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Thermo Fisher/Life Tech Deal Overshadowed Soft Omics Tools, MDx M&A Market in H1 2013

NEW YORK (GenomeWeb News) – The mergers and acquisitions market in the omics tools and molecular diagnostics space continues to be soft as the number of deals fell 11 percent year over year during the first half of 2013.

In the first half of the year, 24 deals were either completed or announced, down from 27 in the first half of 2012 and down from 28 from the second half of 2012. The figures include only those transactions in which the whole of a company was acquired. Not included were deals in which only divisions or assets exchanged hands.

The downtick continues a trend that began in the second half of 2011 when concerns about government funding for scientific research and other macroeconomic factors chilled M&A activity. Since then, a sluggish global economy, which includes ongoing economic challenges in Europe, and most recently sequestration in the US have kept M&A activity low.

Earlier this week, investment bank Mizuho Securities released results from a survey indicating that the academic end market remains the worst in the life science tools space, though there are signs of stabilization. According to the survey, among the respondents who receive US government funding, more than half said that sequestration would reduce their spending for the rest of 2013.

During company earnings conference calls for the first quarter earlier this year, executives at a number of omics tools/MDx firms also said that they anticipated the full brunt of the effects of sequestration to hit their businesses throughout the remainder of 2013 since the cuts didn't take effect until the beginning of March.

For example, Brad Crutchfield, president of the Life Science Group at Bio-Rad Laboratories, said during his firm's Q1 earnings conference call that "nobody believes that this is going to be a short-term thing. This is something that will probably go through 2014 as far as [a] somewhat across the board 6 to 8 percent cut."

Such sentiments don't bode well for M&A opportunities as the academic market is a crucial revenue generator for many firms. With instability in the academic market, potential buyers may be reluctant to pursue deals that may be near-term revenue drains. As Gary Kurtzman, a managing director at private equity and venture capital firm Safeguard Scientifics, told GenomeWeb Daily News in December, today's environment is one in which potential purchasers are focused on the bottom line, and for deals to be considered, they need to be accretive very quickly.

Most of the deals in H1 2013 were tuck-in buys meant to complement existing capabilities or technologies. However, one blockbuster deal was announced, Thermo Fisher Scientific's $13.6 billion purchase of Life Technologies, which followed months of reports that Life Tech was seeking a buyer. When the deal is completed, which is expected to happen in early 2014, it would launch Thermo Fisher into the next-generation sequencing space.

For its own part, Life Tech remained a busy buyer and built on four acquisitions done in the second half of 2012 by nabbing three firms in the first half of the year: Dutch protein purification company BAC, South Korean reagents distributor KDR Biotech, and South Korean instrument distributor Life Science Korea.

Aside from the pending Thermo Fisher-Life Tech deal, another notable acquisition was Illumina's buy of Verinata for up to $450 million, a move that springs Illumina into the non-invasive prenatal diagnostic testing space and in competition with companies such as Ariosa Diagnostics, Natera, and the market leader Sequenom.

The implications of the deal for Sequenom were especially intriguing, and after the transaction was announced in January, Sequenom's CEO Harry Hixson said at an investor conference that he was "puzzled" by the deal, which complicates the relationship between the two firms. Illumina has been the exclusive supplier of sequencing platforms to Sequenom for its MaterniT21 Plus test.

Last year, Illumina was the target of an attempted hostile acquisition by Roche. This year, it was Illumina's turn as the acquirer, and the day after announcing its Verinata purchase, Illumina said that it was buying long-read sequencing technology company Moleculo.

Illumina also pursued Complete Genomics after BGI and Complete Genomics announced their merger last September. It dropped its bid in January, though, after the BGI-Complete Genomics deal got approval from the Federal Trade Commission. That deal was completed in March.

Other deals of note the past six month include Qiagen's purchase of Ingenuity Systems for 105 million; Bio-Rad's buy of AbD Serotec for $70 million; Quidel's acquisition of BioHelix for $10 million and milestones; and the mergers of Mobidiag, Amplidiag, and Genewave to create a new molecular diagnostics shop, also called Mobidiag.