What’s up at Roche?
After seeing their market share drop by nearly 15 points here in the United States Diabetic Investor has learned that Roche is considering exiting the diabetes device business. Although the unit continues to perform well overseas the unit has a host of issue and no clear strategy. It’s worth noting that Diabetic Investor has heard these rumblings before and Roche isn’t the only diabetes device company who has considered such a move.
Like all the major glucose monitoring companies, Roche hasn’t quite figured out how their product portfolio fits into the changing competitive landscape. The same goes for their struggling insulin pump unit. Although they bought insulin pump maker Medingo for a song, the Solo system is still not on the market and no one knows just when or if it will ever make it to the market.
While Diabetic Investor is not privy to the internal discussions going on at Roche, we suspect the company is considering all options and exiting the business entirely is not off the table. Roche management may not be the best or the brightest but it does not take an advanced degree to understand that unless major and dramatic changes are made the future looks no different than the past. Making matters even worse and Roche is not alone here, the major branded companies in BGM must be wondering even if they make major and dramatic changes will it make a difference.
From our perspective the dye has already been cast when it comes to BGM and there really is nothing any of these companies can do to reverse trends that began years ago. The situation isn’t much different for the insulin pump market either. The simple fact is these markets will never return to their glory days and all the cost cutting in the world won’t save the major players from the fate that awaits them. Sure a company like Roche or LifeScan could try and buy their way to large market share but why would they.
Looking five years out Diabetic Investor believes we’ll be down to just two major BGM players and co-branded products will garner an even larger share of the market. By that time we also envision a much different reimbursement environment which will basically eliminate reimbursement for non-insulin using patients. Test strip usage will fall even further as in five years a far greater percentage of insulin pump and multiple daily injection patients will be using continuous glucose monitoring systems with regularity. The BGM market has always been about insulin using patients but five years from today monitors will need to do more than just deliver a test result to capture this market.
Also in five years we’ll be much closer to having all the tools an insulin using patients need on their cellphone, tablet or whatever the latest gizmo is. It is no longer a question of if diabetes management is going mobile but when the FDA will get with the program. This also applies to the insulin pump market. While it’s true there are still some hurdles to overcome and the FDA will overly cautious and slow things down even further, the simple fact is it is just a matter of time before a patients mobile device, whether that be a cellphone or tablet, will be the centerpiece of their diabetes management.
For companies like Roche, LifeScan, Bayer and Abbott (NYSE:ABT) this is frightening prospect, as they can no longer get away with systems that do nothing more than deliver a glucose test result. They will also face a host of new competitors who are unencumbered by entrenched out of date thinking.
Perhaps Roche has come to the realization that it is better to get out when they can then see this once proud franchise sink further into the abyss and lose even more value. Perhaps they have realized that you cannot continue to throw money into bad marketing ideas or poorly designed products. Perhaps they see companies like Sanofi-Aventis (NYSE:SNY) getting set to enter their domain and realize that their out of date products cannot compete with new ideas. Perhaps their just tired of Diabetic Investor dumping on them all the time for their many mistakes and want to see someone else get dumped on.
Perhaps all this talk about divesting the unit is just that talk and the company will continue to ignore what’s really going on in the diabetes world. Continue to stick their heads in the sand and hope all their problems will somehow magically disappear. Given this is Roche anything is possible.