Let’s make a deal

Let’s make a deal

Yesterday we witnessed a flurry of deals in the drug space with Actavis PLC buying Botox maker Allergan for $66 billion this deal comes on top of Pfizer’s (NYSE:PFE) announcement that they were teaming up with Germany’s Merck KGaA to develop a new cancer treatment.  Merck will receive an upfront payment of $850 million and see another $2 billion in milestone payments. Many believe this deal effectively kills any chance that Pfizer would reengage and go after AstraZeneca (NYSE:AZN).

According to the Wall Street Journal 2014 has been a banner year for deals as these recent tie ups have pushed the value of activity globally to more than $3 trillion, yes that trillion with a T. Even more stunning is 2014 isn’t over yet and more deals could come down the pipe.  This possibility got Diabetic Investor thinking about who in the diabetes space is most likely to either be a target or acquirer. Now keep in mind that in the wacky world of diabetes deals, as we have seen in the past, don’t always make sense. It’s also important to note that the most valuable companies aren’t always the most attractive takeover targets.

We mention this as by far we consider Dexcom (NASDAQ:DXCM) the most valuable company in diabetes. Dexcom is kicking some serious booty in the growing continuous glucose monitoring (CGM) space and is one of the best, if not the best run companies in diabetes. Dexcom is one of the few companies with a well thought out coherent strategy who is also executing on that strategy. Yet as valuable as this company is we’re not sure they would be pursued just yet. This has more to do with the market they operate in and where they would add value.

Many assume that Dexcom is a perfect fit for Johnson and Johnson (NYSE:JNJ) and their Animas insulin pump franchise.  However Diabetic Investor isn’t getting the impression JNJ has the stomach for such a deal even though it does make sense. The fact is JNJ is still struggling to figure out just what to do with Animas now that they decided not to sell the franchise, or at least not sell it just yet.

Tandem (NASDAQ:TNDM) and Insulet (NASDAQ:PODD) are also impacted here as well. It’s well known that both companies would like nothing better than to be acquired but about the only player in the market with the money to do deal, JNJ is in no mood to do a deal.

As it stands today we don’t see Dexcom, Tandem or Insulet being acquired by a traditional player in diabetes devices. If any deal is to be done and this is a big if we see it coming from one of the many newcomers to the diabetes space. Yes as crazy as this may sound we could see a company like Phillips or perhaps Samsung moving more aggressively into this space. As we have been stating for some time it’s just a matter of time before interconnected diabetes management (IDM) becomes the standard of care. The day is coming when every diabetes device whether it’s a conventional glucose meter, a CGM, insulin pen or insulin pump will be connected with and/or controlled by the patient’s smartphone.  What better way for a company like Samsung to gain control of this market then by becoming vertically integrated.

For anyone who doubts that Samsung, Apple, Google or Facebook will shy away from devices think again as this is exactly where these companies are going. Whether its contact lenses that measure glucose or meters that attach to or sensors that deliver readings to a smartphone, these tech players have the capital and vision to make IDM a reality.

Turning our attention to the drug side AstraZeneca remains the most attractive target given the depth of their diabetes portfolio which fits perfectly with Sanofi (NYSE:SNY).  As we have noted current Astra CEO Pascal Soriot is the leading candidate to take the now vacant CEO position at Sanofi. In what would only be befitting for this soap opera to take another strange twist with Soriot coming in as the new Sanofi CEO and then going after his former employer. As everyone knows Sanofi’s diabetes franchise is in major trouble and as we stated in the past the company needs to go big or go home and what better way to go big than by buying Astra.

No matter what does or does not happen one thing is certain we have not seen the last set of deals for 2014 and diabetes could well be part of the next round.  Although market conditions are far from ideal the fact is diabetes remains a huge and growing market; a market too big to ignore and one where scale is critical. To Diabetic Investor it’s not a question of if deals will be done but when and with whom.

Stay tuned this could be fun.