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Dexcom (NASDAQ:DXCM) is in talks to buy out diabetes device maker Insulet Corp (NASDAQ:PODD), according to Bloomberg.
The two companies are currently negotiating the deal and an agreement could be reached over the following weeks. However, there are no guarantees that the deal will be closed, the report said.
As of Monday’s close, Insulet and Dexcom had market valuations of $14.1 billion and $31.8 billion, respectively.
The negotiations between Dexcom and Insulet come in the midst of a significant slowdown in dealmaking in the healthcare sector, after years of thriving as insurance and pharmaceutical companies, as well as medical device makers, teamed up to diversify their offerings and scale.
Healthcare companies have participated in $103 billion worth of deals in 2022, down 45% year-over-year, as a result of high market volatility and increasing uncertainty due to macroeconomic factors.
If closed, the deal would create a medical device giant in the industry.
Dexcom and Insulet already have a partnership through which Insulet’s delivery system integrates into Dexcom’s glucose monitor, allowing the insulin to be automatically dispensed into patients’ bodies.
The deal would provide Dexcom with a closed-loop system through which it could offer diabetes patients both diagnosis and treatment services.
Stifel analyst Mathew Blackman believes the market “is likely going to need time to digest the longer-term value creation potential of this “rumored” combination and is more likely to focus, near-term, on the specter of a meaningful equity and/or debt raise needed to fund this deal.”
The analyst adds that the timing is “odd” amid the just-announced CEO departure. Blackman also offered his thoughts on the valuation.
“From a purely business model standpoint, PODD’s recurring revenue model matches well with DXCM’s business model and both have similar GM profiles (68.6%/ PODD: 68.4% in 2021). Still, even at the current depressed PODD $14B valuation, DXCM would have to raise a significant amount of capital ($2.7B of cash on the DXCM balance sheet) in a highly uncertain capital market backdrop,” the analyst said in a client note.
The Bloomberg report sent Insulent shares up 10% in pre-market trading Tuesday. Dexcom shares are down over 7% on the other hand.
