And here we go

And here we go

In a surprise move this morning we learned that Abbott (NYSE: ABT) would be acquiring Alere. According to a company issued press release;

“Abbott (NYSE: ABT) and Alere Inc. (NYSE: ALR) announced today a definitive agreement for Abbott to acquire Alere, significantly advancing Abbott’s global diagnostics presence and leadership. Under the terms of the agreement, Abbott will pay $56 per common share at a total expected equity value of $5.8 billion. Once the transaction is completed, Abbott will become the leading diagnostics provider of point of care testing. Abbott’s total diagnostics sales will exceed $7 billion after the close.”

Rereading the transcript from Abbott’s earnings call this past Thursday company CEO Miles White may have telegraphed this acquisition when he stated;

“And lastly, while 2015 was relatively quiet for us on the M&A front, adding to our business with good M&A remains a key priority. We see a number of opportunities and will continue to remain active on this front. As always, we remain disciplined and focused on finding the right balance of strategic fit and measures of return that will benefit the long-term shareholder.”

Now just how this acquisition will impact Abbott’s diabetes care unit is anyone’s guess. The company continues to insist that the FreeStyle Libre is the greatest thing since sliced bread and soft soap. They continue to believe that in spite of its accuracy issues that the product will be approved and available for sale here in the US perhaps by the end of this year. Nor do they seem to be concerned that they will be re-entering the CGM market well behind two established entrenched competitors Dexcom (NASDAQ: DXCM) and Medtronic (NYSE: MDT).

To be clear here Diabetic Investor does not dispute that the product, after some initial quality issues, has performed well in international markets. From what we can tell patients and physicians seem to like the product. Yet what never gets discussed anywhere is the fact that the company is heavily subsidizing the Libre and isn’t making any money on the product. Now we know these are pesky facts but without major scale it’s unlikely, should the Libre gain US approval, the product would make money here.  That to establish even a toe-hold in the US market they would have to heavily subsidize the Libre.

What’s even crazier and that’s saying something, is that analysts are buying this manure being spread by the company. That they ignore that Abbott has now run, not one but two glucose monitoring units into the ground. That this company paid a company to develop an insulin pump, got the pump approved by the FDA but never launched it. Finally, this is the same company who at one time had the very best CGM system there was and thanks to utter stupidity, hubris and mismanagement had to pull this once great product from the market. The FreeStyle Navigator will go down as one of the all-time blunders in diabetes devices and its failure is owned by Abbott and no one else.

Not that we need to pile on here but these pesky facts just keep coming up, last year the diabetes care unit had worldwide sales of $1.12 billion, the year before that $1.19 billion and the year before that $1.31 billion. As we noted the other day the company has basically cried uncle in the US BGM market focusing instead on international markets. Only problem is this is the exact same strategy as Roche who just so happens has a stronger following overseas than Abbott.

Although Diabetic Investor has never understood this our sources inside the company tell us that none other than Miles White himself is standing in the way of dumping this unit.  That everyone else has said sell but Miles won’t let this happen. That for reasons no one seems to understand Miles is attached to diabetes care and just won’t let go. About the only logical explanation here is that Miles sees selling the diabetes care unit as a public admission that he screwed up. That people will wake up to the fact that Abbott has run not one but two BGM acquisitions into the ground, that this company has a unique ability to turn gold into sand.

Even crazier and yes that it is getting redundant is no rational person would blame him if he sold this unit. In fact, the opposite would happen as it would show that Miles has seen the future, doesn’t like what he has seen and has the stones to get out before the entire market collapses. Let’s be honest folks but there isn’t a big future in conventional BGM, the insulin pump and CGM markets are highly competitive, over saturated with established entrenched well capitalized well run competitors. This unit is screaming to be put up for sale but these screams seem to be falling on deaf ears.

For the sake of Abbott stakeholders let’s hope that Miles can do something with the Alere acquisition that he has been unable to do in the BGM arena, grow the business instead of running it into the ground.