Alternate Universe

Alternate Universe

Tomorrow Johnson and Johnson (NYSE: JNJ) will announce fourth quarter and full year results and thus officially kick off the diabetes earnings season. Now just to be clear we aren’t expecting much in the way of good news. Both the device and drug markets have commoditized, forcing companies to downsize and cut costs. There are some pockets of innovation but they are few and far between. Now this is not to say these calls will be akin to a Bill Belichick news conference, as unlike the coach some of these calls can be quite funny.

Having listened to hundreds, perhaps thousands of these calls over the years it’s amusing sometimes to listen. Let’s face it there are only so many ways to say business sucks, it’s not getting better anytime soon and we really wish we weren’t in this market but we’re stuck with it so might as well make the best of it.

Now we doubt JNJ will say this tomorrow, even though it’s the truth, nope more than likely they will do one of two things. Either they will ignore the unit making only a few comments or will they will follow the standard line that competitive bidding killed BGM, market conditions are difficult and it would be wise to bet the over for Superbowl LI (that’s 51 for those who are in management).

Think about this just for a moment – JNJ operates in multiple diabetes markets – LifeScan BGM- Animas Insulin Pumps – Invokana Type 2 – LifeScan is the market leader – Animas is in second place and Invokana is the market leader. Now at first glance this would seem to be exactly the position any company would want to be in that is until the following facts, yes, those pesky facts, are considered.

The BGM market is dying a very slow and very painful death. Yes, Animas may be in second place but this is like being Sham and running against Secretariat in the Belmont (a race Secretariat won by 31 lengths and for anyone not familiar with horse racing that’s a lot) – the SGLT2 market the sandbox Invokana plays in has become very crowded and it is no longer the best Tonka toy to play with as Jardiance has better data, a better label and is beginning to steal share from Invokana.

At this point, many are thinking ok so things aren’t so great but this is JNJ they must have some sort of plan. That they will not let market dynamics dictate the future, that they will lead and not follow. That they will not merely surrender. That they have some way cool whiz bang product in the pipeline that will save the day. That their diabetes eco-system isn’t merely corporate horse manure and is something other than hot air.

All we can say is that IF they have a plan it must be super-secret because by all outward appearances this once innovative market leader has become a follower. That instead of driving change the best thing they can come up with is a stupid patch pen, a product which doesn’t fit into the market and is up against cheaper and entrenched products. That instead of buying Tandem (NASDAQ: TNDM) and giving Animas a fighting chance they are content to let Medtronic (NYSE: MDT) increase their already substantial market share. If they were serious about their diabetes eco-system, they would buy Dexcom (NASDAQ: DXCM).

The fact is and it pains us to write this JNJ has surrendered. They are content to be followers not leaders. They are content to let market dynamics dictate decisions rather than drive change. Bottom line from all outward appearances the company has lost its will to fight. This is not the JNJ Momma Kliff grew up with. It’s as if this is some sort of alternate universe.