Paying a heavy price

Paying a heavy price

When you see sales of conventional glucose monitoring down 9% for the quarter it is no longer a surprise. It’s become so common that it’s just another ho-hum moment. However, when a company has the leading drug in a growing category, a category that is relatively new, where they have excellent formulary position and sales are DOWN due to increased PRICE DISCOUNTS this says just how competitive the diabetes drug market has become. This says once and for all the diabetes drugs just like diabetes devices have become a COMMODITY.  This says for a company like Johnson and Johnson (NYSE: JNJ) who reported these results this morning and happens to be in both diabetes devices and diabetes drugs it’s time to act.

Think about this just for a moment, Invokana the company’s SGLT2 is the leading the category. According to a slide used in today’s presentation Invokana is “#1 SGLT2 Inhibitor Brand and 3rd Largest Non-Insulin Diabetes Brand Globally More Prescriptions than all other SGLT2 Inhibitors Combined in US”.  This same slide states; “Strong access position with >70% and >90% preferred access across US Commercial and Medicare Part D plans, respectively”.  Yet on another slide it states; “INVOKANA®/INVOKAMET® U.S. decline driven by increased price discounts”.  Let that sink in for just a moment.

Now we hate to say this as bad as this looks it’s only going to get worse and the situation will NOT reverse itself no matter what data comes out. In fact, we would state that should the upcoming studies for Invokana, CANVAS and CANVAS-R: Cardiovascular Outcomes due out in mid-2017, not meet expectations this will only increase already intensifying pricing pressure.

We will even go a step further and say that the company made a major mistake today during the Q&A when asked about these studies and they intimated that the results would exceed expectations. While we understand why they answered the way they did this is one time it would have been better to dampen expectations.

The fact is the EMPA-REG data for Jardiance has set a very high bar and should either JNJ study for Invokana fail to match this data it will only further deflate the Invokana balloon. Even if the data is better than EMPA-REG, which we doubt, there is no corresponding benefit, the price being paid for Invokana will NOT go up.

Perhaps the best way to think about this is put yourself in the shoes of Cubs fans across the globe. Tonight the Cubs play the LA Dodgers in a series that is tied 1-1. The winner of the series heads to the World Series somewhere the Cubs haven’t been since 1945 and haven’t won since 1908. By nearly every metric the Cubs are the best team in baseball, most experts EXPECT the Cubs to not just make it to the World Series but win it. The only way this team matches expectations is to become World Series Champions, anything less will be considered a disappointment.

What JNJ did today was set the expectations a tad too high when it would have been better to say nothing at all. One thing we’ve learned whether it’s baseball or clinical studies is people are more often disappointed than satisfied. As Momma Kliff used to say; “Sometimes it’s better to be pleasantly surprised than to expect something and only be disappointed when it doesn’t happen.”

Yet digging even deeper into these results another Momma Kliff saying comes to mind “Hey are you paying to attention to what’s happening are you intentionally doing nothing because it’s the path of least resistance.” Yesterday we noted that JNJ seems to be content to do nothing. That they will not go big, nor will they go home. They seem perfectly content to milk what used to be a cash cow until the cow runs dry.

As today’s results state clearly especially for the device side the well is beginning to run out of water and it won’t be long before this happens on the drug side too. Now one would think that when the well begins to run out of water one of two things happen, you start digging a new well or move to another location with water. Yet JNJ seems to be perfectly content to sit tight as the well runs dry.

Given they won’t spend the money to go big the best possible option is to sell now when they still have something to sell. Or do what Roche is doing with their diabetes unit and spin it off as privately owned company. Yet neither option seems to appeal to the upper echelon of management who seem perfectly happy to watch this once strong franchise become a mere shell of its former self.

This is not typical behavior for JNJ one of the smarter companies in this wacky world. So maybe there is a method to their madness, we don’t see it but maybe they have something up their sleeve. They better and they better do whatever it is soon as the ship is taking on water.

As Momma Kliff used to say; “Ignoring a problem is NOT a solution.”