Abbott and Roche Report- What happened to the Therasense Advantage?
This morning Abbott (NYSE:ABT) reported first quarter results and for their diabetes care unit the results were less than impressive. Domestically sales decreased 5.8% compared to the first quarter of 2006, these results come on the heels of fourth quarter 2006 results which also saw a sales decline. The company also stated that the Navigator continuous glucose monitoring system which is waiting approval at the FDA should be approved in the coming months.
It’s difficult to find any positives from these results especially with back to back quarters of negative growth. It’s also easy to understand based on these results why the company made major management changes to the diabetes care unit. The question is can this new management team get the unit back on track. The unit has a host of problems and the debacle with Navigator is a prime example. It is widely acknowledged that the Navigator is one of the better CGM systems, yet the system remains bogged down at the FDA. While Medtronic (NYSE:MDT) and Dexcom (NASDAQ:DXCM) went to the FDA seeking approval for their devices as an adjunct rather then replacement for conventional blood glucose monitoring. Abbott foolishly sought a replacement indication for Navigator. The company compounded their mistake by sticking with this decision even when it was obvious that the FDA was not comfortable approving any CGM with a replacement indication. CGM is a new technology and one day there will be products approved with a replacement indication, that day however is not yet here. The company should have known that the FDA moves cautiously with any new technology.
In an attempt to salvage Navigator the company reversed course and went back to the FDA and is now seeking approval as an adjunct device. This change only lengthened the approval process and let their competitors capture the early adopters of CGM technology. So here we are in 2007 almost two full years since Navigator was submitted to the FDA and still we wait. Even should the device be approved one has to wonder how the company will make up for lost time. Medtronic and Dexcom have already captured the low hanging fruit of this market and continue to gain new patients. Medtronic has already combined their CGM system with their insulin pumps in their first step towards a semi-closed loop insulin delivery system. Although Dexcom has had its share of problems it is likely the company will be acquired, either by Roche or Johnson and Johnson (NYSE:JNJ), who will combine the Dexcom system with their insulin pumps to keep pace with Medtronic.
While Navigator may be a good product it does not have a clear strategic advantage over the Medtronic or Dexcom offerings. In fact it can be argued that Navigator has some drawbacks when compared to the Medtronic or Dexcom products. The bottom line with Navigator is the company has bungled the product from the start and the damage may be permanent.
Believe it or not the problems with Navigator are just the tip of the iceberg for Abbott’s diabetes unit. After two consecutive quarters of negative growth and a market experiencing sluggish growth as a whole Diabetic Investor was shocked when the company stated today that they expect the return to double digit growth in the second half of this year. Just what makes them feel this way is unclear as the blood glucose monitoring market is growing in the mid single digits and competition is intensifying. Although Roche has not totally solved their problems in this market the company is doing their best to stop the bleeding. When Roche reported this morning they indicated that their diabetes care unit sales rose 11% and that sales in North America returned to above market growth. Like Abbott who just received approval for a new meter, Roche also launched a new meter the Accu-Chek Performa.
As Diabetic Investor reported yesterday when JNJ reported the dynamics of the blood glucose monitoring market will not change just because companies continue to offer new meters. As advanced as these new meters may be none of them will do anything to expand meter usage. Nothing will stop price erosion, competitive bidding or the lack of patient education. Yet JNJ, Roche and Abbott continue to concentrate on introducing new meters with fancy technology that only matters to a handful of patients. This is like rearranging the deck chairs on the Titanic after it struck the iceberg. In the BGM market the ship is sinking and it’s only a matter of time before it hits the bottom of the ocean.
For Abbott there must be sense of irony here as history appears to be repeating itself. Some may recall that Abbott entered the BGM market when they acquired Medisense. At first the acquisition appeared to be a success, market conditions changed and the business faltered. Back in 2004 in an attempt to reinvigorate their diabetes unit Abbott acquired Therasense and initially it looked like a great move as the company gained share. Market conditions have changed yet again and based on recent events it appears history is repeating itself. As Laurence J Peter once wrote “History teaches us the mistakes we are going to make.”