Embecta, a company known for manufacturing insulin syringes and pen needles, is reportedly exploring the possibility of a sale, according to a late report by the Financial Times. Established in Parsippany, New Jersey, Embecta was a division of BD until it became an independent entity in 2022. The company is also in the process of developing an insulin patch-pump specifically designed for Type 2 diabetes patients. This move to explore a sale comes as Embecta is finalizing its separation from BD and adjusting to operating independently with its systems.
The Financial Times notes that Embecta has engaged the services of Centerview Partners, an investment banking firm, to assist in potentially selling the company. This consideration follows what has been described as a “lackluster share price performance” ever since the spinoff from BD. Embecta’s market cap was reported at $878.9 million as of a recent Monday, and its shares have declined significantly, falling over 60% since its initial public offering.
Despite this downturn, industry experts aren’t particularly stunned by the news, with Marie Thibault, a financial analyst at BTIG, expressing non-surprise over the potential sale consideration while also highlighting that there’s no confirmation on the report. This perspective on the potential sale arises amidst various challenges faced by Embecta, including stagnant sales growth and a noticeable decline in net income. Specifically, the company reported flat sales growth in the last year, with revenues reaching $1.12 billion for the fiscal year ending in September 2023, and a noticeable decline in net income, which fell by 69% to $70.4 million as compared to fiscal 2022.
Despite the financial struggles, Embecta made a significant stride forward by submitting a patch-pump designed for Type 2 diabetes to the Food and Drug Administration (FDA) for clearance in January. This move indicates the company’s ongoing efforts to innovate and expand its product offerings in the competitive diabetes care market.
From an investment viewpoint, Thibault notes that Embecta’s current trading status is “well below its peers on any valuation measure.” This undervaluation could be tied to the market’s uncertainty surrounding Embecta’s entry into the patch pump market, its stagnant sales growth, and potential risks associated with long-acting insulin and GLP-1s. However, the company also showcases several positive elements such as its consistent ability to outperform quarterly expectations, relatively healthy operating margins compared to many MedTech peers, market leadership, global presence, dividends, and the advanced stages of its separation process from BD.
The situation bears resemblance to a comparable transaction where Baxter sold its injectables spinoff, Simtra Biopharma Solutions, to private equity firms Warburg Pincus and Advent International for $4.25 billion the previous year. This could hint at a potential attractive outcome for Embecta if the sale proceeds, considering the interest of private equity in similar companies.
In sum, while Embecta is facing impacts from its recent independence and challenging market conditions which have dampened its financial performance and valuation, the company’s moves towards innovative solutions like the insulin patch-pump and its underlying strengths may make it a compelling target for acquisition, particularly among private equity circles looking for valuable buyouts in the healthcare sector.
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