After seeing the third quarter results by Johnson and Johnson (NYSE: JNJ) released this morning we were hit by a wave of emotions. Before we get into which emotions let’s get the results out of the way as they flat out suck and not just for devices but drugs too. There is no need to go into detail for the simple fact is when it comes to diabetes and JNJ it’s over and the company is moving on. And at this point we really could care less if they are able to sell LifeScan or not. The harsh reality is this once mighty company is no longer in the diabetes business.
What’s most astonishing here is the debacle in diabetes is so unlike JNJ, a company which at one time had a knack for knowing not just when to enter a market but also when to exit a market. Yet their diabetes disaster cannot be blamed on anyone else, they themselves are responsible. The fact is they should have sold this unit years ago and for reasons only they know they didn’t.
Now we suspect in New Brunswick there will be the usual finger pointing and self-pity. Management will do what management always does in situations like this, that is avoid taking ownership of their mistakes. They will point to competitive bidding and say that killed the goose that was laying the golden eggs. Like the rebels in Star Wars they will say the evil empire and their death star is responsible for the end of Animas.
Will they admit they screwed up a very good thing? Will they admit that they seriously underestimated the changes that were taking place in the market? Can they at least acknowledge they made some very bad decisions?
No way no how this is not how management thinks.
See this is what happens in today’s wacky world and quite frankly has been going on for years. A company comes in and begins to dominate a market. They get very fat and very happy when times are good. They throw lavish parties and shower their people with fat bonuses. They start to believe they are invincible and begin expanding believing they can dominate other markets too. They begin to assemble all the pieces for what they call a diabetes eco-system. They tell everyone that this approach is the key to further riches.
Meanwhile in the real world the market is changing and changing rapidly. Yet their own corporate structure and way of doing things get in the way. Sure, they see what’s going on but they won’t or can’t adapt. They know they must change but the powers that be won’t allow the change needed for all they care about is the bottom line. Remember this is not about patients or better outcomes this is about one thing and one thing only, money.
Basically, those in charge are told hit your damn number and we don’t care how. This begins the inevitable process of cost cutting or what we like to call the slash and burn stage. First to go are all the sales reps, next all the lavish parties and perks. Next R&D is outsourced and back office functions are eliminated. Then when costs are cut to the bone the divestiture stage begins. Or what we like to call the corporate version of the greater fool theory.
And you know what normally there is another fool who will come along and think they are smarter than the average bear. That didn’t happen with JNJ but not because there were no fools, there were. It didn’t happen because JNJ got greedy and failed to grasp that most investors aren’t as dumb as they think they are. Sophisticated investors preform their due diligence, see that JNJ is desperate and do what these investors do, throw in a low-ball offer believing that JNJ will want something rather than nothing. They crunch the numbers and accounting tells them it’s better to write down the asset rather than sell it.
Now the one thing they did right with Animas even though everyone hates it is they cut a deal with the evil empire. They didn’t want these patients jumping from one sinking ship to another. They knew this decision would be meet with consternation but in this one instance they put the needs of the patient first.
This cycle is not unique to JNJ and is common in our wacky world. Unfortunately, the one constant no matter who is going through this cycle is it’s the patient with diabetes who takes it in the shorts. Animas patients have just had their lives turned upside down. Millions of dollars have been wasted, hundreds of people have lost their jobs. Organizations like the JDRF and ADA have lost a corporate donor. All while the powers at the top collect their million-dollar bonuses.
We’ve said it before and will say it again, we could care less what these people make or how big the profits are IF patients were benefiting. But the harsh sad reality is patients are not benefiting the exact opposite is happening. Yet no one seems to care and this cycle just moves merrily along.