JPM Pregame

JPM Pregame

As we move from Sin City to that beautiful city by the bay, some pre-show thoughts on what may and may not happen at the annual J P Morgan Healthcare conference which is set to begin bright and early Monday morning.

Right off the bat Monday will be a very busy day for Diabetic Investor with Abbott (NYSE:ABT), Medtronic (NYSE:MDT), Sanofi (NYSE:SNY) Johnson and Johnson (NYSE:JNJ) and Bayer all presenting. Obviously we will be paying very close attention to the Sanofi presentation and subsequent Q&A and not just for the obvious reasons. As Diabetic Investor has learned that Sanofi is once again interested in buying Bayer’s diabetes device unit, and no this isn’t a joke although it sure sounds like one. Yes this on again off again deal appears to be on again or at least the two companies are discussing options.

Given the recent events in France Diabetic Investor would like to go easy on our wine drinking friends but this news cannot go commented on. Just why Sanofi who has already failed in the BGM market with way cool but now way dead iBGStar, would want to acquire Bayer’s struggling unit smacks not of desperation rather of craziness. The company as we all know is still looking for a CEO, they are getting set to launch Afrezza, they are awaiting FDA approval for Toujeo and did we mention that the patent is about to expire for the goose that lays the golden eggs, Lantus.

Someone will have to explain to Diabetic Investor the logic of this move, tell us how this will make the company money and why this isn’t one huge waste of valuable capital. About the only good thing that would come out of this deal should it happen; and remember this Sanofi we’re talking about so there is great chance it won’t happen, but if it actually does happen it would forever prove beyond a shadow of a doubt that in the wacky world of diabetes anything can and normally does happen even when there is no logical basis for a deal.

Although we are not privy to the Abbott presentation in advance it’s a pretty good bet they will talk about the recently launched Libre, a product which has undergone not one but now two recalls. A product which is unlikely to see the light of day here in the good old USA as the FDA cares about something called accuracy. Even if these accuracy issues could be overcome, and based on what we’ve heard that won’t be easy, the product would come to America way late in the game which when you think about it is an accurate description of Abbott’s history in CGM, a market where they have always been a day late and dollar short.

We’re very curious if JNJ will shed any light on what they decided to do with their insulin pump franchise, Animas. Just as Sanofi has had an on again off again love affair with Bayer’s diabetes unit, JNJ has had a similar affair with Animas. Just when it looked like the company would dump this money losing franchise, they switched gears and low and behold decided to make a go of it. Or at least we think they are going to make a go of it for the company itself seems confused as to exactly what to do. As we have noted on many occasions the insulin pump market is changing and if any company is going to survive and prosper in the future they will need to switch from selling products to selling diabetes management systems which help the patient achieve better outcomes.

The fact is none of the current insulin pumps companies are very good at this as they continue to make the majority of their revenue from selling products. Yet this will change as we transition to outcomes based reimbursement. At the moment we would say Medtronic has the edge here for two reason, their huge market presence and their experience with cardiovascular patients. There is no reason to believe the company cannot monitor insulin pump patients the way they do cardiovascular patients, sharing data with the patient’s physician and/or caregiver.

The afternoon session begins with Bayer and quite honestly this is not a session we would normally attend as we have noted their diabetes device unit is dying a very slow and very painful death. Yet now we must attend to see what if anything they say about the sale of this unit. We cannot wait to hear the answer to this question; “Can you please explain why you believe this unit, which has been for sale now twice, is worth $2 or $2.5 billion when the BGM market is imploding and headed down the toilet?”

Now if the company was honest, and we wouldn’t expect them to be, the answer would be “Hey if Sanofi is dumb enough to pay us that much we’d be idiots if we didn’t do the deal. We know the market is dead but we also know from our years of experience in this market there is always some other company who thinks they have the magic touch and can turn things around. Yes the greater fool is alive and well in diabetes devices and when we close this deal no one will be able to argue with that.”

Later in the week we’ll hear from the dynamic Indianapolis duo, Roche and Lilly (NYSE:LLY), who will either be rejoicing in a Colts victory or lamenting another loss to their former star quarterback. About the only thing we want to know from Roche is when they will actually spin off their beleaguered diabetes device unit for is they don’t do it soon they may have nothing left to spin off.

Lilly on the other hand has every reason to gloat but given their Midwestern roots and conservative nature they won’t. The company also has the benefit of experience and knows first-hand what it’s like to go from the penthouse to the outhouse and then back to the penthouse. As we have said numerous times while we don’t know for certain their strategy in diabetes will work but it’s by far the most intriguing strategy in diabetes and already is impacting the competition.

Wednesday morning should be pretty interesting as Lilly’s closet rival AstraZeneca (NYSE:AZN) will be presenting.  The real question for Astra will be can they make a go of it on their own or should they surrender and be taken over by someone else. Frankly we could care less which way they go but we do wish they would make a damn decision already and get on with it. This on again, off again, on again takeover speculation isn’t helping anything and we would actually argue hurting the company. The fact is IF and this a huge IF the company is going to make a go of it in diabetes they must add insulin to their portfolio.

That a truly bold move would be to turn the tables on everyone and actually make a play for Sanofi’s diabetes portfolio. Given that Serge Weinberg, the acting soon to be actual CEO of Sanofi, doesn’t like business units that require innovation and has already publicly lambasted the diabetes sale force, we’re pretty sure he’d be willing to sell the unit. Astra would then have the insulin component they desperately need to compete with Lilly and we’d have a real brawl on our hands.

Also presenting later that day is our good friends at MannKind (NASDAQ:MNKD) who will repeat once again how Afrezza is the greatest thing since sliced bread and soft soap. How this unproven drug which isn’t even covered by formularies will revolutionize the treatment of Type 2 diabetes. They will explain that Sanofi is the perfect partner even though everything the company has done in diabetes other than Lantus has been a colossal failure. On second thought we’ll probably skip this session as it’s impolite to burst out laughing while a speaker’s nose is growing.

As always there will be the unexpected as that’s what makes JPM so fun. So stay tuned the fun is getting set to begin.