Byram acquired and Earnings Round Up
This morning privately held Byram Healthcare announced they were being acquired by OPG Groep N.V. for $132 million in an all cash transaction. According to a press release issued by OPG the acquisition should generate immediate savings of $5 million in annual buying synergies and add $150 million in revenues to OPG. Byram is currently the fourth largest player in the mail order medical supply business serving over 300,000 customers.
This move continues a trend that began when Medco (NYSE:MHS) acquired PolyMedica at the end of 2007. Given the vast resources and large patient population served by Medco, now 4 million patients with diabetes, competitors like Byram understand that need for greater resources so they can effectively compete for the highly coveted diabetic patient. With sales reaching $3.7 billion in 2007 and no presence in the United States OPG provides Byram with the resources it needs to expand their presence.
With PolyMedica now in the hands of Medco and Byram part of OPG, the question is who will be the next target. One might look towards CCS Medical currently number two behind PolyMedica as the most likely target. Some may recall that last summer the company filed an S-1 and was expected to go public in late 2007. This IPO has not materialized and speculation is rampant as to what the hold is. Is a deal in the works? Is the company carrying too much debt? Are there accounting issues? Whatever the reasons are one thing is clear, the mail order space is consolidating rapidly and will soon mimic the diabetes sector where scale and resources are vital to achieving commercial success.
One interesting side note with the Byram deal is the emphasis both companies placed on private-label and/or co-branded products. This is good news for Home Diagnostics (NASDAQ:HDIX) and privately held AgaMatrix, as private label glucose monitors will take on added importance as both insurers and patients look to lower overall costs.
Also reporting earnings this morning was Medco the owner of PolyMedica. Looking beyond the numbers what Diabetic Investor found most interesting is the company’s focus on improving outcomes for the diabetic patient. As the industry continues to consolidate companies that delivery supplies and drugs are looking for a competitive edge. According to Medco’s Chairman and CEO David Snow “Medco is positioned to deliver superior clinical and financial outcomes for clients and members. New and renewing clients are choosing Medco for the value we uniquely deliver in leveraging advanced pharmacy practices to optimize prescription drug spending, drive down total health care coast and improve patient outcomes.” Medco knows that in diabetes better patient outcomes not only lowers overall healthcare costs but also improves employee productivity.
The fact is in this highly competitive environment with an increased emphasis on lowering total healthcare costs, companies can no longer focus on converting patients to low cost generic medications or delivering supplies and drugs through the mail as methods for lowering costs. Insurers and the government want more and for patients with diabetes this means achieving better control. With nearly two-thirds of patients not achieving control improving control is a daunting task that requires vast resources. However, the payoff is equally large as studies have shown that for each 1% drop in HbA1c overall healthcare costs are lowered by over $800 per year per patient. Any company that demonstrates their programs achieve better outcomes stands to land the lion share of the business.
Finally this morning Medtronic (NYSE:MDT) reported results and the most surprising news to Diabetic Investor was the company’s continuous glucose monitoring sales. According to the company CGM sales are approaching an annualized run rate of $60 million. Although Diabetic Investor is not bowled over by this number it does have implications for the competition. As we have previously reported CGM and insulin pump patients go hand in hand like peanut butter goes with jelly. Insulin pump patients are better educated about diabetes and understand how to effectively utilize the data produced by a CGM. It’s not surprising that Medtronic is benefiting from this trend as they control of 70% of the insulin pump market and have the only system that combines insulin pump technology with a CGM technology.
Taking full advantage of this situation is Dexcom (NASDAQ:DXCM) the only other company that has an FDA approved CGM system. Dexcom has recently signed deals with Insulet (NASDAQ:PODD) and Animas, a unit of Johnson and Johnson (NYSE:JNJ), to combine their system with each company’s respective insulin pump. While it’s way too early to judge who will be first to come to market, Diabetic Investor sees the Dexcom Insulet combination as a powerful competitor to what Medtronic offers. Although there is nothing wrong with the Animas line of pumps, a Dexcom Animas combination will be viewed as more of the same old thing, while a Dexcom Insulet combination has the advantage of the wireless pumping.
Viewing all this the executives at Abbott (NYSE:ABT) must feel like they a great gift only they haven’t been invited to the party. The Navigator remains bogged down at the FDA while Medtronic and Dexcom continue to pick the low hanging fruit from the tree. During their last earnings call the company stated the Navigator would be approved by the end of the first quarter, a date that is quickly approaching. It would shock no one if the company missed this date, in fact, the real shocker would be the exact opposite- actually getting the device approved. Keep in mind that last January, no not last month, but way back in January 2007, the company stated the Navigator would be approved in the first quarter of 2007.
Diabetic Investor thinks it’s about time everyone stops believing that Navigator will have any impact on the market. Abbott has done an outstanding job of running their diabetes care business into the ground and baring a seismic change this unit has little hope of turning things around. By the time Navigator gets approval the party will be over and Abbott will be left wondering why they weren’t allowed to play. Based on how they’ve handled things so far they will find blame everywhere but where it really belongs. They can’t blame the sales team as they have no product to sell. They can’t blame the FDA as they haven’t played by the rules. They can’t blame the technology as everyone acknowledges the Navigator is a fine piece of technology. The fact is the blame lies squarely on the shoulders of the inept management team that has taken gold and turned it into sand. This management team is living proof of the old saying that the best way to create a small fortune is to start with a big one.