M&A & Strategic Deals: Dealmaking Shows New Signs of Life but FTC Scrutiny Casts a Dark Shadow

For the first time in months, there was a spate of significant M&A deals in the laboratory diagnostics space in late April and May with the Big Three of Quest Diagnostics, Abbott, and Labcorp all involved. But just as M&A activity was starting to heat up, the US Federal Trade Commission (FTC) sent a warning shot across the bow. Here’s a briefing of what happened during this eventful month:

Quest Makes Big Move in Personalized Cancer with Haystack Oncology Buy

Quest Diagnostics (Quest) and Labcorp have remained active in acquiring physician practice, health system, and hospital outreach labs even during the recent M&A slowdown. However, on April 27, Quest made arguably its most significant strategy play in over a year by inking a definitive agreement to acquire Haystack Oncology for up to $450 million in cash. The Johns Hopkins spin-out—whose owners will receive $300 million upon closing and up to another $150 million in future milestone contingency payments—has developed a liquid biopsy circulating tumor DNA (ctDNA) test for post-surgery identification of patients with minimal residual disease (MRD) who might benefit from adjuvant chemotherapy. In a statement, Quest chairman, CEO, and president Jim Davis described the test as “best-in-class.”¹

The acquisition will significantly strengthen Quest’s position in personalized oncology. MRD liquid biopsy tests—that help decide post-surgery treatment options by identifying ctDNA in the patients’ bloodstream—are among the fastest-growing segments of the personalized oncology market. Quest intends to begin providing MRD testing based on Haystack’s technology by the start of 2024, with an initial focus on colorectal, breast, and lung cancers.

Abbott Fortifies Its Cardiovascular Position with Atherectomy Buy

The same day the Quest deal was announced, Abbott closed its agreement to acquire Cardiovascular Systems, Inc. (CSI) for $20 per common share in a deal with a total expected equity value of $890 million.² Based in St. Paul, Minnesota, CSI develops medical devices for vascular and coronary disease treatment, including the Diamondback 360^® system for atherectomy, a minimally-invasive procedure for removing plaque from the walls of blood vessels that’s used as an alternative to, or in combination with, angioplasty.

Abbott develops its own angioplasty and stent products. Acquiring the Diamondback 360^®, which is used to prepare blood vessels for angioplasty or stenting to restore blood flow, will enable the company to offer a complementary vascular treatment solution. “The acquisition of CSI is a component of an overall investment in our vascular portfolio that enhances our ability to care for patients with peripheral and coronary artery disease,” noted Lisa Earnhardt, Abbott executive vice president, Medical Devices, in a statement.³

Labcorp Acquires Outreach Labs

Although it was a much smaller deal, Labcorp remained active by acquiring hospital outreach labs from Jefferson Health (Jefferson) for an undisclosed price. In addition to boosting access of underserved communities to testing in Philadelphia and surrounding areas, Labcorp and Jefferson plan to launch Driving Excellence in Academics (IDEA)—a program to advance lab testing technologies and capabilities. The acquisition involves only Jefferson’s outreach lab assets as the health system will continue to own and manage its own outpatient and inpatient hospital labs.⁴

FTC Steps in to Block Amgen Takeover of Horizon Therapeutics

What had been shaping up to be an encouraging month for healthcare M&A took an unexpected turn on May 16 when the FTC filed a lawsuit to block Amgen’s proposed $27.8 billion acquisition of Horizon Therapeutics on antitrust grounds.⁵ The FTC has made no secret of its strong distaste for M&A activity in the healthcare realm.⁶ Last month, the agency ordered Illumina to unwind its acquisition of former spinoff GRAIL, contending the deal “would stifle competition and innovation in the US market for life-saving cancer tests.”⁷

What makes this most recent action against Amgen concerning is its policy ramifications. When the FTC intervenes to block mergers and acquisitions on anticompetition grounds, it historically does so because of the overlap in the products and services between the acquiring and target companies: that’s what happened with Illumina. But the case against Amgen is based not on product overlap, but supposedly anticompetitive behavior in the realm of drug pricing. It’s an enforcement approach the FTC has threatened to, but not actually implemented until now.

“If permitted to acquire Horizon, Amgen would have the ability and incentive to sustain and entrench the monopolies of Horizon’s drugs using multiproduct contracting strategies [similar to those it has used to control drug prices in the past],” the FTC says in its complaint.⁵

“Today’s action—the FTC’s first challenge to a pharmaceutical merger in recent memory—sends a clear signal to the market: The FTC won’t hesitate to challenge mergers that enable pharmaceutical conglomerates to entrench their monopolies at the expense of consumers and fair competition,” noted FTC Bureau of Competition director, Holly Vedova, in a statement.⁸

Takeaway

Although this latest FTC antitrust action targets biopharma rather than diagnostics, it has the potential to chill M&A deals in the clinical lab space just as it seemed conditions were starting to thaw.

References:

1. https://haystackoncology.com/quest-diagnostics-to-acquire-haystack-oncology-adding-sensitive-liquid-biopsy-technology-for-improving-personalized-cancer-care-to-oncology-portfolio/
2. https://abbott.mediaroom.com/2023-02-08-Abbott-to-Acquire-Cardiovascular-Systems,-Inc
3. https://abbott.mediaroom.com/2023-04-27-Abbott-Completes-Acquisition-of-Cardiovascular-Systems,-Inc
4. https://ir.labcorp.com/news-releases/news-release-details/labcorp-and-jefferson-health-announce-strategic-laboratory
5. https://www.ftc.gov/system/files/ftc_gov/pdf/2310037amgenhorizoncomplainttropi.pdf
6. https://www.g2intelligence.com/hostile-regulatory-environment-further-chills-diagnostics-market/
7. https://www.g2intelligence.com/ftc-orders-illumina-to-unwind-grail-acquisition/
8. https://www.ftc.gov/news-events/news/press-releases/2023/05/ftc-sues-block-biopharmaceutical-giant-amgen-acquisition-would-entrench-monopoly-drugs-used-treat

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Here’s a summary of the key M&A diagnostic deals that were announced or closed in May 2023:

Mergers, Acquisitions, & Asset Sales