Why Blood Glucose Monitoring Companies are in a world of hurt.
An American Diabetes Association (ADA) survey found that "21 percent of adults with type 1 diabetes never checked their blood glucose. Of those with insulin-treated type 2 diabetes, 47 percent never monitored, and among those with type 2 diabetes who were not using insulin, 76 percent never checked.”
These numbers explain why blood glucose monitoring (BGM) companies are in a world of hurt. Conventional wisdom would have one believe that patients using insulin to treat their diabetes would test their levels regularly as they need this information to properly dose their insulin. The 47% of insulin treated type 2’s does not surprise Diabetic Investor as many physicians prescribe a specific amount of insulin with each meal. These physicians understand that it’s easier and more cost-effective to provide a regular insulin regimen for their insulin using type 2 patients then it is to educate these same patients about glucose levels and insulin dosing.
What’s truly astonishing about these numbers is the 21% of type 1’s who never check their levels. Unlike a type 2 patient who might get away with a specific dosing regimen, type 1’s don’t produce insulin and are prone to more frequent hypo and hyperglycemic events. A type 1 who fails to monitor their levels on a regular basis is not just stupid but dangerous.
What all these numbers tells us is really something we already know, the reason patients don’t test has nothing to do with the so-called “pain” of testing or that it’s difficult to perform a glucose test. The reason patients don’t regularly monitor their glucose is that they don’t value this information. Given that the majority of patients fail to receive even the slightest amount of education it should surprise no one that patients, both type 1 and type 2, are not regularly monitoring their glucose levels. It also explains why the future for BGM companies is bleak and about to undergo a seismic shift.
Last week when Roche announced major price cuts for their Accu-Chek® glucose meters Diabetic Investor explained what a shallow attempt this was to reinvigorate a sinking franchise. We reiterated our thoughts that BGM companies are obsessed with fancy technology and are failing to address the fundamental problem facing the industry.
It’s becoming rather obvious that the next step for the BGM market will be another round of consolidation. With market growth slowing and pricing pressure intensifying that the big four LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), Roche, Bayer and Abbott (NYSE:ABT) will soon become the Big Three or perhaps the Big Two. Given that the Big Four appear unwilling to break their addiction to new technology and change the paradigm by stressing education over technology, the only way to expand market share is through acquisition.
As we have said too many times the BGM market has transformed fully into a commodity market where price is the major driver. At some point those companies who have been losing share, notably Abbott and Roche, will realize that should they stay in the market it will cost millions just to maintain their market position. It will also become apparent that cutting sales people and marketing budgets is only a short term fix for what is a long term problem. Even if they decide to change tactics and promote education over technology they know all too well that there is no guarantee that educated patients will actually use their particular meter.
This is the overall problem. As valuable as education is, BGM companies know that unlike television advertising or sampling, there is no data that indicates that for every dollar spent on education their sales of test strips will increase by X percentage. Simply put it’s far easier to buy share then it is to expand the market.
While it has taken longer than expected we are reaching the point where the BGM market will be dominated by two major players and few smaller players who can survive using a value strategy. It won’t be long before retailers and managed care companies wise up and understand that it’s not necessary to offer 50 different meter options. With shelf space and formulary placement at a premium the day is coming when a patient will basically have three choices- two name brands and one co-branded product.
The bottom line is the die has been cast for the BGM market and the troubles facing the industry will only get worse no matter what the economy does. Anyone who believes pricing pressure will abate or that growth will return to double digit rates needs some serious therapy. The fact is that light at the end of the tunnel is a freight train and it’s headed straight for any BGM company who fails to grasp the reality of the market. Given what we’ve seen from some members of the Big Four and their uncanny ability to ignore what’s really going in the market this is going to be one messy train wreck.
As Martin Luther King once said; “Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.”
