Multiple Chinese organizations are considering buying some or all of Johnson & Johnson’s diabetes care unit, Reuters reports. J&J began assessing whether to sell subsidiaries that make glucose meters, insulin pumps and other pieces of diabetes equipment last year.
The subsidiaries—LifeScan, Animas and Calibra Medical—have reportedly caught the eye of potential buyers in China. A consortium formed by diabetes business Sinocare and a unit of China’s sovereign wealth fund are said to be among those considering striking a deal with J&J. It is unclear whether the organizations are willing to swallow the unit whole or want to pick off individual businesses.
J&J has said its evaluation of the future of the diabetes care business is ongoing.
Reports that Chinese companies are among those circling the unit are in keeping with the country’s increasingly global investment strategy and health trends within its borders. Chinese investors have taken stakes in or outright acquired Western businesses in multiple industries in recent years. And the health landscape in China makes diabetes an area in which buyers can extract extra value.
The Chinese diabetes market is growing quickly—one estimate tips it to go from $6.6 billion in 2016 to $20 billion by 2025—but has historically been a tough sector for foreign companies to enter. Officials are trying to make the business environment more amenable. But local companies are still typically better equipped to navigate the regulatory and commercial landscape than outsiders.
As such, a Chinese buyer of the J&J diabetes unit could leverage its local knowledge and capabilities to step up its growth in the country. That prospect could lead a Chinese company to see more value in the unit—and by extension bid more for it—than a Western business. Analysts also think a Chinese buyer may be more tolerant of the margin pressures faced by the unit.
“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,” Franck Le Deu, Hong Kong-based senior partner at consultancy McKinsey, told Reuters.
J&J unit Animas showed the pressures faced by diabetes device makers in the West last year when it shuttered its U.S. and Canadian insulin pump business. A China-focused strategy may fare better, although it would face a different set of challenges tied to the geographic and portfolio breadth needed to succeed in the country.