A very telling picture

A very telling picture

A Chinese philosopher once said “A picture is worth a thousand words” and this picture taken at a Chicago land Walgreens store says that and much more. The first thing that jumped out to Diabetic Investor was the brand distribution on the main display – 3 LifeScan – 2 Abbott – 3 Store Branded (Nipro) 2 Bayer and 1 very lonely Roche option. The meter boxes surrounding the main display was also very telling as no Roche option gained valuable shelf space. Perhaps the most telling aspect of the picture is that rather than display a Roche meter box, Walgreens gave privately held Nova Biomedical prime shelf real estate.

Diabetic Investor also finds it interesting how the Roche Compact Plus, the only Roche option displayed stands out like a sore thumb. While Diabetic Investor is no expert on meter design, one has to wonder why a new patient would select the Compact Plus. Given that a patient needs to have their meter with them at all times, who would want to lug around the huge and ominous looking Compact Plus compared to the FreeStyle Lite, Contour, OneTouch UltraMini or True2Go options which are far easier to transport.

Diabetic Investor also found the prices of each option very telling. Considering the current economic conditions, Walgreens is obviously pushing their branded options as they are either free or under $10.  Not to be outdone LifeScan is actively promoting their UltraMini pricing it below the FreeStyle line and Max offering. Just as Sears used to do with their good, better, best strategy LifeScan is following a similar strategy pricing the Ultra2 and UltraSmart at slightly higher price points than their entry level option the UltraMini.

Granted a great deal more than meter design and pricing goes into a patient’s decision to select a particular meter, however given that most patient’s believe all meters do basically the same thing design and price do play a role. This is one reason Diabetic Investor believes the Sanofi-Aventis/AgaMatrix new iBGStar and BGStar offering could gain some attention they hit the market. All Sanofi needs is to be in the picture, an event that could happen via acquisition.

As regular readers of Diabetic Investor know we believe Sanofi needs to acquire a major glucose monitoring company for two reasons; formulary and retail access.  The reality of the meter market is without prime formulary placement and solid retail distribution there is no way Sanofi will be able to compete with the big boys. One only needs to look at Roche to understand this. At one time the company was neck and neck with LifeScan in terms of market share. LifeScan became aggressive when competing for formulary placement while Roche decided to become less aggressive. The rest, as they say, is history. LifeScan has firmly established themselves as the number one player in the US, while Roche has lost over 11 share points and continues to lose share.

Given the cost and complexity of doing any deal Diabetic Investor had assumed Sanofi would go after Abbott’s diabetes device unit for several reasons. Although Abbott has underperformed the FreeStyle line of meters are popular with insulin using patients which is exactly the patients Sanofi seeks. It is also known that after taking two popular meter franchises and running them into the ground, the company is finally ready to admit defeat and move on. The one sticking point, sorry for the play on words here, could be Abbott’s continued issues running the unit as Diabetic Investor has learned that United Healthcare will terminate their contract with Abbott effective January 1, 2011. (Intellectual property isn’t the only contact sport associated with diabetes, as fighting for formulary position can be just as brutal.)

A deal could still get done and given the resources Sanofi is allocating to their diabetes unit they could give LifeScan a serious run for their money in the battle for formulary position. Considering that Roche continues to implode, it’s not outside the realm of possibility that in a few short years the glucose monitoring market could become a battle between Sanofi and LifeScan. There will still be room for Bayer, Nipro and others but the reality is with each passing day the commoditized BGM market is becoming a battle between Coke and Pepsi. In this battle resources are as critical as technology.

One final thought on the picture is the role retailers like Walgreens will play in this battle, as Walgreens is not the only retailer who covets the diabetic customer. CVS, Rite Aid, Target and Safeway are just a few of the retailers who are specifically targeting the diabetic consumer and could well influence which meter companies survive and which fail. Considering the tough economic conditions, rising co-payments for test strips and greater consumer acceptance of store branded medical devices; retailers like Walgreens are sitting in the catbird’s seat.

Just as Liberty Medical can demand and receive major price concessions from the branded companies, retailers like Walgreens can take this power one step further and by the looks of the picture have already done so. It’s no accident the Walgreens branded meter supplied by Nipro is prominently featured in their store display and carries the lowest entry and continual cost. Walgreens not only makes a higher profit selling their store branded meter, they know the diabetic consumer must come back to Walgreens for test strips. As we noted earlier this week for retailers like Walgreens increasing store traffic and improving customer loyalty are two more reasons they are pushing their store branded option. Walgreens knows that a customer using a LifeScan meter can get their test strips anywhere which provides them less control over the customer and a greater chance of losing that customer to CVS or Rite Aid.

This is perhaps the biggest issue facing the branded BGM companies, as they lost control over pricing. It is also the reason LifeScan became so aggressive gaining formulary access. Although the cash paying market for test strips is growing, the majority of patients have insurance and will typically use whichever meter is tops on their insurer’s formulary list. What LifeScan didn’t count on was the insurers continually increasing co-payments as they sought to lower their costs and pass along more of the cost to the consumer.  In some cases it is actually cheaper for the patient to buy the store branded test strips than it is to pay the co-payment for the branded option. Diabetic Investor can only imagine the carnage that would be created if Nipro became aggressive in the fight for formulary position.

Suffice it to say the battle for BGM supremacy is much more than who has the latest, whiz bang technology or whose meter is the most accurate. The BGM market is not a simple math problem such as 2+2=4; rather it’s like an algebra problem with several variables any one of which can change the answer dramatically. As we have seen with Roche and Abbott, when you get the variables wrong disaster can result. LifeScan has shown even when you get the variables right, new unanticipated variables can come along forcing you to rework the problem. Being the new kid in class, Sanofi has the benefit of learning from others but also has the issue of playing catch up. How they respond will determine if they get a seat at table or if they’ll be left on the outside looking in.

This is just another example of the wacky world of diabetes devices, which to Diabetic Investor is the best reality show going.