CCS Medical and MP TotalCare Merge – What it means for PolyMedica and others
This morning CCS Medical and MP TotalCare announced plans to merge and form one company to be called CCS Medical. The deal, valued at $630 million, is being done for two main reasons. First, the combined company should generate greater operating efficiencies. While also providing a larger base to take on market leader PolyMedica (NASDAQ:PLMD).
PolyMedica’s huge customer base provides leverage with suppliers and their recently announced deal with blood glucose meter (BGM) company AgaMatrix enhances that leverage. Since the government determines what the company can charge for products the key is being able to operate your company efficiently and buying products cheaply. PolyMedica has been a master at doing both. Don’t be surprised if the new CCS Medical takes some pages out of the PolyMedica playbook.
This is not good news for blood glucose meter companies where volume is everything. Mail order and the Medicare market are two markets BGM players need. Domestic growth in this market has been slowing and manufacturers are facing increasing price pressure. Before this deal PolyMedica was the only player who had the clout to extract favorable pricing. The new CCS is likely to follow PolyMedica’s lead here.
While Diabetic Investor doubts the new CCS will overtake PolyMedica, it will provide a more meaningful competitor. Up until this deal PolyMedica really didn’t have any serious competition. In fact, we believe this deal actually enhances the value of PolyMedica. This is an industry ripe for further consolidation. Diabetes is growing at epidemic rates and the Medicare prescription drug benefit is coming online. Wal Mart and Walgreens have both aggressively pursued this business and pharmacy benefit managers are looking to enter as well. Diabetic Investor has long believed that PolyMedica would one day be taken over. With the government investigation a thing of the past and new management team firmly in place, the CCS MP TotalCare deal could be the catalyst to make this happen.
David Kliff
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