They will be talking but will anyone be listening

They will be talking but will anyone be listening

Next week the quarterly ritual of earnings calls will begin yet again as Johnson and Johnson (NYSE:JNJ), Abbott (NYSE:ABT) and Roche will all be reporting third quarter results on successive days. Once again investors will be subjected to more corporate speak as the companies try and come up with more creative ways to explain what everyone already knows; the conventional glucose monitoring market sucks and there really isn’t much any of these companies can do about it. Once again we will hear that competitive bidding is killing the market and that pricing pressure continues to dampen margins. Although we’re not sure it’s possible since these companies have already slashed costs to the bone, we could hear more talk about “right sizing” the business to fit this new environment.

One thing we won’t hear is any new ideas on how these units which were once cash cows will return to their former glory. The simple fact is each company from market leader JNJ to lowly Abbott would like nothing more than to dump these units on someone else. The problem is the market is full of sellers and devoid of buyers, not exactly a positive sign for anyone in the BGM market. To make matters worse, and it’s hard to believe things could get much worse, unless they eliminate the janitorial staffs they have gone about as far they can go on the cost cutting front.

Given this set of circumstances it’s interesting to speculate on how these companies will evolve over the next year to 18 months. Although it would have unthinkable just a few years ago that a company like who has spent billions on buying and ruining BGM companies could actually shut down its device operation entirely. Yes this sounds drastic and one would think that even Abbott has the common sense to understand better to sell at fire sale prices and get something than to just say the heck with it. But then again this is Abbott we’re talking about here, a company which could be the poster child for the wacky world of diabetes devices were anything can and usually does happen.

To be honest Diabetic Investor is hoping that Roche doesn’t get out of the business and is able to complete their mission of taking a billion dollar franchise, a franchise which was once a market leader and turn into a million dollar franchise. If Abbott is the poster child for the wacky world of diabetes devices, Roche is the poster child for how corporate arrogance can turn gold into sand.

Things are different at JNJ as they actually have a unit that given its market position and depth could be sold. While it’s true that Animas, their insulin pump franchise is floundering, their new type 2 drug is off to a good start and actually exceeding expectations. Diabetic Investor suspects the higher ups in New Jersey are befuddled at the moment trying to decide whether to ride out the storm or just get the heck out of diabetes entirely when they can. Frankly a strong case can be made for either path but the company better not wait too long as indecision will eventually take the decision out of their control.

Frankly Diabetic Investor has little sympathy for the plight these companies are in as everyone, that is everyone who looked at the marker realistically, knew this was coming. True they may not have known that competitive bidding would cut prices by over 70%, but the BGM market has been transforming from a medical device to a commodity market for years. Yet for reasons only the companies themselves seem to understand they choose to ignore what was going on around them. To Diabetic Investor this is like the New York Giants waking up this morning and saying hey it doesn’t matter that we are now 0-6, have no chance of making the playoffs, that the offense is turning the ball over with stunning regularity; nope everything is ok because we have won two Superbowls so things aren’t as bad they seem and everything is really ok.

The fact is these companies should have seen this coming and have no one but themselves to blame for the sorry state they are now in. Back in the day when they were racking in the cash they could have done a little advanced planning for the future. Granted this would have required some serious thinking and acknowledgement that nothing good lasts forever, but serious thinking is as foreign to these companies as winning World Series are to the Chicago Cubs.

Looking at their actions, or lack thereof, they remind Diabetic Investor of the captain of the Titanic who looks around, sees the water rising and all of sudden realizes hey we just might have a problem here.  That maybe, just maybe we should do something. Now if the captain worked at a BGM company the solution with the ship sinking is obvious, let’s make meters in pretty colors, come out with way cool systems that only a handful of patients care about or will use and of course cut costs.

The simple fact is the BGM ship has been taking on water for years and is getting ready to sink.