LifeScan Out of the hospital market
According to a letter sent out by LifeScan last week the company will be exciting the hospital glucose monitoring market effective March 31, 2013. The letter states:
“As you may be aware, the needs of diabetes patient self-monitoring and hospital point-of-care blood glucose testing are very different and they continue to diverge. Following a thorough analysis of the requirements to deliver ongoing product innovations for both customer groups, we have made the difficult decision to exit the hospital point-of-care blood glucose testing market in the United States and Canada.”
This news comes on top of what Diabetic Investor reported last week that the FDA declined to approve Roche’s new monitor for the hospital market. According to sources inside the company Roche plans to appeal the FDA’s decision and remains committed to the market. This same source noted that should the appeal prove unsuccessful the company will pursue other options to remain a player in this market. This matches rumors Diabetic Investor has been hearing that company is actively looking to acquire to a system that can be used in the hospital.
Diabetic Investor has yet to hear from Abbott (NYSE:ABT) who also has a hospital system.
Although the hospital business does not receive the notoriety of the consumer market, it does play an important role for companies like Abbott and Roche. Diabetic Investor suspects that the ultra-conservative nature of the FDA played a role in LifeScan’s decision to exit the market. Just as the FDA is looking at new guidelines for approving monitors used by patients, these new regulations will extend well into the hospital market where interfering substances is a much more prevalent issue.
It remains to be seen what impact, if any, this decision by LifeScan will have on their consumer business. The company remains the leader in the US market but has recently seen some share erosion. Although it might seem unthinkable LifeScan just might be considering exiting the diabetes market entirely. Johnson and Johnson (NYSE:JNJ), who owns both LifeScan and insulin pump maker Animas, is not just very good about knowing when to enter a market they are equally talented at knowing when to exit a market. Given the market dynamics for glucose monitors and insulin pumps, the company could have well decided that their cost cutting has reached the point of diminishing returns and now it’s time to find a buyer for the two units.
It is also well known that Sanofi-Aventis (NYSE:SNY) is very interested in the diabetes device market as they see devices as a tool to sell more insulin, a strategy that was reinforced by their CEO last week at JPM. While the company does have an existing relationship with privately held AgaMatrix, it would be difficult to build a market presence in BGM starting from scratch. Given their large presence in the market and the fact that LifeScan has spent the last few years attracting insulin using patients, these units would be a perfect fit for Sanofi.
As much sense as this deal may make as usual it comes down to money. Diabetic Investor knows that Sanofi did reach out to Medtronic (NYSE:MDT) to see if the company would be willing to sell this insulin pump unit but walked away given Medtronic’s asking price. We also know the company is interested in Abbott’s diabetes unit, which would likely come at a more attractive price however this acquisition does nothing to put Sanofi into the insulin pump business. Perhaps the biggest hurdle of all is their ongoing effort to acquire Genzyme. Although Sanofi has considerable resources it would seem unlikely they would go after LifeScan and Animas until the Genzyme issue is resolved.
The final option for JNJ could come from outside the diabetes world as there are rumors that consumer product giant P&G would like to enter the diabetes market.
As we noted with our JPM wrap up 2011 appears to be a transitional year in the diabetes market and although not even a month old 2011 is already shaping up that way.