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SomaLogic, Standard BioTools Likely to Face Scrutiny Over Proposed Merger


NEW YORK – Standard BioTools and SomaLogic announced plans to merge last week, but for the deal to go through, it will have to survive a closer look from investors.

As of Oct. 11, shares of Standard BioTools were down 35 percent since the opening of the market on Oct. 4, when the plan was announced. Shares of SomaLogic have tracked along with them, due to the all-stock nature of the deal, bringing SomaLogic's market capitalization down to $354.7 million, essentially the amount of cash the firm had at the end of the second quarter.

"Based on stock prices, people don't seem to like this deal," said Kyle Mikson, an analyst with Canaccord Genuity who covers SomaLogic. "People knew Standard BioTools was going to buy something and SomaLogic makes a kind of sense, but I'm sure SomaLogic investors wanted a better premium and Standard BioTools investors wanted a more proven asset," he said. The market response could even open the door for another firm to acquire SomaLogic out from under Standard BioTools, he noted, were they to provide a higher offer or one that included cash.

The parties' merger agreement and plan, filed with the US Securities and Exchange Commission, also contains a statement that does not agree with previous announcements. In the SEC filing, the firms wrote that "since Jan. 1, 2021, neither [Standard BioTools] nor its subsidiaries has implemented any material workplace changes such as layoffs, furloughs, permanent office closures, or reductions in compensation, benefits, or hours." However, that's not what company officials told investors in August 2022 after the release of the firm's second quarter financial results, when they announced a phased restructuring that would include a headcount reduction along with a decrease in office space. Standard BioTools CEO Michael Egholm, who will also become CEO of the proposed merged company, told GenomeWeb that the layoffs did happen. "We cut out quite a lot of cost," he said. "Everybody is better off in a sustainable company."

But the company declined to provide numbers on the layoffs and did not respond to questions about the discrepancy between what it said in 2022 and what is stated in the merger agreement.

Whether SomaLogic employees should brace for layoffs once the firms merge remains to be seen. "The combined operating expenses are quite large," Egholm noted. "Clearly, it's not sustainable." The companies said they envisioned $80 million in "synergies" attainable by 2026. "There's a lot of low-hanging fruit in terms of auditors, outside law firms, various consultants" and other costs of being a public company that he suggested would be trimmed first. "We simply don't know yet," he said.

Should the deal go through, it would be a second step toward realizing Egholm and Standard BioTools' vision of creating another consolidator in the life science tools space. "This dream has been in the works for years," he said.

Standard BioTools was formed in early 2022 when Egholm and a team of investors, who provided $250 million, came aboard the company formerly known as Fluidigm, which sold both microfluidics-based PCR and mass cytometry instruments.

Egholm, who was Danaher's chief technology officer from 2017 to 2021 and 454 Life Sciences' chief technology officer from 2004 to 2010, has sought to port over "rigorous operating discipline" and continuous improvement as business strategies. In a conference call with investors following the merger announcement, Egholm said that "the last six quarters have been transformative."

Standard BioTools' revenues for the half-year ended June 30 were up 17 percent year over year. In Q2 of this year, R&D expenses dropped 51 percent year over year to $6.1 million from $12.6 million in Q2 2022 and were approximately 34 percent lower than in Q2 2021. In Q2 2022, Standard BioTools took a $3.5 million impairment charge related to InstruNor, a cytometry sample preparation firm it acquired in February 2020, but also had lower compensation and consulting costs and reduced spending on laboratory supplies. "These reductions were related to our strategic initiatives to reduce headcount and improve operating efficiencies by engaging in lower-cost and more focused R&D projects and activities," Standard BioTools said in its Form 10-Q filed with the SEC on Aug. 8.

The firm's Q2 2023 SG&A expenses dropped 25 percent year over year to $22.6 million from $30.1 million a year ago, driven by decreased salaries, benefits expenses, and stock-based compensation expenses as a result of the restructuring plan.

Egholm said he plans to follow the same playbook he used for Standard BioTools with SomaLogic. However, that firm essentially has one product, its SomaScan assay, which uses aptamers and microarrays to detect more than 7,000 — soon to be 10,000 — proteins.

In January, former SomaLogic CEO Roy Smythe told investors at the JP Morgan Healthcare Conference that he was close to selling or spinning out the firm's clinical diagnostics business. However, he resigned in March, along with several board members.

Egholm said the future of that business is yet to be determined. "While it might not have worked out, the big push into diagnostics, they did actually create extensive clinical validation for the data," he said. That gives the firm "enormous leverage" selling to pharmaceutical and translational-minded customers.

"We're going to benefit from the investment that was made," Egholm said, by pairing SomaScan with Standard BioTools' existing immune profiling technology.

SomaLogic's channels into the biopharma market appear to be a key driver in the deal. According to the firms, about 65 percent of SomaLogic's customers are in biopharma, while 80 percent of Standard BioTools' customers are in academic research.

"We think that paves the path toward lucrative new and expanded relationships for both of us," Jeffrey Black, Standard BioTools' CFO, said on the recent investor call. "These benefits will fuel an expected double-digit revenue growth profile over the next three years, at least."

Mikson suggested there could be mutually beneficial R&D overlap, too. For example, the firm might explore using SomaLogic's DNA-based aptamers in its spatial proteomics technology, rather than buying antibodies from an outside vendor, he said.

Standard BioTools officials said that they plan to continue their partnership with Olink, which also makes a multiplex proteomics assay, where their firm manufactures the Signature Q100 PCR-based instrument for Olink. "We're a very strong partner to them," Egholm said. "I actually don't see Olink and SomaLogic as competitors; I see them as additive solutions." Olink did not respond to a request for comment.

Egholm also plans to continue SomaLogic's existing Illumina partnership, which would move readout for SomaScan onto sequencers, rather than microarrays. In general, the firm will keep the SomaLogic brand.

The merger agreement contains certain termination rights for both SomaLogic and Standard BioTools. Under certain circumstances, Standard BioTools may be required to pay SomaLogic a termination fee of $19.1 million and/or reimburse it up to $2 million in fees. Similarly, SomaLogic could be required to pay Standard BioTools a termination fee of $17.2 million and fees up to $2 million.

The firms noted that shareholders representing 16 percent of Standard BioTools shares and approximately 1 percent of SomaLogic shares have already committed to supporting the transaction.

"Ideally, we'll go into JP Morgan as a combined company," Egholm said, alluding to the JP Morgan Healthcare Conference in January 2024.