Abbott Reports – The Slide Continues
Looking at the results Abbott (NYSE:ABT) reported this morning it’s possible to find some comfort in the fact for their diabetes care unit the decline in sales wasn’t as bad as anticipated and the decline percentage was lower than what Johnson and Johnson (NYSE:JNJ) reported yesterday. However when you consider that Abbott has fallen all the way to fourth position in terms of US market share and that the unit has been losing share consistently it’s difficult to find anything to cheer about. The fact is this unit has not seen positive sales growth since the first quarter of 2008.
Perhaps the most notable trend at Abbott is the company’s continued silence on what plans if any they have for the unit. As everyone knows Diabetic Investor believes that further consolidation is coming in the blood glucose monitoring market. For a time we believed that Bayer would acquire this unit to increase their presence in the insulin using segment of the market. Given the units continued poor performance it appears that Bayer has put this acquisition on hold as they themselves deal with the slower sales.
Like everyone else in BGM the company has taken steps to lower costs cutting back on marketing and sales costs. Like everyone else in BGM the company is dealing with intensifying pricing pressure and lower product demand. Like everyone else in BGM the company is beginning to accept the fact that this is no longer a medical device market and has become a full blown commodity market where controlling costs has become the paramount concern.
Given that the company stated that third quarter results won’t be much better the question becomes just how long will Abbott hold onto this unit. Considering the economy and the continued demand for ever lower prices it’s possible the company has missed their window for selling the unit. The FreeStyle Navigator has been a colossal failure and their Aviator insulin pump doesn’t appear to be the answer either, this assumes that we will even see the Aviator.
From all outward appearances and the lack of statements by the company it appears Abbott has decided to accept the fact they are stuck with this struggling unit. Considering the trends in BGM about the best the company can hope for is to stop the bleeding and even that won’t be so easy. Frankly there just aren’t many options available to stabilize this struggling unit.
In a way the problems facing Abbott diabetes are really no different than those facing the entire BGM market. A market which faces continued pricing pressure combined with lower product demand. As we indicated yesterday it’s just a matter of time before one or more of the Big Four decides it’s time to stop throwing good money into a bad market. Considering how things are going with BGM throwing in the towel just might be the best option available. The question is who will see the handwriting on the wall and make this tough yet necessary move.