Watching paint dry
In a little over a week the diabetes community will gather in Vienna to discuss all things way cool and whiz bang. Yep, there will be much discussion on the benefits of way cool whiz bang cloud enabled toys. What isn’t likely to be discussed are the mundane things patients use every day, syringes and pen needles. Yet these mundane very boring very low-tech tools make for a very nice and very profitable business and no one does it better than Becton Dickinson (NYSE: BDX).
The company who reported earnings this morning is the unquestioned leader when it comes to syringes and pen needles. A unit which racked up almost $300 million in sales last quarter and while the company does not disclose margins this unit is very very profitable. Let’s face facts folk there ain’t a whole lot of technology in a syringe or pen needle.
BD is not unlike Medtronic (NYSE: MDT) in that they dominate the market they play in, syringes and pen needles. Just as many have tried and failed to take on the evil empire, many have tried and failed to take on BD. BD not only makes the best syringes and pen needles they make a ton of them which means they can make them for cheap, very cheap.
We don’t write about BD all that much because well their business is pretty damn boring, kind of like watching paint dry. Syringes and pen needles aren’t sexy, they are not whiz bang or way cool. They are just two products that patients use every day and products that won’t go away either. Even with all the attention going to whiz bang way cool, syringes and pen needles plod along making the company a very nice profit.
Yes, “smart” insulin pens may be the future but guess what these way cool whiz bang cloud enabled toys still need a pen needle. Syringes may be old fashioned but guess what they are also the cheapest way to deliver insulin and payors love cheap.
About the only time we do write about BD is when they venture outside their core competency and attempt to be something they are not, whiz bang way cool. Back in the day the company attempted to enter the BGM market, a move which made no sense, a move which didn’t work out well either. Recently the company has investigated entering the insulin pump market with a OmniPod lookalike, a move which seems to be going nowhere in a hurry. They have also investigated developing a “smart” pen needle another move which seems stalled.
Our guess is these efforts to become way cool whiz bang have been put on the back burner as the mothership integrated Bard. Now that it appears Bard has been integrated it remains to be seen whether these efforts to become way cool whiz bang will start up again or whether the company will stick, excuse the play on words here, with what they do best.
In many ways we hope they stay away from way cool whiz bang. Not that they couldn’t be successful rather because any time they venture outside of their core competency they fail. But given all the attention to way cool whiz bang we do understand the attraction. Even when a company makes gobs of money from their core competency, even when they have no reason to stray from what they do best, the market they dominate we have seen this before. Sometimes companies just can’t help themselves, it’s almost as if they want to shoot themselves in the foot.
We are witnessing this scenario play out at Lilly (NYSE: LLY) with their attempt to enter the insulin pump market. We watched as our wine drinking friends in France wasted millions trying to enter the BGM market only to fail. Sanofi (NYSE: SNY) obviously didn’t learn from this experience as they have doubled down and are about to waste a quarter of a billion as their partnership with Verily isn’t going all that well. Johnson and Johnson (NYSE: JNJ) also went through this when they bought Animas, couldn’t figure out what to do with it and then couldn’t sell it. Roche too is about have history repeat itself as after blowing a billion to buy Disetronic only to run it into the ground is set to reenter the insulin pump market with the Solo.
Each of these companies were making millions from what they did best, but just couldn’t help themselves. They figured what the heck where great at this we’ll be great at that. JNJ was making a boatload of money from LifeScan yet felt they could make a boatload more from the sale of insulin pumps only to find out that it’s not a good idea to spend a few hundred million when you don’t have plan for what to do with the company after you buy it. Sanofi was making a ton from Lantus figured they could make a ton more from diving deeper into the diabetes pool, only to find out its not a good idea to jump into the deep end of that pool when you don’t know how to swim.
On the surface it seems to make sense as to why Lilly wants to play in the insulin pump sandbox. Yet like others before them they are making the mistake of believing they can make a better peanut butter and jelly sandwich. When all anyone wants is a cheaper peanut butter and jelly sandwich.
We understand that way cool whiz bang cloud enabled is very sexy. We get it that these toys are so damn cool. But we also have seen what happens when a company strays from their core competency and tries to be something they are not. Watching paint dry may not be exciting, in fact it’s down right boring. But for BD it’s also highly profitable and the last time we looked that’s why they entered this boring market, to make money.
As Momma Kliff used to say and she has quoted by many there is no reason to screw up a very good thing.