Abbott Reports – More of the same

Abbott Reports – More of the same

One has to wonder when the management at Abbott (NYSE:ABT) will acknowledge publicly what the numbers clearly indicate, their diabetes care unit just isn’t getting the job done. The company continues to spin the poor performance numbers with explanations that would make a politician proud. Still there’s no getting around the fact that the numbers aren’t good, they aren’t getting any better and there’s little reason to believe they will get better in the future.

According to third quarter results released this morning the diabetes care unit sales declined 0.7% domestically. For the first nine months of 2008 the results aren’t much better with sales declining 0.9%. The company continues to focus on their international results which look better at first glance until you take into account the impact of currency exchange.

As everyone knows Diabetic Investor has stated that Bayer is looking to buy the diabetes care unit from Abbott. A deal that looks more likely given Bayer’s stated remarks that they are actively seeking acquisitions. However, one has to wonder what happens if a deal isn’t done. Not an unlikely scenario given Abbott’s checkered history, just ask the folks at GE (NYSE:GE).

Assuming that Roche, another company with no clear strategy on how to turn things around, doesn’t come in and buy the unit, what can Abbott do to turn things around.

While Diabetic Investor has been hard on the management of the diabetes care unit, the unit does have some valuable assets. In particular their FreeStyle blood glucose monitors are popular with insulin using patients who test their glucose levels more frequently than non-insulin using patients. Like LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), they could focus squarely on the insulin user. Rather than trying to be all things at all patients the company could restructure their sales force and marketing efforts on this group of frequent testers.

Second, it’s time to acknowledge that the Navigator is a failure in its present form and go back to the drawing board. The fact is Dexcom (NASDAQ:DXCM) and Medtronic (NYSE:MDT) are well ahead of Abbott in continuous glucose monitoring. The future for CGM is brighter in the hospital market and Abbott could reconfigure the Navigator for this market. This market is just beginning to develop and the company would not be at a strategic disadvantage as they are in the diabetes market.

Third, stay away from the insulin pump market as this would be a major waste of capital. Although pump patients are the most frequent testers of all there is little chance the company could make any serious inroads against market leaders Medtronic and Animas, another JNJ unit.

The company must come to grips with the realities of the market. Either spend huge amounts of capital in an attempt to grow the business and the only way to do that is by acquiring someone. Or concentrate on becoming more profitable. Given the current and future direction of this market, greater profitability is a more realistic goal.  In the end this would mean a smaller, more focused unit.

When it comes to the glucose monitoring market the facts are clear. LifeScan is executing their well thought out strategy to near perfection. They continue to gain share and realize that their nearest competitor Roche is clueless about what to do next. Bayer has done a fine job of reinvigorating a unit that nearly everyone had given up on. Like LifeScan, they are executing well and continue to gain share. It is both Roche and Abbott who without a clear well thought out strategy continue to flounder like a rudderless ship. It would be ironic if these two somehow hooked up believing that sheer size will make up for no strategy.