Full blown panic has now set in

Full blown panic has now set in

While the diabetes world meets in Vienna Austria for the annual EASD conference full blown panic has set in here in the USA. Rumors are flying that Abbott (NYSE:ABT) has decided to close their US facility in Alameda, while Roche is cutting 30% of their diabetes head count. Now we have no way of knowing if either rumor is true nothing is outside the realm of possibility when it comes to the conventional glucose monitoring market. A market that has been on the verge of collapse for the past few years.

As we have noted in the past the major branded players have cut costs to the bone, rightsizing their units to match the new realities of the BGM market. Besides the rumors of more cutbacks at Roche, Diabetic Investor is sticking with our earlier report that this unit will soon be spun off from the mothership and become a privately held company. We’re also firm in our belief that if the right offer came along Roche, Abbott, Bayer and Johnson and Johnson (NYSE:JNJ) would sell their BGM units faster than the San Francisco 49ers can blow a 17-0 lead.

The harsh reality is none of the major players are equipped to deal with the new realities of this market. Even worse few have the capacity of breaking from the past and trying something and/or different. While newcomers to this market continue to push the edge of the envelope and embrace the coming world of interconnected diabetes management (IDM). The old guard remains stuck in the mud and has only recently, and reluctantly we might add, begun to see where things are going.

Diabetic Investor honestly can’t envision what this market will look like 5 years from today and who of the majors will still be here. One could make a very strong argument that of the remaining four major branded player’s only one as we know it today will be around 5 years from today. That BGM could soon become the domain of Apple, Google, Samsung, Phillips or Panasonic. These companies have the one thing all the BGM newcomers’ lack – cash and lots of it. The simple fact is if anyone is going to transform this market they will need what the current players have – formulary access combined with an existing BGM infrastructure.  And let’s be honest it’s a smarter to buy and fix an existing system then build a new one from scratch.

This is what makes this market so fascinating as we are on the verge of major change, yet for this change to be truly transformational elements from the past remain critical. It will be years before outcomes based reimbursement replaces the current fee for service model. The fact is the technology to make IDM a reality exists today, the payment or reimbursement structure for it does not.

Truth be told all the existing players can’t be blamed for matching the size of their units to the new market dynamics. Margins might be smaller today than way back in the day but these companies aren’t losing money either. With the right economics there is still money, good money, to be made in the conventional BGM market.

It’s equally true that the old guard try as they might just can’t escape from the past. Like the dinosaurs who once dominated the planet they will eventually become extinct because they could not adapt to the change that was taking place. Let’s hope that the BGM newcomers will not fall into the same trap as the dinosaurs they are about to replace. That they understand things like how increasing average testing frequency is just as important as converting patients from one system to another. That innovation isn’t making meters that come in pretty colors. That patients more than anything want systems that don’t require an advanced engineering degree to use, systems that work with iPhones and Android based smartphones.

For the first time in years Diabetic Investor is actually excited about the BGM market as the coming wave of change will make a tsunami look tame. It will be fascinating to watch which of the old guard, now in full blown panic mode, blinks first. Who will cry uncle and surrender? And which if any will be here 5 years today. Fascinating indeed, stay tuned.