Meter Maids

Meter Maids

As the dog days of August come to a close and football season looms on the horizon, we can’t help but muse a little on the current state of blood glucose monitoring and more specifically the looming job cuts about to take place. Sales reps or meter maids as they are sometimes called are never an easy bunch to please. As a whole this is a group that loves to complain about how management is screwing everything up and won’t let them do their job. While Diabetic Investor does not wholly disagree that management has done an outstanding job of screwing things up, these screw ups alone are not the sole reason BGM is in such a dismal state.


The fact is the die for BGM was cast years ago when meters became a commodity and formulary placement and rebates became more important than technology. Long ago Diabetic Investor noted that the major BGM companies would face some serious decisions as they had lost total control over their pricing structure. BGM could no longer demand a price as the tables had turned completely where the buyers were dictating what price they were willing to pay. Every major player found out the hard way that if they did not capitulate to these demands the buyers would simply drop their meter and move on.


Besides losing control over pricing, BGM players also faced a market that was no longer growing at double digit rates. Frankly it was pretty easy to hide mistakes when the market was growing but once market growth began to slow these mistakes were magnified making it impossible for anyone to hide from their mistakes. Yet even with these mistakes out in the open for everyone to see the major BGM continued to pursue strategies that put them in this position in the first place.


It should come as no surprise then that every major BGM company has become experts at cost cutting. Already we have seen major players like LifeScan basically outsource their R&D while laying off experienced sales reps. Is it any wonder that nearly every BGM company has made dramatic cutbacks in their once huge marketing budgets. Cost cutting is the order of the day as these companies have thrown in the towel and all but given up on rebuilding the market. Let’s face facts folks, you pretty much know you’ve hit rock bottom when you have the market leader promoting a new lancing device.


In the coming weeks the cost cutting will continue with even more layoffs and once again reps will complain long and loud about how management has screwed everything up, when in reality they are doing what needs to be done. Frankly the handwriting has been on the wall so long no one should really be surprised by what’s about to happen.


Ironically at the same time all these cost cutting measures are taking place, a new player is getting set to enter the market. As Diabetic Investor previously reported Sanofi-Aventis (NYSE:SNY) has teamed up with privately held AgaMatrix and will introduce their new Nugget meter which attaches to the popular iPhone. Sanofi may be new to BGM but it appears they are falling into the same old trap of thinking that technology is more important than formulary placement and rebates.


There is no question the Nugget is way cool and will likely generate lots of free publicity for both Sanofi and AgaMatrix. However once you get past the great design, the Nugget is nothing more than one more glucose monitor. The fact is without top tier formulary placement, the Nugget is set to be another really cool meter that fails to meet sales objectives.


Anyone who believes that patients will switch to the Nugget simply because it attaches to the iPhone and works with AgaMatrix’s existing iPhone app, is living in fantasy land. Even if the Nugget is given away for free someone must still pay for test strips and the fact is these test strips are not on formulary. Even with co-payment equalization programs, you are adding an extra step for the patient. Finally and most importantly, you are asking the patient to step out of their comfort zone.  Meters may be a commodity but for insulin using patients, the target market for the Nugget, don’t like switching when they become comfortable. Typically the only reason an insulin user switches meters is this switch was forced upon them by their insurance company, the reality is lower co-payments trumps all. There is a minority of patients who will actively seek a particular meter but this is a minority.


This is why it is critical for Sanofi to take the next step and acquire either Abbott (NYSE:ABT) or Bayer’s BGM unit, more likely Abbott’s. Without an established presence in the market Sanofi is adding yet another hurdle when they are about to enter a highly competitive market where the leaders will use everything they can to maintain their leadership position. If Sanofi thinks Johnson and Johnson (NYSE:JNJ), who owns LifeScan or Roche will just sit there and do nothing when Sanofi comes to market is kidding themselves. LifeScan for sure will fight and while Roche’s management team is less than spectacular no one not even Roche could be that stupid and not put a fight. The fact is even with lower prices the BGM business is hugely profitable.


The bottom line here is that the BGM business is once again in a state of transition, but the business is not dead just yet. Once the cost cutting comes to an end, BGM companies will still make tons of money until someone else comes along willing to operate on lower margins. By the time that comes along most of the major players will be delighted to sell and move on. The strongest will remain but with a vastly different business model.


Anyone who doubts the future of the BGM only needs to look at the computer business. At one time there were hundreds of companies selling systems and market growth was soaring. Slowly but surely the market transformed from a technology driven market to where it stands today which is basically a commodity market. There are basically a few major players and a bunch of smaller niche players. For every person willing to stand in line and wait for the latest iPhone, there are hundreds who are perfectly happy with a phone that doesn’t come with high prices, hype and actually can make a phone call.