Abbott, Molecular Lab Acquisitions Dominate the Year in Diagnostics Industry M&A

Although volume of diagnostics industry mergers and acquisitions was up slightly in 2016, the big story of the year was the deals that did not go through—at least not yet.

Abbott Steals the Headlines…
No diagnostic company generated more attention in the M&A realm over the past year than Abbott. The Illinois diagnostics giant's $25 billion acquisition of medical device maker St. Jude Medical was, by far, the biggest deal of the year. But it was touch and go for a while. In October, St. Jude announced that it was having problems with its implantable cardioverter defibrillator and resynchronization devices, sending both companies' stock prices sharply down.

The deal also hit regulatory snags in Europe. The European Commission eventually gave antitrust approval, but only on the condition that St. Jude sell off its Angio-Seal and Fermoseal vascular closure assets, including a manufacturing plant in Puerto Rico, and that Abbott divest itself of the Vado steerable sheath it acquired as part of its acquisition of Kalila Medical in February. Japanese company Terumo Corp. has agreed to acquire all of the affected assets for $1 billion. But despite the challenges, the deal has been approved by St. Jude shareholders.

The same cannot be said for Abbott's other big strategic play of 2016: the ill-fated $5.8 billion mega-merger with Alere. When the deal was announced in February, it looked like a coup for both sides with the merged entity to become the leading diagnostics provider in the US. But things started going wrong almost immediately. In March, Alere's foreign business practices drew unwanted attention from the U.S. Justice Department. Abbott offered a bailout payment but Alere refused. After months of claims and counterclaims, things came to a head in December when Abbott asked a Delaware Chancery Court to let it out of the deal.

Abbott contends that Alere has lost "substantial value" as a result of lost billing privileges, government subpoenas, recalls and other business setbacks suffered since February. But Alere refuses to go away, claiming that nothing in Abbott's lawsuit justifies terminating the deal and expressing confidence that the merger will proceed.

As hopes for a settlement fade, it will be up to the courts to determine the fate of the deal. Meanwhile, there are indications that the negative publicity and fallout from the Alere mess has already compromised Abbott's reputation and desirability as a strategic position in the eyes of other potential targets. See LIR, Nov. 25, 2016. Having to go through with a shotgun marriage to Alere would only add insult to injury.

…But Other Companies Struggled with M&A Deals Too
Abbott was hardly the only diagnostics company to struggle with M&A. Several of the year's biggest deals hit unexpected snags along the way to consummation, including:

• Thermo Fisher Scientific's $1.3 billion acquisition of cellular and genetic analysis company Affymetrix in March. To complete the deal, Thermo Fisher had to overcome not one but a pair of competing bids by Origin Technologies, a new company created by Affymetrix former executives.

• Qiagen's $103.5 million acquisition of a 95 percent stake in Danish molecular diagnostics company Exiqon via tender offer in June. Qiagen had to amend the terms of its bid three times to meet the threshold for shareholder acceptance. And even then, Exiqon had to twist shareholders' arms and warn of profitability risks for the deal to go down.

• Luminex Corp.'s acquisition of point-of-care molecular diagnostics company Nanosphere, Inc. for roughly $90 million in cash. The deal closed in June but Luminex had to raise its initial offer from $1.35 to $1.70 per share after an unexpected and unsolicited third party stepped in and offered $1.50. (See LIR, June 2, 2016.)

Molecular DX Remains Center of M&A Activity
Although the Abbott deals were the richest, most of the M&A energy from 2016 focused on relatively smaller deals involving small cutting edge molecular diagnostics and genetics firms. GenomeWeb reports that the number of mergers and acquisitions involving these companies increased for the second year in a row. However, the rate of increase, from 48 to 51, or six percent, was significantly less than the 33 percent jump in M&A deals in 2015.

The deal pattern of 2016 was largely consistent with previous years with established diagnostics companies acquiring smaller firms to beef up their strategic positions in the emerging molecular diagnostics market. Thermo Fisher, Laboratory Corp. of America and Myriad Genetics were among the established companies that engaged in multiple acquisitions during the year. The chart below summarizes the 10 biggest deals of 2016, both closed and pending.

Top 10 Biggest M&A Deals of 2016 in Diagnostics

* Deal still pending and not yet closed at time of publication
Note: Only includes deals in which price and other financial terms were disclosed.