Imagination at work – GE enters the BGM market
Slowing growth, intensifying pricing pressure and commoditization are just some of the issues facing the blood glucose monitoring market. Market dynamics have become so bleak that many of the establish players are seriously considering exiting the market entirely. As we have seen already the Big Four – Johnson and Johnson (NYSE:JNJ), Roche, Bayer and Abbott (NYSE:ABT) – have instituted dramatic cost cutting measures to maintain margins in a business where margins continue to come under pressure.
These established players are also well aware that new players like Sanofi-Aventis (NYSE:SNY) are getting ready to enter the market and will bring with them a much different business model. As Diabetic Investor has previously reported Sanofi does not just view BGM as stand-alone profit center rather the company sees BGM as a tool to help them sell more insulin. Eventually Diabetic Investor sees the Sanofi BGM system becoming part of the company’s longer term effort of selling a diabetes management system that will contain everything a patient needs to manage their diabetes.
On the flip side, the major players also are well aware that value players such as Nipro Diagnostics are well positioned with their low cost, co-branding strategy. Unlike the big boys with their vast and costly infrastructures, Nipro operates a lean operation that is better equipped to handle current market dynamics. Nipro is also getting help from their retail partners who are becoming more aggressive promoting their store branded offerings as they see these store branded products as not only more profitable but as another way to bind their diabetic customers to their lucrative pharmacy business.
Needless to say given this set of market dynamics it seems like a strange time to enter the market. It seems even stranger that any company, no matter who well capitalized, would want to enter the market with a partner who is relatively unknown. But that’s exactly what’s about to happen as GE (NYSE:GE) has partnered with Bionime. In a deal that was just signed in late August GE will initially market Bionime’s GM100 monitor under the GE brand name. Diabetic Investor eventually expects the GM100 to be modified or upgraded so that like so many monitors coming to market it can seamlessly communicate with other consumer electronic devices such as a cellphone or tablet computer.
The ultimate goal being to tie the monitor into another GE healthcare initiative Care Innovations™, a partnership between GE and Intel (NASDAQ:INTC). According to the Care Innovation web site;
“Long-term, chronic conditions create many challenges—for the patients who have them, as well as for their immediate caregivers and the healthcare professionals responsible for their care. The Care Innovations™ Guide¹ is designed to help address those challenges.
The Care Innovations™ Guide is a comprehensive, next-generation remote health management (RHM) solution that provides an online interface allowing clinicians to monitor patients and remotely manage care.
Patients who are more engaged can take a more active and positive role in their own care. For healthcare providers, it enables more informed and personalized care—which may lead to better patient satisfaction. And it helps healthcare organizations, including providers and payors, to face the challenges of chronic care, increase efficiency, and achieve organizational objectives.”
Now no one would argue that GE does not have the capital, financial and human, to become a player in this market. Nor could one argue that the GE brand name does not carry some cache. Let’s face facts here GE is one of the better known and more respected global brands. It also doesn’t hurt any that their partner with Care Innovations™ is Intel another well respected and well-known brand.
Still Diabetic Investor does not believe GE will be immune from the many issues facing this market. We’re also somewhat surprised GE did not partner with a more well-known BGM player with an established market presence. While we see nothing wrong with the Bionime product line, the fact remains they have virtually no market presence and even worse little in the way of formulary placement. The fact remains that patients with diabetes do not control which monitor they use and the choice is often made for them by which monitor is reimbursed by their health insurer. While it’s true a patient does not have to use the monitor favored by their insurer however, this results in the consumer paying a greater share of the cost. Given that most consumers see all monitors as the same plus tough economic conditions it’s highly unlikely that they would chose a monitor that was not favored by their insurer no matter whose name is on it.
We’re also not sure how this play out longer term given all the players who are also developing interconnected systems. Considering the GE/Intel partnership Diabetic Investor sees the companies positioning them for the day when they are paid based on outcomes. Considering the other medical devices owned by GE, it’s not a stretch to see the company combining the glucose monitor with a patient’s blood pressure device, scale, etc. with all of these devices interconnected through Care Innovations™. It’s obvious given the number of interconnected devices under development that diabetes management in the future will be woven into the patients other consumer electronic devices which will share all this information with the patient’s healthcare team.
It’s also becoming quite clear that all of these interconnected systems will initially target insulin using patients and may never reach patients who do not follow some form of insulin therapy. For all the hype about how these systems can help a non-insulin patient achieve better outcomes, these patients are the least frequent at testing their glucose levels and future therapy options, i.e. GLP-1’s, will diminish the need for regular glucose testing. This is not to say that an interconnected cannot help a non-insulin using patient, quite the contrary, however in the real world no one has yet to find a way to get these patients to monitor their glucose on a regular basis and without this information it’s difficult, if not impossible, to properly assist the patient.
This to Diabetic Investor has always been the fundamental flaw in this quest to develop an interconnected system, its dependence on the patient regularly monitoring their glucose levels. As Diabetic Investor has noted for years with all the advancements in glucose monitoring technology the fact remains that average testing frequency hasn’t changed and insulin using patients are the only group of patients who regularly monitor their levels. Some seem to believe that this problem will be solved in the future as insurers demand that patients use these new systems. Required or not, Diabetic Investor cannot envision the day when an insurer can force a patient to monitor their glucose levels. Even if you incentivize regular glucose monitoring, either through lower premiums or eliminations of co-payments, this does not change the fact that management of Type 2 diabetes is changing with growing usage of drugs like Byetta, Victoza and soon Bydureon which don’t require regular glucose monitoring yet are very effective at controlling a patient’s diabetes.
Still one cannot ignore what GE is attempting to do as they are one of the few companies that have the resources and brand awareness to alter the BGM landscape. Just as JNJ spent a fortune buying their way into the top formulary position, GE could attempt to undercut the competition. GE also has the resources to build a diabetes management system that would compete directly with what Sanofi is attempting. Nor can one ignore the potential of the GE/Intel partnership and Care Innovations™.
The real question is one of timing or put another way, is GE late to the party. As Diabetic Investor has reported in the past many non-diabetes companies have sniffed around the BGM space. At one time or another we’ve heard that P&G (NYSE:PG), Phillips (NYSE:PHG) and Alere (NYSE:ALR) were just some of the companies not currently in BGM who want to enter BGM. (Of these three Diabetic Investor believes given their history that Alere is the most likely to enter the space.) Still one has to wonder given the deteriorating market dynamics and competitive environment if now is a good time to jump into the deep end of the pool.
Even if one believes that the future of diabetes management is changing, which it is, and that interconnected systems will play a greater role, which they will, and that one day reimbursement will be tied more closely to better patient outcomes, which they will be; this is the future and the future has yet to arrive. And when it comes to the future it’s wise to remember the words of E. J. Hobsbawm; “The only certain thing about the future is that it will surprise even those who have seen furthest into it.”
All in all Diabetic Investor is actually excited with GE’s entry into the market as we believe this is just the beginning of a seismic shift in the BGM market and actually a precursor of an even more dramatic shift in diabetes management. For years many in the diabetes device business believed that advanced technology was the answer to better patient outcomes, a belief that so far has been misguided. The problem as Diabetic Investor has pointed out with regularity is not the technology but actually getting patients to use the technology. With companies like GE, Intel and Apple (NASDAQ:AAPL) – Apple is a de facto entrant as they are associated with Sanofi’s iBGStar monitor – entering the diabetes space the one thing everyone can count on is change and if there is one industry in desperate need of change its diabetes devices.
These new well capitalized entrants into the space, with billions at stake, will find it a competitive advantage to make their new systems patient friendly. They will not come to the market carrying the baggage of the past. It’s our hope that companies like GE, Intel and Apple bring with them a fresh spirit that will reinvigorate the diabetes marketplace and ultimately help millions of patients achieve better outcomes. That their entry into the market will force the existing players into reexamining their business units and make much needed changes. The harsh reality for these existing players is they should not make the mistake and believe just because these new entrants do not have diabetes experience they cannot only succeed but come to dominate the market.
Keep in mind that it was not that long ago that everyone had given up on Apple and for all practical purposes the company looked dead in the water. Or take a look at Yahoo, once the darling of internet search, who now must be content to play in Google’s shadow. History is full of examples of markets turned upside down as companies with new and fresh approaches came in and eventually dominated.
The bottom line here is that the diabetes device market is in desperate need of new ideas and fresh approaches. Existing players who ignore or under estimate these new entrants does so at their own peril. That light at the end of tunnel is actually a runaway freight train and it’s headed straight towards the diabetes device industry- thank goodness.