J&J attracts Chinese interest for diabetes business in potential $3-4 bln deal - sources
By Kane Wu
HONG KONG, Jan 17 (Reuters) - Chinese bidders are circling a
diabetes care business owned by the world's largest healthcare
company Johnson & Johnson in a deal that could fetch up
to $4 billion, five people with direct knowledge told Reuters.
New Brunswick, N.J.-based J&J said in January last year it
was evaluating options for its diabetes care companies,
specifically LifeScan Inc, Animas Corp, and Calibra Medical Inc.
One option was a sale of the business, it said.
Chinese interest in the J&J unit comes as the market for
diabetes care in China is expected to grow rapidly. Almost one
in three of the world's diabetes sufferers lives in China,
according to World Health Organisation estimates.
Among the potential bidders is a consortium being formed by
Shenzhen-listed Sinocare Inc, which develops and
manufactures blood sugar monitoring systems, and China Jianyin
Investment Ltd (JIC), a unit of sovereign wealth fund China
Investment Corp. The group has hired an advisor to work on a
bid, according to two sources.
"The evaluation of potential strategic options for LifeScan
Inc. and Calibra Medical Inc. is ongoing and we do not have an
announcement regarding these businesses at this time," J&J said
in a statement in response to Reuters request for comment.
The company has hired Goldman Sachs to work on the sale,
according to three of the people. The bank declined to comment.
Sinocare's investors relations office said it could not
confirm the information when contacted by Reuters. JIC and CIC
did not respond to requests for comment. The sources declined to
Asia accounts for more than 60 percent of global diabetes
cases, with increasing levels of wealth, unhealthy diets and
more sedentary lifestyles sparking "diabetes epidemics" in the
region, according to BMI Research.
George Lin, chief financial officer of Hua Medicine, a
diabetes-focused drug developer, told Reuters on Wednesday that
according to the most recent market research there were more
than 110 million diabetes patients in China alone.
"The market right now in the world is already close to $50
billion," he said, referring to diabetes drugs. "In China, it is
expected to grow from $6.6 billion in 2016 to $20 billion by
2025. This is a very large, fast-growing market."
Lin left a senior role at Bank of America Merrill Lynch to
join Hua in December.
It is not yet clear if potential Chinese buyers are
interested in the whole of J&J's diabetes care business or one
or more of the member companies.
Sinocare, which has a market capitalisation of about $1.8
billion, in 2015 teamed up with Citic Securities to bid for
Bayer's diabetes devices business that was eventually sold to
Japan's Panasonic Healthcare Holdings, majority-owned by U.S.
investment firm KKR.
JIC, wholly owned by CIC, mainly invests in the industrial
manufacturing, consumption and information technology sectors,
according to its website.
CIC's vice-chairman and president, Tu Guangshao, said at a
panel discussion during the Asian Financial Forum in Hong Kong
this week that it would look for more investment opportunities
in the healthcare industry.
The sale of the diabetes business has also attracted
interest from global private equity players, according to the
people with knowledge of the process. But analysts said China
could offer a tonic to J&J's struggling diabetes care unit and a
turnaround opportunity for regional investors.
Revenues at J&J's diabetes care unit have been falling since
2012, a Reuters study of the company's financial results found.
In the first nine months of 2017, sales slid 7.7 percent
year-on-year. In 2016, it suffered a similar decline.
In October, Animas Corp, the diabetes care unit that makes
insulin pumps, said it would shut its business in the United
States and Canada amid increased competition and after failing
to find a buyer.
Any sale by J&J of its diabetes device units would fit with
a drive to exit from lower-margin, commoditized categories such
as glucose meters and strips, but analysts said Asian buyers may
be able to squeeze more out of the assets.
"Could a Chinese company extract more value from this than a
multinational? It's possible because they have different
expectations of profitability than multinationals so they can be
happy with lower margins," said Franck Le Deu, Hong Kong-based
senior partner at consultancy McKinsey.
"One complication of being in diabetes for a Chinese company
is that you need a broad portfolio to be able to compete, and a
broad footprint because it's a very dispersed market," he added.
"So the investment levels needed to be competitive in diabetes
are quite high, it's not an easy game to play."
(Reporting by Kane Wu; Additional reporting by Julie Zhu in
Hong Kong and Adam Jourdan in Shanghai; Editing by Alex
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