Health Care & Life Sciences and Health Care & Insurance

Roche’s diabetes biz bounces back—for now

April 21, 2014

Roche Diagnostics Corp. saw a stunning 13-percent boost in sales in its North American diabetes care business during the first quarter, although neither the company management nor stock analysts expect that trend to last.

Meanwhile, Roche’s North American sales of fluid and genetic testing equipment continue to surge, growing a combined 10 percent in the first quarter to $475 million.

According to sales results released April 15, Roche’s diabetes sales in North America—which are managed from its U.S. headquarters in Indianapolis—totaled 100 million Swiss francs, or about $112 million, up from just under $100 million in the same quarter a year earlier.

Of course, sales a year ago were poor, noted Roland Diggelmann, chief operating officer at Switzerland-based Roche’s diagnostics unit.

“We have seen a very, a soft first quarter last year. So this is why we have seen a bit of an uptick here in the first quarter,” Diggelmann said, according to a transcript of an April 15 conference call with investors and analysts.

Also helping Roche’s U.S. diabetes sales in the first quarter was the delay of some product rebates from late 2013 to early 2014, which led some wholesalers to stock up on Roche’s diabetes care products. Roche sells blood glucose monitors and test strips as well as insulin pumps.

In 2013, Roche’s North American sales of glucose monitors plummeted 16 percent, to $478 million, largely because of dramatically lower reimbursements on key products from the federal Medicare program.

Those cuts have hammered all makers of diabetes diagnostic devices. Two industry experts predicted in February that in five years, two of the four largest companies will have sold or closed their diabetes businesses.

Roche put its diabetes care business up for sale last year, but couldn’t find a buyer, Reuters reported. The same thing happened to Germany-based Bayer AG.

Roche still boasts the largest market share globally—a size advantage that allows Roche to stay in the U.S. diabetes arena if it wants to. The company employs nearly 900 in diabetes care in Indianapolis and Fishers.

Analysts generally view Roche’s North American diabetes business as having bottomed out, although they forecast only slow growth for the future.

For example, Deutsche Bank analysts predict Roche’s North American diabetes sales will grow about 2 percent in each of the next five years. Others have the same view.

“The Diabetes market is still considered challenging with slowing growth in coming quarters,” Bruno Eschli, an analyst at Bank am Bellevue, wrote in a note to investors.

Ending the long decline in diabetes sales allowed the strong performance of Roche’s other diagnostics businesses to shine through. Its sales of testing equipment sold to hospitals, physician groups and medical researchers grew 11 percent to 294 million Swiss francs, or about $330 million.

And its sales of genetic testing equipment, known as molecular diagnostics, rose 8 percent to 129 million Swiss francs, or about $145 million.

Those units could see even more growth in the near future.

On April 7, Roche announced it would buy Massachusetts-based IQuum for up to $450 million, which will provide genetic testing at the point of care, rather than only in large centralized medical labs.

“A very exciting acquisition here which will allow us to literally go to the point of care—physician offices, emergency rooms, hospital wards, potentially even pharmacies,” Diggelmann said.

And earlier this year, Roche received a unanimous recommendation for market approval from a U.S. regulatory panel for its genetic-based test of the human papillomavirus, an indicator of cervical cancer.

Deutshe Bank predicts Roche’s North American sales of professional molecular diagnostics equipment will rise 23 percent over the next five years.

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