The Fat Lady is singing
Early this week Diabetic Investor reported
that Roche was in the final stages of deciding on whether or not to exit the US
insulin pump market. Although no public statements have been made by the
company it appears this once dominate player in diabetes devices has made the
decision to throw in the towel and not just in the insulin pump market.
Diabetic Investor has learned the company’s
line of glucose monitors is in serious danger of being kicked out of a major pharmacy
chain because they don’t want to play ball. As Diabetic Investor has been
reporting for sometime the balance of power in BGM has shifted from the
companies who manufacture the products to the companies who sell and distribute
the products. Abbott (NYSE:ABT) was the first BGM company to experience this
shift when Cardinal Health (NYSE:CAH) demanded and received major price
concessions.
Retailers like Walgreens (NYSE:WAG), Rite
Aid (NYSE:RAD), CVS (NYSE:CVS) and Wal Mart (NYSE:WMT) understanding the power
they have are really putting the screws to BGM companies. While it’s typical
for retailers to demand co-op dollars and hefty slotting allowances just to put
the product on the shelves, these demands are becoming a revenue source for
retailers. Simply put the retailers are telling the manufacturers either you do
what we’re asking or you’re gone.
This is exactly what’s happening to Roche,
who’s decided not to play ball with one of the major chains. This is not the first
time Roche has declined to play and in large extent is the reason why the BGM
unit has lost nearly 10 share points. By way of contrast LifeScan knew that if
they could become the preferred monitor with the major insurers and managed
care companies they had a chance to own the market. LifeScan basically bought
their way on to formulary, Roche declined to play and the rest, as they say, is
history.
This decision seems to fall within the
company’s new strategy of playing to their strength in international markets
where the Roche name still carries some weight. Their new monitor the Nano remains
at the FDA and will never see the light day until the company resubmits the
monitor with a new enzyme. The company sees pricing pressure in the US
intensifying and has pretty much decided it’s time to cut costs. It wouldn’t surprise Diabetic Investor if the
company not only leaves the US insulin pump market but announced major layoffs
in their BGM unit as well. The fact is margins along with market share continue
to shrink and it really makes no sense to carry the expense of a large support
team.
This demise by Roche is stunning when one
considers how far they have fallen and how fast. A company once a dominate
player here in the US is now facing the serious prospect of falling to the number
three spot. It’s ironic that Bayer is nipping at Roche’s heels as there was a
time when Bayer was dominate, fell from grace and then remerged as a serious
player. It’s unlikely; however, that Roche could duplicate Bayer’s turnaround as
market dynamics have changed dramatically and not for the better.
The one ray of hope in the midst of all the
dark clouds is the company, as badly as they have managed this unit, could sell
it. As Diabetic Investor has been reporting insulin companies are taking a serious
look at entering the BGM space. Roche, while falling here in the US, remains a
player overseas. Listening to the company’s investor events it appears they are
less and less focused on diagnostics. Given the way things are going nothing is
off the table.
The bottom line here is, the Fat Lady is
singing and for Roche it’s not a happy tune.
