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Roche's struggling diabetes unit looks toward 'monster' for boost

February 26, 2018

Roche Holding AGthe Basel, Switzerland-based parent of Indianapolis-based Roche Diagnostics—has enlisted a little green monster with a gap-toothed smile to help rescue its diabetes business after a decade of declining sales.  

The gremlin is the mascot of mySugr, an Austrian startup Roche bought for $75 million in June. The deal gave Roche’s struggling diabetes unit a chance to own a cutting-edge technology in at least one area of care: smartphone apps.

The harmless character masks a menacing reality for Roche, which has nearly 3,500 workers in central Indiana, including about 1,200 in its Diabetes Care North America unit in Indianapolis.

As the number of people with diabetes swells to nearly half a billion, insurers are cutting prices of the blood-sugar monitoring equipment that patients rely on. Instead of selling its business, as some competitors have done, Roche is betting on a digital turnaround.

MySugr, whose registered users have grown by more than a third to 1.3 million since the acquisition, squirrels away data on everything from blood-sugar readings to workouts. Roche sells it directly to U.S. patients in a package that includes test strips and glucose meters. In Germany, Bavaria’s public health system last year became the first customer for a similar bundle Roche is marketing to insurers, promoting it as a way to tie prices of diabetes products to results.

“Payers have switched from simply reimbursing some strips to measure glucose, to ‘Give us value,’” CEO Severin Schwan said in an interview in London. “That sounds simple, but I tell you, that has huge consequences on how you structure your business.”

Sales slide

Roche declined to state targets for use of the app. The current enrollment is a fraction of the almost 20 million patients that use the company’s diabetes products around the world.

Once the biggest part of Roche’s diagnostics business, and still the world’s largest maker of devices patients use to track their blood-sugar levels, the diabetes unit has seen sales slide 30 percent since 2007. At the beginning of last year, Roche took its small portfolio of insulin pumps off the U.S. market.

Some of the challenges Roche faces are common across the industry, including a two-thirds price cut about five years ago by the Medicare health program in the United States.

Bayer AG sold its diabetes care business two years ago, and Johnson & Johnson might do the same. The market for traditional blood-sugar monitoring will probably grow only about 1.1 percent a year through 2026, according to Decision Resources Group.

New technologies, on the other hand, are soaring. The market for continuous glucose monitoring, which uses a tiny sensor underneath the skin to reduce the need for needle pricks, may grow 13 percent a year, according to Decision Resources. Roche lags competitors in that area, said Jason McGorman, an analyst with Bloomberg Intelligence.

Medtronic Plc saw its diabetes sales soar 17 percent in the last quarter, thanks in part to demand for an artificial pancreas that takes over some of the daily labor of controlling blood sugar levels. Roche is part of a group collaborating on such a device that is set to be clinically tested later this year.

Like Bayer and J&J, Roche considered options including a potential sale last year, people familiar with the matter said at the time. Roche says it’s committed to diabetes.

Monster taming

The way forward will mean selling a total experience, not just a product, said Marcel Gmuender, who heads Roche’s diabetes-care unit. MySugr is a crucial part of the plan.

“If you can say, ‘Dear insurance company, about half your diabetic patients already have mySugr,’ you’re in a different position,” Gmuender said, as Roche can demonstrate that it’s taking a more active role in promoting their health.

The app guides patients to “tame their diabetes monster.” They earn points by logging their blood sugar levels or clicking on icons that record the minutiae of daily life, from breakfast through “chilling” to workouts or bedtime.

The Swiss company is experimenting with a further step—payment for results. A local insurer in Denmark has agreed to pay a bonus if Roche can help keep patients within target ranges for blood sugar.

The 30 or so patients enrolled in the pilot program use a different app designed for Roche’s Accu-Chek blood glucose meter, as well as human coaches. The company wants to switch the patients to mySugr and hopes to use the outcomes-based payment model more broadly, according to Roland Diggelmann, Roche’s diagnostics chief.

At least one other company in the field is also experimenting with outcomes-based pricing. Medtronic signed a deal with the insurer Aetna Inc. last June to measure how well patients do after switching to one of its insulin pumps.

In the neighboring world of diabetes medicines, Novo Nordisk A/S and Indianapolis-based Eli Lilly and Co. have also tied prices to results.

“It’s a new way of thinking about health care because we’re paying for the effect rather than just a fixed amount,” said Gitte Lovgren, the director of health care at Odsherred municipality in Denmark.

 

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