Why do we listen to these calls?
We can think of two reasons why we listen to these boring earnings calls; hope and chance. Maybe just maybe we’ll learn something new and if we’re really lucky the company will surprise us. Sadly this has not been the case recently when it comes to glucose monitoring and today’s call by Abbott (NYSE:ABT) was basically more of the same. The unit while doing better than it has in the recent past continues to tread water. Although company officials continue to deny it Diabetic Investor remains convinced that once Bayer sells their diabetes device unit, Abbott will follow suit.
As hard as they try Abbott like JNJ yesterday just can’t get out of their own way. Rather than come out with something and/or different the company’s latest monitor, the InsuLinx is a perfect example of the follow the leader mentality that is rampant in this industry. Although not a direct knock off of the Verio IQ from JNJ or the iBGStar from Sanofi (NYSE:SNY), the monitor is directly targeted at the insulin using patient, a group that is currently the domain of JNJ. The basic premise of all three of these monitors is to help the insulin using better manage their diabetes by providing them with more detailed information.
In many respect all three monitors are trying to become something like the bolus calculators which are commonplace on today’s smart insulin pumps. Perhaps looked at another way all three monitors are trying to do what continuous glucose monitors do so well, retrospective trend analysis but with fewer glucose readings. Besides these new monitors there are a host of apps do basically the same thing assuming of course the patient takes the time to enter their data into the app.
The fact of the matter is that these fancy new meters will likely have the same impact on sales and outcomes as other technological advancements in glucose monitors; zero, zilch, nada. For years Diabetic Investor has chronicled the decline of the BGM market and watched as this once thriving market has becoming nothing more than a commodity. With the government moving to fully implement competitive bidding and payors demanding even more price concessions there is nothing to indicate that this fact will change anytime in the near of distant future. Diabetic Investor also believes it’s just a matter of time before insurers discontinue reimbursement for non-insulin using patients.
Rather than think out of the box, and yes we know this assumes these companies actually think, BGM companies continue to rely on whiz bang technology rather than deal with the fundamental problem that has faced BGM from day one. The fact is the majority of patients, and this includes insulin using patients, do not understand what these numbers mean or how to use them to improve their lives. We’ve said it before and we’ll say it again, why would any patient perform any test when the result of this test does not directly impact or improve their life. This is even truer when one considers that for glucose data to have any real value the patient needs a series of readings.
The harsh reality is that glucose monitors are no longer a medical device but a consumer product and demand is not driven by who has the best technology but who offers the lowest price. The harsher reality is that with the possible exception of JNJ none of the shrinking major branded players, formerly known as the Big Four, are equipped to deal with this. Going forward for any of these companies to survive; they MUST THINK AND ACT LIKE CONSUMER PRODUCT COMPANIES. The days of double digit growth rates combined with huge margins are over and they are never coming back. There is no need for huge and costly sales infrastructures or marketing budgets. More technology is NOT the answer.
Alias we could go on here but these companies have demonstrated with their actions that they are incapable of breaking out of the box. They continue to believe, even when the facts clearly indicate otherwise, that ever more sophisticated technology is the answer. They continue to believe that they can TELL their customers how to manage their diabetes rather than LISTENING to what their customers have been trying to tell them for years- THAT THEY WANT SIMPLER, EASIER TO USE SYSTEMS.
Bayer to their credit is the first of the major branded players to acknowledge the fact that they do not have the capacity or skill set to change, so better to get out before the business completely implodes. Looking at the results and corporate speak coming out of Abbott, they could be the next company to wave the white flag. Given there are companies who would willingly pay to be in this business the timing may never being better. If there is one thing that has been clearly demonstrated in the diabetes device business, the greater fool theory is alive and well. That there seems to be a never ending supply of fools who seem to believe they have the magic touch and can succeed where everyone else has failed.
All one has to do look at list of companies besides Sanofi who are entering this market, a list which includes GE and Panasonic. Although they may not be the brightest lights on the tree, the folks at Abbott aren’t dense either. They must know they have something of value and there may be no better time to sell at max value. The bottom line is also pretty simple; if they don’t sell when the unit has value it’s just a matter of time before this window of opportunity closes. This is a fact you can take to the bank.
