When will they learn?

When will they learn?

Once again Diabetic Investor was ahead of the curve as Abbott (NYSE:ABT) made it official this morning and announced a voluntary recall of their brand new whiz bang FreeStyle InsuLinx® glucose monitor. According to a company issued press release; “The company has determined that at extremely high blood glucose levels of 1024 mg/dL and above, the FreeStyle InsuLinx Meter will display and store in memory an incorrect test result that is 1024 mg/dL below the measured result. For example, at a blood glucose value of 1066 mg/dL, the meter will display and store a value of 42 mg/dL (1066 mg/dL – 1024 mg/dL = 42 mg/dL). No other Abbott blood glucose meters are impacted by this issue.”

Now Diabetic Investor does not necessarily wish to gloat here and say we told you so, rather provide some back story as to how Abbott deals with such issues. As regular subscribers know Diabetic Investor has some of the best sources in the industry and this is not the first time we’ve been out front of a story. So it’s really not all that shocking we posted a note on this very issue last Tuesday nearly a week before the official announcement. It should also be noted that Diabetic Investor reached out to Abbott management for a comment and actually gave them extra time to respond.

And just what did hear back; nothing, nada not even a no comment.  Now some might say that the company couldn’t respond due to some sort of rule or FDA procedure, which could be true but highly unlikely. Obviously the information Diabetic Investor obtained was accurate and quite honestly meter recalls, unfortunately, have become common.  Why not say yes the information is accurate, we’re very sorry and will do everything we can to make sure this doesn’t happen again. Yes we know this corporate manure but this is what company’s do when they screw up. Like a child caught eating cookies before dinner they say they are sorry and they won’t do it again. No one really believes these types of statements but they are standard operating procedure for most companies.

This lack of response is in sharp contrast to the last time Diabetic Investor reached out to Abbott when we came across another piece of interesting information that the company was intentionally over-billing their customers so they could hit their quarterly earnings number. This request did illicit a response from company officials who grilled Diabetic Investor to find out where we obtained the information, as if we would ever be dumb enough to reveal the source of this information. Frankly there is a reason Diabetic Investor gets some great information as rule one is never burn a source and rule two is reread rule one.

Now Diabetic Investor isn’t quite sure just what is going on in Alameda, home to Abbott Diabetes Care but one thing that isn’t happening is sound business decisions.  The company now has the distinction of running not one, but two glucose monitoring companies into the ground.  Today the unit finds itself battling Bayer for the number four spot in BGM and is giving Roche a serious run for their money as the worst run diabetes device company on the planet.  Come to think of it they may have surpassed Roche as Roche hasn’t announced a recall recently and has at least begun to acknowledge this unit has some serious issues.

The company, like everyone else in BGM, is struggling to deal with the impact of competitive bidding and also like everyone else has decided that slashing costs is the only viable strategy. Morale is at an all-time low, something that Diabetic Investor didn’t think was possible as morale was already low to begin with. Rumors are swirling that the unit will be sold and even more layoffs are coming. From the outside looking in, it appears the unit is just going through the motions until the folks in Libertyville, Illinois, home to Abbott’s worldwide headquarters, decide what to do.

Looked at realistically this has been the problem all along as Abbott’s CEO Miles White is largely responsible for the company buying both MediSense and then doubling down by buying Therasense. Mr. White made a common mistake believing that scale alone would solve all the problems facing the BGM market. Yet as we have seen so often in this space, scale by itself means nothing when there is no clear strategy for growth.  It also doesn’t help matters much when you put someone in charge of this unit who knows nothing about the diabetes market.

Back in the day before the current management team took the helm Diabetic Investor knew the unit was in major trouble when previous management submitted the Navigator for FDA approval. Back then almost everyone believed that the Navigator was the best continuous glucose monitoring system available, yet rather than submit the Navigator to the FDA seeking adjunct usage, Abbott foolishly believed they could receive a replacement indication even though the FDA had made it pretty clear they were not ready to take this step.  This foolish decision cost the company dearly as it allowed Dexcom (NASDAQ:DXCM) and Medtronic (NYSE:MDT) to establish themselves in the market and marked the beginning of the end not just for the Navigator but for Abbott Diabetes Care.

When corporate wised up and realized change was needed it was too late, as like Humpty Dumpty all the kings’ horses and all the kings’ men could not fix a seriously broken unit.  Whether  corporate acknowledges the obvious, that this unit cannot be fixed, and decides to sell, even if that means selling at a fire sale price; is the only question that should be asked.

Some would say this would be akin to Abbott admitting they have been defeated in the field of battle, but as the great Winston Churchill noted; “Defeat is one thing, disgrace is another.”