Not dead just yet

Not dead just yet

Years ago when Bayer diabetes was on the verge of extinction the unit was resurrected thanks in large part to Sandra Peterson, who ironically now works for Johnson and Johnson (NYSE:JNJ).  Perhaps understanding that she had nothing to lose and everything to gain, Ms. Peterson reinvigorated the unit by coming out with some new products and a new marketing approach.  However since Ms. Peterson left the unit, the unit once again has fallen on hard times so much so that Bayer put the unit up for sale.

As Diabetic Investor has reported at first this seemed like a brilliant move as initially there was a great deal of interest from potential buyers. Yet for one reason or another a deal did not materialize and Bayer publicly stated that the unit would not be sold as they could not find a suitable buyer.

Now rumors are swirling that a deal could be in the works with Sanofi (NYSE:SNY), a company that many felt was the leading contender to acquire this unit the first time around. As Diabetic Investor reported Sanofi, for reasons only know to the company decided to back away from a deal. Yet know it appears the sides are back at the bargaining table and deal may come together after all.

As we noted early this week Bayer really doesn’t have much of choice here and selling the unit still makes a great deal of sense, even if it means accepting a lower price than originally anticipated. Looked at realistically the company does not have a wide array of options available had they decided to try and once again resurrect this struggling unit. Although the company isn’t commenting the widely held belief is that any attempt to reinvigorate the unit would be akin to throwing good money into a bad and deteriorating market. Better to get what they can then to be stuck with nowhere to go.

Looking at this from the perspective of Sanofi, the company just might believe they can turn sand into gold especially when the sand costs less to acquire than originally anticipated. They see their first attempt at entering the glucose monitoring market, the iBGStar hasn’t gone all that well and that if they really want to be a serious player in diabetes devices, glucose monitoring in particular, they need scale and need it yesterday. From their way thinking they just might be reasoning that if they don’t acquire this unit it would akin to admitting that their entry into the glucose monitoring was a major mistake and as we have seen so many time in the diabetes world, devices in particular, companies would rather blow billions than admit they made a mistake.

Given the way this deal has played out to date it would be a major mistake to believe this is a sure thing and will actually happen. Sanofi is notorious for over analyzing and moving at a snail’s pace, keep in mind Sanofi had the opportunity to acquire Amylin but failed to act quickly which eventually cost the company as Amylin ended up in the hands of Bristol Myers Squibb (NYSE:BMY). It also doesn’t help that the company originally made one offer when it seemed like more possible buyers were around and now wants to pay a far lower price. Acquisitions rarely are easy even when things are great but they get more dramatic when one company is desperate, as Bayer is, and the other company is arrogant as Sanofi is.

Another possibility could be that Bayer is floating these rumors in the hope that another bidder will emerge and help drive the price higher. Diabetic Investor views this as unlikely as the first time around many possible buyers came in for a look, didn’t like what they saw and said thanks but no thanks. As much as it pains the company they just might have to bit the bullet, sell to Sanofi and chalk this up to a lesson learned.

Should this deal actually happen Diabetic Investor remains confused as to just how this would help Sanofi. While the Bayer brand name is worth something and the company does have a more credible presence overseas, they lack the customer base or formulary presence that Sanofi needs to be competitive here in the United States. It also poses an interesting dilemma for the company as how do they successfully integrate Bayer’s existing product line into the mix. All along Sanofi has been striving to develop an integrated diabetes management system. The cornerstone of this system was supposed to be the iBGStar, which was to be followed by an insulin pen that also communicated with the same app used by the iBGStar. The ultimate goal here wasn’t necessarily to make boatloads of money on either device, rather to keep patients on their blockbuster insulin, Lantus. As with all things Sanofi and diabetes, the driving force is to keep the Lantus franchise happy and profitable, something that is becoming tougher as the patent cliff is right around the corner.

Frankly it’s difficult to see how Sanofi would be any better than Bayer at gaining market share and giving either Roche or JNJ a serious run for their money. Realistically the only way this could happen would be for the company to spend even more money, an amount which could be equivalent to what it cost to buy the unit in the first place. Honestly buying the unit is the easy part, actually running it, integrating it and then making it pay off in the long run is the hard part. A more difficult task considering that Bayer basically gutted the unit as they were preparing to sell it, which basically means that Sanofi would start from square one, which isn’t necessarily a bad thing but it does increase the amount they will need to invest once they acquire the unit.

The truth is Sanofi would have been much better off going after Abbott’s (NYSE:ABT) diabetes device unit, even if that meant paying a higher price. Abbott’s customer base is more closely aligned to Sanofi’s needs, their products are better than Bayer’s and they would likely acquire the intellectual property for the Navigator which would give Sanofi an entry into the important and growing continuous glucose monitoring market.  (It’s also worth noting that Abbott also has an insulin pump which it never marketed but could give Sanofi an entry into this market as well. It’s a well-known fact that insulin pump patients monitor their glucose more frequently than any other patient and account for nearly 20% of all test strips sold.)  Even though Abbott claims they are in the market for the long run and that the unit isn’t for sale one thing everyone should know is everything is for sale when the price is right.

Right now all this is just well-informed speculation and a deal may or may not happen. As happened the last time around Sanofi could get cold feet and decide to back away, again. Or Bayer just might decide that better to milk the unit for all they can until they can get the price they want. No matter what eventually does or does not happen, one thing is certain not to happen and that’s any improvement in the BGM market. Competitive bidding is just the tip of the iceberg and will only serve as just one more reason why BGM has fully transformed into a commodity market. Why any company would willingly spend a billion or so dollars to actually enter this market shows the P T Barnum was spot on. Or as Burton Stevenson once said; “A sucker is a fool that bites at any bait.”