Who will surrender first?

Who will surrender first?

It’s been some time since Diabetic Investor had a contest and given what’s going in the blood glucose monitoring market it’s about time we had a another one. The question this time, who will surrender first Abbott (NYSE:ABT), Roche or Bayer. Looking at the most recent set numbers as Abbott reported yesterday and Roche reported this morning, Diabetic Investor thinks it’s a toss-up between the two. Roche reported worldwide sales were down 2% with an astounding 11% in the North American market. Not to be outdone Abbott reported total sales down 9.4% in third quarter and down nearly 7% on a year to date basis.

What’s interesting about these two companies is the different paths they are taking to reach their ultimate goal which seems to be taking two billion dollar franchises and turning them into million dollar franchises. While both like everyone else in the market have cut cost with reckless abandon, Abbott seems to living in the past while Roche appears resigned to accept their fate. Abbott continues to introduce new whiz bang systems which have virtually no chance to be successful in the market, while Roche has largely given up on developing anything new.

The two companies besides running their respective franchises into the ground share another trait as they both have regulated their beleaguered units to ugly sister status.  Honestly if they didn’t have to report the results for their diabetes devices units they wouldn’t but since they do the general tact is spend as little time as possible on bad news and move onto something else.  Although Diabetic Investor has no real way of knowing this but we suspect during private meetings both management teams realize the end is near and short of some sort of miracle there is really nothing they can do about it. At least we hope they see this and if they don’t we really want to know what their smoking.

Now we know we’ve covered this ground before but it bears repeating that both companies would love nothing more than to find a buyer for their units but since there are no buyers materializing, better to cut costs and milk these once cash cows until the milk runs dry. However, both companies do have other units which are doing quite well and at some point they just decide to dump these units get what they can and move on. The BGM business may not be what it once was but as we have noted in the past with right cost structure and some innovative marketing companies can still make money. That is companies who aren’t legacy companies like Abbott or Roche as quite frankly they just don’t have the skill set to deal with this new environment.

So the question is who will surrender first, Roche, Abbott and Bayer (although there are some who would argue that Bayer has surrendered already). Given the musical chairs that’s being played out at Johnson and Johnson (NYSE:JNJ), who owns market leader LifeScan; we should throw them in as well. The fact is Diabetic Investor is having a hard time imagining what this market will look like in five years; heck two years is a stretch. Pardon the play on words but it really is time for some new blood in this market.