Remember today is not April 1

Remember today is not April 1

What happens when you have a market full of sellers but no buyers? Well if that market happens to be the conventional blood glucose monitoring market what happens is lots of crazy off the wall rumors. Perhaps the best rumor making the rounds is Roche buying LifeScan from Johnson and Johnson (NYSE:JNJ). This rumor has been circulating for some time and just won’t go away. Although Diabetic Investor cannot say with 100% certainty this won’t happen, after all this is the wacky world of diabetes where anything can and usually does happen we wouldn’t bet the mortgage payment on it happening.

First off while JNJ would love to sell this unit, we doubt Roche would buy it simply because they too are trying to exit the market. A much more realistic divestiture for JNJ is selling their insulin pump unit Animas, which is now a stand-alone unit after JNJ must recent restructuring; a restructuring which basically moved all things LifeScan into JNJ’s pharmaceutical unit Janssen.  This doesn’t mean LifeScan cannot be sold for the right price but we view this scenario as highly unlikely …. for the moment anyway.

A more realistic scenario is Roche exciting the US market. While Roche has done an outstanding job of running their US BGM business into the ground, the company still has a strong international presence. Without having to worry about the US market the company can then focus on what they do best, screwing up a very good thing as it would only be a matter of time before their international business is just as screwed up as their US business.

Yet for the fun of it think of what the discussion would be like in the Roche board room IF such a deal were to take place. Keep in mind this is a company that spent billions to acquire insulin pump maker Disetronic who at the time was the number two player. Just where is Disetronic today? Not even in the discussion when it comes to insulin pumps. Also keep in mind that Roche at one time owned the BGM market. Yes we know this hard to believe for the many newcomers to the diabetes market but yes at one time Roche was king of the hill in BGM. But just as they did with Disetronic the company turned gold into sand. A unit which once generated over a billion dollars in sales here in the US last year posted sales of under $500 million.

While it would seem obvious to any human not on drugs that the company doesn’t exactly have a great track record in BGM, perhaps the Roche board would green light such a move. After all LifeScan is the current market share leader in the US and is growing overseas as well. The company has way cool whiz bang new products and strong brand recognition.  Best of all JNJ has done most the heavy lifting already when it comes to cost cutting. The Roche board just might believe they are getting a lean and mean LifeScan.

Although such things seem to be foreign to Roche, the board may not care that if a deal were to be done there should be a realistic expectation that the company would get a return on what would likely be a very substantial investment. Yes we know it’s crazy to look at the BGM market dynamics but just for the heck of it let’s do it anyway. To put it in simple terms that even Roche can understand, the market dynamics suck and it’s going to get worse.  Diabetic Investor may not be the sharpest knife in the drawer but we do know that there aren’t too many companies anxious to spend billions to enter markets with lousy and declining market dynamics that is unless of course that company happens to be Roche.

As if we needed any additional evidence of just how bad things are in BGM look at Bayer who thought they found a sucker in Sanofi (NYSE:SNY) to buy their BGM unit; a deal which was thankfully for Sanofi never done.  Now we’d like to say Sanofi came to their senses after looking at where this market is and where it is going but that would give the company too much credit. The fact of the matter is Sanofi even after backing out of this deal continues to have interest in doing a deal, they just can’t execute.

Honestly there is no way even on our best day that Diabetic Investor could make this stuff up. Quite frankly we should be sending thank you notes to whoever starts these crazy rumors as it does make for some excellent copy. Do we really need to explain anymore why we call this the wacky world of diabetes?