Decision Diagnostics Corp (DECN)

[Leirum]

Interesting article about the Blood Glucose market and where the growth is seen. TEST STRIPS. And as J&J sees it this way as well, the have tried and still try to Keep DECN away from this market. What better prove could a sceptic then ask for when question the growth potential of DECN in the future.

As can be seen, DECN is as well mentioned in this article with the caution: Not to take a Position yet until ...................

Actually what I and others have said all along:
The run in DECN will start, once the court decision is definitive and J&J has no room to appeal. Once this is out, one can start to estimate the possible Revenue Stream. Before that, it is a wait and see attitude or PATT Situation, but then, once it is clear, a lot of buyers will want to move through the same door and as we have seen in 2013, it did not take a lot to have a 500% move. In the meantime, the line of possible buyers is getting longer and longer and a definitive ruling will guarantee Headlines across the wide spectrum of publications. In the meantime: let's be Patient and use the cheap Price Level to accumulate some more.

ARTICLE:
Two things guaranteed over the next ten years are that both the population and the number of people with diabetes will grow. This leads to an ever growing, and changing, market for blood glucose self-monitors. According to GlobalData, the entire monitoring market will reach $12.2 billion by the year 2017. As a point of reference, in 2010, the test strips themselves accounted for close to 90% of the total market value. Therefore, over $11 billion will be up for grabs in 2017 on the sale of test strips alone.
In order to gain further insight into who the players will be in this market and what the landscape will be in the future, it is necessary to dive into the geographic breakdown of diabetes growth and spending on monitoring systems. In 2011 the International Diabetes Foundation estimated that over 8% of the world's population were suffering from some form of diabetes, and this number is expected to grow to 10% by 2030.


At the turn of the century the highest incidence of diabetes was found in China and India and the gap between developing and developed countries is projected to grow over the next 20 years. The total number of people in developing countries who have diabetes is projected to grow by 150% in this time frame. Even with the majority of inflicted people live in BRIC regions, it is currently developed nations including the United States, Europe, and the Caribbean that account for 75% of the global healthcare expenditures associated with diabetes. Where as developed country's market for self-blood glucose monitors has become somewhat saturated within the last decade, developing countries, specifically India and China, offer vast growth potential if one of the major players is able to gain a foothold.
Currently four large companies control the majority of the market. According to a report compiled by industry and Roche analysts; Roche controls 29.1% of the blood glucose market, Lifescan 26.5% (Lifescan is owned by Johnson and Johnson, JNJ), Bayer (OTCPK:BAYRY) 14.6%, Abbott (NYSE:ABT) 14.6%, and all others 15.2%. In order for one of these companies to gain momentum in developing countries it is necessary for them to drive down price points and to offer a more affordable option. However, even if they were able to accomplish those product offerings there are many challenges still to over come.
Potential Headwinds
Both Bayer and Roche (OTCQX:RHHBY) have attempted to sell their blood monitor business within the last two years. Neither one was able to find an adequate offer and ended up holding onto their respective diabetes care divisions. This indicates there is not a great demand to break into the blood glucose monitoring market.
Sales of blood glucose monitors have been declining. Globally the sales peaked in 2011 and have been declining by over 5% annually since. Domestically sales have been declining since 2007. However, this alone is not sufficient to conclude that the business is souring since the majority of sales come from blood glucose strips, not the monitors themselves.
Changes within government medical aid programs in Canada and the United States have begun to put a strain on the sales of blood glucose strips. The Canadian Agency for Drugs and Technologies in Health in 2009 reported that the use of blood glucose test strips have a limited clinical effect for many patients who do not use insulin. Due to this, and other studies of a similar kind, the Canadian government in 2013 limited the number of blood glucose strips that a patient who is not on insulin is reimbursed for. Additionally, the United States adjusted its Medicare reimbursement program. Under the new rules Medicare will only reimburse $10.41 for a box of 50 strips, where in the past it had reimbursed $34. While this does decrease the cost that the customer has to pay it puts more pressure on retail pharmacies, especially the smaller ones. It is expected that many of the pharmacies will move towards additional lower end products, which will cut into the larger brands retail network. As these reforms have been enacted less then a year ago, it is unclear how much pressure will be placed on sales of the larger companies.
Generic options have begun to hit the market both domestic and internationally. Target's (NYSE:TGT) Up & Up, and Wal-Mart's (NYSE:WMT) ReliOn have both released their own blood glucose monitoring devices and strips at significant discounts to those offered by the big four. Tests have also shown that these devices are every bit as accurate and reliable as those offered by the larger brands. Internationally, the Indian government began supplying kits for the monitoring and detection of glucose levels. These kits will cut the cost of care down to 1/4th the previous cost for the average patient and will lower the cost of test strips to 2-4 Indian rupees, or about 3-6 cents, where before they were paying 18-35 Indian rupees for imported strips. The government has said that they will not increase this price and that they have access to an in house manufacturer, as well as interest from external companies to produce these kits. These new entrants into the blood glucose monitoring field are already reducing margins and sales domestically, as well as taking away potential markets for growth.
Conclusion
On the surface the blood glucose monitoring business seems like an attractive opportunity for both major health conglomerates and new businesses to exploit. However, when you dig a little deeper it becomes apparent that the heyday of this market may have passed and in the future there will be more competition limiting the upside in both the established and new markets. Moving forward it will be important to see how Bayer and Roche treat these divisions after failing to divest their respective diabetes segments. These two companies in particular concern me. Bayer cited synergistic reasons for wanting to divulge of the diabetes unit and Roche has already begun to lay off workers. I would look for different opportunities within the health care sector in the short term. It will also be pertinent to look at how the sales numbers will be impacted by the new government reforms. While blood glucose monitors may not have a large impact on the balance sheets of the big boys, such as Abbott, or the retailers attempting to steal market share, such as Target, it is necessary to look at the future when analyzing smaller companies who are entering the field, such as Decision Diagnostics Corp (OTCPK:DECN). I would not yet initiate a position in any of the smaller players whose revenue is dependent on self-blood glucose monitors or strips until it becomes apparent how the new developments will influence future revenue.