NEW YORK (GenomeWeb) – The number of mergers and acquisitions in the molecular diagnostics and omics life science tools space dipped in 2017, breaking a two-year growth spurt.
According to an analysis by GenomeWeb, there were 49 deals completed in the MDx/omics tools space in 2017 compared to 51 deals in 2016. The 4 percent decline in 2017 followed a 6 percent increase in the number of deals in 2016 and a 33 percent increase in 2015, and reverted back to a more familiar pattern from the three years before that — 2012 to 2014 — which had each seen declines in M&A over the previous year.
The first half of this year saw the completion of 29 deals, compared to 35 deals completed in H1 2016. However, 20 deals were completed in the second half of 2017, surpassing the 16 deals completed in H2 2016.
Jonathan Norris, managing director of sales origination at Silicon Valley Bank (SVB), told GenomeWeb that he observed a similar trend in 2017. "We're really focused on the venture-backed healthcare world, and what we've seen is a lack of any substantial tools or diagnostic venture-backed M&A at all this year," he said. "It was a little surprising for us, but we haven't seen much activity there at all, which really flies in the face of the substantial amount of investment that we've seen in this sector."
Overall, the sector saw the completion of several billion-dollar deals, including Abbott's often-contentious acquisition of Alere, which took 20 months to complete from the time it was first announced. And Thermo Fisher Scientific continued the buying streak it started in 2016, but it wasn't the only company on a shopping spree this year. Invitae was another notable acquirer in 2017, making four purchases, including two — Good Start Genetics and CombiMatrix — that it announced the same day.
Four of the top five deals this year were worth $1 billion or more, starting with Thermo Fisher's acquisition of contract development and manufacturing organization Patheon for $7.2 billion. In a note to investors, Wells Fargo analyst Tim Evans wrote that although there wasn't a direct overlap between Patheon and Thermo Fisher's current operations, the firm's bioproduction unit already supplies drug firms, and that both companies "embrace a one-stop shop mentality, giving the deal some cultural logic. … the pharma end market has been [Thermo Fisher's] best growing end market for five years running, so it makes sense the company would want to invest more aggressively in that end market."
Also topping the charts this year was Abbott's Alere buy for $5.8 billion. The deal was first announced in February 2016, but was delayed several times by sales and accounting issues at Alere, and then subsequent lawsuits as Abbott tried to back away from the deal and Alere tried to force Abbott to close on the agreement.
Canaccord Genuity analyst Mark Massaro told GenomeWeb last year that Abbott would likely be forced to complete the deal, but also noted that although Abbott is usually a reliable acquirer, the Alere drama would likely put the larger company in a "one-year purgatory period" with other firms shying away from it.
"Abbott has their hands full, and there's not a long line of companies that want to sell to Abbott after this brouhaha. 2017 is going to be a tough year for Abbott to go out and acquire things," Massaro predicted at the time. He also said he believed the company would be back in top buying shape in 2018.
Evercore ISI analyst Ross Muken wrote in a research note that for PerkinElmer, the Euroimmun deal marked a well foreshadowed departure "from prior small tuck-in acquisitions and furthers management's push into accelerating PKI's growth rate and transforming the business into a Dx leader." He said that Euroimmun also brought unique capabilities in emerging markets, notably China, and broadened PerkinElmer's specialty diagnostics portfolio, especially in immunology and allergy.
Konica Minolta's acquisition of Ambry signaled its intention to move into the precision medicine space. At the time, Kiyotaka Fujii, president of Konica Minolta's global healthcare business, said the deal gave the company a vehicle for commercializing its high-sensitivity tissue testing immunostaining technology as a tool for both pharmaceutical trial work and clinical pathology. Additionally, Fujii said it would make Konica Minolta a major player in Japan's genetic testing market.
Notably absent or subdued this year, however, were some major buyers that analysts had expected to see. Both Canaccord's Massaro and Janney analyst Paul Knight told GenomeWeb last year that they expected to see Roche making some deals in the MDx/omics tools space this year, but the firm was quiet this year — it had gone on a bit of a buying spree the previous two years, acquiring CAPP Medical, Signature Diagnostics, Ariosa Diagnostics, and Genia.
Illumina and Myriad Genetics were also missing in action on the M&A front in 2017. Qiagen only popped up in January to acquire bioinformatics firm OmicSoft for an undisclosed amount of cash. Danaher and Siemens Healthineers made one deal each for IDBS and Fast Track Diagnostics, respectively, for undisclosed amounts. And Bio-Rad Laboratories agreed to acquire rival droplet-based PCR systems manufacturer RainDance Technologies.
And one of the major deals that was expected to be completed this year ended up falling through instead. In April, German molecular diagnostics firm Epigenomics announced that it had agreed to a public takeover offer from Blitz F16-83, a subsidiary of Chinese private equity firm Cathay Fortune International. Epigenomics shareholders were offered €7.52 ($8.19) in cash for each ordinary share of the company for a total proposed value of about €171 million.
But the deal was cancelled in July after it failed to achieve the required minimum acceptance threshold by Epigenomics' shareholders.
In twos and threes and fours
Several companies made multiple deals this year, including Bruker — which announced the purchases of Scils and InVivo Biotech — on the same day. Sygnis acquired CBS Scientific for $900,000 and Innova for $12.2 million, and Eurofins bought Hygel, GATC Biotech, and Genoma. And in addition to its purchase of Euroimmun, PerkinElmer also acquired Tulip Diagnostics Private, a provider of in vitro diagnostic reagents, kits, and instruments to diagnostic labs, and government and private healthcare facilities in India.
Invitae began the year by acquiring privately owned data company AltaVoice. Invitae purchased all of AltaVoice's stock in exchange for $5 million in Invitae common stock and up to an additional $10 million in Invitae common stock if certain future milestones are met. The firm then acquired health software developer Ommdom and its genomic management tool CancerGene Connect for $6 million in Invitae common stock, before making a splash with its twin purchases of Good Start and CombiMatrix.
At its closing, the CombiMatrix deal had a total enterprise value of about $34.9 million. Invitae also said it would finance the Good Start deal by issuing up to 1.65 million shares of its common stock, using $18.3 million in cash for elimination of the company's outstanding secured debt, and paying or assuming $6 million of Good Start's pre-closing and closing-related liabilities and obligations.
But this is likely only the beginning of Invitae's shopping trip. The company also announced it had agreed to sell $73.5 million of its stock in a private placement, the proceeds from which would be put toward growing the company's menu of tests in new markets through acquisitions. Invitae CEO Sean George told investors and analysts during a call to discuss the company's latest acquisitions that the company is at a point where "it's wise to consider acquisitions that can positively contribute to cash flow within a two-to-three-quarter period of time."
In an interview with GenomeWeb in August, George also acknowledged that diagnostics is a challenging business that has caused some companies to put themselves on the market.
"This will move from a 100-plus player game on the supply side for genomic information to be two, maybe four [players] in a three-to-five-year time period," he said. "We're certainly not committing to a certain number [of acquisitions] per year. But I think it would not be surprising at all if M&A was a steady fixture in our efforts to achieve our mission."
As for Thermo Fisher, in addition to the $7.2 billion it spent on Patheon, it also bought Core Informatics and Finesse Solutions for a combined $314 million, and then acquired Linkage Biosciences for an undisclosed amount.
Year of the tech giants?
Although SVB's Norris didn't see much venture-backed M&A activity this year, he did see a lot of investment by biopharma and tools and diagnostics companies. He pointed in particular to the enormous investments made this year in Grail (which raised $900 million in March from Johnson and Johnson Innovation, Amazon, Bristol-Myers Squibb, Celgene, McKesson Ventures, Merck, and others) and Guardant Health (which raised about $500 million).
"Liquid biopsy is getting a lot of capital investment, next-generation sequencing technologies are getting a lot of capital investment — those two areas are where we see the bulk of capital investment," Norris said.
However, SVB's analyses this year have also picked up on a new trend, he added. Tech companies like Amazon, Alphabet, and Microsoft are also investing in the diagnostics and life science tools sector, largely because of new advancements in artificial intelligence and machine learning technologies.
"We look at where the exit activity has been in tools and diagnostics from the venture-backed perspective over time, and it's really been in R&D tools, but with the technology advancements that are available now, and being able to leverage artificial intelligence and machine learning into finding better ways to sift through and leverage and work with big data, I think we do see a lot of upside in this area, and that's driven a ton of investment, way more than we've seen in historical perspective," Norris said. "The question is will and when will that transition into exits in the sector, which we haven't seen very much of."
For 2018, he added, the players that have been acquisitive in the past such as Illumina and Roche will likely continue to be acquisitive. "But I'm waiting to see if any of these tech firms jump into the fray," he said. "You see a lot of interaction with groups like Amazon, especially with their ability to provide cloud capacity and interact with a lot of the companies that are developing new technologies on that side. We'll see whether there's a play for them to make or not, but I'm interested to see if there's a tech company that will jump in not just as an investor but as an acquirer for some of these really unique technologies that could form a backbone of a presence for those [firms]."