With each passing quarter it’s becoming very clear that the glucose monitoring market is settling into a rather predictable phase. This was evident this morning when Johnson and Johnson (NYSE:JNJ) reported first quarter results. While their Animas insulin pump unit continues to grow at double digit rates, the LifeScan franchise like everyone else in glucose monitoring is plodding along growing at low single digit rates.
What’s truly fascinating is even well run companies like LifeScan have not yet come to grips with the fact that the days of double digit growth are gone forever. As everyone knows LifeScan has made accuracy the cornerstone of their current marketing strategy. LifeScan understands that insulin using patients are critical to the BGM market and this is one group of patients that actually care whether their meter is accurate. However the pitfall of this strategy is clear as well. It’s just a matter of time before the FDA mandates that all meters meet a more accurate standard. Just as alternate site testing became standard throughout the industry the same will happen with accuracy. Once all meters have to meet a new stricter standard, promoting accuracy will no longer be seen as an advantage. Then what?
Sooner or later someone is going to figure out that it’s just as effective to increase strip usage among existing customers, than trying to steal share from the competition. For years Diabetic Investor has noted that with all the advances in monitoring technology average strip usage hasn’t budged and remains at less than two tests per day. This number is likely to decline even further as more type 2 patients move to GLP-1 therapy which does not require that a patient check their levels before administering their medication.
This is why the insulin market is important as these patients need this information before they inject as it helps determine how much insulin to administer. Still the insulin market is not homogenous as there are all kinds if insulin users. The reality is patients on Lantus plus orals or insulin blends do not monitor as frequently as patients following multiple daily injection therapy or insulin pump therapy. Looking towards the future Diabetic Investor sees a greater share of insulin pump patients switching to continuous glucose monitoring which will hurt strip sales even more.
Given this set of dynamics, not a pretty long term outlook, it just might dawn on someone that if there is any hope at all for growth it just might come from programs that promote greater testing among an established customer base. While it may seem inconsequential but if LifeScan could increase average testing frequency among their existing customer base by just one test per day that small increase would result in millions of dollars of profit. And what’s even more amazing is that every company in glucose monitoring is aware of this fact but no one, so far, has bothered to do anything about it.
Looking at the various web sites of the major and minor glucose monitoring companies you’ll find programs that help patients offset co-payments or provide some type of financial assistance. Each offers some type of education but nothing that would be considered so compelling that it would motivate a patient to test more frequently. And some of these companies actually charge for the software that works with their meters.
Why not incentivize glucose monitoring?
Recently several studies have confirmed what Diabetic Investor has been saying for year’s education works and education combined with incentives really works. Companies are already paying their employees to lose weight or stop smoking why not offer an incentive for monitoring their glucose levels? Why not teach these patients the value of testing and how this information can help them better manage their diabetes?
The fact is the majority of glucose monitoring companies are living in the past and the future has arrived. Standard marketing practices that worked years ago are no longer applicable or effective. Yet old habits are hard to break and being bold and innovative are not traits normally associated with an industry that is more comfortable copying someone else’s innovations. Change is needed now and whoever is bold enough to make this step will reap millions in rewards.
Diabetic Investor can’t say we’re optimistic that anyone will make this bold move as they seem to be content to cut costs and milk their BGM units for all their worth before the bottom falls out. Soon Sanofi-Aventis (NYSE:SNY) will be in the market and many suspect that a consumer product giant such as Procter and Gamble (NYSE:PG) will also come in. This will further commoditize the BGM market and drive prices even lower. Realizing they can no longer command high margins in a highly commoditized business JNJ will follow their time tested strategy of selling their diabetes business and moving on.