Analysts: Roche sale of diabetes diagnostics unit could be a long time coming

Roche Diagnostics International site in Rotkreuz, Switzerland--Courtesy of Roche

After Bayer offloaded its diabetes device unit last month, some investors thought Roche ($RHHBY) would follow suit and sell its own underperforming diabetes diagnostics business. The Swiss drugmaker has experienced its fair share of problems with the unit, which stalled recently in light of price cuts and reimbursement issues in the U.S.

But anyone expecting a sale of Roche's diabetes diagnostics business shouldn't hold their breath, analysts said. As Barclays analyst Michael Leuchten told Bloomberg, Roche could potentially get as much as 6 billion Swiss francs ($6.4 billion) from selling the unit--a tantalizing number given the business' recent performance. The company's diabetes unit brought in 2.4 billion francs in revenue last year, down from 2.5 billion francs in 2013.

But "there just aren't enough natural buyers out there for two people selling a lemon at a good price," Leuchen said (as quoted by Bloomberg). Bayer, which handed off its diabetes devices business to KKR & Co. and Panasonic in June for $1.1 billion, needed the sale to brush up its balance sheet and maintain its A-credit rating from Standard & Poor's, the Bloomberg article notes. Roche does not feel the same pressure, as it relies on other diagnostic businesses such as cancer testing to keep its ship afloat.

And who exactly would buy Roche's diabetes business remains a mystery. GlaxoSmithKline's ($GSK) consumer health joint venture with Novartis ($NVS) could be a potential suitor, Leuchten said. But Roche might have to follow in Bayer's footsteps and approach private-equity firms for a sale, Zurich-based Kepler Cheuvreux analyst Fabian Wenner told Bloomberg.

"The question is, who would want to buy it?" Wenner said. "Roche and Bayer recently saw a bit of stabilization, but it's by no means back to where it should be in terms of margin and growth."

Still, funds from a sale could help Roche as it tries to broaden its diagnostics reach. The company has been working hard to diversify its portfolio, striking a series of deals in the past year to bolster its offerings. In December, the company snatched up Ariosa Diagnostics to get its hands on the company's prenatal genetic screening test. In February, the company scooped up Germany's Signature Diagnostics, planning to use Signature's next-generation sequencing technology to enhance its cancer testing portfolio.

In April, Roche finalized its $1.2 billion deal for a majority share in Foundation Medicine ($FMI), charging ahead with the companies' planned R&D collaboration. Roche will funnel $150 million over the next 5 years toward research, speeding up Foundation's product development and accelerating the companies' global commercialization efforts, Foundation said at the time.

- read the Bloomberg story

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