Why reality sucks

Why reality sucks

For years Diabetic Investor has been wondered what it would be like when the conventional blood glucose monitoring market finally collapses. Which of the branded companies would remain standing and which would go quietly into the night. This collapse has been coming for years with the implementation of competitive bidding being the proverbial straw that broke the camel’s back.

We thought perhaps that after all the cost cutting branded companies would either sell their units, as Bayer is trying to do, or take the units private, as Roche is about to do or simply run them as long as they could until the well finally runs dry.

The harsh reality is there really isn’t much any of these companies can do to change the situation they find themselves in. There are no silver linings, no magic potions or miracles on the horizon that will change things. This once vibrant and growing market has now become one dominated by cost containment combined with massive scale. This is why Johnson and Johnson (NYSE:JNJ) continues to remain in the market as they have the scale necessary to make a decent return on investment. Now that the company has rightsized their diabetes units they can sit back and see who will survive.

Abbott (NYSE:ABT) on the other hand seems to believe that innovation matters, that new technology will save the day. Many seem to believe that the FreeStyle Libre will somehow save day and turn things around for Abbott. That patients will adopt this new technology because it’s cheaper than real continuous glucose monitoring systems and provides better data than conventional glucose monitors. These people conveniently ignore the company’s history in CGM, forgetting that at one time they actually had the best product, the FreeStyle Navigator. Yet due to a series of misstep Abbott missed their window with Navigator. Given it’s the holiday season Diabetic Investor is being overly kind in our characterization as in reality Abbott had a really good thing with Navigator and totally screwed it up.

As we noted last week history seems to be repeating itself as the company has already issued a field action over issues with the Libre. It also seems that the company is having some quality and accuracy issues with Libre sensor. Items that prompted Diabetic Investor to speculate that this is why the company launched the product overseas in a select number of markets. The company likely realized the Libre was not ready for prime time and decided to work the kinks out before they brought the Libre to America.

The company seems to believe time is on their side and that consumers will favor the Libre over the two leading real CGM systems from Dexcom (NASDAQ:DXCM) and Medtronic (NYSE:MDT). Two systems which are gaining greater share and making it even more difficult for Libre should it ever get to America. Something which we also noted is by no means guaranteed as many CGM experts believe the issues which are plaguing the Libre will be it’s undoing once the product is submitted to the FDA. At minimum these same experts believe these issues will concern the FDA making approval take longer than anticipated. Simply put the time Abbott thought they had really doesn’t exist.

Yet it continues to amuse Diabetic Investor how many people believe that the Libre is the greatest thing to come along since Netflix or Amazon. That patients will ignore the issues with the Libre and will actually pay for this product out of pocket. Yes the Dexcom and Medtronic systems may cost more IF this was a cash paying market but it isn’t like all things diabetes related reimbursement combined with formulary access and placement rules. The simple fact is the Libre even if it is approved by the FDA may be DOA if Abbott cannot convince payors to cover this product, something easier said then done.

Ok let’s give Abbott the benefit of the doubt, let’s say they can get the system approved by the FDA, covered by payors and let’s say by some miracle Libre has the same coverage as real CGM systems. Is there really a market for this product and what will it cost the company to develop this market? Looking at the former Diabetic Investor isn’t sure if there is a market for the Libre, or put another way we cannot see a compelling reason for patient to use this system over say the Dexcom system. Yes we’re sure there will some people who will use it but like any other diabetes device market and CGM is no different scale is critical. So we guess a more accurate way to ask this question is can Abbott capture enough patients so they can make a profit?

Here as well Diabetic Investor isn’t so sure. As we have noted previously it’s only a matter of time before Dexcom and Medtronic will have systems that either don’t require multiple finger stick calibrations or fewer calibrations. It’s also a matter of time before Dexcom will eliminate the need for the patient to carry a receiver as readings will be delivered to the patient’s smartphone.  Yet more important than these coming enhancements is both the Dexcom and Medtronic have better, more accurate system in place today.

So again the question is even if all goes well for the Libre, and this would be highly unusual even if this wasn’t Abbott, is there a market for this product? The way Diabetic Investor sees it Abbott is grasping at straws holding onto the false hope that Libre will somehow save the day. That Libre will not experience the same fate as Navigator, which in our opinion was a far superior product. They are also ignoring that Abbott has run not one but two glucose monitoring companies into the ground. That the company has a less than impressive track record in CGM and that even if all went well, which it won’t, market conditions are less than favorable.

At least Bayer and Roche have seen the handwriting on the wall and too their credit realize it’s time to say goodbye to their once proud diabetes device units. JNJ for their part see the reality of the market and have taken the steps needed that gives them the chance at making a decent profit. Abbott unfortunately continues to live in the past and ignore the realities of the market. The party has been over for some time it’s about someone let Abbott know.