Becton Dickinson and Co. (BD) has decided to outsource its diabetes care business after building a broad portfolio of insulin injection devices for nearly a century. The transaction, which will result in a publicly traded company tentatively named Newco, is expected to close in the first half of 2022.
The decision to separate the diabetes business is part of an ongoing strategy to stimulate growth and influence customers and patients more by focusing on the company’s core medical, life science and intervention portfolio.
In 2020, the diabetes business had sales of 1.1 billion euros, nearly half of it outside the US, including 17% in emerging markets. Newco will have offices in New Jersey and Massachusetts and manufacturing facilities in the United States, Ireland and China. Devdatt Kurdikar, global president of BD Diabetes Care, will become CEO of the independent company. Jacob Elguicze, who recently joined BD from Teleflex Inc., will serve as CFO.
“As an independent public company, we believe Newco will be better positioned to leverage its leadership in insulin delivery to advance critical, innovative solutions for the large and growing number of people with diabetes worldwide,” said Tom Poland, Chairman and President from BD and CEO.
The news coincided with BD’s release of FY2021 second quarter results.
Strengthens growth forecasts
During an earnings call on Thursday, Poland said the proposed spin-off should bolster BD’s mid-single-digit sales and double-digit return to the growth profile.
“We are making good progress with our simplification initiatives, which aim to reduce complexity, improve our product quality, improve our customer experience and improve cost efficiency,” he said. “Our recoding initiatives are on track to deliver $ 300 million in savings of $ 24 million by the end of the fiscal year.”
Richard Newitter, an analyst at SVB Leerink, predicted that investors will respond positively to the decision, as it allows BD to strengthen its growth profile through a stronger investment focus on core businesses (ex-diabetes) and growth opportunities. “
Morningstar’s Alex Morozov offered a more moderate assessment, describing the spin-off, which accounts for about 6% of total sales, as a less than remarkable development.
Despite being a market leader, producing 8 billion devices a year, the diabetes business “has also been a drag on overall growth for several years,” she wrote. “BD is promoting the spin as an opportunity for this company to invest in innovations and acquisitions. We see it as a way to improve the overall growth profile. “
Kurdikar stressed that injection devices such as pen needles and syringes are likely to remain an important part of diabetes management worldwide for the foreseeable future, and said Newco intends to capitalize on this trend.
At the same time, “we will also seek to invest in novel insulin technologies, including our internal type 2 patch technologies,” he said. “We also plan to more fully complement our in-house R&D product development efforts and accelerate our growth profile through strategic mergers and acquisitions to expand our product offerings and open up neighborhoods for new growth categories.”
Q2 results
For the three months ended March 31, 2021, BD, based in Lakes, NJ, reported earnings of $ 299 million, or 94 ¢ per share, an increase of 15.4% over the same period last year. Adjusted earnings per share (EPS) rose 25.1% to $ 3.19, beating the street estimate of $ 3.04.
Resurgence in COVID-19 infections adversely affected the interventional segment, where a decline in medical procedures and hospital occupancy affected the surgical and peripheral interventional units. Overall, the segment had global sales of $ 1.0 billion, up 2.1% over the second quarter of fiscal 2020.
Medical segment revenue rose 7.4% year over year to $ 2.3 billion, reflecting strong growth in drug delivery solutions (MDS) and pharmaceutical systems. MDS growth benefited from worldwide sales of syringes related to COVID-19 vaccinations and sales of catheters and medical delivery devices in the United States.
Worldwide sales in the Life Sciences were $ 1.6 billion, up 42.5% from the same period last year. The increase was primarily driven by integrated diagnostic solution unit revenue of $ 480 million, including $ 290 million from the BD Veritor Plus system, related to COVDI-19 tests.
Pointing out the recent milestones, Poland said BD had filed with the FDA for a new approval for its Alaris pump, which was plagued by software and hardware issues. The 510 (k) filing is intended to update the file for all changes to the pump since the previous 510 (k) was deleted, including a new version of the Alaris system software that provides clinical, operational and cybersecurity updates.
The company also received FDA approval for its Pristine Long Term Hemodialysis Catheter and FDA emergency approvals for the Veritor Plus System Rapid Antigen Test for SARS-CoV-2 Screening and BD Max System for Detection of SARS-CoV-2 and Influenza A. and B among other highlights.
BD reiterated its guidance for fiscal year 2021 of 12% to 14% revenue growth for the full year on a reported basis. Earnings per share are expected to be between $ 12.75 and $ 12.85, up from 25% to 26% year over year.
Wells Fargo’s Larry Biegelsen believes BD is well positioned to meet its fiscal 2021 goals. “The health of the core business is improving (LSD-MSD growth expected) and the COVID-19 test franchise is increasing the organization of sales development across the company,” he wrote. “Headwinds for fiscal year 21 are the pandemic, the FDA review process for Alaris pump brokerage (release possibly in F’22) and value-based procurement in China.”
