As CGMs encroach, Bayer offloads diabetes unit for $1.13B

So it finally happened: German drugmaker Bayer has offloaded its diabetes unit, selling it to Japan-based Panasonic Healthcare in a deal worth about $1.13 billion.

Bayer’s diabetes unit builds devices that monitor blood glucose levels. But as next-generation devies — such as continuous glucose monitors — enter the marketplace, this division has lost its luster. Mounting reimbursement issues have also cast a pall on Bayer’s diabetes unit. As Bloomberg writes:

Bayer Chief Executive Officer Marijn Dekkers is shedding peripheral units as he focuses on more lucrative life-sciences operations. Blood glucose monitors face competition from a new generation of products as well as increasing price pressure from governments. Bayer also plans to list its plastics unit on the stock market in coming months.

“Bayer has been looking to sell this business for several years and management was frustrated by its negative effect on growth and margins,” Alistair Campbell, an analyst at Berenberg, and colleagues said in a note to clients.

Furthermore, Bayer’s diabetes unit had varied from Bayer’s core focus, which is on small-molecule drugs and crop science. Because it’s more of a drug than device maker, investors and analysts have long awaited such a deal. Late last year, Bayer bought a Merck’s over-the-counter drug arm in a $14 billion deal.

But why does Panasonic want this aging diabetes unit? For its global play — particularly in Asia. China alone holds one-third of all the world’s diabetics, and as Bloomberg points out, more than 80 percent of diabetes deaths occur in lower and middle-income countries. While CGMs may be the new and shiny diabetes tracking tool in more developed nations, existing and cost-effective technology still has use in developing countries.

The deal’s expected to be complete in the first quarter of 2016. Bayer first tried to find a buyer in November 2012.