NeoGenomics Purchases GE Healthcare Affiliate Clarient for $275 Million

Florida-based NeoGenomics has made a move to bolster its cancer diagnostic offerings, purchasing Clarient, Inc. for $275 million in cash and stock.

Clarient and its affiliate Clarient Diagnostic Services, with operations in both California and Texas, comprise a portion of GE Healthcare's life sciences business and has about 410 employees. It reported 2014 revenue of $127 million and pre-tax earnings of $13 million.

Clarient performs a variety of molecular tests, but it focuses primarily on oncology assays, particularly companion diagnostics that gauge how a patient would react to drugs that treat lung cancer or lymphoma, among others.

"Our vision is to become America's premier cancer testing laboratory, and this acquisition is a major step forward in achieving that vision," said NeoGenomics Chief Executive Officer Douglas VanOort in a statement. "We have always respected Clarient's outstanding capabilities, and are very pleased to be able to combine them with our own outstanding service offering. Hospital, physician, and pathology clients will benefit from our ability to offer the 'best of the best' products and services available from each company."

VanOort projected growth synergies of $4 million to $6 million for NeoGenomics as a result of the acquisition next year. The deal is subject to regulatory review but is expected to close by the fourth quarter of this year.

The terms of the deal are fairly generous for GE Healthcare. It includes not only 15 million shares of NeoGenomics' common stock, but another $110 million in preferred stock, which may be redeemed for common stock at $7.50 per share after three years if NeoGenomics stock hits certain pricing targets, and automatically converts after 10 years.

A conversion would give GE Healthcare nearly another 15 million shares of common stock. That could potentially give GE a nearly 50 percent ownership in NeoGenomics—assuming the company did not issue another share of stock prior to the conversion period. It would represent a roughly onethird stake should NeoGenomics issue new shares to cover the conversion at a later date but did not issue any other stock.

VanOort said in addition to the deal, NeoGenomics would continue to collaborate with GE Healthcare on future precision genomics initiatives.

The acquisition was a tonic for NeoGenomics' stock, which jumped by 25 percent, to more than $7 a share, after the announcement was made on Oct. 21.

"We view this as a good deal with a number of areas to drive synergies. The combination provides robust East and West Coast presences, a low-cost testing position in all testing paradigms, a combined clinical trials business of $25 million, and GE as a significant long-term investor," wrote Amanda Murphy, an analyst with William Blair & Co., in a report.

In addition to the acquisition, NeoGenomics also reported modest growth for the third quarter ending Sept. 30, as well as a narrowing of losses. It reported a loss of $125,000 on revenue of $25.1 million for the quarter, compared to a loss of $291,000 on revenue of $23.2 million for the third quarter of 2014. For the first nine months of the year, NeoGenomics reported a loss of $1.06 million on revenue of $72.5 million, compared to net income of $85,000 on revenue of $62.1 million for the first nine months of 2014.

Takeaway: NeoGenomics pushes its nascent growth with the help of a significant acquisition.