Genomics, MDx M&A Activity Exploded in 2021 Driven by COVID-19 Testing Tailwinds

This story has been updated to include additional comments from Doug Schenkel.

NEW YORK – Mergers and acquisitions activity in the genomics tools and molecular diagnostics space rose to never-before-seen levels in 2021.

According to an analysis by GenomeWeb, deal volume nearly doubled in 2021 with 101 in total compared to 53 deals in 2020 — a down year — and 62 in 2019.

Those 2021 deals were reported to be worth at least $60.63 billion in total, although the values of many deals were not disclosed. That figure does not include acquisitions by special purpose acquisition companies, vehicles to take a company public without going through the traditional process of an initial public offering.

At least eight transactions were reported to be worth $1 billion or more, led by Thermo Fisher Scientific's $17.40 billion purchase of contract research organization PPD. The other deals of that magnitude included Danaher's $9.60 billion purchase of DNA manufacturer Aldevron; Illumina's consummation of its Grail merger; Quidel's last-minute Christmas shopping for Ortho Clinical Diagnostics; PerkinElmer's reagent stashing with BioLegend; Roche's purchase of GenMark Diagnostics; DiaSorin's Luminex acquisition; and Tecan's play for Paramit. Another eight deals were worth between $500 million and $1 billion.

Two trends were evident: Companies flush with cash from COVID-19 testing made big deals to bolster and even reshape their businesses, and oncology testing, especially liquid biopsy, continues to be a market ripe for picking.

Even as the COVID-19 pandemic rolled into its second calendar year, many genomics tools and molecular diagnostics firms saw their businesses return to near normal. For those that developed SARS-CoV-2 tests, especially PCR and antigen-based assays, and received US Food and Drug Administration Emergency Use Authorization, the extra cash at least provided the flexibility to pursue growth.

M&A activity started off strong, with 55 deals in the first half, more than all of 2020. Activity slowed a touch in the second half, but still saw major deals go through, including Quidel's $6 billion late December buy of Ortho Clinical.

Cash from COVID-19 testing the year before enabled deals throughout 2021. "Many of the larger cap diversified tools companies deployed their large cash 'windfalls' associated with their COVID-19 solutions (diagnostics and vaccine production tools) to evolve their portfolios in ways that have the potential to improve the long-term revenue growth and/or margin outlook for their businesses," Doug Schenkel, CFO at Delfi Diagnostics and a former industry analyst at Cowen, said in an email. Those strategic moves, combined with the "inherent strength" of the life science tools industry, led those larger companies to perform well, he noted.

In March, still working as an analyst, Schenkel made note of the COVID-19 cash as Roche bought GenMark in March for $1.80 billion, though it and other sector titans may have pursued their acquisitions anyway.

Roche also bought TIB MolBiol; Laboratory Corporation of America bought Personal Genome Diagnostics for $575 million; and Thermo Fisher also bought Henogen for $879 million, Mesa Biotech for $550 million, and Phitonex and PharmaFluidics for undisclosed amounts. But other buyers in 2021, such as Italy's DiaSorin, Hologic, and Fulgent Genetics, were enabled by cash from COVID testing.

Like Roche, DiaSorin felt the need to parlay its COVID-19 testing success into multiplex testing, CEO Carlo Rosa told GenomeWeb in April, following its $1.80 billion Luminex deal. JP Morgan analyst Tycho Peterson noted that the deal also helped DiaSorin's position in point-of-care and hospital testing.

Marlborough, Massachusetts-based Hologic also rolled its COVID testing success over into deals for two European diagnostics firms, Mobidiag for $795 million and Diagenode for $159 million, and Biotheranostics, a cancer testing firm, for $230 million.

Quidel's purchase of Ortho Clinical "[took the] guess work out of what to do with [its] 'COVID cash' and meaningfully changed [its] business makeup," Brian Weinstein, a William Blair analyst, wrote in a note to investors last month. "An argument can be made that this larger combined company, with greater access to capital and outside the US scale, could grow faster in Quidel’s core markets down the road than a stand-alone Quidel could have." The deal also provides ways for Ortho to grow in hospital labs, he said.

PerkinElmer's $5.25 billion acquisition of antibody and reagent maker BioLegend, the biggest in the company's history, built on "recent steps to redeploy its COVID cash windfall to bolster its portfolio in higher-growth life science and diagnostics markets," Jefferies analyst Brandon Couillard told investors in July. He called the deal "transformational" while noting that it was the latest in a spree of M&A deals for PE, its seventh since late 2020.

Fulgent Genetics — a California laboratory testing firm that rode the COVID waves to become the top-performing stock in the GenomeWeb Index in 2021, up 93 percent on the year — bucked the trend and instead made smaller deals, ending the third quarter with $214.9 million in cash and $662.4 million in short-term investments. It acquired cancer testing lab CSI Laboratories in August for up to $60 million in cash and acquired a controlling interest in its China joint venture.

The other area of great activity was in cancer testing, especially liquid biopsy. The space was defined by Illumina's decision to pull the trigger on its $8 billion deal to acquire the rest of Grail. Originally announced in 2020 (and featured in last year's version of this article), GenomeWeb is counting it as part of 2021 due to the timing of the close.

Other players spent hundreds of millions of dollars to buy up liquid biopsy companies. In addition to the aforementioned Labcorp deal for PGDx: Agilent spent $695 million for Resolution Bioscience; NeoGenomics spent $390 million for Inivata; and Bio-Techne splashed $320 million for Asuragen.

Notable deals in oncology included Veracyte's $600 million purchase of urologic cancer testing company Decipher Biosciences and Hologic's Biotheranostics acquisition.

Other tools companies made deals that added attractive pieces to spur future growth.

Multiple analysts used the term "crown jewel" to describe Danaher's buy of Aldevron, "a key supplier of mission-critical ingredients for the next generation of therapies" such as cell and gene therapies, mRNA vaccines, and plasmid DNA modalities, Barclays analyst Luke Sergott told investors in June.

Consumer genomics firm 23andMe plunged further into health as it bought telehealth platform LemonAid for $400 million last fall. "By starting with genetics as the foundation, we will give patients and healthcare providers better information about health risks and treatments, opening up the door to prevent as well as better manage disease," CEO Anne Wojcicki said at the time.

And in July, Pacific Biosciences, flush with $900 million from a SoftBank subsidiary, bought short-read sequencing technology firm Omniome for $800 million and high-molecular weight DNA sample prep firm Circulomics.

Looking forward, "the beginning of 2022 feels a lot like the end of 2021," Schenkel said. "I think there is a lot of uncertainty out there about what type of market we are in and how that evolves in what is likely a higher interest rate environment. That said, the core fundamentals driving the group remain intact. "Consolidation is likely to continue," Schenkel said. 

"And that doesn’t even get into all the innovation – in my 20 years in the sector, the pace of new developments has never been more intense between sequencing, proteomics, spatialomics, synthentic biology, and novel liquid biopsy approaches such as cell-free DNA fragmentomics, etc." he said. 

As the pandemic rages into its third year, renewed by the spread of the Omicron variant, COVID-19 testing may still be the major story in 2022.

"There's a desperate need for better, cheaper, faster testing, " said Oded Ben-Joseph, managing director at investment bank Outcome Capital. "There are a couple of ideas that people are working on to get that."

Perhaps, a year from now they'll headline the biggest business deals in the market.