The Ax Falls at Abbott

The Ax Falls at Abbott

What happens when you don’t have a coherent strategy and continue to lose market share? For Abbott (NYSE:ABT) the answer is it’s time to restructure and cut costs. For some time Diabetic Investor has been hearing rumors that due to the continued poor performance of their diabetes device unit Abbott was considering restructuring the unit which would include reducing the size of their sales force. According to sources at the company this is no longer a rumor as the company is implementing this plan today.

No one should be shocked or surprised by this move given the changing market dynamics and the unit’s dismal performance. As LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), and Bayer continue to gain share, Abbott has been unable to stop the bleeding.

While all the details have not yet been made public we should gain greater insight as to where the company plans on going in early January when they present at the 27th Annual J P Morgan Healthcare Conference. Abbott is scheduled to present on Tuesday January 13th at 10 a.m. PST. (Of course Diabetic Investor will be attending the conference and issuing updates with breaking news.)

Also presenting at J P Morgan will be Roche who like Abbott has had their own set of problems with their once thriving blood glucose monitoring unit. The company has already taken the ax to their insulin pump unit and BGM could be next.

Now that both companies have begun cutting costs and restructuring it will be interesting to see exactly what, if any, new strategy they come up with. The real problem is with strip usage barley growing and margins shrinking the chances of any new strategy working aren’t great. In the past companies would acquire market share but even here the options are limited. While Home Diagnostics (NASDAQ:HDI) and privately held AgaMatrix would be receptive to being acquired neither company has enough market share. Also given their track records with previous acquisitions it’s unlikely either company would be successful.

When it comes to the BGM market the facts are there are too many meters on the market and the majority of patients remain clueless as to why they should be monitoring their glucose levels on a regular basis. This is why LifeScan’s strategy has worked so well, by concentrating on insulin using patients who need and understand this information, they have been able to expand their patient base. LifeScan and Bayer have also learned a valuable lesson that patients want meters that are easy to use. Finally both companies also understand this is no longer a medical device market but a consumer product market.

Both Abbott and Roche need only look at Bayer’s resurgence to see that a turnaround is possible. That of course means hiring talented people and providing them with the resources they need to be successful. For two companies that have a history of micro-managing their business units and running them straight into the ground Diabetic Investor isn’t holding our breath waiting for this to happen.