Fight on or Surrender – What will Abbott do?

Fight on or Surrender – What will Abbott do?

Just a day after the company announced earnings rumors are rampant that Abbott (NYSE:ABT) is looking to sell their Diabetes Care Unit. It’s worth noting that Chip Hance who was running the unit has gone back to Abbott vascular and has been replaced by Heather Mason, who we are told comes from the pharmaceutical area. Diabetic Investor had heard this rumor before but with changes to the management team and the dismal state of the unit, it appears the company is growing tired of trying to turn things around.

Given the changing dynamics of the blood glucose monitoring (BGM) market and Abbott’s history in this area a sale makes sense. There is no Therasense out there that they can buy in an attempt to reinvigorate their current lackluster performance. Rather than throw even more money at the unit, the company may have decided it’s better to sell now before they run the unit completely into the ground.

Diabetic Investor also hears that Johnson and Johnson (NYSE:JNJ) is looking to buy MiniMed from Medtronic (NYSE:MDT). Although this is old news for readers of Diabetic Investor as we have reported this before, we hear talks have intensified. As we have said before this move makes perfect sense for JNJ and fits perfectly into their strategy of owning the frequent tester segment of the BGM market. It’s no secret that JNJ prefers to be number one or a close number two in every business they enter. Although Animas currently holds the number two spot in the insulin pump market, MiniMed has a commanding 70%+ market share.

As we reported earlier this week JNJ truly covets Novo Nordisk (NYSE:NVO) but due to Novo’s ownership structure this is a much tougher deal to execute. Buying MiniMed is a much easier deal and would not prevent JNJ for making a run at Novo sometime in the future. This biggest obstacle JNJ would need to overcome would be the government approving the deal as an Animas/MiniMed combination would control almost 90% of the insulin pump market.

Adding to mix of companies looking to buy or sell units is Smiths Medical who has their Deltec unit on the block. Currently number three in the insulin pump market behind MiniMed and Animas, the company is having a tough time unloading the unit. On the plus side the company has decent installed user base, unfortunately they also have an agreement with MiniMed stemming from their patent infringement settlement that stands in the way.

Looking at the diabetes landscape there are two companies which may be interested in both Abbott’s unit and Deltec, Bayer and Roche. Neither company needs to worry about pleasing shareholders as neither is traded in the US. Another advantage is the falling value of the dollar as neither company is based in the US. Finally both companies have the financial resources to do a deal.

That being said Diabetic Investor isn’t sure Roche will step up to the plate. The company spent over a billion dollars to acquire insulin pump maker Disetronic, an acquisition that has yielded more headaches than profits. Although the company continues to tout the unit’s performance in reality the company has not recovered from their two year absence from the US market. Additionally, the Accu-Chek unit continues to lose share and is having a difficult time getting new products to market.

While Bayer has done an outstanding job of turning around their once struggling BGM unit, the future is murky. As we reported earlier this month the company is facing greater competition as everyone is rolling out no-coding monitors and with no insulin pump relationships in the US, the company has scant access to the frequent tester market. Buying Abbott’s unit would file many of the holes and give the company a fighting chance. Besides picking up valuable share points in the BGM market, they would establish a relationship with Insulet (NASDAQ:PODD) the makers of the OmniPod, the hottest insulin pump on the market.

Given the changing dynamics in the BGM market, the company could opt for a “Hail Mary” move and acquire both Abbot’s unit and Deltec. Based on the issues with Deltec, Smiths would jump for joy to get this unit off their books and would likely do so at a near fire sale price. Abbott on the other hand is likely to seek a greater premium for their unit but would be just as delighted to get something before there is no value left.

This scenario, as crazy as it may seem, would set up a battle royal between JNJ, Roche and Bayer. Suffice it to say the diabetes market has some interesting days ahead. Stay tuned!

One last housekeeping item, many have inquired about the status of our redesigned web site, which we had hoped to have up by now. According to the web guys, they have run into a small snafu – not sure what that means- but we hope to have the new site up shortly. We will keep up posted and apologize for any inconvenience this may have caused.

David Kliff
Diabetic Investor
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