Bayer Reports – Winning by losing less
This morning the last member of the Big Four, or perhaps we should now call them the shrinking four, reported first quarter results. Unlike the other members of the group who experienced high single or double digit revenue declines, Bayer’s glucose monitoring business for their major monitor Contour fell by just 3.1%, while sales of the Breeze fell by 11.8%. This discrepancy between the Contour and Breeze has been taken place for some and is no surprise given Bayer’s strong commitment to the Contour.
According to Bayer the Contour continues to gain share and is thriving while the competition continues to experience share erosion. They did acknowledge that given the tough economy strip usage is down as consumers are cutting back on testing to save money.
Now that all the members of the Big Four have reported it will interesting to see how value players such as Home Diagnostics (NASDAQ:HDIX) are doing when they report their results next week. Everyone has acknowledged that the economy is hurting strip usage which at first glance appears to benefit HDI given their position as a value offering. As Diabetic Investor reported last week consumers and retailers are more aggressively embracing private label/store branded products to deal with the tough economy. HDI results should provide a glimpse into whether or not consumers are making this move when it comes to the glucose monitoring.
No matter what happens with HDI, it’s time to examine where the Big Four go from here. As we have already reported all the major players have taken steps to lower SG&A as sales erode and pricing pressure continues to intensify. The real question is what additional steps can they make? Or put another way given the current market conditions is it even possible to stop the bleeding and turn things around? Will the Big Four continue to fall into old habits and rely on introducing new systems to generate share gains or will they take a new approach and actually try to expand the market for their systems?
Before we attempt to answer these questions it’s important to note that factors beyond their control will play a major role. Often overlooked in the discussion surrounding the future of BGM is the role patient therapy options play. Before Byetta came to market, patients with diabetes basically had four therapy options, diet and exercise, oral medications, insulin plus orals and insulin alone. Over the past few years as physicians have become more aggressive in treating diabetes, type 2 in particular, insulin usage has been increasing. A good thing for BGM players as patients on insulin need to know their levels so they can properly dose their insulin.
However, even with the increased use of insulin there has not been a corresponding increase in testing frequency. This may seem like an odd contradiction given that improper dosing of insulin can cause serious adverse events including death. Diabetic Investor’s explanation for this seemingly strange development is actually simple, rather than training patients to dose their insulin based on food intake and current glucose levels many physicians are opting for a fixed dosing regimen. This is particular true for patients using both oral medications and Lantus or patients using an insulin blend that combines both short and long-acting insulin.
This situation will only get worse as GLP-1 therapy gains traction with type 2 patients. As we noted before there are over 1 million patients taking Byetta, the only FDA approved GLP-1 on the market. Unlike insulin which is supposed to be dosed factoring in the patients current glucose levels, patients on Byetta have no such worries and simply take the same dose twice each day no matter what their levels are. With the long-acting once-a-week version of Byetta set to go before the FDA by the end of the second quarter, patients will soon have a therapy that is only dosed weekly and like Byetta taken without consideration to current glucose levels.
Also hurting the entire BGM market is the debate over the value of testing for type 2 patients. When studies indicate that patients with type 2 diabetes fail to improve outcomes even when they test doesn’t help. BGM companies will counter that there are other studies that show the exact opposite results. Regardless the facts speak for themselves and usage remains very low for patients with type 2 diabetes.
The debate over tight control is another factor hurting strip usage. Several studies have called into question just the benefits of lowering A1C levels. The fact is diabetes is not a one size fits all disease and what applies generally does not always apply specifically. While most endocrinologists and diabetologiests would agree that it’s preferable to have an A1C below 7%, this does not apply to every patient with diabetes.
The fact is without increased usage by type 2 patients the BGM market is destined to see further declines. The type 1 patient population is neither large enough nor growing fast enough to support all the players in BGM. As we have seen already with the growing usage of insulin with type 2 patients is not helping BGM. It’s time to face facts primary care physicians just don’t have the time to properly train their type 2 patients on insulin therapy, hence the popularity of fixed dosing for their type 2 patients.
Diabetic Investor also believes that BGM companies not presently in the insulin pump market are making a major mistake by entering this already over-crowded market to generate additional strip sales. While it’s true that insulin pump patient’s account for nearly 25% of all test strips sold, two factors will hurt future strip usage with insulin pump patients; Continuous Glucose Monitoring and existing system where glucose monitors communicate with insulin pumps. The day is coming as CGM technology improves when a pump patient will only use their glucose monitor to calibrate their CGM and will rely mostly on the CGM system to provide glucose data. We’re not there yet, but this is no longer a question of if rather when.
Looking towards the future the survivors in BGM will be companies that focus on controlling costs while deeply penetrating the insulin using population. Introducing new systems does nothing more than create share shift and does nothing to actually expand the market. And for all the talk of improving patient education, the real key to expanding the market, that’s all we hear from the Big Four-talk. As everyone knows Diabetic Investor is strong proponent of improving education so patients actually value the information provided by their glucose monitors. However, with therapies like Byetta LAR on the way we’re not sure even with a major push in education is that would help the BGM market.
The bottom line here, for branded BGM in particular, the BGM market will complete its transformation to a commodity market where controlling cost is the key to success. There will be an occasional improvement in technology, about the only thing left is a true all in one device, but other than that there isn’t much left. That is of course, until someone brings back the idea of non-invasive monitoring. Yep that’s the ticket let’s bring a technology that never worked and still fails to address the fundamental problem with BGM. Until a patient actually values the information provided by their monitor it won’t matter if they fail to get that information from a finger stick or non-invasively.
