more innovative future product and future forms of that product, because while it’s launching as a single product, there’s actually a product line coming here. So I think that will continue to drive the business and have a very different proposition for the patient.”

Now Diabetic Investor would like to believe Mr. White, however we don’t share his optimism. Keep in mind Abbott has run not one but two glucose monitoring companies into the ground and this was well before the impact of competitive bidding. We do agree that SMBG can generate a decent profit but the days of SMBG being a cash cow are gone for good.  We hate to be redundant here but the SMBG market has changed forever and we are NEVER EVER going back to the way it was.

Sticking with SMBG market, and yes this play on words is intentional, comes word that Novartis (NYSE:NVO) has teamed up with Google to work on Google’s smart contact lenses that monitor glucose levels. According to the two companies Novartis’s Alcorn eye-care division would license and commercialize these so-called smart lenses.

As Diabetic Investor predicted when news of these so-called smart lenses hit the wires, everyone would hail this as a major breakthrough especially since Google was the company developing this technology. We also knew from past experience that everyone would grasp onto the fact this technology would be a major hit since patients would no longer have to prick their fingers. Now we hate to say this but been there, done that. For over 20 years Diabetic Investor has been hearing how non-invasive glucose monitoring will change diabetes management. Yet after millions of dollars just how many non-invasive glucose monitors have been successfully commercialized? Zero, zilch, nada- enough said. The harsh reality is unless Google has some sort of magic potion or a secret sauce, this technology no matter how promising it may look on paper just doesn’t work.

Moving away from glucose monitoring the wackiest moment of all came from a blog past by Robert E. Ratner, MD, FACP, FACE, Chief Scientific & Medical Office of the  American Diabetes Association (ADA). (http://diabetesstopshere.org/2014/07/14/no-more-needles/​) Rather than quote directly from the post Diabetic Investor is encouraging readers to read the post as quite frankly we can’t believe the ADA approved it. Now we expect Al Mann, CEO and founder of MannKind (NASDAQ:MNKD) to be a cheerleader for Afrezza® but we find it disturbing to see Dr. Ratner be one.

Now Diabetic Investor has no idea whether Dr. Ratner owns any shares of MannKind or has been compensated by MannKind in anyway, as quite frankly that would explain his enthusiasm.  Since Dr. Ratner did not disclose any financial incentives or ties to MannKind we can only assume that his beliefs are sincere. Still we find this post to be truly disturbing as Dr. Ratner is employed by the ADA, an organization which is supposed to protect the interest of patients with diabetes and not to provide what really is a commercial for Afrezza.

Regardless of what some may think Diabetic Investor is not against Afrezza in anyway. Over the many years Afrezza was going through the FDA we have consistently stated that the drug will have a place in the diabetes treatment paradigm. However, we also believe that Afrezza will be nothing more than a niche product not the blockbuster projected by so many analysts. While Al Mann may believe Afrezza is the greatest thing since sliced bread and soft soap, Diabetic Investor respectfully disagrees.

Regardless of our opinion on Afrezza one thing is certain the ADA should have never allowed this post. At minimum they should have required Dr. Ratner to disclose whether he owns shares in the company or  has ever been compensated by MannKind in past. This was not a balanced post which pointed out both the possible benefits and potential risks associated with Afrezza; this was an out and out endorsement of the product.

The truly sad part here is that Diabetic Investor really isn’t that surprised that the ADA allowed this post and didn’t require Dr. Ratner to disclose any associations, financial or otherwise, with MannKind.  Quite frankly this is an organization that has been out of touch with reality and is in serious need of reform. For organization that has a well-earned reputation for being anti-business this post becomes even more problematic. What makes MannKind so special, why did they decide Afrezza deserves such a glowing endorsement?

The bottom line here is that this post just doesn’t past the smell test, heck it doesn’t even come close. It’s time for the ADA and Dr. Ratner to come clean.