Back in February, rumors started to circulate in the biotechnology space surrounding Swiss healthcare behemoth Roche Holding Ltd. (ADR) (RHHBY) and it’s diabetes portfolio. Specifically, and as reported by a number of mainstream financial news media outlets at a time including Bloomberg and Reuters, there was the suggestion that the company was looking to unload its diabetes program by way of a spinoff (as part of which Roche would maintain overarching control, but the program would operate independently from a business perspective) or an outright sale to another company.
The company took a bit of a hit on the suggestion, based on the fact that, while it’s diabetes unit has suffered a little bit over the past 12 months (Roche’s diabetes care sales dropped by 4% during 2016 as compared to revenues generated during 2015), it was still a profitable program and the driver behind the decline wasn’t a dip in demand; instead it was rooted in pricing pressures in the US.
The validity of the claims has been batted back and forth across the last three or four months, with analysts struggling to come together on one side of the fence or another.
With its most recent update, however, Roche has put paid to the suggestion that it might be turning away from diabetes care, and indeed has implied the opposite – that it is doubling down in the space in an attempt to get top line back on track.
Interestingly, it’s doing it without expanding its pharmaceutical program, instead focusing on the technology side of the equation.
Here is a look at what just happened and what it means for Roche, and the diabetes landscape, going forward.
So, the latest announcement details the fact the Swiss healthcare company has just purchased an application called MySugr. The acquisition terms remain undisclosed, so we don’t know exactly how much the company paid for the application, nor do we know how the team that currently runs the application will fit into Roche’s program going forward. Often, we see at least a portion of the team behind the technology integrate into the acquirer entity with this sort of acquisition. It’s not unreasonable to suggest that we will see something similar here, but we can’t confirm it right now.
Many who are already active in the diabetes space may be familiar with the application that Roche just acquired. Chances are, any readers with diabetes have come across it, or already use it to help manage their condition. For those unfamiliar with MySugr, it is an application (available for iOS and Android systems) that automatically syncs data from a range of diabetes devices and provides feedback and motivation to help people manage their disease. It is available in 52 countries and 13 languages.
Users can also take pictures of the screens from their blood glucose monitoring equipment and have the application log results automatically as well as, by way of a Pro subscription, gain access to a personalized diabetes management program and communicate directly with professionals in the diabetes space via the application’s interface.
Of course, a company like Roche has the capital resources (and almost certainly the human talent in-house) to develop an application like this itself. It’s not really about the source code, however. With the acquisition of MySugr, Roche is gaining more than 1 million active users who employ the application in their efforts to help control their diabetes daily. To put this another way, anybody can create an application like this, but user acquisition is the tough part, and that’s what companies like Roche pay the big money for in these sorts of acquisition deals.
As a quick note, there is an argument that Roche had this acquisition in mind a long time ago – the company is listed as one of the application’s backers through previous financing rounds. That, however, is speculation. Not unreasonable speculation, but speculation nonetheless.
So, how does this affect the diabetes landscape?
Well, with this acquisition, Roche has taken a meaningful step towards the bringing of technology very much into the fray when it comes to diabetes management. This is something of a first for a big-name pharma company (a number of smaller companies are working on glucose monitors and healthcare tech that integrates with mobile device applications, but none of which are the size of Roche) and that’s a big deal for the landscape as a whole.
It also removes some of the pressure from Roche in terms of bringing new assets to market. A number of the company’s competitors are currently pushing drugs in to late stage development that have the potential to unseat some of Roche’s biggest assets in its diabetes portfolio. With the company now able to offer integration between its compound portfolio and the MySugr application, it has strengthened its pitch to both physicians and end-users when looked at against a backdrop of the just mentioned competition.
The bottom line here is that this isn’t a game changing development in itself for Roche, but it does represent a wider industry shift towards technological integration into healthcare and disease. This move has pinned Roche as spearheading this shift (at least from a big pharma perspective) and that strengthens the company’s investment thesis, in this arena, going forward.
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