More problems for Roche

More problems for Roche

In the highly competitive glucose monitoring market where every share point counts and where volume gains or losses directly affect margins, no distribution channel can be overlooked. This is especially true for the Big Four – LifeScan, Roche, Bayer and Abbott (NYSE:ABT) who count on huge strip volumes to maximize manufacturing efficiencies. This is one reason these companies battle fiercely for formulary placement and to become preferred manufacturers. They know all too well that glucose monitors have become a commodity and that consumers will favor price over brand when selecting a monitor.

In another blow to Roche’s struggling diabetes unit, which has been losing share with stunning consistency, the New York State Medicaid program has dropped Roche from their list of preferred manufacturers. According to the January issue of the New York State Medicaid Update; “Effective March 1, 2011, modifications will be made to the New York State Medicaid Preferred Diabetic Supply Program (PDSP). The Department of Health has selected Abbott, Bayer and LifeScan as preferred manufacturers.

Preferred blood glucose monitors and corresponding test strips from the preferred manufacturers will be available without prior approval. Beneficiaries currently using non-preferred products will require a new fiscal order to obtain preferred monitors and strips. If preferred products do not meet a beneficiary’s medical needs, a non-preferred product will require prior approval. Prior approval is based on documentation of medical necessity. If approved, non-preferred products are billed using HCPCS codes on the DME claim form.”

While this may not seem like such a big deal, take a look at the number people covered by this program, which according to the latest figures available nearly 3 million New York residents are enrolled in the program.  

The real question for Roche is how much longer they can continue to lose valuable share points before management does something to fix the problem or at minimum do something that will stop the bleeding. The reality is that this unit is hemorrhaging market share while management continues to fumble about deploying ineffective strategies that don’t even come close to dealing with the real issues facing the unit. The way things are going the unit will have to bleed to death before management finally understands they have a problem and by then it will too late, if it’s not too late already.

The more amazing aspect of this situation is how stakeholders in Roche have allowed management the freedom to decimate what was once a global powerhouse. Although the diabetes unit is not the largest revenue generator for the company, it is one of the more profitable units. Even under today’s difficult market dynamics BGM is still a highly profitable business. 

Looking ahead Diabetic Investor just sees it as a matter of time before Roche becomes irrelevant in the diabetes market. Based on management’s actions nothing of substance is being done which leads Diabetic Investor to believe that they are content to allow the unit to die a slow and painful death. Quite a turnaround from just a few short years ago when Roche was the dominate player in BGM. It will be interesting to hear the eulogy delivered when the unit is relieved of its misery and allowed to move onto its final resting place.