Last Man Standing

Last Man Standing

While everyone in glucose monitoring is fumbling about, trying to figure out how to deal with the impact of competitive bidding and its corresponding fallout there is one company, actually one man who has a plan that just might work. A man who has been there, done that not once but twice. Diabetic Investor knew it was only a matter of time before Ron Zwanziger, CEO of Alere (NYSE:ALR) would be back in the diabetes market and given his history we’re not surprised he’s coming back in a big way.

While everyone else in BGM is complaining and slashing costs, Mr. Z is on the acquisition trail buying DME’s that cater to Medicare patients. This buying binge began almost to the day after his non-compete with LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) expired last November when the company spent $65 million to purchase Arriva Medical. Diabetic Investor has also learned that Arriva, i.e. Alere, provided the financing so that the management team at Liberty Medical, the largest Medicare provider in the land, could buy the company from Express Scripts. Simply put Alere now owns Liberty and their huge installed user base. But Alere isn’t finished just yet and more acquisitions are on the way.

Yet, buying up DME’s and Medicare patients is just the first part of the Alere strategy. As everyone knows with reimbursement rates set at $10.41 for a box of 50 test strips, it’s difficult if not impossible for any DME to make any money; everyone that is except Alere. The conventional wisdom is to have any chance at all at making a buck DME’s would have to buy cheap imports, the key words here are conventional and buy. For if there is one thing Alere isn’t its conventional and Alere does not buy from someone else they will also likely buy a BGM company.

Now Alere is no hurry here as there are plenty of BGM companies to choose from and Mr. Z knows the longer he waits the more desperate these companies will become. He’s already seen Bayer unable to close their deal with Sanofi (NYSE:SNY), sees that Abbott (NYSE:ABT) is in major trouble and knows there are plenty of private companies like AgaMatrix who would be thrilled to be acquired. Add in the fact that Alere also has a deal with AT&T to market WellDoc’s DiabetesManager mobile health program to health plans to offer disease management programs as well as to corporate payers.

There is no question Alere clearly sees the future of diabetes management and understands the coming importance of interconnected diabetes management systems. Yet, unlike everyone else, Alere has figured out a way to actually make money with these new systems. Simply put Alere is combining virtual integration with massive scale and then adding some neat technology to boot. The fact is by catering to Medicare patients and health plans Alere doesn’t need a large and very costly sales force, nor do they need to spend a large amount on marketing to consumers.

Keep in mind that Mr. Z has been down this road before not once but twice. First he built MediSense which was then sold to Abbott, next he built Inverness Medical which he later sold to JNJ. The deal with JNJ may go down as one of the all-time great deals in diabetes history. In exchange for a 10 year non-compete JNJ bought only the diabetes assets from Inverness let Mr. Z keep the non-diabetes assets plus provided the company with $40 million in cash. The reality was Mr. Z had JNJ by the short hairs as they had become dependent on the meter platform which Inverness provided. JNJ really had no other choice but to buy the company and paid dearly to keep Mr. Z and his talented team away from the diabetes market.

Being the talented guy that he is, Mr. Z used Inverness as his platform to build Alere all the time knowing that one day he would be back in the diabetes game. We’ve said it before and we’ll say it again the business of diabetes, as wacky as it is, is also like the Hotel California where you can check out but never leave. Terry Gregg, the current Dexcom (NASDAQ:DXCM) CEO, Charlie Liamos one of the key players at Therasense is now at Insulet (NASDAQ:PODD) and Mark Lortz, Charlie’s buddy at Therasense now sits on many corporate boards of diabetes companies. The simple fact is these guys have talent, have been there and done that. All of these talented executives also have something else in common; they know that most of the current players in diabetes know nothing about diabetes.

Mr. Z in particular knows that many, if not most, DME’s are in full blown panic mode and Alere will be able to buy them for a fraction of what they were worth before competitive bidding. As we noted earlier he’ll also have the pick of the liter when it comes to buying a BGM company. He clearly understand the future of diabetes management and most importantly of all he knows how to make money.

The big difference between Alere and everyone else is actually pretty simple, while everyone else in BGM sees this as a crisis, Alere sees opportunity. As the Martin Luther King, Jr. noted; “Every crisis has both dangers and its opportunities. Each can spell either salvation or doom.”

Yet vision will only take a company so far, to actually achieve success someone has to turn vision into reality. Or put simply what’s needed now more than ever is leadership, experienced leadership that will not wavier from the plan. As Theodore Roosevelt noted; “In a crisis, the man worth his salt is the man who meets the needs of the situation in whatever way necessary. “ Alere has that man, welcome back Mr. Z the diabetes market won’t be the same now that your back, thanks.