Roche Holding AG (RHHBY) Tuesday said its diagnostics division will acquire Israel-based insulin pump maker Medingo Ltd for a total of up to $200 million, giving the Swiss pharma giant additional clout in the fast-growing diabetes market.

Roche said that as part of the acquisition it will pay shareholders of Medingo--a unit of Israel-based Elron Electronics Ltd (ELRNF)--an upfront payment of $160 million as well as up to $40 million in performance related milestones.

"It's a perfect strategic fit," said Daniel O'Day, Chief Operating Officer of Roche Diagnostics. "We expect synergies in marketing and product portfolio but not so much on the cost side. It will strengthen our position in the diabetes care business."

O'Day didn't exclude more acquisitions but said Roche's focus is to develop its in-house technology. The takeover of Medingo--which has around 70 employees--will give Roche a new micro insulin pump that allows for an easier treatment of diabetes.

The market launch for the novel product is expected in 2012. Andrew Weiss of Bank Vontobel expects the product could add around 300 million Swiss francs ($284 million) in annual sales. Roche's diagnostics unit generates around 30% of its annual turnover of 10.1 billion Swiss francs ($9.54 billion) in the diabetes care market.

Diabetes, besides cardiovascular diseases and cancer, is one of the most widespread conditions, affecting about 280 million people worldwide. The number of people suffering from the chronic illness is expected to grow to over 300 million over the next few years due to old age and obesity, which heighten diabetes risk.

The overall diabetes market generated about $25 billion in revenue last year and is expected to grow at a double-digit rate in the years ahead, analysts say. The market for insulin delivery systems such as pumps, syringes and pens has a size of about $1.6 billion and is expected to grow at an even faster rate.

Roche expects that Medingo's novel insulin pump could grow at an annual rate of about 30% due to the low market penetration of the new product. The general insulin pump market is expected to grow at a rate of about 12%.

-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; goran.mijuk@dowjones.com
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