A sign of things to come

A sign of things to come

According to a jointly issued press release; “General Electric Co. (NYSE “GE”), through its healthcare IT business, and Microsoft Corp. (Nasdaq “MSFT”) today announced they have completed the formation of Caradigm™, a 50-50 joint venture aimed at enabling health systems and professionals to use real-time, organization-wide intelligence to improve healthcare quality and the patient experience.”  Now it’s not news that GE and Microsoft are jumping on the interconnected patient management bandwagon, but what is news is what this could mean for the diabetes device sector.

Already GE is in the glucose monitoring business and they have also made investments in the continuous glucose monitoring area, although they picked the wrong company to invest in but that as they say is a story for another day. It’s also well known that Bayer has their diabetes device unit up for sale and anyone with a working brain cell knows that while whiz band technology is nice, scale means everything in the glucose monitoring market.  It should also send a very strong messages to companies like GE there is a reason Bayer wants out and it’s not just because there companies willing to pay them a billion or so to get out.

Keep in mind that Bayer practically invented the glucose monitoring market and at one time was the premier player.  They too also fell from the top spot, made a comeback and again have fallen back to also ran status. This seems to be the nature of the glucose monitoring market as Roche is another example of a company who once owned the top spot and has recently fallen from grace. Fortunately for Diabetic Investor Roche is not selling their diabetes device unit, at least not yet, so we’ll still have plenty of great copy for years to come.

Now getting back to the GE/Microsoft joint venture and what it likely means for diabetes device companies, it’s no secret that GE and Microsoft have big bucks and that both companies are accustomed to buying their way into a market. It’s also true that neither of these companies have a clue what the diabetes market is all about which is good news to companies like Bayer. Now Diabetic Investor would never suggest that Bayer would somehow take advantage of these well-heeled potential buyers and use their inexperience to wring a higher price for their beleaguered unit but this is the wacky world of diabetes devices where anything can and usually does happen.

Watching all this with great delight must be the good people at Abbott (NYSE:ABT) who would like nothing better than to find a buyer for their stumbling diabetes device unit. In perhaps their smartest move in decades the company is actually doing the right thing by waiting to see what Bayer gets for their unit before officially putting their unit up for sale. If there is one thing everyone can count on when it comes to diabetes device deals is the follow the leader principal is alive and well. It would not surprise Diabetic Investor in the least if Abbott not only waits for Bayer to sell but when they sell they actually get a higher multiple; nothing better than the greater fool theory, another concept alive and well in diabetes devices.

Now someone must surely be thinking; “Hey these are large establish companies who don’t just throw around billions of dollars without doing their homework.” Yes one might just think that, yet the problem is these newbies aren’t looking at the market as it is today but as they think it will be 5 or 10 years today. They truly believe that interconnected diabetes management is the future and that magically patients will begin testing their glucose levels on a regular basis. They believe they will be able to charge premium prices because they can deliver better overall patient outcomes. Or put another way they will do what no one else has been able to do. But what the heck, they have tons of money and as we had said so often the best way to accumulate a small fortune is start with a big one.

Diabetic Investor would say that we are continually amazed at how companies ignore reality and adjust the facts to fit their theories but we have been around long enough to know better. It’s not yet time for our corporate frog awards but the water is getting warmer and the frogs are approaching- RIBIT.