The Natives Are Getting Restless

The Natives Are Getting Restless

It seems you can’t hit a dead cat these days without running across rumors regarding pending layoffs in the diabetes sector. As Diabetic Investor reported just last week rumors are circling around Lilly (NYSE:LLY) that they will announce layoffs at their upcoming diabetes town hall meeting, but Lilly isn’t the only diabetes company where rumors are circulating.  In fact Diabetic Investor is beginning to believe that it has become newsworthy when we don’t hear a rumor about layoffs in the sector as it seems after years of bulking up, the exact opposite is about to occur.

Making matters worse these rumored layoffs are not limited to drug companies but extend to device companies as well. Frankly no segment of the diabetes market appears safe as 2012 is setting up to be one of the more interesting years for diabetes. On the one hand you have the pending approval of Bydureon which has the potential to become a blockbuster drug, which actually makes Amylin (NASDAQ:AMLN) the exception as they appear to be the only company in the diabetes space who is actually looked to add not subtract from their sales force.

On the flip side besides Lilly – Sanofi-Aventis (NYSE:SNY), Abbott (NYSE:ABT), Johnson and Johnson (NYSE:JNJ), Bayer, Roche and Novo Nordisk (NYSE:NVO) have been the subject of numerous rumors regarding pending layoffs.

The harsh reality here is that these companies really have no one to but themselves to blame for the situation they are now in. Everyone knew healthcare reform was coming and that this reform would adversely impact sales and profits. Everyone knew that generics where on the way and that even without their arrival the short-acting insulin market was transforming itself into a commodity market. The same is true for devices and glucose monitors in particular, a market which has fully transformed itself into a commodity market.

The simple truth is everyone has known for some time what’s coming down the road but it is equally true that few, if any, of these companies were willing to prepare for this.  Put another way this would be like a city that was sitting directly in the path of an oncoming tornado warning residents after the tornado hit. The warning didn’t do much good and it’s the residents of the city who pay the price. The main difference here is that unlike an unpredictable tornado, the carnage headed for the diabetes market was predictable and could have been avoided or at minimum made less painful had these companies dealt realistically with the changing dynamics of the market.

Based on what we have seen so far it seems as though some of these companies have thrown in the towel already and given up. They no longer have the drive to develop innovative drugs or devices and blame this lack of innovation on the FDA or the healthcare reform.  Think of what would have happened had the executives at Apple felt this way years ago when the company was on the verge of extinction, had they given up, thrown in the towel because at the time it appeared that Microsoft was invincible. Or think about where we would be had the executives at Google believed that Yahoo was untouchable.

It seems odd to Diabetic Investor that when you have a market that is growing at epidemic rates as the diabetes market is, that companies in the market would not try and capitalize on this fact. That they would not seek new ideas and strategies that give them a fighting chance in the midst of changing market dynamics. Have these companies become so entrenched in the past and so bureaucratic that they cannot effectively function? Based on what we are seeing the sad answer is yes.

Recently Diabetic Investor has written about some of the new blood coming into the space. Some of this new blood has a history with diabetes i.e.  Alere (NYSE:ALR), others do not i.e. GE (NYSE:GE). Either way with diabetes experience or not this new blood is desperately needed as it should serve notice on the “old guard” to either change their ways or risk becoming obsolete. The fact of the matter is healthcare reform is not going away and the FDA will always be a problem so stop complaining and deal with it. Executives of the old guard should wake up to the fact that nowhere in their job description does it state that things would be easy and they should understand along with their huge salaries, stock options and perks comes responsibility to the people who actually own their companies, the shareholders.

The old guard would be wise to recall the words of Jacob Burckhardt who long ago wrote; “Only the fairy tale equates changelessness with happiness ….. Permanence means paralysis and death. Only in movement, with all its pain, is life.”

And it should be noted that following a slash and burn strategy is really no strategy at all and merely another old tactic that does nothing more than delay the inevitable. This tactic may help profits in the short term but it will do nothing to solve or deal with the coming tsunami of change that is headed directly at the diabetes market. Those who are willing to plan ahead will survive, those who are not will be washed away never to be heard from again.