Can BGM be saved?

Can BGM be saved?

Diabetic Investor has spent a great deal of time covering the blood glucose monitoring market and has outlined several factors as to why this market has gone from the penthouse to the outhouse. Given the way all the major players are running their businesses these days it would appear everyone has given up any hope that the market can be turned around. The order of the day at the Big Four – LifeScan – a unit of Johnson and Johnson (NYSE:JNJ) – Roche, Bayer and Abbott (NYSE:ABT) – is to cut costs wherever possible and bleed whatever profits remain from this once thriving market.


Given how bad things look it would seem like a rather strange time for a newcomer to enter the market. But that’s exactly what’s happening as Sanofi-Aventis (NYSE:SNY) gets set to launch their BGM platform at the upcoming EASD meeting. As everyone knows Sanofi has partnered with privately held AgaMatrix who up until this point has been a minor player in BGM. While the AgaMatrix team has come up with some great and innovative products, they have unable to capture the public’s attention. Many, including Diabetic Investor, had believed AgaMatrix would be the next Therasense. However market conditions have changed dramatically since Abbott acquired Therasense. As good as AgaMatrix is it’s unlikely anyone will come along and attach such a high multiple to a BGM company.


That being the case, the real question is can anyone come along and save the BGM market?


Sadly Diabetic Investor believes the answer is no. Anyone who has taken even the most basic business classes knows that there are basically two ways to grow a market; add new customers or get existing customers to use more of your products. One just might think adding new customers would be pretty easy given that diabetes is growing at epidemic rates worldwide. This is one reason the Big Four have made such a major push into emerging markets as at first glance it appears these markets are ripe for growth. That is until you look at the realities of these markets. Unlike developed countries such as the US the basic infrastructure required for growth are not yet in place. Or put another way there isn’t a Walgreens or CVS on every street corner in India or China. You can have the greatest product in the world but if you can’t it into the hands of consumers it really doesn’t matter much.


Besides the basic infrastructure so meters and strips are readily available, reimbursement in emerging markets is also problematic. Finally it should be noted that while markets such as India and China has exploding patient populations regular glucose monitoring is reserved for a select group of patients. Until testing is accepted and available to the masses, emerging markets will be full of promise but yield little in the way of real sales growth.


There will come a time when emerging markets add value that time just isn’t going to happen in the near future.


Diabetic Investor isn’t overly optimistic that BGM players could switch gears and instead of pushing more meters onto the market try and get their existing customers to test more frequently. The simple fact is the marketing departments of the Big Four are living in the past and have yet to accept the realities of the market. You can see this everyday in how meters and strips are sold. The stark reality is these companies missed a huge opportunity and instead of focusing on the benefits of regular testing they became fascinated with whiz bang technology that meant nothing to the average patient.


Diabetic Investor has long maintained that you could give away not just meters but test strips and that wouldn’t change testing frequency. The fact is the majority of patients don’t understand what test results mean or how to use the results so they can better manage their diabetes. It’s no accident that insulin pump patients are the most frequent testers followed by patients following multiple daily injection (MDI) therapy. It’s also no accident this is the same group of patients who are embracing continuous glucose monitoring (CGM) another reason why the future for BGM looks so bleak.


Even with the multiple problems facing BGM there would some hope if, and this is a huge if, BGM companies did a complete about face and began stressing the benefits of regular monitoring over the technology of monitoring. Instead of putting out advertisement that talk about small sample sizes or fast test results, stress how patients can live healthier lives or spend less money on their healthcare by being under better control. Although glucose monitoring is not the only factor that leads to better outcomes, it plays a critical role. Just ask any diabetes educator or physician who treats patients and they will tell you armed with this data they can better assist the patient.


The funny thing is BGM companies know this but still focus their marketing efforts on adding new patients which usually means stealing them away from a competitor. Instead of trying to help patients better manage their diabetes which would increase testing frequency and customer loyalty, they would rather fight for formulary space. Although we’re not there yet, healthcare reform will make formulary placement less important. It’s just a matter of time before the government requires insurers to put all meters on equally footing under the premise that this will somehow save patients money by making testing more accessible. Medicare reimbursement is already structured this way so it’s not a stretch to see the government forcing the Medicare model on insurers.


Perhaps the true saving grace for BGM will be the government and how they change the way physicians are reimbursed. Once physicians are paid more for producing better outcomes glucose monitoring will once again become important. The simple fact is physicians are not paid to achieve better outcomes although this would ultimately save billions of dollars. Until this happens physicians will continue to warehouse patients and spend little, if any, time actually educating them.


Given the contentious nature of healthcare reform Diabetic Investor isn’t optimistic that outcomes based compensation will be here soon, which means if the BGM market is to be saved it’s up to the companies in the market to save it. Unfortunately as Walt Kelly wrote in a 1971 comic strip balloon, “We has met the enemy, and he is us.”