A Challenging Environment Indeed

A Challenging Environment Indeed

It appears companies in the glucose monitoring market have come up with a new catch phrase to describe why results flat out suck. Welcome to the world of a challenging market environment, a phrase used today by Roche and Johnson and Johnson (NYSE:JN) both of whom who reported 2014 first quarter results. Now to keep things in perspective the first quarter traditionally isn’t all that great for any diabetes device company but looking over the results from these two companies speaks volumes as to how bad things have become.

The most stunning results came from JNJ the current market leader in BGM, with domestic sales down over 30%. According to the company’s press release; “Sales results in the U.S. Diabetes Care business were negatively impacted by price declines associated with the implementation of Medicare competitive bidding in mail order and retail effective July 1, 2013.”

Roche actually showed better results with sales up slightly but this really has more to do with inventory build than an actual increase in market share. According to the Roche press release; “Sales of the business unit increased, despite continued challenging and volatile market conditions for blood glucose monitoring supplies. Sales of blood glucose monitoring devices grew 4% as newer and more technologically advanced products are replacing those at the late stage of their life-cycle.”

Diabetic Investor suspects that when Abbott (NYSE:ABT) announces their first quarter results tomorrow we’ll here more of the same. The same will also be true when Bayer reports. Quite frankly about the only company seeing any sort of growth or increase in market share is Nipro Diagnostics, as their co-branded inexpensive systems fit perfectly into this new challenging environment. The simple fact is while all the branded players have had to make major adjustments to their operations, cutting costs wherever they can, Nipro lean operation fits perfectly into this new challenging environment.

What truly amazes Diabetic Investor is that there are several companies who believe they can actually make money in this challenging environment by building a “better” mouse trap. These companies believe that consumers will willingly pay for these newer whiz bang products just because they are way cool. Listen we have always known that the diabetes device market is wacky but honestly this goes way beyond wackiness and is just plain crazy. The BGM market is NEVER going back to being a medical device market and will forever remain a full blown commodity market where price is all that matters.

The real question that should be asked is how long the major branded players will remain in this market. JNJ through its latest restructuring has basically decided that glucose meters, once a cash cow, are now a mere after thought. Roche, Abbott and Bayer have all tried unsuccessfully to sell their BGM units but have yet to find anyone dumb enough to invest billions to enter this challenging market. At some point Roche, Abbott and Bayer will reach an inflection point and either exit the market voluntarily or dump their units for a fraction of what they once thought they were worth. Until they reach that point look for even more cost cutting while they basically try to make the best of a bad situation.

That sound everyone is hearing is the Fat Lady singing the swan song of the BGM market. The party is over folks and this is going to be one heck of a hangover.