Does this have any meaning?

Does this have any meaning?

This morning Abbott (NYSE: ABT) announced they would be acquiring St. Jude Medical for $25 Billion, additionally our wine drinking friends in France, the good people at Sanofi (NYSE: SNY) announced a $9.3 Billion hostile bid to acquire Medivation. Now on the surface these two deals seem to have nothing to do with either Abbott’s or Sanofi’s struggling diabetes franchises. Yet both deals could just be the beginning of major changes at both companies and their future in diabetes.

While Abbott and Sanofi publicly insist that they are in diabetes for the long term, privately they must be pondering whether this is a wise decision. Yes, diabetes continues to grow at epidemic rates on a global basis however the dynamics of this market have changed dramatically. It’s also well documented that neither company has an impressive track record in diabetes. Sanofi is basically a one-hit wonder with Lantus but has failed miserably at everything else they have touched in diabetes. Abbott has the impressive track record of running not one but two glucose monitoring acquisitions into the ground.

Yet even with their respective missteps in diabetes combined with how badly they managed their franchises, these franchises still have value. Crazy but true. However, the window of opportunity is closing fast and if they don’t act and act fast they the door will close.

We have long maintained that AstraZeneca (NYSE: AZN) has a huge hole in their diabetes portfolio, a hole that could be filed by acquiring Sanofi’s diabetes franchise. Such a move would on paper anyway would allow AstraZeneca to compete more effectively with Lilly (NYSE: LLY) who right now has the most comprehensive diabetes drug portfolio.

Abbott on the other hand does not have a logical buyer for their unit. Yet, this being the wacky world of diabetes there is no need to be logical. It’s no secret that Apple, Google, Samsung and other cash rich high tech companies are moving aggressively into diabetes devices. It’s also no secret that scale has become critical and it’s faster and cheaper to buy scale then to start from ground zero. Yes, we know that buying Johnson and Johnson’s (NYSE: JNJ) diabetes device assets makes better sense, heck even buying Roche’s diabetes assets makes better sense, but for the moment neither JNJ or Roche are doing multi-billion dollar acquisitions and like we said earlier it’s time to throw logic out the window.

The wild card is Abbott CEO Miles White who from what we’ve been told has yet to give his blessing to getting out of diabetes devices. Apparently Miles sees the sale of the diabetes unit as an admission that Abbott has screwed up. Well we hate to break the news to Miles but the fact that Abbott screwed up is obvious so we wouldn’t worry too much. In fact, we would argue that the opposite is true that by continuing to hold onto this sinking ship and not selling looks dumber by the day. Diabetic Investor cannot imagine any Abbott stakeholder who would be displeased with such a move.

Still Diabetic Investor believes that neither Abbott or Sanofi will sell and move on no matter how logical such a move would be. Both companies besides screwing up their respective diabetes franchises have something else in common; hubris. Yes, both Abbott and Sanofi have proven once and for all that the best way to make a small fortune is to start with a big one. Or as Momma Kliff was fond of saying; “Just because you can’t smell it doesn’t mean your crap doesn’t stink.”