This morning Home Diagnostics reported 2008 second quarter results and it appears the company is beginning to show signs of a turnaround. One can’t help but believe that the current economic slowdown is helping HDI as both retailers and patients seek lower cost alternatives for glucose monitoring. A prime example of this can be found on the CVS web site as CVS is actively promoting their own test strips, made by HDI, against higher price branded products.
As Diabetic Investor has been reporting for some time with the changes in reimbursement by many insurers patient co-payments have increased to such a point that is actually cheaper for the patient to purchase HDI test strips than pay the co-payment for the branded alternative. Since consumers see little difference between a branded and co-branded product it makes sense that with gas at $4 per gallon that consumers would seek a lower cost option. It is also true that retailers earn a higher margin on co-branded products and are more actively promoting their own offerings over branded products.
HDI’s results also continues a trend that Diabetic Investor has been following. With so many monitors on the market the major BGM players have embarked on a strategy more clearly defining who their target customer will be. LifeScan, the current market leader, has set their sights firmly on the insulin using patient, while Bayer continues to stress the no-coding aspects of their Contour monitor. As the major players stake their claim to different sub-segments of the overall market, HDI has their sights set on being the prime value offering.
It will be interesting to see what Abbott (NYSE:ABT) and Roche do to compete in this environment. Both companies are having a difficult time staking claim to a clear segment of the market. Diabetic Investor doubts either company would try and compete in the value segment. It’s equally difficult to see either stealing share from LifeScan in the insulin segment although Abbott stands a better chance as the FreeStyle line of monitors is popular with insulin users. This is another reason Diabetic Investor sees Bayer buying Abbott’s diabetes unit as they too need to get bigger to more effectively compete in the future. The wildcard then becomes Roche. Will they try and grow by going after Abbott before Bayer? Or will they commit greater resources to their marketing and sales efforts?
The reality is the key to the BGM market is having clear strategy and resources to aggressively pursue this strategy. Although HDI will never compete head to head with the big guys, they are staking claim to the growing value segment of the market.