J&J banking on improved insulin delivery tech to cure diabetes business woes

The Animas Vibe device--Courtesy of Animas

Johnson & Johnson's diabetes care business experienced a year-over-year revenue decline of 5.5% in Q1 2015 and fell 7.2% in 2014 compared to 2013, primarily due to changes in Medicare reimbursement that cut prices for some of the company's products by more than 70%, according to CEO Alex Gorsky.

Continued unfavorable exchange rates due to the strengthening dollar are another factor. At constant currencies, sales growth was 4.2% in Q1 2015.  

But J&J executives are optimistic about a turnaround, citing the recent launch of the drug-delivering Animas Vibe continuous glucose monitor and insulin pump, and longer term plans for a wearable insulin pump.

Johnson & Johnson ($JNJ) touts the Vibe's "fine-tune" insulin delivery, wearable Dexcom G4 Platinum sensor, and color monitor for tracking glucose levels. It was approved by the FDA in December, three years after receiving a CE mark for use in Europe.

"Vibe was launched O.U.S. last year and continues to pick up a lot of volume, did extremely well in O.U.S. (outside the U.S) and was just launched in the U.S. recently. And we're seeing some very, very good uptick on Vibe and we're very, very pleased by that new insulin pump. It's doing very, very well, taking share and growing and with what we saw happening O.U.S. certainly bodes well for the uptick of that product in the U.S," said J&J chief financial officer Dominic Caruso during the company's Q1 2015 earnings call last week.

The company is also excited about the prospects of its wearable, three-day insulin delivery patch being developed by Calibra, which was acquired by the bigwig in 2012.

"We think Calibra could be a very nice opportunity, very unobtrusive way to have insulin delivery. And it looks right now like by the back end of the year 2016, that we should have more on that," Gorsky said during the Q4 2014 earnings call.

In addition, J&J is partnering with Insuline Medical to register and distribute the Israeli company's InsuPad that promotes optimal absorption of insulin by warming diabetics' injection site. The partnership with Insuline builds on a collaboration in Germany. It covers Russia and the former Soviet Union, where marketing approval of Insupad is about a year away. J&J will be the sole distributor in those countries, including Belarus, Armenia and Azerbaijan, among others.

During the Q4 204 earnings call Gorsky said that "diabetes is an area that the company feels very strongly about," pointing out that there are 350 million Type 2 diabetics around the world, but he acknowledge the difficulties facing the business.

"For a very significant portion of our market, we saw over a 70% price reduction. And as you know, whenever that happens in one of your businesses, you finally have got to reframe that entire business. And I think all of the companies involved in SMBG (self monitoring blood glucose products) have gone through that kind of transition over the last year and a half," he said.

The specific change is the federal Centers for Medicare & Medicaid Services' competitive bidding program for mail-ordered diabetes supplies, under which Medicare beneficiaries can only choose from the suppliers that have agreed to offer their diabetes care devices through the mail at the lowest price.

Bayer is attempting to exit the business altogether by selling its Contour blood glucose meter, but hasn't found a suitor so far. Meanwhile Abbott ($ABT) is attacking the problem head on by launching the cheapest over-the-counter device in the diabetes meter and test strips market.

J&J is betting on making drug delivery more precise, convenient and efficient, as evidenced by its recent partnerships, acquisition and product launches.

- listen to or read the most recent earnings call.