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LabCorp's Acquisition of Genzyme Genetics Adds to Oncology Molecular Dx Assets

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Originally published Sept. 21.

By Turna Ray

In its second acquisition of a diagnostics developer in just over a year, Laboratory Corporation of America said last week that it would purchase Genzyme's genetic division for $925 million in cash. This latest deal, when combined with the Monogram Biosciences assets that it acquired last year, should help bolster LabCorp's position as a provider of personalized medicine products for cancer.

With its acquisition of Genzyme Genetics — a division that netted revenues of $371 million last year — LabCorp said it hoped to further penetrate the personalized medicine market, particularly in the area of reproductive and oncology tests, segments in which Genzyme's nine labs perform more than 1 million tests annually. The purchase also gives LabCorp access to Genzyme Genetics' national network of board-certified genetic counselors, which is a valuable asset in light of growing concern about the dearth of genetic expertise guiding doctor-patient discussions around medical genetic testing.

LabCorp got its feet wet in the personalized medicine space last year, when it acquired Monogram Biosciences for a tenth of the cost of Genzyme Genetics. The $106 million deal to acquire the California-based molecular diagnostics firm, which closed last August, bolstered LabCorp's oncology portfolio and further enabled the company to enter into drug/diagnostic co-development deals with big pharma (PGx Reporter 06/24/09).

In deciding to buy Genzyme Genetics, LabCorp continues to grow its ability to develop personalized medicine products in oncology and has heightened its profile in the companion diagnostics arena.

At an investor conference in New York this week, Michael Wyzga, Genzyme's chief financial officer, said that the sale of the diagnostics business would be finalized by the end of September, and the transaction would be completed by year end.

Growing Assets

Genzyme has genetic testing capabilities for several companion diagnostics that are already on the market or in development, including testing for ALK gene rearrangements in non-small cell lung cancer; BCR/ABL analysis by real time PCR; FISH testing in multiple myeloma; EGFR amplification and mutation analysis; and KRAS testing in colorectal and other cancers.

Pfizer and Abbott Molecular are working on personalized treatment for the ALK inhibitor crizotinib in NSCLC, and Abbott's FISH test is being used in the clinical development program for the compound (PGx Reporter 06/09/10). As such, tests for gauging ALK rearrangements will be a key area for test development in coming years.

Qiagen subsidiary DxS is among several commercial and academic labs providing EGFR mutation testing for AstraZeneca's NSCLC drug Iressa in the UK, after the National Health Service earlier this year agreed to pay for the drug in patients whose tumors are EGFR mutation positive (PGx Reporter 06/02/10). Although AstraZeneca hasn't announced plans to re-launch Iressa in the US with companion PGx testing, EGFR testing as a target for oncologic personalization is certainly an area of growing research and could be a valuable capability for LabCorp to have via Genzyme.

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DxS is also providing KRAS testing in the US and is in the process of submitting a test to the FDA for gauging non-responders to two colorectal cancer drugs, Amgen's Vectibix and Merck's Erbitux (PGx Reporter 03/04/09). Having KRAS testing capabilities through Genzyme Genetics will allow LabCorp to compete with Qiagen in this market, estimated to be around $50 million.

In the reproductive testing area, Genzyme Genetics provides maternal serum screening, cystic fibrosis and Ashkenazi Jewish carrier screening, and postnatal array comparative genomic hybridization.

Additionally, Genzyme's genetic testing division claims to have "the largest network of genetic counselors in the US," including 130 board-certified or board-eligible genetic counselors, 15 board-certified medical geneticists, and genetic counseling services at more than 95 locations nationwide.

Genzyme Corporation announced the decision to pursue strategic alternatives for its Genzyme Genetics business in May. In addition to selling off the genetics division, the holding company plans to similarly divest, spin-out, or pursue a management buy-out option for its pharmaceutical intermediates and diagnostics arms. By selling these non-core divisions within Genzyme, the company has said it intends to focus its resources on core businesses as a provider and manufacturer of treatments for unmet medical needs.

"Genetics and Diagnostics are strong businesses that are both leaders in their fields. However, as we evaluated our company to create a mix of businesses that will deliver sustainable growth and stronger returns on invested capital, it became clear that these businesses do not fit within this strategy," Genzyme CEO Henri Termeer said in a statement in May. "Focusing on our core businesses will enable us to continue to build a portfolio of high-value therapies for patients."

At the UBS Global Life Sciences Conference in New York this week, CFO Wyzga said that Genzyme has received six bids for its pharmaceutical manufacturing division. This transaction will also be finalized by the end of the month, and the transaction is slated for completion by the end of 2010.

The selling price for Genzyme's pharma and diagnostics divisions, similar to the sale of the genetics division, will be in the order of $1 billion, according to Wyzga.

The terms of the Genzyme Genetics acquisition meet certain criteria set forth by Genzyme, the company said in a statement. According to Genzyme, LabCorp's offer recognizes the value of employees with appropriate treatment as part of the transaction; creates a future for Genzyme Genetics in which customers continue to be served well; and creates value for Genzyme shareholders.

"LabCorp is committed to offer employment to the unit's approximately 1,900 employees upon closing, including senior management," Genzyme said in a statement.

The announcement of the acquisition comes amid reports that Genzyme is planning to lay off around 1,000 employees in its core workforce. The workforce reduction is part of the company's overall plan to streamline and focus its operations. Wyzga said at the meeting that the layoffs would "occur everywhere outside of manufacturing."

He added that the company would hold a call specifically to discuss Genzyme's 2011 expectations, the impending layoffs, and strategic restructuring. This call would be separate from the company's third-quarter earnings call.

Industry Trends

In terms of acquisitions in the molecular diagnostics field, the trend has been for technology and lab service providers to buy up smaller, disease-focused diagnostic companies, while the majority of big pharma choose to remain platform agnostic, favoring licensing deals or research collaborations with test developers.

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For example, the high-profile acquisition last year of DxS by Qiagen gave Qiagen a greater foothold in collaborating with drug companies for the co-development of Rx/Dx combination products. The company also has partnerships with drug developers for biomarker discovery projects (PGx Reporter 09/23/09).

Qiagen acquired DxS for $90 million — a fraction of what LabCorp spent on Genzyme Genetics; but the two acquisitions essentially give Qiagen and LabCorp similar types of assets in the personalized medicine and companion diagnostics space.

Additionally, a few months before buying DxS, Qiagen also acquired SABiosciences for $90 million, which gave the company bioinformatics capabilities and 100 disease- and pathway-focused real time PCR-based array panels. According to a Qiagen official, the “strategic reason” that the company purchased both SABiosciences and DxS was to meet needs at both ends of “the pharmaceutical drug discovery and development pipelines."

To advance discovery of biomarkers and to better understand the development of companion diagnostics, a few drug developers are also looking to aggrandize their internal diagnostics expertise. Novartis and Johnson & Johnson are among the few drug firms that have formed diagnostics arms.

As such, LabCorp wasn't the only company eyeing Genzyme. A few months before LabCorp bought Genzyme Genetics, Sanofi Aventis tried to buy all of Genzyme for $18.5 billion, but was rebuffed by Genzyme twice. In an Aug. 29 letter to Genzyme's Termeer, Sanofi CEO Christopher Viehbacher extended the acquisition offer of $69 per share and accused Termeer of being unwilling to meet with Sanofi.

According to analysts' reports, the Sanofi offer was a no-go for Genzyme since the company internally valued itself to be worth more than $75 per share. Still, it may not have been just about the money.

By divesting its various non-core assets, the company may want to sell its divisions to bigger companies that can specifically nurture and grow these specialty areas. In the case of Genzyme Genetics, LabCorp appears to be a good home, since it operates 38 primary testing locations and more than 1,500 patient service centers.

With PGx Reporter, a Genzyme spokesperson did not answer questions about why Genzyme refused Sanofi's offers. "I do not have any comment on the Sanofi rumors," said Lori Gorski, a media spokesperson for the company.

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