JNJ Closing Down Animas
In stunning, more like earth shattering piece of news Johnson and Johnson (NYSE: JNJ) is shutting down Animas their insulin pump unit and signed an agreement with Medtronic (NYSE: MDT) the insulin pump market leader, to take over their patients. According to a company issued press release this morning;
“Animas Corporation, one of the Johnson & Johnson Diabetes Care Companies, today announced that it intends to discontinue the manufacturing and sale of Animas® Vibe® and OneTouch Ping® insulin pumps, close operations and exit the insulin pump business.
Animas has selected Medtronic plc (NYSE: MDT), a world leader in diabetes, as its partner-of-choice to facilitate a seamless transition for patients, caregivers and healthcare providers. Patients using an Animas insulin pump will be offered the option to transfer to a Medtronic pump.”
Given the incredible nature of this news, Animas after all is the number 2 player in the insulin pump market and not some fly by night with just a handful of patients, the impact of this decision is wide ranging. Kind of like dropping a nuclear weapon into the diabetes device world.
Let’s start with a layup as clearly Medtronic is the big winner here. Talk about the rich getting richer. Yet, this could not come at a worse time for Medtronic who is dealing with an infusion set recall and struggling to supply sensors for the new 670G. Add to this the devastation of Puerto Rico where the company manufactures pumps and sensors and it’s fair to state the company has a lot on their plate at the moment. Still there is no question they are big winner here.
The list of losers begins with Tandem (NASDAQ: TNDM), a company that itself is facing a major crisis and is on the verge of running out of money. The one hope the company had was that someone would come along and buy them. Many speculated that could happen if JNJ first sold Animas and then whoever that was could also buy Tandem. Even though Animas would have come at a higher cost with their larger installed user base it was a logical assumption they would be bought first as scale is critical in the insulin pump market.
With Animas patients moving to Medtronic, it seems unlikely anyone would want to invest in Tandem and then have to invest even more and then have to take on an even stronger Medtronic. Listen even without this news the task was huge, with this news it just became Herculean.
Dexcom (NASDAQ: DXCM) like they needed any more bad news after the Libre approval also will lose. The lone bright spot in the Animas portfolio was the Vibe which worked with the Dexcom sensor. Patients who will now have a choice to make. Do they switch to the Medtronic system and the Medtronic sensor or remain loyal to Dexcom and have a sensor that does not communicate with their pump?
Payors also for once will lose, as the insulin pump market has basically boiled down to two players, Medtronic and Insulet (NASDAQ: PODD). With Animas, Tandem in the mix the players had some leverage which forced Medtronic to play ball. Now if Medtronic choses to do so they could put the screws to Insulet and continue offering payors value based contracting forcing Insulet to either match or surrender and Insulet just doesn’t have the financial strength to match.
It is for this reason we also put Insulet in the loser category. Sure, overnight they become the number two player in the market in terms of installed users but their main competitor now effectively controls near 90% of the market.
Companies like Bigfoot, CellNovo and all the other insulin pump wannabes who believe they a better mouse trap also fall into the loser category. Why would anyone invest in these companies when they are up against a behemoth that just got even bigger? Better mouse trap or not, this is about money and when one company owns a market how are these companies going to make any.
Medtronic is now the equivalent of Google when it comes to internet search or Amazon when it comes to online retailing.
The biggest losers of course are patients and not just Animas patients. It is never a good thing when one company controls a market and this is what is about to happen in the insulin pump market. Talk about limiting patient choice. Talk about stifling innovation. Talk about the ability to tell patients take it or leave it. Every patient with Type 1 diabetes even those who do not use a pump just got screwed big time today.
When the final eulogy is delivered for the once mighty JNJ diabetes franchise it will be one of greed. The company overplayed their hand and now is left cleaning up a mess they themselves created. Let’s be honest they should have sold this franchise years ago when it had real value. But for whatever reason they continued to milk the cow falsely believing the cow would never run out of milk.
What message does it send that JNJ with all their financial might and marketing prowess could not make Animas a success. What does it say about their ability to make sound business decisions? This is a company that once had an uncanny ability of not just knowing when to get into a market but also when to exit a market. The bottom line is when it comes to diabetes they blew it and blew it big time.
Think about this just for a moment, it was financially better for the company to shut down Animas take the loss then to sell it. The fact is there were offers for Animas but they were so low it was effectively more financially responsible to cease operations than to sell. This is one case when nothing turned out to be better than something.
The fact is we are reaching the point in diabetes where a handful of companies will dominate. This is not just true in devices but drugs too. Millions, more like billions, have been invested and still patients aren’t getting better. Management has become rich yet patients continue to suffer. As we have stated in the past we have no problem with companies making billions or executives making millions IF patients were getting better but sadly this isn’t the case.
This is truly a very sad day in diabetes.