Recognizing Their Value? Diagnostic Acquisitions | Diaceutics

Recognizing Their Value? Diagnostic Acquisitions

July 18th, 2012

Tiffany Olson, BSc MBA

In an assessment of the acquisitions taking place in molecular diagnostics during 2012, Tiffany Olson confirms that diagnostics will continue to play an important role in the future of health care. One of the common threads is that each of the acquired companies participates in companion diagnostics and works directly with pharma when targeted therapies require a diagnostic. Although the CDx industry is still very young, the future potential has clearly been understood by Novartis, Roche and other pharma giants. 

This year is another exciting year in diagnostics with acquisition movement heavy in the first half of 2012. You might remember last year’s big buy from Danaher with the purchase of Beckman Coulter. This was the largest transaction in Danaher’s history and established it as a leading diagnostic and life science company. Also leading last year’s big announcements was Novartis’s purchase of Genoptix Medical Laboratory, a CLIA laboratory providing a direct testing channel to oncologists. And third on the list of 2011 acquisitions was Quest which acquired Athena Diagnostics, putting them in the number one position in neurology testing.

The most notable 2012 acquisitions have included the surprise buy of Gen-Probe by Hologic for $3.7 billion, allowing Hologic to become a meaningful player in molecular diagnostics. Before the acquisition it had acquired two smaller diagnostic companies, Third Wave Technologies and Cytyc Corporation.  Their focus has been on women’s health and now will have a more robust offering with Gen-Probe’s sexually transmitted disease (STD) franchise.[1] The cost synergies of over 75 million dollars should be met as they integrate the organizations and gain efficiencies in operations and sales.

Price Waterhouse Coopers has estimated molecular diagnostic growth at 11 per cent CAGR through 2014 and tissue diagnostic growth at 9 per cent CGAR during the same time frame[2]. Clearly this is where investors are looking for a good return and one of the reasons that Hologic stated for the transaction, “Hologic will operate a diagnostics franchise with the growth potential similar to our breast health franchise.” It will be interesting to watch how the traditional commercialization and sales force for Hologic products of imaging and surgical integrate (or not) with diagnostics at the doctors’ offices.

Earlier this year, there was much noise around Next Generation Sequencing (NGS). Life Technologies had a big splash at the JP Morgan Conference with the Ion Torrent System that was available for viewing on their mobile bus that circled the convention. Roche Diagnostics was also bullish on NGS and recently tried to acquire Illumina. After upping the price to a staggering $6.8 billion the offer was turned down by Illumina shareholders who said, “ … the current bid…does not provide meaningful compensation for the potentially enormous long-term opportunity shareholders would forego by selling at this point.”[3]

Roche Diagnostics was interested in becoming the largest player in NGS, even though there is not a clear FDA path, as the tremendous benefit in drug research and information that can be gathered provides synergies for the Roche Group, both pharma and diagnostics. Roche indicated it will pursue smaller takeovers in the future and invest more in its current NGS products.[4]

The immunohistochemistry (IHC) market was the target of Agilent’s acquisition of Dako for $2.2 billion. With the ability to now provide companion diagnostics and the fast growth of tissue diagnostics, Dako was a very attractive target.

One of the common threads in these acquisitions is that all three of the acquired companies participate in companion diagnostics (CDx) and work directly with pharma when targeted therapies require a diagnostic. Although the CDx industry is still very young, the future potential is well understood by Novartis, Roche and other pharma giants.

What to expect for the rest of the year? 

With these large deals in the first half of the year we should expect to see smaller acquisitions in the $20-$100 million dollar range for the rest of the year. This would be in line with the past history of deals in the diagnostics industry. The acquisitions for the rest of the year will most likely come from current diagnostic players as opposed to outside of the industry (pharma, nutrition) or large conglomerates (Danaher). However, whatever happens in the last half of 2012, the confirmation that diagnostics will continue to play an important role in the future of health care, with good growth expectations in tissue and molecular diagnostics along with participating in the evolving CDx, is reinforced with each deal.

 


[1] Hologic to acquire Gen-Probe, company press release, April 30, 2012.

[2] PwC 2011 EPEMED meeting presentation

[3] Illumina’s Board of Directors Sends Fourth Letter to Stockholders, company press release, April 9, 2012.

[4] Reters, Roche has no plans to warm up its play for Illumina, June 10, 2012

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