Bayer’s diabetes devices could work for an insulin company

It would be far from surprising if the rumours that Bayer is considering selling off its diabetes products, thereby exiting medtech almost completely, are true. While 2014 has been conspicuous for megamergers, the parallel trend of diversified companies divesting non-core units has been hard to miss.

And if Bayer sells, who might buy? Medtech companies already involved in diabetes care would be wise to be leery of antitrust rules, but pharma companies in the diabetes space, particularly those with insulin formulations, might be interested in Bayer’s glucose monitors (see tables below). Offering a full suite of products – devices together with drugs – is becoming a popular strategy, and the devices that are a slightly odd fit for Bayer could work well for one of its fellow pharma firms.

Surprisingly for a group known primarily for its pharmaceuticals yet not active in diabetes Bayer is the third-largest manufacturer of blood glucose monitors – the other three billion dollar-plus companies are, as might be expected, diagnostics players.

Top 10 sellers of glucose monitors
  Worldwide sales ($m)   
Company 2014 2016 2018 2020 CAGR
Roche 2,431 2,458 2,567 2,680 2%
Johnson & Johnson 1,758 1,812 1,868 1,924 0%
Bayer 1,432 1,547 1,797 1,906 3%
Abbott Laboratories 1,211 1,252 1,327 1,403 1%
DexCom 235 403 598 802 26%
Medtronic 261 324 386 449 10%
Alere 203 220 236 253 2%
TaiDoc Technology 50 49 48 48 -1%
Nipro 27 29 33 36 4%
EKF Diagnostics 18 24 29 36 13%
Total market 7,639 8,130 8,903 9,549 3%

Bayer’s diabetes device unit is likely to carry a price tag of up to $2.5bn, analysts say, and like Johnson & Johnson’s diagnostics last year and Siemens’ hearing aids this month, the unit could be bought by private equity.

But pharmaceutical companies might be interested too. Many pharma companies heavily involved in diabetes care have in-house devices for the administration of insulin – auto-injectors or "pens" – but few have developed their own insulin pumps or blood glucose meters.

Full suite

Instead they tend to form collaborations with medtech companies. Medtronic’s agreement with Sanofi in the summer was a perfect example: bundling Medtronic’s insulin pumps with Sanofi’s Lantus locks patients and hospitals into long-term supply agreements (Vantage point – US push for bundled payments prompts pharma-medtech collaboration, July 23, 2014).

However there is a rationale for pursuing the more traditional – in the medtech world – acquisition approach.

Sanofi, for example, could benefit from buying the Bayer unit. It is already in the glucose meter business in a small way, selling €32m ($40m)-worth of the devices in the first half of 2014; Bayer’s operations are vastly greater, with monitor sales topping $1.5bn in 2013, according to EvaluateMedTech.

If Sanofi were able to bundle glucose monitors with Medtronic’s pumps and its own innovative insulin formulations it would have a full suite of products – increasingly the kind of thing hospital chains are looking for to buy in bulk from a single supplier so that they can keep their own costs low.

The purchase might be more of a stretch for other insulin specialists such as Novo Nordisk or Lilly. Novo has a range of injectors used to administer its innovative insulin formulations and certainly patients will have to use glucose meters so that they know when a jab is necessary. However, Novo or Lilly making a huge entrance into monitoring by buying the third-largest blood glucose test business going seems less than likely.

Meters and pumps

Also implausible is one of the other big monitoring players adding to their repertoire by buying Bayer’s devices. As well as the potential antitrust issues such a purchase could involve, analysts from Bryan Garnier wrote that glucose meter companies are struggling with severe price pressures and would be unlikely to be able to offer a good price for Bayer’s tech.

It would be slightly more reasonable for one of the medtech companies to buy the unit if they were involved in the other side of the diabetes management process: insulin pumps.

Top sellers of insulin pumps
  Worldwide sales ($m)   
Company 2014 2016 2018 2020 CAGR
Medtronic 1,433 1,631 1,829 2,027 6%
Becton Dickinson 1,037 1,167 1,314 1,463 6%
Insulet 264 402 553 705 19%
Ypsomed 218 309 407 506 16%
Johnson & Johnson 356 382 412 442 4%
Nipro 251 271 297 323 4%
Roche 228 231 241 251 1%
Tandem Diabetes Care 51 113 174 235 35%
Total market 3,838 4,506 5,228 5,953 8%

Medtronic is the leader here with 2020 sales of its pumps forecast to top $20bn and is devoting much effort to developing an artificial pancreas – a glucose meter connected automatically to an insulin pump (Therapeutic focus – Artificial pancreas projects will deliver over time, October 4, 2013). Its pump sales came to just $234m in 2013; adding Bayer’s devices to its portfolio could accelerate its artificial pancreas research.

Medtronic, though, probably has enough to deal with for now thanks to its acquisition of Covidien.

Outlier

Bayer is slimming down fast, hiving off its interventional cardiology business in May and its chemicals in September. If it does sell off diabetes care it will be out of medtech almost entirely, with its remaining products being imaging systems and the Essure reversible tubal occlusion technology it gained in April 2013 when it acquired Conceptus.

The Essure business at least fits with Bayer’s long-standing interest in contraception, including its IUDs. The glucose testing unit has been an outlier for some time, all the more since Bayer’s other medtech divestments. It seems more than likely that Bayer will sell the business; and if it does, it is to be hoped that its new owner knows what to do with it.

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