According to a press release issued by Animas this morning, they are strengthening their relationship with Johnson and Johnson’s (NYSE:JNJ) other diabetes device unit, LifeScan. Now Diabetic Investor doesn’t want to picky here but if this release is any indication of how the two units will together, Medtronic (NYSE:MDT) shouldn’t worry too much. First off, LifeScan already issued their own press release this past Monday which noted that they will focus on insulin pump collaboration with their sister company, Animas. One just might think that if these two units who are supposed to be working together they would have issued one joint press release rather than two separate press releases. While this may be splitting hairs a little, this partnership isn’t off to get start when the two units which are supposed to be working together can’t even get together on something as simple as a press release.
The Animas release contains the following passage; “Our collective innovation and product pipeline is the strongest it has been in a decade,” said Michel Paul, Company Group Chairman, Johnson & Johnson Family of Diabetes Companies. “Through closer alignment, we will unleash the power and strength of our two companies and the overarching Johnson & Johnson Family of Diabetes Companies. Together, we will work to advance care for people with diabetes, as well as education and research for families and healthcare professionals, to ultimately enable diabetes patients to maintain better blood glucose control.”
This statement by Mr. Paul should speak volumes to the issues facing these two units. If as he says their “product pipeline is the strongest it has been in decade”; why then are all the projects outlined in the press release old news. The fact is LifeScan knew that Medtronic was the market leader in insulin pumps and that Animas although second in the insulin pump market, wasn’t within shouting distance of Medtronic and had little chance of catching Medtronic. This is why they signed on with Medtronic in the first place. Knowing that insulin pump patients test their glucose more than any other patient, on average eight times each day, and account for nearly 25% of all test strips sold, LifeScan anticipated greater strip sales.
Yet this partnership never really caught on as the two sides were constantly at odds with each other. While Diabetic Investor understood the reasons why these two companies hooked up, we suspected it would never work out. Back when this partnership was announced many in the industry, including Diabetic Investor, wondered why Medtronic would help a competitor and why LifeScan wasn’t working with Animas, which also is owned by JNJ. This agreement was even stranger when you consider that JNJ corporate has been all over Animas to increase their market share.
The fact is the Animas acquisition has never lived up to expectations for JNJ. The reality is JNJ overpaid for Animas and spent even more money fixing the many problems previous ownership left behind. The much hyped synergies between LifeScan and Animas when the acquisition was announced never materialized. It always seemed ironic to Diabetic Investor that JNJ never combined these two units into one and allowed them to operate as two independent business units, each with own budget and profit targets. LifeScan reps never actively promoted the Animas line of insulin pumps while Animas reps weren’t promoting LifeScan glucose monitors.
The physical location of the two units was also problematic with LifeScan on the west coast and Animas on the east coast. One just might think that if these two units which are supposed to be working together on all these great product innovations it would be easier to do so if they were at minimum in the same time zone.
Things are also not so rosy for just announced deal between Medtronic and Bayer. This partnership which was also announced Monday is already off to a rocky start. Medtronic reps are already unhappy that the company is working with Bayer who like Medtronic has made some dramatic cuts to their diabetes unit. They see this deal doomed from the start as they have gone from working with the market leader in glucose monitoring to Bayer who is currently last among the Big Four in terms of market share.
Bayer reps are equally unhappy as they believe Medtronic will do to them what they did to LifeScan and not actively promote their system and favor their own continuous glucose monitoring system which is integrated with Paradigm line of insulin pumps.
Frankly both LifeScan and Bayer should have anticipated issues with Medtronic based on the company’s history in glucose monitoring. Back in the day Medtronic first partnership in glucose monitoring was with Becton Dickinson (NYSE:BDX). Another partnership that was doomed from the start as BD had no experience or presence in BGM. Diabetic Investor never expected this partnership to last and to no one’s surprise it didn’t last long.
Considering their history working with glucose monitoring companies the folks at Abbott (NYSE:ABT) and Roche must feel fortunate they did not sign a deal with Medtronic. Ironic when you consider the history at both companies. Two companies not known for making sound strategic moves made the smartest move of all by not doing a deal. This could only happen in the wacky world of diabetes devices.
The fact is the glucose monitoring and insulin pump markets, although they share some similar characteristics, are two dynamically different markets. While it seems like the two should work together and help each other, this just hasn’t worked in the real world. If anyone had a chance of making it work it would have been JNJ as they owned both an insulin pump and BGM company. Yet even with two units owned by one company the anticipated synergies never developed. As so often happens in the wacky world of diabetes devices what looks good on paper does not always work well in the real world.
Looking ahead Diabetic Investor doesn’t expect much to change in either the BGM or insulin pump markets. Bayer may see some additional strips sales but not enough to justify the many headaches that are coming in the future. Medtronic won’t sell one more insulin pump from this partnership which will do nothing more than strain an already strained relationship they have with the sales reps in the field. LifeScan won’t see a serious decline in strip sales, while Animas won’t cut into Medtronic’s market share even if the collaboration with LifeScan produces something substantive.
The one positive from all this is Diabetic Investor will have plenty of great copy, yet somehow we don’t think this was what all these companies intended.