We know what won’t work, what will?

We know what won’t work, what will?

As we watch the conventional blood glucose monitoring market sink into the abyss the question needs to be asked; what will this business be like in the future. Is there anything that can be done to save this sinking ship? Or is it best to let the ship sink and start from scratch? As we noted just yesterday Diabetic Investor has seen some very interesting products that have potential. However as we also noted as interesting as these products are market dynamics are so bad it’s difficult seeing how these companies will make any money.

Looking into the future Diabetic Investor does see a future for BGM albeit in a much different format than we’re used to.  Given current reimbursement trends, the changing nature of diabetes management and an ever changing regulatory environment Diabetic Investor will attempt to predict the future.

While it’s true that diabetes continues to grow at epidemic rates this fact has little impact on the BGM market. There are several reasons for this but the biggest reason is that the majority of patients with diabetes are non-insulin using Type 2’s. In the future Diabetic Investor believes payors will no longer reimburse for test strips for non-insulin using patients. As we have noted in the past there are several studies that have concluded these patients don’t experience better outcomes when they monitor their glucose on a regular basis. Although Diabetic Investor believes many of these studies are flawed the fact remains they exist and will provide the cover payors need to move in this direction.

Already payors are moving in this direction by instituting higher co-payments for non-insulin using patients. Given that cost containment is the order of the day the next logical step is to eliminate reimbursement for this very large patient population. To Diabetic Investor it’s not a question if this will but when it will happen.

The fact is even if there is no change in reimbursement there is very little money to be made catering to non-insulin using Type 2’s. The fact is these patients don’t test on a regular basis and it’s difficult, if not impossible, for a company to recoup patient acquisition costs. This is the reason BGM companies are laser focused on capturing as many insulin using patients as possible.

While it’s true that insulin usage is increasing this fact provides little reason for hope as not all insulin patients are created equal. Insulin using patients fall into three categories – insulin plus orals, multiple daily injection (MDI) therapy and insulin pump patients. Of these three groups MDI and pump patients are the most valuable as given the nature of their therapy testing is essential. But even with these frequent testers Diabetic Investor sees little reason to be optimistic as many of these patients are gravitating towards continuous glucose monitoring (CGM).  To Diabetic Investor it’s just a matter of time before a future CGM system will be approved as replacement for not adjunct to conventional BGM.

The one saving grace for the market could be the move towards interconnected diabetes management (IDM). Looking into the future Diabetic Investor believes a patients smartphone will become the epicenter of their diabetes management. This is the reason companies like Apple and Samsung are pouring millions of dollars into the space. The problem here isn’t technology but reimbursement. As we noted yesterday as valuable as IDM can be prices for test strip continue to erode. Basically what companies in this area are banking on is the move towards outcomes based reimbursement.

The general feeling is that IDM will help patients achieve better overall outcomes and that while they may not be making too much money selling test strips they will make money from helping patients achieve better overall outcomes. Diabetic Investor does not necessarily disagree with this line of thinking. However outcomes based reimbursement is still taking shape and no one is quite who will benefit when payors start incentivizing for better overall patient outcomes. Or put another way who will receive the incentive? Will it be the physician, the pharmacy or the patient?

Another problem with IDM is the FDA. There is some reason for hope here as the FDA has recently approved systems that work seamlessly with a smartphone.  As encouraging as this move is no one is quite sure whether or not in the future the apps that work with these newer system will be regulated or not. At the moment apps are not regulated and Diabetic Investor is aware of just one app that has undergone the rigorous and expensive clinical trial process.  The game will change dramatically should the FDA decide that apps must endure this lengthy and costly process.

Granted this is not a rosy picture for the future of conventional BGM but it is a very realistic picture. Like it or not of the three remaining major players in BGM Diabetic Investor cannot foresee a scenario where any of these players remain in the market for the long term. Roche is already taking steps to spinoff their BGM franchise while Johnson and Johnson (NYSE:JNJ) has essentially dismantled their LifeScan franchise. Abbott (NYSE:ABT) at least publicly seems to believe they can stop the bleeding by introducing new systems, privately it’s well known they would sell this unit if the right offer came along.

The fact is when it comes to BGM the future will belong to any company who can produce an inexpensive system that works seamlessly with a smartphone. A system which is platform agnostic. Even with such a system we doubt that BGM will ever become a major profit center. Diabetic Investor suspects that BGM will become just one more piece of the puzzle, that at long last companies will begin marketing BGM as just one piece of a complete diabetes management system.

The bottom line is that BGM as we knew it, as a stand-alone system are gone for good.

As we watch the conventional blood glucose monitoring market sink into the abyss the question needs to be asked; what will this business be like in the future. Is there anything that can be done to save this sinking ship? Or is it best to let the ship sink and start from scratch? As we noted just yesterday Diabetic Investor has seen some very interesting products that have potential. However as we also noted as interesting as these products are market dynamics are so bad it’s difficult seeing how these companies will make any money.

Looking into the future Diabetic Investor does see a future for BGM albeit in a much different format than we’re used to.  Given current reimbursement trends, the changing nature of diabetes management and an ever changing regulatory environment Diabetic Investor will attempt to predict the future.

While it’s true that diabetes continues to grow at epidemic rates this fact has little impact on the BGM market. There are several reasons for this but the biggest reason is that the majority of patients with diabetes are non-insulin using Type 2’s. In the future Diabetic Investor believes payors will no longer reimburse for test strips for non-insulin using patients. As we have noted in the past there are several studies that have concluded these patients don’t experience better outcomes when they monitor their glucose on a regular basis. Although Diabetic Investor believes many of these studies are flawed the fact remains they exist and will provide the cover payors need to move in this direction.

Already payors are moving in this direction by instituting higher co-payments for non-insulin using patients. Given that cost containment is the order of the day the next logical step is to eliminate reimbursement for this very large patient population. To Diabetic Investor it’s not a question if this will but when it will happen.

The fact is even if there is no change in reimbursement there is very little money to be made catering to non-insulin using Type 2’s. The fact is these patients don’t test on a regular basis and it’s difficult, if not impossible, for a company to recoup patient acquisition costs. This is the reason BGM companies are laser focused on capturing as many insulin using patients as possible.

While it’s true that insulin usage is increasing this fact provides little reason for hope as not all insulin patients are created equal. Insulin using patients fall into three categories – insulin plus orals, multiple daily injection (MDI) therapy and insulin pump patients. Of these three groups MDI and pump patients are the most valuable as given the nature of their therapy testing is essential. But even with these frequent testers Diabetic Investor sees little reason to be optimistic as many of these patients are gravitating towards continuous glucose monitoring (CGM).  To Diabetic Investor it’s just a matter of time before a future CGM system will be approved as replacement for not adjunct to conventional BGM.

The one saving grace for the market could be the move towards interconnected diabetes management (IDM). Looking into the future Diabetic Investor believes a patients smartphone will become the epicenter of their diabetes management. This is the reason companies like Apple and Samsung are pouring millions of dollars into the space. The problem here isn’t technology but reimbursement. As we noted yesterday as valuable as IDM can be prices for test strip continue to erode. Basically what companies in this area are banking on is the move towards outcomes based reimbursement.

The general feeling is that IDM will help patients achieve better overall outcomes and that while they may not be making too much money selling test strips they will make money from helping patients achieve better overall outcomes. Diabetic Investor does not necessarily disagree with this line of thinking. However outcomes based reimbursement is still taking shape and no one is quite who will benefit when payors start incentivizing for better overall patient outcomes. Or put another way who will receive the incentive? Will it be the physician, the pharmacy or the patient?

Another problem with IDM is the FDA. There is some reason for hope here as the FDA has recently approved systems that work seamlessly with a smartphone.  As encouraging as this move is no one is quite sure whether or not in the future the apps that work with these newer system will be regulated or not. At the moment apps are not regulated and Diabetic Investor is aware of just one app that has undergone the rigorous and expensive clinical trial process.  The game will change dramatically should the FDA decide that apps must endure this lengthy and costly process.

Granted this is not a rosy picture for the future of conventional BGM but it is a very realistic picture. Like it or not of the three remaining major players in BGM Diabetic Investor cannot foresee a scenario where any of these players remain in the market for the long term. Roche is already taking steps to spinoff their BGM franchise while Johnson and Johnson (NYSE:JNJ) has essentially dismantled their LifeScan franchise. Abbott (NYSE:ABT) at least publicly seems to believe they can stop the bleeding by introducing new systems, privately it’s well known they would sell this unit if the right offer came along.

The fact is when it comes to BGM the future will belong to any company who can produce an inexpensive system that works seamlessly with a smartphone. A system which is platform agnostic. Even with such a system we doubt that BGM will ever become a major profit center. Diabetic Investor suspects that BGM will become just one more piece of the puzzle, that at long last companies will begin marketing BGM as just one piece of a complete diabetes management system.

The bottom line is that BGM as we knew it, as a stand-alone system are gone for good.