Diabetes Sales Weak as Economy

Highlights include Johnson & Johnson (JNJ), Abbott Laboratories, Inc. (ABT), Amylin Pharmaceuticals, Inc. (AMLN), Eli Lilly & Co. (LLY), Merck & Co. (MRK), GlaxoSmithKline, plc (GSK) and Sanofi-Aventis SA (SNY).

We are only just a few days into first quarter earnings, and already a not-so-encouraging trend is emerging as it relates to diabetes drugs and testing products. Diabetes products are experiencing a negative impact from the broad, weak economy as diabetics are looking to save money in how they treat their disease. These include testing less often and using less doses of medication. As a result, wholesalers are looking to carry lean inventory on these products.

Johnson & Johnson (JNJ) reported earnings on Tuesday, and although we had expected some weakness in diabetes product sales, we were surprised to see U.S. diabetes sales down 11%. This is significantly weaker than the 4% growth posted in the first quarter of 2008. The company attributed the weak sales to softness in the economy and diabetics cutting back on out-of-pocket expenditures. A significant portion of J&J's diabetes sales come from test strips which diabetics use to check blood sugar levels.

As unemployment rises and health insurance coverage ceases, some people begin to cut back on healthcare related expenses. For some diabetics this means cutting back on potentially life-sustaining medications and testing products, which can run as much as $500/month or more.

Abbott Labs (ABT) reported first quarter earnings yesterday and diabetes care was one of the worst performing business segments. Sales of diabetes products fell 12% in the U.S. and were down 13% worldwide. This compares to 14% worldwide sales growth in the first quarter 2008. Abbott, like J&J, sells glucose monitoring equipment and test strips.

Amylin Pharmaceuticals, Inc. (AMLN) reported first quarter numbers this morning and the result was similar. Sales of Byetta were flat year-over-year and fell 3% sequentially from the fourth quarter 2008 when sales had already began feeling the affects of the weak economy. Amylin, along with Eli Lilly & Co. (LLY) sells Byetta, a twice-daily injection which helps diabetics control blood-sugar levels through stimulating the release of insulin.

A number of other companies with significant diabetes businesses have yet to report but given the trend we have seen thus far, we expect diabetes sales may be weak across the board.

Merck & Co. (MRK), which sells blockbuster Januvia, reports earnings on Monday. Januvia is the leading DPP-IV diabetes drug and while we expect sales growth to remain robust, it's quite possible that sales will be softer than analysts' expectations.

Other companies with a large presence in diabetes that have yet to report are GlaxoSmithKline (GSK)  (Avandia), Eli Lilly (Actos, Humalog, Humalin) and Sanofi-Aventis (SNY) (Lantus).

Read the full analyst report on JNJ

Read the full analyst report on ABT

Read the full analyst report on AMLN

Read the full analyst report on LLY

Read the full analyst report on MRK

Read the full analyst report on GSK

Read the full analyst report on SNY