Abbott Loses Key Account
Diabetic Investor has learned that Cardinal Health (NYSE:CAH), the second largest distributor of medical products will no longer distribute Abbott (NYSE:ABT) blood glucose monitoring products. According to company sources Abbott refused to meet Cardinals demands for greater price concessions. With 60 days of inventory on hand at Cardinal there may still be time for Abbott to reconsider their decision but as it stands today Abbott is out at Cardinal.
This is a major blow for Abbott and reaffirms a point made by Diabetic Investor last week when we noted that BGM companies are no longer in control of their own destinies. Companies like Cardinal understand something Diabetic Investor has been saying for some time in that patients really don’t care which monitor they use as the majority of monitors do exactly the same thing. They further understand with so many monitors on the market and BGM companies desperate for market share that it will be relatively easy to switch existing Abbott patients into another monitor.
This decision by Cardinal just might be the final nail in the coffin for Abbott and sends a crystal clear message to every BGM company that this market has fully transformed into a commodity market where price not technology is the primary driver. With so many BGM companies desperate for market share distributors and retailers are opting for a take it or leave it approach when it comes to price. With the upper hand retailers and distributors are basically saying either you meet our demands or we’ll find someone else who will.
Although Diabetic Investor does not know just what Cardinal was asking for from Abbott, the company was hardly in a position to lose such a valuable account. Now in last place among the Big Four, Abbott’s BGM unit has seen its market share in a near free fall. With LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) and Bayer gaining share, Abbott could ill-afford another blunder and lose even more market share.
This news also must send shivers up the spines of Roche executives as they too have seen their market share fall into the abyss. Like Abbott, they cannot afford further share erosion as Bayer is rapidly gaining ground and LifeScan is expanding their lead in the market. Once unthinkable it is now possible that Bayer could overtake Roche for the number two spot among the Big Four.
It’s no accident that Roche and Abbott are both sinking as neither company has a coherent strategy. Both companies seriously misread where the market was headed failing to adapt to changing market dynamics. What makes their moves even more perplexing is the fact that everyone with a working brain cell knew where the market was headed. How two companies could so seriously misread clear market signals points to both the arrogance and ignorance of management. Their actions reminds Diabetic Investor of a scene from the movie Monty Python and the Holy Grail where the black knight is getting his arms and legs chopped off all the while saying that it’s only a flesh wound.
For their part Abbot gets the Academy Award for overly poor management as they have run not one but two acquisitions into the ground. Running one acquisition into the ground is tough; doing it twice takes real talent.
When it’s all said and done and the movie is made on this chapter of BGM history Abbott and Roche will surly gain the starring roles and Diabetic Investor has the perfect title; Dumb and Dumber.