What’s the “deal” here?

What’s the “deal” here?

Yesterday LifeScan, now a privately held company free from the clutches of JNJ, made the following announcement;

“LifeScan, a world leader in blood glucose monitoring and maker of the iconic OneTouch® brand, today announced it has entered into an exclusive agreement with Sanvita Medical, LLC, to market continuous glucose monitoring (CGM) sensors. Sanvita Medical is a subsidiary of Nova Biomedical Corporation, a world leader focused on accuracy and dependability in advanced technology blood testing analyzers and blood glucose monitoring.”

At first glance you start thinking yep another Dexcom wannabe coming to market late in the game meaning the only way to get any share is to sell it cheap.

The press release also states;

“Through this collaboration, the companies plan to launch CGM systems in North America and select countries in Europe as early as mid-next year and then expand into other markets around the world. The new CGM products will integrate with LifeScan’s OneTouch Reveal® digital portfolio, including the OneTouch Reveal® app.”

With this “launch” coming mid-next year likely around next year’s ADA conference here in Chicago one looks to what the competitive landscape will be then. Dexcom likely will have or be close to having the G7, the Libre2 will be here, AgaMatrix who announced a deal with A. Menarini Diagnostics just a month ago might be here and Medtronic, well more on them later today. Oh and we forgot to mention Senseonics sorry about that, but they will be here too.

Between now and then assuming of course they can get the toy approved by the FDA, navigate the intellectual property minefield, sign agreements with payors and actually manufacture a consistent and reliable sensor on a massive scale Dexcom and Abbott will continue to gobble up patients better than Steph Curry hits three pointers.

See this is the most overlooked aspect for every Dexcom wannabe besides all the other stuff we mentioned just how the hell are they going to get any market share? Even if they sell it cheap, really cheap just who will be left to sell too? And they can’t sell it cheap, really cheap if they don’t have scale and they can’t achieve scale without selling it really cheap. We’ll pause for a moment so everyone can catch their breath and allow time for your eyes to stop spinning.

So given this set of circumstances what’s the “deal” here? Well the “deal” here is that Platinum Equity the private equity firm that now owns LifeScan wants to flip the company and they know they can’t do that without having a CGM. When Platinum bought LifeScan from JNJ they leveraged the hilt out of the deal which wasn’t a problem given that in even in this depressed BGM market the unit is throwing off tons of free cash making debt service a snap.

Yet the smart people running the unit likely have told Platinum they are going to lose lots of that free cash flow as the BGM market continues to contract and prices continue to come under pressure. They likely have also told them that in developed countries CGM is becoming the standard for glucose measurement making their core product obsolete. BGM is still doing just fine in less developed countries but these countries don’t generate enough sales volume to offset the volume being lost in developed countries. Therefore the only way Platinum can flip the unit and make some money is to add a CGM making the unit more attractive to an unsuspecting buyer.

We suspect now that they have a CGM LifeScan won’t stop there and will eventually add a connected insulin pen to their portfolio as this would make the unit even more attractive. And just as there are a plethora of Dexcom wannabes there is an equal number of connected pen companies who would love to get acquired. Like everyone else in the diabetes toy business and LifeScan is no different they want a Tyler of their own. Never mind that all the major insulin companies will also have their own versions of a Tyler and that they will control the Tyler market, having a Tyler is another toy that makes the unit saleable.

So the “deal” really isn’t about making money in the CGM market, nor does it have anything to do with helping patients better manage their diabetes this “deal” is about what its always about – money. In this case how much money can Platinum get when they flip LifeScan and move onto their next deal.

The key to this strategy is getting a connected insulin pen and then quickly finding a buyer for LifeScan before anyone wises up and realizes what the toy market will be 5 years from now. This really shouldn’t be a problem given the history in this space where there are always buyers who think they are smarter than the average bear. Give Platinum credit for seeing the handwriting on the wall and actually implementing a strategy that likely will work and get them what they really want, a nice multiple.

As Momma Kliff used to say “Don’t milk the cow until there is no more milk. Take it to the edge put a fancy dress on it and then sell it to an unsuspecting buyer who thinks they can slaughter the cow after the milk is gone.” This will allow Platinum to do something known by every poker player; “You can shear a sheep many times, but skin him only once.”