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M&A Activity in Omics Life Science Tools/MDx Space Up 23 Percent in First Half of 2016

NEW YORK (GenomeWeb) – Mergers and acquisitions in the omics life science tools and molecular diagnostics industries continued apace in the first half of 2016, ticking up 23 percent from H1 2015.

According to an analysis by GenomeWeb, the first six months of the year saw the announcement of 36 deals, up from 30 deals in H1 2015, the same amount of deals as those that took place in the entirety of 2014.

"In general, we've had a couple of years of depressed M&A activity, so it's not a huge surprise, especially considering cheap debt, that you would start to see some additional activity in M&A," William Quirk, a senior research analyst at Piper Jaffray, told GenomeWeb. "Additionally, at least on the diagnostic side of the world, a couple of events with PAMA being finalized and expectations that you're going to get some sort of movement from the [US Food and Drug Administration] on their lab-developed tests final rule, once you get these macro factors out of the way, it does reduce some of the uncertainty that may encourage acquirers to sit on the sidelines."

There has also been some dramatic tension marking two of the year's four biggest deals so far — Abbott's pending acquisition of Alere and Thermo Fisher's recently completed acquisition of Affymetrix.

Abbott made its offer for Alere in February, but uncertainty emerged almost immediately as Alere delayed filing its 10-K report with the US Securities and Exchange Commission. Alere also received a grand jury subpoena from the US Department of Justice over sales practices and dealings in Africa, Asia, and Latin America, leading Abbott to request termination of the acquisition and to offer to pay Alere between $30 million and $50 million to cancel the transaction — but Alere refused.

Wall Street analysts have also suggested Alere may be unwilling to give Abbott full access to audit its books until its restatement of revenue is complete, though Alere has said it is complying with all the terms of the merger agreement in letting Abbott go through some of its financial information.

Abbott's acquisition of medical equipment maker St. Jude Medical for $25 billion in April played a role in the speculation, as Abbott CEO Miles White declined to affirm the company's commitment to completing the proposed acquisition with Alere, and some analysts speculated the deal signaled Abbott's declining interest in Alere. As of now, the deal is still on.

Thermo Fisher's acquisition of Affymetrix was not without its own challenge, as Affy received a competing bid by a new company formed by formed Affy executives called Origin Technologies. After its first bid was rejected, Origin followed with a second, higher offer, which Affy seemed to consider for a short time before ultimately rejecting it. Origin then withdrew, and Thermo Fisher completed the deal in March.

However, the fireworks may be continuing as a class action lawsuit was filed in the United States District Court for the Northern District of California on behalf of Affy's shareholders in connection with the sale. That suit is pending.

Meanwhile, Qiagen's acquisition of Exiqon wasn't without its own hiccups. Qiagen first offered to purchase the Danish life science research tool and molecular diagnostics firm in March, but was forced to amend the terms of the deal three times in order to meet the shareholder acceptance threshold. In May, Exiqon was even forced to tell reticent shareholders that failure to close the deal would pose risks to its short-term profitability and would necessitate an increased investment in its life sciences operations at the expense of its diagnostics segment. The deal eventually closed in June.

As far as Thermo Fisher is concerned, its two major deals so far could indicate that it is ready once again to be a major M&A player in the sector. In December 2015, William Blair analyst Amanda Murphy told GenomeWeb that she believed 2016 could see some "transformative" M&A action, and she speculated that Thermo Fisher could come back as a major buyer.

"With Thermo buying Life [Technologies in 2013], that took a major buyer out of the market," she said at the time. "I would suspect now that they've digested that acquisition they'll be back on the market again in 2016, so I think it's fair to say they may look to do something next year that may be more transformative."

The company dipped a toe in the water with its 2015 acquisitions of Alfa Aesar and Advanced Scientifics totaling $703 million. Its acquisitions so far this year — for Affymetrix and electron microscopy firm FEI — total $5.5 billion.

For the second half of the year, Piper Jaffray's Quirk said he believes there may be more acquisitions of private or public specialty clinical laboratories.

"We would consider the FDA as well as PAMA to have been an overhang [on such acquisitions], so it certainly wouldn't surprise us if we start to see some more activity within the specialty labs space," he told GenomeWeb. "There hasn't been a lot in recent years, obviously outside of things like Illumina buying Verinata, Roche buying Ariosa, and a handful of additional deals."

In fact, Quirk added, most of the M&A activity in recent years has focused on the manufacturing side of the life sciences sector, rather than the services side. He believes lab acquisitions deals are "overdue," adding, "You had these two macro factors which clearly [the industry] needed to get through, in our opinion, to help reduce some of the uncertainty for the would-be acquirer."

There also may be some opportunity for companies looking to make international deals. Rather than driving companies away from Europe and UK over uncertainties following the Brexit vote, Quirk added that companies headquartered in the UK "are a lot cheaper now given the pound's precipitous fall." However, he said such deals would certainly require much more additional due diligence on the part of acquirers.