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'Omics, MDx M&A Activity Down Slightly in 2012; Rebound May Not Come Until 2014

NEW YORK (GenomeWeb News) – Despite some pickup year over year in the second half of 2012, the number of acquisitions in the 'omics-related life science tools and molecular diagnostics spaces slipped 5 percent this past year compared to 2011.

In total, 55 deals were either completed or announced during the past 12 months, down from 58 deals a year ago as a surge in activity later in the year only partially offset a sluggish first half of 2012.

During the first six months of the year, there were 27 M&A deals, a 29 percent drop-off from 38 a year ago, while the number of transactions in the last half of 2012 rose to 28, representing a 35 percent improvement over 20 acquisitions in the year-ago period.

Aside from a decrease in the total number of deals, 2012 was notable for the paucity of big ticket deals. Just two transactions crossed the $1 billion mark during the year with Hologic's purchase of Gen-Probe for $3.7 billion, the year's largest deal, followed by Agilent Technologies' $2.2 billion acquisition of Dako.

And the biggest M&A story of the year was undoubtedly about a deal that didn't get done, as Roche's $6.7 billion bid to acquire Illumina was rebuffed by the San Diego-based firm and its shareholders.

Overall, though, "it's not been an exciting year," Gary Kurtzman a managing director at private equity and venture capital firm Safeguard Scientifics, told GenomeWeb Daily News recently.

Economic Downturn = Deal Downturn

M&A activity was hurt throughout the year by several factors, foremost worries about an unstable global economy and austerity programs that cut government funding. That, in turn, stopped researchers from making purchases, and with revenue streams disrupted, 'omics-related companies were loath to pull the trigger on deals that wouldn't contribute to near-term revenue generation, even if they had longer-term growth potential.

"Part of the problem in an environment where people are very focused on the top and bottom line — particularly on the bottom line — [is] they need deals to be accretive," Kurtzman said, "and a lot of the earlier [buys] still had some net burn associated with them."

For firms still focused on technology development and not yet at the commercialization stage, the chances of being acquired by a larger company are slim, while many firms with established technologies have been gobbled up already, Ben Perkins, group head of US Life Sciences M&A at Ernst & Young, said.

Potential buyers may be window shopping for new technologies, he told GWDN but unlike a few years ago, there is no longer the impetus for them to jump on deals quickly "because there's no race to get in front of those technologies right now. So they can sit back, let VCs fund them, let other organizations fund them, and then wait for that technology to mature before getting in front of them."

Kurtzman further added that M&A is sluggish because "[m]aybe we're just in an era when there isn't that next new thing."

Even in next-generation sequencing — probably the hottest technology area in 'omics — the focus is on reducing the size of the instruments, but that, he said, is only an "incremental" improvement.

Similarly, the clinical value of new technologies remains too unclear to push along M&A activity. In cancer diagnostics, for example, the push is to identify specific mutations and to develop tools to target them.

"But if there's no treatment for that cancer, what can you do with that information?" Perkins said.

One of the more dynamic opportunities in the 'omics space is in companion diagnostic development, but, Perkins said, "There needs to be more of a bridge between 'Here's the diagnostic,' and 'Here's how it can affect the prescribing pattern or the pattern for the therapeutic.' You really have to have that bridge between the genomic [and] proteomic information and how it affects the patient and which patients it affects."

M&A activity this year also was up against an unfavorable comparison to higher activity levels in prior years, leaving 2012 to be a period of integration.

Thermo Fisher Scientific, for example, dished out nearly $6 billion on just two acquisitions in 2011, Phadia and Dionex, including $3.5 million for Phadia. By comparison, its largest purchase this year was of One Lambda for $925 million.

2011's biggest deal in the 'omics and MDx spaces was Danaher's $6.8 billion purchase of Beckman Coulter. In addition to being a significant increase over 2012's biggest deal — Hologic's buy of Gen-Probe — it was more than 20 times the size of Danaher's largest transaction in the 'omics/MDx spaces during the past year, its purchase of Iris International for $338 million.

During Danaher's third-quarter earnings conference call President and CEO Lawrence Culp further indicated that the company may sit on the life science sidelines in the near term when it comes to M&A. Danaher, he said, "is very keen" to direct the next $1 billion to $3 billion in acquisitions away from its Life Sciences and Diagnostics segment in order to balance out its five business segments.

That's a trend that may prevail in 2013, some said.

"You have seen a lot of acquisitions take place here over the last three, four years," Perkins said. "What makes most sense for me is for some of these players to take a step back, breathe and realign the strategy for the next five years so that they can look at the assets they have and maybe identify some of those assets that would be better off in the hands of other companies or spun out all together."

For an M&A rebound to occur, predictability in healthcare will be required, Safeguard Scientifics' Kurtzman said, and for that to happen Washington will need to make sure sequestration is avoided. Otherwise, the National Institutes of Health faces a cut in its budget of nearly 8 percent when 2013 begins.

But even if the fiscal cliff is avoided, there will be a six- to 12-month lag before researchers begin spending again and 'omics firms feel comfortable enough to pursue deals, Ernst & Young's Perkins said.

2012 in Review

Dominating M&A headlines in 2012 was Illumina, despite being involved in just one transaction, its $95.5 million buy of BlueGnome. The company bookended the year with one deal that could have transformed the sequencing landscape, and another that still could.

Less than a month into 2012, Roche announced a hostile bid for the San Diego-based sequencing firm, a bid that ultimately failed despite Roche increasing its offer eventually to $6.7 billion.

Now, as the year concludes, Illumina is once again in the headlines, though this time in the role as the bidder. In September, Complete Genomics and BGI-Shenzhen inked a $117.6 million deal to make the Mountain View, Calif.-based sequencing services firm a subsidiary of BGI.

Illumina elbowed its way into the picture in November when it made an unsolicited offer for Complete Genomics at 5 percent above BGI's price. Complete Genomics has, so far, repelled Illumina's overtures, calling Illumina's bid inferior and saying an Illumina-Complete Genomics coupling could face regulatory problems.

In the meantime, the US Federal Trade Commission is reviewing the BGI offer, and Complete Genomics said that it anticipates the merger to be completed in the first quarter of 2013.

Illumina has not given up its pursuit, however, as some have raised national security concerns over the BGI-Complete Genomics deal, perhaps opening the door for an Illumina purchase. Such concerns have been refuted by BGI and Complete genomics, yet Illumina has filed with the FTC for clearance of a potential merger with Complete Genomics in case the deal with BGI is not completed.

Meanwhile, its primary sequencing technologies competitor Life Technologies went on a buying spree in the second-half of the year swallowing up Navigenics, Pinpoint Genomics, and Compendia as it builds up its medical sciences business with an eye on expanding its presence in the molecular diagnostics space. It also bought imaging technology firm Advanced Microscopy Group.

Other firms that made multiple buys during the year were Qiagen, which bought four companies, including Intelligent Bio-Systems, whose technology Qiagen will use to develop diagnostic and clinical research tools; and Thermo Fisher which made three acquisitions.

Meanwhile, PerkinElmer launched into the Chinese molecular diagnostics market with its buy of Shanghai Haoyuan for $38 million. It was, however, the Waltham, Mass., firm's only deal in 2012, compared to seven deals in 2011.

Other notable deals in 2012 include Luminex's acquisition of GenturaDx; Affymetrix's drawn out purchase of eBioscience, which almost didn't get done; and Amgen's late-year, $415 million acquisition of Decode Genetics, a company that just a few years ago emerged from Chapter 11 bankruptcy protection.