The End Is Here
Next week we’ll begin to see just how bad things have become for companies in the blood glucose monitoring market. Given what Diabetic Investor is picking up from the field the results won’t be pretty and the long term outlook will be even worse. Just how bad have things become, consider the following:
1. LifeScan the market share leader here in the US has stopped giving out free monitors. The company has also shut down several websites that allowed patients to receive free monitors. There have also been changes to the leadership at LifeScan as previous management was given a directive from corporate that they considered unrealistic given the current set of market conditions.
2. Abbott (NYSE:ABT) has issued a directive to their sales team to grow market share by at least 1% over the next six months.
3. Roche the market share leader worldwide continues to lose share in the US and has abandoned efforts to get the Accu-Chek Nano approved here in the US.
4. There have also been changes to management at Bayer with Sandra Peterson is now head of Bayer Medical Care. This is well deserved promotion for Ms. Peterson who is largely responsible for reinvigorating this once dying franchise. Replacing Ms. Peterson will be Olivier Jarry who according to a Bayer release “joins Bayer Diabetes Care from Novartis with an extensive and diverse international and functional background – including P&L responsibility in each of the four major regions of the world.” Needless to say Mr. Jarry has a very tough act to follow.
The fact is this market is in the final stages of transformation from a medical device market to a commodity market. Already the Big Four have made drastic cuts to R&D and SG&A, with even more layoffs coming. According to well placed industry sources the Big Four who’ve already dramatically cut marketing budgets will slash budgets even more in 2010.
These companies realize that they no longer control pricing and with healthcare reform coming pricing pressure will only intensify. It’s also quite clear that developing new monitors no longer drives share growth, which is why these companies have basically outsourced their R&D efforts. The bottom line is all that matters is controlling costs and preventing share erosion.
As bad as the situation is there will be some winners and not the obvious players one might expect. As Diabetic Investor has already pointed one winner could be privately held AgaMatrix. With LifeScan’s no-coding monitor delayed Johnson and Johnson (NYSE:JNJ) could easily buy AgaMatrix to fill this hole in their product portfolio. Another likely winner is Home Diagnostics (NASDAQ:HDIX) with their lean infrastructure and experience in the value segment HDI will likely see share increase as more retailers push their private-label monitors which are made by HDI. Privately held Intuity Medical is another possible winner as the Big Four have abandoned their own R&D efforts. Finally there are a host of low cost foreign producers who will flood the market with cheap no-frill products.
For anyone who doubts that BGM market has fully transformed to a commodity consider that Wal Mart (NYSE:WMT) the world’s largest retailer is moving towards a one price fits all strategy. Wal Mart is making a major push into the health and wellness market and just as they did when they moved into the grocery market they could quickly transform the health and wellness market. A move that could spell trouble for Walgreens (NYSE:WAG) and CVS/Caremark (NYSE:CVS).
The facts are this is the end of the line for BGM and there is nothing that can be done to stop this transformation. Say goodbye to new monitors with fancy technology which only a handful of patients actually use. Say goodbye to the days when the Big Four flooded the market with free monitors. Say goodbye to slick television ad campaigns.
Lastly say goodbye to the Big Four- LifeScan, Roche, Bayer and Abbott. Consolidation is not only inevitable it’s essential. It was a good run while it lasted but as Thomas Jefferson once wrote; “The earth belongs to the living, not the dead.”