Makes one wonder

Makes one wonder

The other day Diabetic Investor learned that Johnson and Johnson (NYSE:JNJ), the owners of insulin pump maker Animas and glucose monitoring leader LifeScan, has decided to get into the insulin pen needle business, which we found just a little odd. Why, we wondered, would JNJ willingly enter another diabetes market where the product has become a commodity? Why, we wondered, would JNJ come out with a pen needle and not also come out with an insulin pen? How, we wondered, does this news fit with their recent acquisition of Calibra makers of the Finesse insulin patch? Could this move signal that JNJ is following a path predicted by Diabetic Investor and start offering diabetes management systems, rather than sell the individual parts of the system?

Now the only way this move makes any sense at all is if JNJ has something else up their sleeve, as there is just too much competition in the insulin pen market for this to work as a standalone business. Becton Dickinson (NYSE:BDX) and Novo Nordisk (NYSE:NVO) already have dominate positions in this market not to mention there is a host of co-branded products out there as well. While there are differences between pen needles these differences are not great and price is the overriding factor when it comes to which needle a patient uses.  Based on this JNJ must have a boarder strategy in mind and the launch of the pen needle is just the beginning.

So let’s speculate a little here and see if we can guess where JNJ is going.

As everyone knows name brand insulin’s are facing patent expirations and soon we will have both short-acting and long acting insulin available as a generic. Diabetic Investor has stated before these generic insulin’s will be cheaper than the branded versions however the price differential won’t be as great as it typically is for when an oral medication goes generic. Still the mere presence of a generic will cause great pain for Sanofi (NYSE:SNY), Novo and Lilly (NYSE:LLY), so much so that Lilly is playing both sides of the fence and coming out with a generic version of Lantus. Given that it’s a certainty that insulin prices are coming down and payors will likely convert patients to cheaper generics, insulin delivery systems once an afterthought could become critical and possible a profit center for a company like JNJ.

With the introduction of generic insulin’s the battle will no longer be which insulin works best and switch to which insulin delivery system is best for the patient.  It could just be that JNJ is positioning themselves not as an insulin company but as an insulin delivery company which offers the patient a wide array of insulin delivery options. But this is only half the story as JNJ also owns LifeScan and it just so happens that insulin using patients monitor their glucose more frequently than non-insulin using patients. It could be that JNJ, like Sanofi, will launch an insulin pen that actually communicates with a glucose monitor or app or both which would help the patient when it comes to dosing their insulin.

The longer strategy just might be one where LifeScan modifies their existing line of glucose monitors to work with JNJ’s various insulin delivery systems. The company already has the OneTouch Ping for the insulin pump market and could well modify their new OneTouch VerioIQ to work with the Finesse insulin patch or an insulin pen. The simple fact is it’s not a major move to add a bolus calculator to the VerioIQ or in lieu of the bolus calculator being on the meter itself have the meter communicate with a smartphone app. Depending on which delivery system the patient uses the meter or app will tell the patient the number of clicks they need if they are using the Finesse or the number of actual units to be dialed out when using a pen. If the pen also has the ability to communicate and we don’t see why it wouldn’t the patient won’t even have to dial out the recommended dose all they need to do is shot. Basically it will work much like an insulin pump where the patient can accept the recommendation made by the bolus calculator or adjust the dosage based on factors unknown to the bolus calculator.

This is not pie in the sky technology nor is it overly expensive technology and it does fall perfectly into the coming onslaught of interconnected diabetes management systems. The fact is this technology already exists today. The biggest obstacle to interconnected diabetes management systems is not technology but time and money. Who has the time to analyze all this data and who will pay for all this data analysis, not to mention who will accept legal responsibility if something goes wrong.  Diabetic Investor sees the answer already here and once again comes from the insulin pump world.

Insulin pump patients are basically de facto diabetologiests as they must understand a wide range of diabetes factors such as – duration of action- insulin to carb factors – insulin on board – target glucose –etc.  Using these settings as a guide, all the patient needs to enter is the amount of carb intake and the bolus calculator recommends how much insulin should be dosed.  Who says this same concept cannot be applied to insulin patients who do not use an insulin pump? As we have already noted the technology already exists.

Looked at as part of a broader strategy this move into insulin pen needles by JNJ does make sense. A strategy which is eerily similar to what Sanofi is attempting. The difference between Sanofi and JNJ, besides the ability to execute, is that Sanofi’s goal was to sell more insulin while JNJ’s ultimate goal is to sell more test strips. It’s ironic actually that a wonderful drug like Lantus is subject to the threat of generic competition and that a test strip enjoys what seems like unlimited patent protection, how wacky is that? Is it any wonder that companies in the diabetes device business protect their intellectual property the way a mother protects a child. If glucose monitoring companies ever faced a serious threat of a generic test strip it would be more devastating than the impact of competitive bidding.

Yet without this threat and with the soon to arrive generic insulin’s the dynamic of the diabetes market seems set to change course once again. In what could be a stunning turn of events diabetes device companies like JNJ could well have the upper hand over a company like Sanofi as for JNJ intellectual property law works in their favor while Lantus is to about to fall off the patent cliff. Using their protected devices it’s possible JNJ could not only offer insulin pens pre-filled with a  generic insulin but also pre-filled insulin pump reservoirs which would make insulin pump therapy much easier.

Although the two markets are vastly different think of it this way, most people really don’t care which brand of gasoline they use in their cars. While there is a minority who will only use premium and while gas companies do their best to try and convince everyone that there is a difference between brands of gas, price is the main factor when a consumer selects which gas to put in their car. The real choice for the consumer is not which gas to use but which car they are gassing up.

Looking towards the future insulin companies could well become what gas companies are today only not nearly as profitable, while device companies could become what a car company is today offering a wide array of choices each varying a little depending on the needs of consumer. While some consumers will choose a higher end model, others will prefer the basic economy version. Yet whether it’s the Mercedes Benz or the Hyundai version it really won’t make much difference what type or brand of gas the consumer selects as any will work.

Makes one wonder………….