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Sharp Uptick in M&A in Omics Life Science Tools/MDx Space Seen in First Half of 2015

NEW YORK (GenomeWeb) – Mergers and acquisitions in the omics life science tools and molecular diagnostics industries have begun to percolate again as the number of deals in the first half of the year increased 56 percent year over year, signaling a potential turnaround after a long dry spell. 

Through June 26, 25 M&A deals have been announced, up from 16 transactions in H1 2014. Sequentially, M&A activity in the first half of this year was up 32 percent from the 19 deals in the second half of 2014, and if the trend holds up through the remainder of the year, the total number of transactions for 2015 would easily outpace the 36 acquisitions in 2014.

The numbers include those transactions in which an entire company was acquired, but does not include the purchases of assets or divisions only. It also does not include Merck KGaA's proposed $17 billion purchase of Sigma-Aldrich, which was announced in September and is anticipated to be completed in the middle of this year. That deal is included among the transactions for the second half of 2014.

While the majority of the acquisitions this year were tuck-in deals with modest valuations, a few were notable for their size and the potential implications in the space. 

The largest deal was Danaher's planned $13.8 billion buy of Pall. After the completion of the acquisition, Danaher will split into two publicly traded firms with one firm comprising Danaher's existing Life Sciences & Diagnostics and Dental segments; water quality and product identification platforms; and Pall. The other firm will comprise Danaher's Test & Measurement instruments platform, as well as its specialty industrial businesses.

The acquisition also returned Danaher to the life science tools M&A space, after it had largely sat on the sidelines following its $6.8 billion buy of Beckman Coulter in 2011.

Thermo Fisher Scientific was reportedly interested in buying Pall, even as it continues to integrate the $13.6 billion Life Technologies deal from last year into its operations, and this week it reached an agreement to buy Alfa Aesar for $403 million.

Other notable deals this year include Opko Health's buy of Bio-Reference Laboratories for $1.47 billion and FujiFilm's acquisition of Cellular Dynamics for $307 million.

While there is no one driver for the uptick in deals, one contributing factor may be legislative efforts to increase federal funding for scientific research. For several years, stagnant National Institutes of Health funding has been cited as a drag on M&A activity, as the academic market is a major revenue driver for companies in the omics life science/MDx space. With weaker researcher-based revenues, some potential acquisition targets have less appeal. 

For FY 2016, though, both the US House of Representatives and the Senate have introduced bills that would bump up the NIH budget. Similarly, President Obama's budget request for FY 2016, which starts in October, would increase NIH funding.

Also, developments that might have been brewing out of sight may now be bearing fruit on the M&A front. In December, Mohr Davidow Ventures Managing Partner Bill Ericson told GenomeWeb that in spite of the low number of M&A deals in the life science omics tools/MDx space, "there's a lot more activity under the surface than the public M&A … would indicate … and we just think there [are] huge applications for the first time across the board of these genetic technologies in real clinical practice." He added that as the uptake of MDx/omics tools ramps us, M&A activity around such firms would increase. 

In the H1 2015, his prediction appeared to come true as a considerable number of transactions focused on building up the clinical diagnostic capabilities of the acquiring firms. Roche, for example, continued to add to its diagnostics business — following the purchases of Iquum and Ariosa Diagnostics in 2014 — by acquiring German translational oncology and genomics firm Signature Diagnostics in February and next-generation sequencing-based circulating tumor DNA analysis firm CAPP Medical in April.

And in a deal that significantly consolidated the immunosequencing space, Adaptive Biotechnologies acquired Sequenta.

Moving forward, companies with clinical applications of omics technologies and with mature revenue streams continue to be possible M&A targets. Firms operating in the next-generation sequencing space, as well as bioinformatics firms developing technologies to analyze and interpret omics data, also remain acquisition targets. 

Additionally, industry observers have also speculated that as a result of the split of Agilent Technologies into two firms last year, including the current life science-focused Agilent, it could be eyed by prospective buyers.

However, the perception of an Agilent competitor that had been viewed as a possible acquisition target may have changed this week. On Thursday Waters announced that Christopher O'Connell will become its President and CEO in September, replacing Douglas Berthiaume. Since Berthiaume announced he would be stepping down from those roles nearly two years ago, there has been chatter that the company could be acquired. 

According to some Wall Street analysts, though, the chances of that happening now are slimmer. "Prior to today's news, conversations with investors suggested many thought a sale of the company might be a possibility," Goldman Sachs analyst Isaac Ro said in a research note. "We believe this news may turn discussion away from M&A for the time being."