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M&A Deals in MDx/Omics Research Tools Space Up 13 Percent in 2019

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NEW YORK – The number of mergers and acquisitions in the molecular diagnostics and omics life science tools space rose 13 percent in 2019, continuing the 12 percent climb from the previous year and putting the 4 percent decline the industry saw in 2017 firmly in the rear-view mirror.

According to an analysis by GenomeWeb, there were 62 deals completed in the MDx/omics tools space in 2019 compared to 55 deals in 2018.

Overall, however, despite the increase in the number of deals, the sector seemed to follow a major trend in 2019 that continued a pattern from 2018: more deals were completed, but the value of those deals seemed to be smaller than that of the deals completed in the previous year. Last year saw the completion of only three billion-dollar deals — one less than in 2018 — including Exact Sciences' $2.8 billion acquisition of Genomic Health.

Instead, it seemed some firms preferred to take their chances with initial public offerings last year. Indeed, Jonathan Norris, managing director of the healthcare practice at Silicon Valley Bank, told GenomeWeb that while the only two major companies to have an IPO in 2018 were Twist Biosciences and Guardant Health, nine big companies in the omics tools and diagnostics space had IPOs in 2019.

On the private M&A side, according to Norris, there were only six deals in 2019, down from 10 in 2018. Of those six deals, he estimated that five involved tools companies acquiring other tools companies. Further, the dollar amounts of the deals on the private side were very small, he added. The median upfront deal value in 2019 was $68 million and the median total deal value was $83 million.

"These are really small deals when you think about the market caps of the companies that went out and went public that are all in the $300 million up to the $7 billion range," Norris said. "So really, when you think about how these companies achieve value back to investors, at this point, it's accessing the public market."

Indeed, Norris noted that there were some very compelling IPO deals in 2019, especially because IPOs in the omics space tend to involve companies that are already generating revenue, unlike IPOs in the biopharma space, which tend to involve very early-stage companies. He specifically pointed to 10x Genomics and Adaptive Biotechnologies as companies that had strong IPOs, and also did well in subsequent trading.

"Adaptive had a huge pop in their first day. They've sort of come down a little bit, but they're still ahead of their IPO price," Norris said. "And 10x just had a fantastic run so far in the public market and they're up 100 percent from their IPO price."

Tuck-ins and IPOs (redux)

This may sound familiar, but 2019 was once again a year of small tuck-in deals, alongside the IPOs. The difference this time was that the usual suspects weren't making any purchases. Agilent — which made seven deals in 2018 — laid relatively low in 2019 and made only one purchase, although it was one of only three billion-dollar deals in 2019. The company purchased BioTek Instruments in July for $1.17 billion.

The busiest acquirers were PerkinElmer, OraSure, Precision for Medicine, and Invitae, which had three acquisitions apiece in 2019. PerkinElmer's deals included the acquisition of Cisbio Bioassays for $219.8 million; Chinese food safety testing company Meizheng Group for $152 million; and point-of-care in vitro diagnostic solutions developer Biosense Technologies. OraSure started the year with twin acquisitions of CoreBiome and Novosanis, and ended it with the purchase of Diversigen. Precision for Medicine purchased artificial intelligence technology developer SimplicityBio, and biospecimen providers ProMedDx and GLAS. And Invitae spent modestly in 2019, forking out a total of $170 million for three companies — Singular Bio, Jungla, and Clear Genetics — that could help it add to its capabilities in variant interpretation and grow its footprint in prenatal genetic testing.

Thermo Fisher Scientific was the only major omics tools company that made more than one notable acquisition in 2019 — the firm made the year's third billion-dollar deal in March by acquiring contract development and manufacturing organization Brammer Bio for $1.7 billion.

Meanwhile, 10x Genomics went public in September, raising more than $350 million — cash that the company apparently didn't really need. "This is not, strictly speaking, a financing round in the sense that we needed cash to keep going," 10x CEO and Cofounder Serge Saxonov told GenomeWeb in the Nasdaq offices, following the close of the market.

The firm's market cap has already risen to nearly $9 billion.

Adaptive went public at the end of June, raising $321 million in net proceeds. Its market cap has risen to almost $3.4 billion.

Norris said these trends will likely continue in 2020.

"The companies that are looking to acquire [other firms] are really sort of your old school established R&D tools companies and they are looking to add things that are profitable to their bottom line," he said. "[These companies are saying,] 'Prove that what you have is interesting by getting approval and ramping the revenue and getting all the reimbursement things done. And then when it's additive to our bottom line, we'll buy you.'"

Because of this, newer firms have to go further that they used to in order to get to a point where they prove their value, in order to make bigger companies want to add them as an acquisition, he added. This dynamic hasn't been ideal for investors, because what it means is that they have to continue to raise money in commercialization equity rounds to try and push smaller companies to the point of profitability.

At the point where a new company has proven that its product works, that it has a revenue stream, that it can get reimbursement, and that it has value to the market and its investors, it may decide that it can get more by launching an IPO rather than by trying to get acquired, Norris explained. Therefore, the forces at work in the omics tools sector — the very concept of older companies demanding such a high level proof-of-value from possible acquisition targets before taking a chance on buying them — is what's causing this dynamic of fewer, or smaller value, M&A deals and a greater number of IPOs.

2019 Failure and 2020 Speculation

Illumina's failure to complete its proposed $1.2 billion acquisition of Pacific Biosciences also made headlines in 2019.

In 2018, Canaccord Genuity analyst Mark Massaro warned that the deal may not go through because of objections from global regulators. Indeed, his warnings were prescient — the regulatory pressures that ultimately collapsed the deal came from both the UK Competition and Markets Authority and the US Federal Trade Commission.  

Per their agreement, Illumina will pay PacBio a termination fee of $98 million; Illumina will also make continuation payments totaling $34 million over the next three months.

The issues left Illumina deal-less all year. Massaro had said at the time that having the deal fall through would leave the company "sitting on a bundle of cash," and there has been speculation that it will try for another advantageous acquisition in 2020.

Norris noted that there are several small companies that currently fill their own niche in the omics tools sector that are raising attractive amounts of money in funding rounds, and that could go public in 2020, including genomic engineering company Inscripta, and synthetic biology companies Berkeley Lights and Ginkgo Bioworks, which struck a $150 million collaboration deal in October.

"It'll be really interesting to see who else is going to either transact or enter the public market in 2020," Norris said. "We'll see whether the public M&A market rewards these companies with acquisitions that are higher than where they're valued right now. Or maybe the private market will get ahead of where they should be."

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