Lab Industry Report: The Year in Diagnostics Mergers & Acquisitions

Continuing recent trends, most of the wheeling and dealing that took place in the lab industry in 2017 involved strategic alliances rather than mergers and acquisitions. Thus alliances outpaced M&A deals by a rate of over 3 to 1 as most firms preferred collaboration to digesting their competitors. But while M&A deals were relatively light in both volume and drama, there were a few blockbusters. Here's a quick and dirty analysis of the deals that did come down during the year;

The Abbott Bookends
As in 2016, Abbott stole the 2017 M&A headlines with bookend acquisitions of St. Jude Medical ($25 billion) in early January and Alere in October. But while the St. Jude deal was fairly standard, the Alere merger was anything but.

Announced in February 2016, the merger stood on the precipice by year's end with both parties poised for a court battle. But the posturing died down and in mid-April, Abbott and Alere announced that their on-again off-again deal was on again. And so it was. In addition to dropping their lawsuits, both sides agreed to new terms essentially giving Abbott a discount to compensate for the erosion in equity value that Alere incurred since the original deal was announced by cutting the purchase price to $5.3 billion.

Each firm also had to divest strategic assets to gain regulatory approval for the merger. Alere sold its triage MeterPro and BNP (B-type Naturietic Peptide) businesses to Quidel for $680 million and its Epocal point-of-care blood diagnostics unit to Siemens Healthineers for an undisclosed price.

Thermo Fisher Acquires Patheon
Thermo Fisher's $7.2 billion purchase of contract development and manufacturing organization (CDMO) Patheon in September was the year's biggest M&A deal in terms of dollar value (not counting the $25 billion St. Jude deal which closed on Jan. 4). In acquiring the North Carolina-based provider of drug development support for pharmaceutical firms, Thermo Fisher secured its access to the $40 billion CDMO market and created $120 million in synergies ($90 million in cost and $30 million in revenues synergies). Thermo Fisher absorbed Patheon's 9,000 employees and $1.9 billion in annual revenues into its Laboratory Products and Services division.

The Surprise Deal of the Year
In perhaps the most surprising (and intriguing) M&A deal of the year, Konica Minolta plunked down $1 billion in cash for genetic testing firm Ambry Genetics. Almost overnight, the Japanese technology giant known for business products became a major player in the global precision medicine market and acquiring a vehicle for commercializing high-sensitivity tissue immunostaining technology for clinical pathology and pharmaceutical trials.

The Other Billion-Dollar Deals
The only other nine-figure M&A diagnostics deals to close in 2017 were:

• Grifols' $1.85 billion buyout of Hologic's blood screening assets, a move that seems to have worked out for both sides by goosing Grifols' revenues blood screening revenues 7% while leaving Hologic, its former partner in the realm, free to concentrate on its core women's diagnostics business;

• PerkinElmer's $1.3 billion cash acquisition of Euroimmun Medical Laboratory Diagnostics, which establishes PKE as a global leader in autoimmune testing and bolstering its position as a provider in infectious disease and allergy testing in China and other leading markets; and

• LabCorp's purchase of UK contract research organization Chiltern for $1.2 billion, creating a CRO unit of 20,000+ employees and strengthening its Covance business in the biopharma market.

LabCorp v. Quest
As usual, LabCorp and rival Quest Diagnostics were among the most active players. But while the two have been waging a kind of M&A arms race for years, LabCorp flipped the script in 2017 by acquiring Mt. Sinai Health System outpatient labs and the ownership interests of Washington-based Pathology Medical Laboratories, LLC (PAML) in five different outreach lab joint ventures (Colorado Laboratory Services, Kentucky Laboratory Services, MountainStar Clinical Laboratories, PACLAB Network Laboratories and Tri-Cities Laboratory). In the past, LabCorp has focused on acquiring specialty labs to bolster the sophistication of its product lines, while the strategy of acquiring health system outreach labs has largely been Quest's modus operandi. Sure enough, Quest made seven more such acquisitions during the year, including Cleveland HeartLab, MedFusion, Cape Cod Health Care, to name a few.

Other firms with the largest number of purchases during the year included:

• LabCorp, which in addition to the above noted PAML, Mt. Sinai and Chiltern deals acquired health and nutrition test firm ChromaDex;

• Thermo Fisher Scientific, which in addition to the big Patheon acquisition, acquired a trio of smaller firms including Linkage BioSciences, Core Informatics and Finesse Solutions;

• Invitae, which acquired AltaVoice, CombiMatrix, Good Start Genetics and software maker Ommdom; and

• Bruker, which a few months after announcing the acquisitions of SCiLS and InVivo Biotech Services on the same day, picked up Merlin.