Abbott Reports – The Roller Coaster Ride Continues

Abbott Reports – The Roller Coaster Ride Continues

Looking at the results released by Abbott (NYSE:ABT) this morning where domestically the company finally posted a positive growth rate of 7.1% for their Diabetes Care unit, it reminds Diabetic Investor of the old saying that even a blind squirrel occasionally finds a nut. On a full year basis the unit grew an anemic 1.1% domestically. While Abbott should be gratified that the fourth quarter positive results breaks a trend of back to back quarters of negative growth, the company is hardly out of the woods.

Anyone who believes this one quarter of positive growth signals a turnaround for the diabetes unit should take a look at past results. Over the past nine quarters including the results announced today the unit has experienced 5 quarters of negative growth and four of positive growth when compared to year earlier results.

It seems ironic that the company attributed this one quarter of positive growth to the fact that consumers are embracing their new no-coding monitors. Just as alternate site testing has become standard throughout the blood glucose monitoring market, no-coding is also becoming commonplace. Once again the company is focusing on technology rather than the fundamental problem facing the entire BGM market which Diabetic Investor pointed out when we commented on Johnson and Johnson (NYSE:JNJ) results which were announced yesterday.

Thankfully it appears the company is no longer sticking their heads in the sand looking forward as they indicated that worldwide growth for the unit in 2009 will be in the mid single digit area.

Given the history everyone witnessed yesterday it proves that anything is possible even Abbott turning around their diabetes unit. However, based on their track record in this area Diabetic Investor has more confidence that our new President stands a better chance of solving the many problems facing our country than Abbott turning around a unit that also has many problems.

Finally for those who wonder if Diabetic Investor still believes that Bayer will acquire the Abbott’s BGM business should listen to comments made by Miles White, chairman and chief executive officer, when asked about the future of the company’s diagnostics businesses. As everyone knows Abbott recently acquired Advanced Medical Optics. According to Mr. White the company is looking to expand their presence in diagnostics businesses that are not subject to the whims of insurer reimbursement and more towards diagnostics and devices that are paid for by the consumer.

As Diabetic Investor mentioned yesterday the reimbursement environment for BGM continues to place additional pricing pressure on BGM companies. A trend that is likely to continue especially with the current state of the economy. With their continued focus on technology rather than education, BGM companies will likely use price to gain share. Simply put this means that instead of trying to expand the need for their products BGM faces a future of slower market growth and lower margins on the products they sell.

Not surprisingly this future has prompted all of the major BGM companies to realign their sales forces and marketing dollars to reflect this situation. Even with these cuts the major BGM companies will find it increasingly difficult to maintain their once hefty margins.

That being said, perhaps with his comments, the fact that the diabetes unit finally experienced positive growth and the fact that their BGM unit is a perfect strategic fit for Bayer who also focuses on no-coding monitors this deal seems even more likely. As Diabetic Investor said before this deal makes so much sense that it probably won’t happen. But then again, who would have thought that today we’d have an African-American President or that the Arizona Cardinals would be playing in the Super Bowl.