Things are getting just a bit crazy out there
Sales reps being asked to give back bonuses that were already paid out; sales managers invading the homes of reps so they count the number of samples they have and rumors of even more layoffs are just a minor sampling of what’s going on in the wacky world of diabetes devices, glucose monitors in particular.
As Diabetic Investor has noted on far too many occasions the BGM market has fully transformed itself into a commodity market and while this fact has still not set in at the executive level, the remaining reps in the field that see this fact every day are getting restless. The real question is one that Diabetic Investor has before, which of the major branded companies will be the first to say uncle and do away with their outside sales force entirely.
Another fact is also becoming clear; try as they might to stop the bleeding the major brands are just not equipped to deal with the market dynamics beyond traditional cost cutting maneuvers. Frankly it’s pretty easy to cut costs; the hard part is to devise strategies that effectively deal with the new market realities. Given that pricing pressure will continue to intensify, volumes will likely decrease in the future and it cost upwards of $200,000 per year to keep a rep in the field it just might be time for someone to acknowledge the obvious.
Diabetic Investor also believes that consolidation is inevitable as there is a direct correlation between scale and profits. The simple fact is there are still too many monitors on the market and without consolidation each share point becomes a very costly battle, a cost which further erodes already eroding profit margins. The simple fact is there is no need for 40 plus different monitors and that patients would not be harmed in anyway if the number of monitor options decreased rather than increased.
Another looming threat, which should not be ignored by the major brands, is the entry of new players into market that doesn’t see BGM as their main profit center. Unlike the major BGM companies a company such as Sanofi-Aventis (NYSE:SNY) does not see their BGM unit as stand-alone profit center rather they see it as means to sell more insulin. While they do want to make a profit on the BGStar and iBGStar, they also see these devices as part of bigger plan to sell diabetes management systems.
An equally present threat is value players such as Nipro Diagnostics. Retailers such as Walgreens, CVS and Rite Aid are now aggressively promoting their store branded offerings as they make higher margins on these systems and they also bind the their customers closer to the store “brand”. Given their lean corporate structure it’s difficult, if not impossible, for the majors to match Nipro’s price point without taking a serious margin cut. Anyone who doubts this should remember what Diabetic Investor reported just yesterday as Bayer was unwilling to meet Liberty’s demand for even further price concessions basically forcing Bayer to terminate their relationship with Liberty as they just weren’t making a high enough margin.
The stark reality is the clock is ticking and it’s only a matter of time before one of the big boys gives in and either cut costs to the bare bones or sells out. Given the eroding markets dynamics don’t be surprised if both events occur within months of each other.