NEW YORK (GenomeWeb) – Abbott's $5.8 billion deal to acquire Alere announced earlier this week is a sign of the potential strength of the point-of-care diagnostics market, including the burgeoning molecular portion of the market, and could set off M&A activity in that segment, according to industry analysts.
While Waltham, Massachusetts-based Alere has repositioned itself of late to emphasize the molecular point-of-care side of its business, the firm has a long-standing POC diagnostics business.
"We have a very dynamic and wide menu of products and assets in the point-of-care space," Ryan Schmidt, vice president of infectious disease marketing at Alere, told GenomeWeb.
Among the POC diagnostics products the firm sells are the Triage meter with a test menu that includes cardiovascular and toxicology assays; cholesterol testing on the CLIA-waived Alere Cholestech LDX; the Afinion Analyzer, which performs a number of tests on various sample types; tests and platforms relevant to diabetes management; and the InRatio system, which is a handheld blood coagulation system for monitoring patients taking warfarin.
"On the infectious disease side, we've got the largest lateral flow footprint, which can span influenza, Strep, RSV, mono, H. pylori, and gastrointestinal disease targets such as C. diff, Shiga toxin, E. coli," Schmidt said.
He noted that there is a large contingency of customers in the physician office laboratory space, but there is also a large footprint within the hospital market.
On the molecular side of its business, Alere was the first company to receive a CLIA wavier for a molecular test that can be run near to patients — an influenza assay on its Alere i platform — and has described its intent to penetrate the pharmacy clinic and doctor's office markets specifically with that molecular platform.
"There are a couple of other players in that space, but it's a relatively new market and it is building," Schmidt noted. Among the other players in the POC molecular diagnostics market are Cepheid, which unveiled its GeneXpert Omni last year, and Roche, which markets the Cobas Liat system.
Alere has also received the CE mark on an HIV assay to run on its Alere q platform — a more rugged system than the Alere i that uses multiplexed real-time PCR rather than isothermal amplification chemistries — which has an initial commercial focus on non-US markets. The pipeline for that platform includes an HIV viral load assay, as well as tests for Ebola, TB diagnosis, TB drug resistance, and hepatitis C.
While the CLIA waiver led to a short-lived boom in Alere's stock, it has since struggled with disappointing financial results. Revenues were flat or falling for a few quarters, with the firm most recently missing on estimates in the third quarter, which CEO Namal Nawana described as "very disappointing."
At the same time, Alere has divested non-core business assets, such as its Alere Health and BBI businesses. The firm's change in leadership — with former founder and CEO Ron Zwanziger now heading up EKF Diagnostics — also may have conveyed a new focus.
Abbott, meanwhile, has a large footprint in testing platforms for core and hospital labs, Miles White, Abbott's chairman and CEO, said during a conference call on Monday to discuss the acquisition.
The company has a broad portfolio spanning immunoassays, Architect brand clinical chemistry systems, hematology, blood screening, molecular, and point-of-care systems.
Specifically in point-of-care, the firm's iSTAT handheld analyzer is a portable device to analyze blood test results from up to 26 different analytes at a patient's side within minutes. Overall, Abbott's point-of-care diagnostics business brought in $473 million in Fiscal Year 2015, a 10 percent jump over the previous year.
In terms of molecular diagnostics, Abbott also makes the automated m2000 line, as well as a unique offering in the CE-marked molecular metagenomic Iridica platform, formerly known as Plex-ID. Like point-of-care diagnostics, molecular diagnostics sales of $466 million accounted for a fraction of Abbott's total diagnostics sales of $4.65 billion in FY 2015.
But Alere's POC piece will fit particularly well into Abbott's overall portfolio, White suggested.
"With today's announcement, Abbott will become the global leader in point-of-care diagnostic testing," White said.
He also noted that Alere's complimentary portfolio of products will provide Abbott access to new channels and geographies. This includes expanding the firm's presence in the "$5.5 billion point-of-care testing segment," broadening its testing platforms, and providing access to new customers including "doctor's offices, clinics, pharmacies, and at-home testing," White said.
In addition to the earnings-per-share accretions, pre-tax synergies from the combination will include sales and operations benefits of "revenue expansion opportunities for both Abbott and Alere products, optimization of supply chain and distribution infrastructure, and certain G&A efficiencies," White said.
"We've got a vision and a strategy here of what we believe we can do with this business," said White. "We know the spaces that Alere is in; we know what the trends are; we know what the growth rates are in the market; we've got the global infrastructure combined with Alere's; and we've got a high-performing management team to put together with Alere's, which we also like — it fills a lot of different gaps, [and] I think they are extremely complimentary businesses."
Brian Blaser, the head of Abbott's diagnostics business, further noted on the call that Alere has "a broad portfolio of instruments and tests that are cost effective, ideal for both the near-patient setting but also in very cost-sensitive settings like emerging markets that we're very interested in expanding [in]."
The firm also sees an opportunity to expand with its iStat handheld blood analyzer and the Alere products into the retail space and ambulatory market space, where Abbott's penetration is "rather limited at this point," Blaser said.
Analysts on the call queried White as to whether Abbott could improve the sluggish growth rates of Alere. The firm posted a 1 percent decline in revenues for 2014, and at the JP Morgan Healthcare Conference recently it cut its expected Q4 revenues to around $630 million from its previous guidance of $640 million to $660 million.
"In a lot of competitors hands, or other company's hands, you might not see the potential for the business, but we do," White said.
The growth may thus come from Abbott's capabilities and market reach. "We have a lot of faith in the diagnostics team here because of their performance over the last several years in what's otherwise not a high-growing market," White said. "We've been consistently achieving growth rates above market worldwide with our diagnostics business, and they've done a great job with margin management and margin improvement, so all in all, I think it's a great fit coming into good hands."
In Abbott's Q4 earnings call late last week White said that while 2015 "was relatively quiet for us on the M&A front, adding to our business with good M&A remains a key priority, [and] we see plenty of opportunities and we will continue to remain active on this front.
He referred to one particular auction last year that Abbott did not win, noting that the valuation on that property was "non-economic," adding, "You know the old maxim; everything is for sale at some price; well the price that some of these things would be for sale at isn't prudent."
But White also noted that if the right opportunity existed, and it "all lined up and the valuation looked good, I’d probably do that deal." And it would seem for White, paying a 50 percent premium to Alere's closing stock price prior to the deal being announced was an acceptable valuation.
He said on the call to discuss the Alere buy that the acquisition rounds out the breadth of the firm's diagnostics business.
In terms of future M&A, "There are always opportunities that come along that fill in a particular category of testing or something," he said. "But when I look at this, and at our molecular business, and Iridica, and all the different platforms we've got, but particularly the organic productivity, then the global placements and global presence of Alere added to that, [that] takes our testing capability out into segments where we could have a much bigger presence, whether it's doctor's offices, pharmacies, home testing, [or] distributed settings that are in emerging markets."
Abbott's purchase of Alere was seen by equity analysts at Barclays, for example, as part of a larger trend in demand for point-of-care assets.
"We believe consumer demand is paving new growth channels for testing in retail settings, while innovation in the field is allowing for more accurate diagnosis in a timely manner for physicians [and] payors," Barclays' Jack Meehan said in a note.
Other diagnostics manufactures with point-of-care molecular platforms that may be ripe for acquisition include Quidel and Cepheid, he and other analysts noted in the wake of the deal.
Barclays noted that M&A in POC testing will remain a theme to watch in 2016, and that the remaining competitors "carry scarcity value for strategics looking to make inroads in the market."