I'm currently looking at Becton Dickinson's (BD) spinoff of its Diabetes Care unit, named 'Embecta'. It'll take place on April 1st. The distribution ratio i.e., how many shares BD shareholders will get in the new company, is still unclear. But there are some promising signs. First, management is launching a presentation of Embecta tomorrow, implying that they could end up having a substantial equity stake in the new firm (aligning their interests with ours). About 60% of the CEO's 2021 total comp came in the form of equity awards. Second, the business appears attractive. Embecta generated $1.2 billion in 2021 sales and $415 million in net income (an excellent 36% NI margin, with EBIT margin at 39%). Half of sales were ex-U.S. Most people who treat their diabetes with medication use injection therapy, and Embecta is the leading provider of injection devices. So, these are the reasons that I'm keeping tabs on the firm. I think there will be more info when the presentation comes online tomorrow. For now, read the prospectus here: https://investors.bd.com/static-files/9208a877-eff6-4426-89ae-c6c4e1faab35
I’m also looking at the BDX spin-off. Some things I don’t like are as follows:
- they continuously mention price pressures from competitors within their form 10. There is also no mention that they’re the cost leader, even though they’re the largest producer in the industry, which I thought was weird.
- looks like they’re losing market share based on growth in number of T2Ds and their own growth.
- the supply agreement for BDX to supply cannulas, a mission critical component to the pen needle, is odd. This is literally the needle. Also, their pro forma gross margin falls nearly 5 bps due to the supply agreement.
- new management team… CEO and CFO just joined last year and it doesn’t look like they have much experience within diabetes care.
That said,
- business has been extremely stable and produces high returns on capital and high margins.
- T2D clearly has tailwinds.
- if their insulin pump is successful, there could be meaningful upside - insulin pump manufacturers trade at over 10x revenue. However, I’m skeptical they can break into the T2D market because it really hasn’t been done all that much due to how complex the therapy is. I’m type 1 and wear a pump, and it’s definitely helpful but also more work than simply pen needles and type 2 is usually manageable enough to not need a pump, which is why I believe it hasn’t happened yet.
- this could sell off due to indiscriminate selling pressure. Catalyst from the dividend.
Also their bonds are rated junk - just something to be aware of.
I'm currently looking at Becton Dickinson's (BD) spinoff of its Diabetes Care unit, named 'Embecta'. It'll take place on April 1st. The distribution ratio i.e., how many shares BD shareholders will get in the new company, is still unclear. But there are some promising signs. First, management is launching a presentation of Embecta tomorrow, implying that they could end up having a substantial equity stake in the new firm (aligning their interests with ours). About 60% of the CEO's 2021 total comp came in the form of equity awards. Second, the business appears attractive. Embecta generated $1.2 billion in 2021 sales and $415 million in net income (an excellent 36% NI margin, with EBIT margin at 39%). Half of sales were ex-U.S. Most people who treat their diabetes with medication use injection therapy, and Embecta is the leading provider of injection devices. So, these are the reasons that I'm keeping tabs on the firm. I think there will be more info when the presentation comes online tomorrow. For now, read the prospectus here: https://investors.bd.com/static-files/9208a877-eff6-4426-89ae-c6c4e1faab35
From Eddie via email:
Hi Johan,
I’m also looking at the BDX spin-off. Some things I don’t like are as follows:
- they continuously mention price pressures from competitors within their form 10. There is also no mention that they’re the cost leader, even though they’re the largest producer in the industry, which I thought was weird.
- looks like they’re losing market share based on growth in number of T2Ds and their own growth.
- the supply agreement for BDX to supply cannulas, a mission critical component to the pen needle, is odd. This is literally the needle. Also, their pro forma gross margin falls nearly 5 bps due to the supply agreement.
- new management team… CEO and CFO just joined last year and it doesn’t look like they have much experience within diabetes care.
That said,
- business has been extremely stable and produces high returns on capital and high margins.
- T2D clearly has tailwinds.
- if their insulin pump is successful, there could be meaningful upside - insulin pump manufacturers trade at over 10x revenue. However, I’m skeptical they can break into the T2D market because it really hasn’t been done all that much due to how complex the therapy is. I’m type 1 and wear a pump, and it’s definitely helpful but also more work than simply pen needles and type 2 is usually manageable enough to not need a pump, which is why I believe it hasn’t happened yet.
- this could sell off due to indiscriminate selling pressure. Catalyst from the dividend.
Also their bonds are rated junk - just something to be aware of.
Enjoy your Sunday.
Eddie