Bayer Reports

Bayer Reports

Looking over the fourth quarter results released by Bayer this morning it’s becoming fairly obvious that their diabetes device unit results are falling in line with market norms. Being the last major glucose monitoring company to report Diabetic Investor has nothing from anyone’s results to believe that market conditions are changing for the better.

That being the case Diabetic Investor believes it’s time to examine these results from a different perspective. Now that the BGM business has fully transformed into a commodity business where share growth basically comes from stealing patients rather than organic growth, all the BGM companies need to find a way to increase product usage within their existing customer base. Considering that insulin using patients are critical to this strategy it’s equally important to examine which companies have the products that fit the needs of this market segment.

The only other option available to these companies to grow other than increasing product usage within their existing user base is to buy market share via acquisition. As Diabetic Investor has previously reported we continue to believe further consolidation is coming however this option requires a clear strategic objective combined with adequate resources. The most logical combination of all is Bayer and Abbott (NYSE:ABT) given the comparative size of both companies. The reality is given their respective market share numbers it would be difficult for either LifeScan or Roche to grow via acquisition.

Looking at LifeScan, Diabetic Investor senses that should they proceed down the acquisition path Insulet (NASDAQ:PODD) and Dexcom (NASDAQ:DXCM) are better strategic fits than either Bayer or Abbott diabetes device units. LifeScan already has a relationship with Universal Biosensors to supply future product enhancements.

Roche as everyone knows continues to lose share and is struggling to come to grips with just how badly they have mismanaged their diabetes device unit. The stark reality for Roche is until they acknowledge they have a problem that won’t be able to solve the problem. Diabetic Investor continues to be amazed to the extent Roche remains oblivious to the depth of their problems.

Looking forward Diabetic Investor can’t say were optimistic that either LifeScan or Bayer, two companies that do understand market dynamics and have solid strategies, have come to grips with the new paradigm of increasing usage within their existing customer base. Simply put old habits die hard. Both companies appear to be stuck in the past fighting over formulary placement and pushing new technologies. Shifting to a marketing strategy that focuses on increasing test strip usage within their existing customer base would mean leaving their comfort zone and thinking way out of the box.

The facts are that all the BGM companies have already cut costs and lowered overhead. It’s also true these companies no longer control pricing and that further pricing pressure is a given. Adding to the problem is the changing nature of retail where retailers like Walgreens (NYSE:WAG), CVS (NYSE:CVS) and Wal Mart (NYSE:WMT) are aggressively touting their branded systems as a cheaper alternative to the name brand systems. Finally, with GLP-1 therapy gaining traction, a therapy option that does not require glucose monitoring, strip usage for patients with type 2 diabetes will likely decline even further.

That basically means that the majors must focus on the insulin using patients and maximizing their strip usage. LifeScan seems to believe that by stressing the accuracy of their tests strips they can at minimum prevent existing users from switching to other systems. However as we pointed out earlier this week this strategy will only take the company so far and has limitations. Once every company is held to an accuracy standard, something that will likely come out of the upcoming FDA meeting on glucose monitoring, accuracy will no longer be an issue.

This leaves increasing strip usage within their existing user base as the sole remaining cost effective option for growth. In reality what this really means is companies must come up with innovative solutions making the information provided by their products more useful. LifeScan is already proceeding down this road with their iPhone app but it will take more than fancy apps or software to succeed. Technology is not unlike accuracy, once one company has it everyone else will follow and this technological advantage goes away. Therefore we are right back where we started, in that, patient education becomes the key to increased strip usage.

As Diabetic Investor has reported insulin using patients tend to be better educated about their diabetes than non-insulin users, however there is wide disparity on their education level depending on how their insulin is delivered. It should surprise no one that insulin pump patients typically are the most educated of all insulin using patients as pump therapy requires this. And as we have seen by the issues at Medtronic (NYSE:MDT), poor patient education can have serious consequences.

That basically leaves patients on multiple daily injection therapy (MDI) as they most likely candidates for greater education. Here BGM companies face another hurdle, insulin companies in particular Sanofi-Aventis (NYSE:SNY) are seriously looking to enter the BGM market. Conversely this could also be the saving grace for the current crop of BGM companies as it’s far easier for a company Sanofi to buy their way into the market rather than build from scratch.

The bottom line here is the paradigm for BGM is changing and as Robert Kennedy once said; “Great change dominates the world, and unless we move with change we will become its victims.”

 

WordPress PopUp Plugin