The benefits of having a strategy
When it comes to the wacky world of diabetes the difference between success and failure comes down to not just developing a solid strategy but the ability to execute that strategy. This was evident today when Johnson and Johnson (NYSE:JNJ) reported second quarter results. While JNJ may not be the most innovative company in diabetes they are one of the few companies who saw where the market was going and then developed a strategy that aligned with new market realities.
When it came to glucose monitoring the company correctly anticipated that the market was transitioning from a medical device to commodity market. Although no company in BGM anticipated the dramatic reimbursement reductions brought on by competitive bidding, JNJ was one of the few who was prepared for these reductions. The company correctly right sized their unit and is now reaping the benefits.
The same can be said for their insulin pump unit Animas. This unit which was once set to be sold is now a driving force for the diabetes franchise. Thanks in large part to the Animas Vibe the company has firmly established Animas as Medtronic’s (NYSE:MDT) most formidable competitor. As we have noted previously JNJ should send a thank you note to Dexcom (NASDAQ:DXCM) as the Vibe’s success is directly linked to the fact that the Animas insulin pump communicates with the Dexcom sensor. A sensor which everyone agrees is superior to the Medtronic sensor.
The question is can Animas take the next step and improve the user interface of the Vibe. The reality is when it comes to sensor augmented insulin pumps, which are growing in popularity, for the moment patients have two choices Animas or Medtronic. However this will soon change as Tandem (NASDAQ:TNDM) also has an agreement with Dexcom as does Insulet (NASDAQ:PODD). If Animas wants the success of the Vibe to continue they must develop a better user interface. This fact actually bodes well for Tandem who most acknowledge as having the best user interface.
This sets up a very interesting possibility for as Diabetic Investor reported back during the ADA conference, Tandem has been privately shopping itself. Given that Medtronic has the same problem as Animas, as they also need to improve their user interface, it could be race to see who buys Tandem. Both Medtronic and Animas have the resources to acquire Tandem which would be faster than developing a better user interface internally.
A truly bold move would be for JNJ to acquire both Tandem and Insulet. Granted this is a risky move but it would provide them with the most comprehensive insulin pump portfolio and give them the ability to give Medtronic a serious run for their money. It should also go without saying that the success of the Animas Vibe is making Dexcom an even more attractive takeover candidate.
The company also noted that the Calibra patch pen will be launching next year. Although Diabetic Investor has never understood the need for these patch pens the fact remains that JNJ isn’t the only company in this market. This could set up another battle with Medtronic. Given how Medtronic has restructured their diabetes franchise with an increased focus on Type 2’s it would not surprise Diabetic Investor if the company either develops or buys a patch pen.
The way Diabetic Investor sees it the only way these patch pumps make sense is to use them as an interim step before a patient moves to true insulin pump therapy. As we have noted in the past one of the biggest obstacles to true insulin pump therapy is the amount of education a patient needs to go through. Although these patch pens aren’t as sophisticated as a true insulin pump they operate on the same basic principal of basal bolus therapy. Simply put a patient using a patch pen would have to undergo much of the same education as an insulin pump patient. Once the patient is captured using a patch pen it becomes easier to transition them to a true insulin pump. A transition which would then generate a greater and more profitable revenue stream.
Moving away from the device side Invokana continues to show impressive growth and it does not appear that any of the recent issues over this class of drugs is hurting script growth.
Overall JNJ should be commended for having the foresight to see where this market was going, developing a strategy to deal with these changes and then actually executing. They may not be the most innovative company in this wacky world yet they are one of the few who has the ability to execute. There are still challenges ahead and as we have seen in the past even good companies make mistakes. Still it’s hard not to be impressed with how well JNJ has adapted to how this market has changed.