Perhaps the most interesting item to come out of today’s earnings announcement by Johnson and Johnson (NYSE:JNJ) wasn’t the numbers, which were decent, but a subtle change in how the numbers are reported. Interestingly the company no longer references LifeScan when they break out sales by business segment instead they now have a Diabetes Care category.
This may seem like a small and insignificant event, but to Diabetic Investor it speaks volumes to how the company views the diabetes market. With their acquisition of insulin pump maker Animas and their deal with market leader in insulin pumps Medtronic (NYSE:MDT) , the company has solidified their presence with frequent testers. Following this strategy to reach frequent testers they also acquired Children with Diabetes.
Although the company does not comment on their potential acquisitions Diabetic Investor sees only one more piece necessary. A piece that would complete their evolution from a manufacturer of testing supplies to a complete provider of diabetes care. Long ago Diabetic Investor predicted that one day patients would no longer purchase their diabetes drugs and supplies from separate suppliers, rather a new day was coming when they would purchase a diabetes care kit from just one supplier. This kit would include testing supplies, drug delivery systems, drugs and education that tied it all together. Simply put they would buy a LifeScan Diabetes Care system.
It’s no secret the company has coveted Novo Nordisk (NYSE:NVO) to provide the last yet critical piece to this strategy. As the worldwide leader in diabetes therapy, Novo has all the elements JNJ needs to become the diabetes powerhouse. The only thing standing in the way of a potential acquisition is Novo’s complex ownership structure. Still Diabetic Investor sees a deal, as complex as it would be, a distinct possibility.
Given their resources and market leadership a JNJ – Novo combination would have a powerful impact on the market. This combination would also benefit from the changing nature of how diabetes will be treated in the future. Everyone knows that Diabetic Investor is a strong believer in the long acting once a week version of Byetta from Amylin (NASDAQ:AMLN). This drug has the potential to shift the diabetes treatment paradigm. However, as promising as Byetta LAR may be this is a drug squarely targeted at non-insulin patients.
With the demise of Avandia and lackluster performance of Januvia, physicians are focusing more on injectable therapy options such as Byetta or insulin. Although Novo’s GLP-1 Liraglutide may not be as powerful as Byetta, the drug has proven to be effective in helping patients achieve good control. Novo is already dominating Lilly (NYSE:LLY) in the short-acting and combination insulin market and is making progress towards gaining share in the long-acting insulin market against Lantus.
JNJ understands physicians and their patients will require more sophisticated education as they move towards injectable therapies. In effect, a Novo-JNJ combination could be the catalyst to providing better patient education as companies will finally see education as a profit center. Lilly, Sanofi-Aventis (NYSE:SNY) and everyone else in diabetes would have no choice but to bolster their efforts in education if they are to effectively compete.
This move towards better patient education is long overdue and Diabetic Investor is understandably skeptical with all this increased interest in patient education. Frankly we have been down this road before only to see interest fade away. However, what could be different this time is that education will be viewed not as an expense but as vital component to a company’s overall business strategy. As we have said in the past, the only way for education to become a reality is having it viewed as a for-profit business.
Diabetic Investor will jump for joy and sing the praises of any company that makes this happen. At the moment JNJ seems to be the leading contender to make this happen, let’s see if they follow through.