Roche – Impact of the Genentech deal

Roche – Impact of the Genentech deal

This morning Roche released their second quarter results and the big news was their offer to take Genentech private. While everyone is busy analyzing the offer and what impact it will have on the company, Diabetic Investor is taking a different path. While the company stressed that their diabetes care unit showed some improvement in the quarter the unit’s overall performance remains weak. The question from our perspective becomes will the deal further distract the company from developing a comprehensive strategy for their struggling diabetes care unit.

Looking at diagnostics the company plans on launching two new blood glucose monitors in 2008, the Accu-Chek Aviva Nano and a new version of the Accu-Chek Active. These two monitors come on top of the new Accu-Chek Compact Plus which was released earlier this year. Although Diabetic Investor has not seen either the Nano or new Active it’s doubtful either will reinvigorate sales. What’s truly need at Roche is not new products but a new strategy for selling their products.

Given the changing dynamics of the blood glucose monitoring market Diabetic Investor isn’t sure the company has too many options available other than pricing. Diabetic Investor sees it as unlikely the company would try to buy share given their billion dollar blunder when they acquired Disetronic. Even if they did proceed down this path the company still needs some type of strategy that will deal with slower growth and pricing pressure.

What Roche needs more than anything is a target market. Just as LifeScan is focused on insulin users and Bayer has capitalized on no coding, Roche needs to find a market they can dominate. Here too there is a problem as this is exactly what Abbott (NYSE:ABT) needs to do. Which brings us back to the last bullet left in the gun, pricing.

Unfortunately lowering the price you charge for the products you make really isn’t a strategy. It’s a recipe for disaster and will only have limited success as competitors will surly match any price cut. The time has come for companies like Roche and Abbott to realize that conventional wisdom just won’t do. Bayer proved that it’s possible to reinvigorate a unit many had given up on, what’s needed is leadership. Something in short supply at both Roche and Abbott.

David Kliff
Diabetic Investor
847-634-4646 fax
224-715-3761 mobile