What next for Abbott Diabetes?
Now that Insulet (NASDAQ:PODD) has dumped the FreeStyle glucose monitor from the OmniPod Personal Diabetes Manager (PDM), and given the business to LifeScan, one has to wonder what’s next for Abbott (NYSE:ABT). Can they recover the lost revenue? Will they be able to bounce back? Or is this the beginning of the end?
Although Diabetic Investor would not go so far and state this is the beginning of the end, for in fact the demise of this unit began long ago. Keep in mind this is a unit which once had what many considered the best continuous glucose monitoring system, a system which is now gone. This unit has not one but two insulin pump systems, systems which they spent millions to develop, sitting in the closet never to see the light of day. And did we mention that the FreeStyle system, the crown jewel of the Therasense acquisition, has lost its luster with insulin using patients’ thanks in large part to the competition being more aggressive.
It’s true that Abbott has shown real talent; unfortunately their talent seems to be in taking gold and turning it into sand. We saw the first signs of this when they bought Medisense and ran that business into the ground. Not to be content at ruining one company into the ground Abbott showed rare talent and ran a second acquisition, Therasense, into the ground as well. Frankly the company is lucky there are no more glucose monitoring companies with the suffice “sense” in their name or it’s likely they would buy them as well and run them into the ground.
So the question becomes what next? Do they try and sell this dog to someone else? Do they double or should we say triple down and buy more share? Or do they simply milk what’s left until the well runs completely dry?
Although rumors of Abbott selling this unit are nothing new, they took on added significance when word came that Abbott CEO Miles White had finally agreed that a sale was the best option. Many viewed this as the last hurdle to overcome since it was Miles who was instrumental in acquiring both MediSense and then Therasense, and a sale would be tantamount to him admitting the company had made a mistake- and if there is one thing everyone should know by now is that no company wants to admit they made a mistake. Still the time seemed right as there were several potential buyers who would have paid handsomely to take this unit off Abbott hands.
While it’s true the unit can still be sold and it’s equally true that there are still several companies who would willingly pay millions for it, the unit’s value has been seriously damaged by the loss of Insulet as they have nothing else in their pipeline that will come even close to replacing the strip volume generated from patients using the OmniPod. While Diabetic Investor does understand that the Abbott- Insulet relationship was not all that great and that two sides had grown apart over the years, one would think that Abbott realizing the importance of this agreement would bite the bullet and find a way to make this deal work.
It’s almost ironic that Insulet, the third place player in the insulin pump market, who once desperately needed Abbott, could hold the company hostage. Insulet management may not be the best at running an insulin pump company but they are not blithering idiots either and quite honestly should be given credit for not only realizing that they had Abbott over a barrel but using Abbott’s situation to their advantage.
Given Abbott’s talent in this space, Diabetic Investor actually hopes they triple down and through good money after bad and buy another BGM company. There are several reasons for this and not just because it would make for some truly great copy. Should Abbott triple down and should Roche continue its stellular performance we would once again have a two horse between the two companies to see which one had the worst management team. Given that Abbott’s BGM business never came within shouting distance of Roche we could not call this a fair fight, after all Abbott may have ruined two companies but Roche was taking a $3 billion unit and making a $3 million unit – now that is true talent.
Should Abbott triple down this would once again be a fair fight. We would then see which management team really knows how to ruin a good thing. Is it possible that after two major disasters that Abbott would even consider such a move? Listen this is the wacky world of diabetes devices where anything can and usually does happen. If nothing else it would be great to see which happens first, Abbott taking a third acquisition in glucose monitoring and running that one into the ground or Roche achieving their goal of turning a $3 billion business into a $3 million business. The only problem is Diabetic Investor is not aware of an independent glucose monitoring company with “sense” in their name.