Retailers aren’t the only companies offering big discounts
Yesterday it became official the economy is in a recession and has been since last December. Although this is hardly news to anyone who has a pulse it’s always nice to know that there is an organization whose sole purpose is to confirm what everyone already knows.
We also learned that Black Friday wasn’t as bad as expected that is of course unless you’re working at Wal Mart (NYSE:WMT) and shoppers decide it’s more important to save a few bucks then act like civilized human beings.
To top off all this good news the markets tanked again yesterday losing nearly 700 points.
Although none of these events are related to the diabetes market they do speak to the current dismal state of affairs around the country.
Looking over the diabetes landscape Diabetic Investor sees some sunshine amidst the darkness. Just as retailers are offering 50 to 60% discounts to lure weary shoppers into their stores, several companies in the diabetes area are now trading at ridiculously low levels. Insulet (NASDAQ:PODD), the makers of the OmniPod, closed at $4.02 yesterday after trading as high as $26.71 in the past 52 weeks. Dexcom (NASDAQ:DXCM) closed at $1.95 and now carries a market cap of below $60 million. Amylin (NASDAQ:AMLN) closed at $6.06, this is a stock that once traded in the 50’s. Finally there is Home Diagnostics (NASDAQ:HDIX) which closed at $5, down over 50% from its 52 week high of $10.99.
Besides trading at near fire sale prices what these companies also have in common is they are prime takeover candidates. Additionally each company is facing its own set of issues which should make management and their board of directors receptive to any offer that comes along. It should also be noted that while there are issues with each company they each offer a potential acquirer a good chance of recouping their acquisition costs. Lastly each is in a market segment coveted by larger well capitalized rivals who could easily afford to take a chance even if they have to pay a premium from these ridiculously low levels. Simply put the stocks are cheap, very cheap.
This is the reason Johnson and Johnson (NYSE:JNJ) yesterday announced they would acquire breast implant maker Mentor Corp. for $1.07 billion. Even with the economy in a deep recession that is likely to last well into 2009, JNJ decided to jump at Mentor which was trading well below its 52 week high. JNJ understands that the $4.6 billion cosmetic medicine market is expected to grow to $6.7 billion by 2012 and the best time to enter this market is when companies are trading at very attractive valuations.
Recession or not there is no question the diabetes market will continue to grow at epidemic rates increasing the demand for drugs and devices. Just as JNJ is taking the long term view with Mentor, it would hardly be surprising if JNJ and other well healed companies in the diabetes space become more aggressive with acquisitions. Although things may look dismal for the next year to 18 months they understand that the diabetes market is the place to be.
This buying binge should extend beyond the companies already mentioned and to diabetes divisions of larger companies like Abbott (NYSE:ABT) and possibly Roche. As everyone knows Diabetic Investor believes Bayer will eventually acquire Abbott’s glucose monitoring unit a deal that makes so much sense that it’s a wonder the deal has not been done already. Although it would be a stunner if Roche decided to exit the diabetes device market and sell off their Accu-Chek line of products given the current market conditions something that once seemed improbable is now possible. Given that neither Abbot nor Roche has a coherent strategy in diabetes their respective management teams just might decide it’s better to sell then throw more money at the problem. The reality here is lack of funds is not the issue with either company but neither wants to acknowledge that poor decisions made by management is the root cause of their problems.
One thing that is certain is the diabetes market will continue to grow and demand for meters, insulin pumps and drugs will expand in the coming years. It’s equally clear that these fire sale prices won’t last forever as the financial markets will turnaround as the recovery approaches. Just as consumers flocked to stores on Black Friday to take advantage of incredibly low prices, companies like JNJ and Bayer will be headed to the market to pick up good companies at fire sale prices.