The Carnage Continues
In a move that should really come as no surprise Bayer has continued to downsize their diabetes unit with additional layoffs announced yesterday. In a related move Diabetic Investor has also learned Bayer has put on hold further investments in the diabetes device arena and may no longer pursue insulin pump newcomer CellNovo.
Bayer is just the latest company in blood glucose monitoring to implement cost cutting measures as the BGM market continues to face dismal and deteriorating market conditions. The simple fact is with competition fierce for every share point, declining strip usage and continuing pricing pressure, the Big Four are left with little choice but to cut costs and hunker down for what looks like a long cold winter.
For Bayer these moves are in stark contrast from the major turnaround engineered by Sandra Peterson who has now moved onto Bayer Crop Science. In perhaps one of the more remarkable turnarounds in BGM history Ms. Peterson took over a unit many, including Diabetic Investor, had given up on. With a new management team lead by Ms. Peterson Bayer was taken off life support and given a new lease on life. Using a combination of innovative new products and fresh marketing approaches Bayer became relevant again, gaining share and at the looking like a threat to overtake Roche for the number two spot here in the US.
Yet, just when it looked like Bayer was set to become a major player again Ms. Peterson moved on, her management team replaced and the unit once again started to show signs of stalling. In reality the new management team was placed in a no win situation as they were put in the next to impossible position of following Ms. Peterson. Additionally they also came in with expectations while Ms. Peterson and her team really had nothing to lose as no one expected much when they took over. Finally it should be noted market conditions have worsened to such a point that no management team stood much of a chance.
Bayer is just the latest company in BGM to cut costs in a desperate attempt to maintain their once lofty, yet now declining, margins.
The bottom line for the Big Four is controlling costs is essential if they are to remain cash cows. Share growth is next to impossible, new technology isn’t adding new users and worst of all they have lost all control over pricing. Add in new accuracy regulations coming from the FDA and it’s easy to understand the rational for the cost cutting.
Looking ahead Diabetic Investor believes it’s just a matter of time before the Big Four downsizes even further and becomes the Big Two or Three. As we have noted on many occasions there are already too many glucose monitors on the market and not enough product differences between monitors. New companies are entering the market with solid products and substantial cost advantages. These new companies also have the additional advantage of following a different marketing model which will further leverage their cost advantages.
Suffice it to say 2011 will be a year when the BGM market changes once again only this time the usual suspects won’t be leading the way.