Abbott Reports

Abbott Reports

This morning Abbott (NYSE:ABT) reported fourth quarter and full year 2006 results. Looking at the diabetes care division Diabetic Investor’s previous reports that growth was slowing turned out to be highly accurate. In the fourth quarter Abbott Diabetes Care sales declined by 2.1% domestically compared to same quarter in 2005, worldwide sales in the quarter grew an anemic 1.5%. For the full year the results weren’t much better with sales growing 4.8% domestically and 6.5% worldwide.

Abbott’s results pale in comparison to the results announced yesterday by LifeScan, who experienced strong growth in the fourth quarter and the full year. It is well known the market for blood glucose monitoring products is growing in the mid to high single digit range. The market is also undergoing a change in dynamics as margins are being squeezed and the competitive bidding looms on the horizon. As Diabetic Investor previously reported all four of the major players in this market have made changes in upper level management in the past 12 months. Although Roche and Bayer have yet to report their results Diabetic Investor suspects their results will fall in line with Abbott’s.

While the company said they expect growth in their diabetes business to reaccelerate in 2007 Diabetic Investor does not share this view. With the changing market dynamics LifeScan appears to be the only major player who understands that this market is changing from a medical device market to a consumer product market. The bottom line is LifeScan is outspending their rivals in terms of marketing, in particular television advertising. By going direct to the consumer LifeScan has expanded their share and is the company to beat in this market.

Abbott also confirmed something Diabetic Investor wrote about back on January 18th, when they confirmed they have an all in one device under development and they are working on improvements to their FreeStyle line of meters. In regards to the Navigator the company’s continuous glucose monitoring system which is still awaiting FDA approval the company appears to be changing their tune as today they indicated the system would be approved in the next few months. Early this month the company stated Navigator would be approved in two months. There was no mention of the Aviator insulin pump and any future plans to enter the insulin delivery market.

Based on their comments it’s apparent the company believes the all in one device, set to be introduced in the second half of 2007, will reinvigorate growth. While Diabetic Investor sees an all in device as the next major advancement in glucose testing, it’s unlikely such a device will produce the results the company expects. Abbott is not the only company that is working on an all in device; Roche and LifeScan have similar devices in their pipelines. Diabetic Investor sees the all in one device following a similar path when alternate site testing first came to market. Simply put after an initial bump in sales, the concept will be quickly copied and soon consumers will have multiple options to choose from.

The company’s belief in the all in one device is just further evidence of how BGM companies believe advanced technology is the key to growing sales. The bottom line with the BGM market is product innovation only has a minor impact on sales. Going forward the market will favor companies who can produce a quality product at a low cost. This is one reason all the major players in this market are taking a strong look at trimming their expenses. As the market completes its transformation from a medical device to consumer product market companies such as LifeScan who place a greater emphasis on consumer marketing will experience share growth.