The Fat Lady is warming up

The Fat Lady is warming up

The old
saying goes it isn’t over until the Fat Lady sings; well for the Roche it may
not be over but the Fat Lady is beginning to warm up. Back on September 11,
Diabetic Investor reported that the Veteran’s Administration was advising their
hospitals not to use any PQQ based blood glucose monitoring systems. Diabetic
Investor has learned that a formal letter has been sent to all VA hospitals
reinforcing their concern and asking all hospitals to proceed with a formal

This issue, which
just won’t go away, has extended beyond the VA to hospitals in general.
According to sources in the field hospitals around the country are now taking
steps to replace any system which uses the PQQ enzyme. In reality this means
any Roche system as they are the sole remaining company that still uses the PQQ

This news
follows reports that Roche is also moving towards exciting the US insulin pump
market. The company had hoped that they could remain a player in the US with
the introduction of the Accu-Chek® Combo system which is now available in the
United Kingdom. The combo is similar to systems already available where a
glucose monitor communicates directly with an insulin pump. Like these other
systems the glucose monitor also serves as a remote control for the pump. The
main issue here is the monitor uses test strips that contain the PQQ enzyme and
has virtually no chance of gaining FDA approval.

The same
problem is affecting the Accu-Chek Aviva Nano, which also uses the PQQ enzyme and
is currently available in overseas markets. The Nano has yet to be approved
here in the US and likely will never see the light of day as long as the PQQ
enzyme is used.

With no new products
in their pipeline and their existing glucose monitoring business continuing to
lose share the company is facing some very tough choices.  The company had hoped that after spending
over a billion dollars to acquire insulin pump maker Disetronic they would be
able to take on insulin pump market leader Medtronic (NYSE:MDT). For a wide variety
of reasons, most self-inflicted, the Disetronic acquisition has been nothing
but a huge headache. The unit isn’t even relevant here in the US and nothing short
of a miracle will change that fact.

While the
unit continues to be relevant overseas the situation has been increasingly
uncomfortable as Medtronic is making serious advances. Faced with no hope in
the US and serious competition overseas, the company is in serious talks with
Insulet (NASDAQ:PODD) to distribute the OmniPod system overseas. As Diabetic
Investor reported earlier this week the main sticking point with the deal is
Insulet’s insistence that any deal carry the provision that it can be unwound should
Insulet be acquired. The hope is that by having the OmniPod in their portfolio the
company could blunt Medtronic’s momentum.

This move
makes perfect sense for Insulet however Diabetic Investor doubts it would
prevent Roche from losing further market share overseas.  Even if Disetronic was well managed, which it isn’t,
it will take time to integrate the OmniPod into overseas markets. The fact is
the US market is where it’s at as of the 500,000 or so insulin pumps used
worldwide nearly 350,000 are here in the US.

The real
problem for Roche is no matter where they look they have nothing but problems.
Once a dominate player in glucose monitoring the unit continues to lose share.
For reasons only management seems to understand they remain alone on an island
by continuing to use the PQQ enzyme. Although Diabetic Investor believes the
PQQ issue has taken on greater importance than it really deserves, the fact remains
the issue has become relevant. By continuing to ignore this issue the company
appears to be out of touch.

This is the
real problem all along at Roche, while everyone else understood what was
happening here, the company ignored the problem. This is the same problem they
have with the BGM market in general. Again, while everyone else understands
that the BGM market is a battle for the insulin using patient, Roche remains steadfast
in their belief that non-insulin patients are where it’s at.

At one time
Diabetic Investor felt as if Bayer, also once a dominate player, was headed for
the scrap heap. Thankfully the company had the good sense to realize they had a
serious problem, brought in a solid management team which executed well.  Unlike Roche they did not ignore problems nor
did they hold onto unrealistic beliefs.

For some time
Diabetic Investor held onto the belief that it was a battle between Abbott
(NYSE:ABT) and Roche for worst run diabetes device company. Although Abbott isn’t
out of the woods just yet the company has shown signs that they acknowledge there
is a problem and will take steps to fix them. Unlike Roche they did not ignore
the PQQ issues and took the proper step of replacing the enzyme. New management
acknowledges the short-comings of the past and understands that change is

Recent events
have proven that Roche is now hands down the worst run diabetes device company.
The company continues to ignore problems living in a fantasy world that somehow
things will change without acknowledging change is needed. It doesn’t take an
MBA to understand that you can’t fix a problem until you acknowledge you have a
problem. As Barbara Tuchman once wrote; “Wooden-headedness consists of
assessing a situation in terms of preconceived, fixed notions while ignoring or
rejecting any contrary signs. It is acting according to wish while not allowing
oneself to be confused by the facts.”