Regardless of the coronavirus pandemic making waves in economies around the globe, the diagnostics market benefitted from elevated investor curiosity and an upswing in mergers and acquisitions in 2020.
General, the numbers of mergers and acquisitions within the diagnostics trade elevated 38% to 54% in 2020 from 39 in 2019.
Included within the evaluation are offers within the molecular and non-molecular in vitro diagnostic areas that had been introduced or accomplished this previous 12 months. Generally, solely acquisitions of a complete firm had been included, though one vital deal concerned the acquisition of just some property of an organization.
M&A offers are persevering with their rebound from latest lows in 2018, when solely 32 transactions had been made. Nonetheless, the 58 offers in 2017 stay a latest excessive level for the diagnostics trade. Most of the offers listed had been for small quantities or had undisclosed monetary phrases, though three offers had been valued above $1 billion this 12 months, in distinction to just one in 2019.
Andrew Cooper, an analyst at Raymond James, mentioned he thought a few of the earlier-stage firms who might have been seeking to get acquired this 12 months had their possibilities placed on ice because of the pandemic. That pause ought to raise in 2021, as COVID-19 vaccines turn into extra out there and firms that acquired vital boosts in revenues from SARS-CoV-2 testing, resembling Quidel, Abbott, and Hologic, look to burn a few of that money, he added.
Quidel will probably concentrate on point-of-care testing in infectious illness testing and has talked about seeking to “vertically combine” its enterprise, potential buying swab or different supplies producers, Cooper mentioned. The agency might be “much less prone to go … wildly outdoors of that form of infectious illness focus that they’ve,” he added.
Piper Sandler’s Steven Mah additionally famous Quidel has M&A as a giant a part of its “go-forward plan,” specializing in strategic match, progress, and profitability, and talked about Fulgent Genetics as an organization with a significant concentrate on M&A, since it’s lacking a stable distribution channel and will go searching for one thing to fill that void.
In distinction, firms like Abbott and Hologic might have extra flexibility because of the wider unfold of their revenues throughout the diagnostic sphere. The eye on the diagnostics trade because of the pandemic can also be a constructive that would result in extra offers, since outdoors gamers are making use of extra worth to diagnostic testing and realizing that these checks are useful, Cooper mentioned.
Though many firms within the diagnostics house have seen skyrocketing revenues due to COVID-19, not one of the three greatest offers this 12 months had been within the infectious illness house. Illumina’s acquisition of Grail for $eight billion, Actual Sciences’ acquisition of Thrive Earlier Detection, which may price as a lot as $2.2 billion, and Invitae’s merger with ArcherDx for $1.four billion had been all within the most cancers and early illness detection house. Each ArcherDx and Grail had filed to go public earlier than they had been acquired, which has been a technique used to garner rising curiosity in firms.
Oncology and liquid biopsy are two particular areas with lots of deal curiosity, together with gamers within the transplant house, though it’s at the moment dominated by CareDx, Mah mentioned. Subsequent-generation sequencing continues to be a specific space of curiosity as capabilities increase and develop additional. “We’re on this actually attention-grabbing window the place you simply have the evolution of blood as [an] attention-grabbing pattern for NGS and different sequencing-based modalities,” Oppenheimer analyst Kevin DeGeeter mentioned. “I feel that simply basically leads itself to bigger addressable market alternatives and the genetic facet of the testing spectrum.”
Mah added that oncology property, particularly these with an emphasis on most cancers genetics, had been enticing this 12 months, with Oncocyte buying Perception Genetics for $12 million and NeoGenomics buying Human Longevity’s oncology enterprise for $37 million. Oncology property have been an emphasis for NeoGenomics for the previous few years, proven by acquisitions of Genoptix and Clarient in 2018 and 2015, Mah mentioned.
Puneet Souda at SVB Leerink famous that the massive market alternatives for most cancers and liquid biopsy had been driving the massive dimension of the offers and mentioned the market alternative “for screening, early detection, utilizing liquid biopsy, that chance is greater than $30 billion.” A few of the early detection offers within the house embody Basis Medication’s acquisition of Lexent Bio and the merger of Sienna Most cancers Diagnostics and Bard1.
The Grail and Thrive transactions are “very clearly going after creating new markets and testing modalities that we simply have not had entry to earlier than,” DeGeeter mentioned. “I do not suppose Grail is the endgame for the place Illumina desires to be on the scientific testing facet,” he added.
“Whether or not 2021 is the timeframe the place Illumina appears to proceed to get aggressive in increasing its scientific testing menu or whether or not they simply concentrate on integrating Grail, I haven’t got a crystal ball on that particular query, however over the course of a number of years, I might count on that Illumina will proceed to be lively,” he continued.
Though COVID-19 “caused a recognition that diagnostics is essential to healthcare,” Souda mentioned, for firms like Illumina and Actual Sciences, “their core companies are much more essential than serving the COVID testing throughout this time when the demand is excessive.” Regardless of the elevated consideration on the house, the timelines and alternatives of these firms have not modified, he added.
Two of those offers weren’t significantly shocking, in keeping with Mah, as a result of every of the buying firms had an “intimate familiarity” with the corporate they picked up. Grail was spun off by Illumina in 2016, and Actual Sciences had prior a financing historical past with Thrive.
Mah mentioned he would not suppose the Invitae and ArcherDx merger is a very good match for Invitae resulting from ArcherDx’s kit-based technique, though he famous Invitae could also be seeking to diversify its choices and combine ArcherDx’s kits into their lab, together with providing companion diagnostics. ArcherDx does have a few of the finest most cancers panels out there, he mentioned, however it was nonetheless a reasonably costly acquisition. ArcherDx, nevertheless, discovered considerably extra worth in an M&A deal than it probably would have had going public, Mah added.
Invitae was the 12 months’s essential dealmaker; moreover the merger with ArcherDx, the San Francisco-based firm additionally acquired YouScript, GeneLex, and Diploid in March. Mah mentioned Invitae was doing “a land seize” because it makes an attempt to increase its choices to as many various testing strains as attainable. DeGeeter added that Invitae “has steadily been constructing a broader channel for his or her enterprise” and the acquisition of ArcherDx alerts an elevated concentrate on oncologists for his or her check distribution.
Increasing distribution channels was an space of focus for a lot of dealmakers this 12 months, DeGeeter mentioned. The advantages of many of the main offers this 12 months, together with numerous smaller ones, had been the flexibility to open up new distribution channels in oncology to entry a greater variety of consumers.
Actual Sciences was additionally a significant acquirer – together with the Thrive deal and two offers introduced in February that occurred on the tail finish of 2019, the corporate additionally acquired Base Genomics for $410 million. These offers, largely targeted on bioinformatics or IT software program, had been smaller in buy worth however “arguably extra frequent as this wave of innovation on new content material works its method in direction of market,” DeGeeter mentioned.
Entry to capital wasn’t an issue for a lot of firms experiencing a lift from COVID-19, which allowed M&A quantity in 2020 to proceed to extend and corporations to proceed their strategic priorities. “I feel firms that had been seeking to transfer ahead with strategic transactions had completely different instruments out there to finance these offers and get them accomplished in 2020,” DeGeeter mentioned.
The most important offers this 12 months additionally concerned firms which have comparatively early-stage applied sciences, which is a distinction to “the previous few years” and is a “enhance to the trade,” Jonathan Norris, managing director of the healthcare follow at Silicon Valley Financial institution, mentioned. Final 12 months, Norris attributed a part of the low deal worth to firms trying so as to add profitability to backside strains quite than investing in new applied sciences. As offers with early-stage firms flourished this 12 months, being near commercialization was not as essential to acquirers.
“Large firms are keen to pay up for actually attention-grabbing, essential applied sciences, and I feel we have seen that in biopharma on a regular basis over the past 5, six years,” Norris mentioned. “However we have not essentially seen that in instruments, so it is good to see that.”
One probably enormous deal that fizzled out was Thermo Fisher’s tried acquisition of Qiagen, which might have been one of many greatest offers of the 12 months at $11.5 billion had two-thirds of Thermo Fisher’s shares been tendered by present shareholders.
Norris additionally famous that extra platform applied sciences are attracting curiosity from buyers, resembling CRISPR-based tech, however he mentioned it was exhausting to know whether or not that curiosity would translate to M&A exercise.
DeGeeter added that if there have been transactions within the CRISPR enviornment, the greenback numbers would probably be smaller. “Constructing testing round form of new biology is difficult,” he mentioned. “It is usually a lot simpler to construct companies that use enhancements over present strategies to increase a market that already has, you realize, fairly good dimension.”
Smaller offers within the IT and analytics areas additionally made up a big portion of M&A exercise, resembling Cyted’s acquisition of digital pathology supplier Pathognomics and Nanthealth’s $6 million acquisition of OpenNMS Group. Heart problems, and extra particularly high-sensitivity troponin testing, can also be an space of curiosity, Mah mentioned, indicated by Impression Lab Group’s acquisition of HeartGenetics in November.
No matter what occurs in 2021, M&A offers will probably proceed, though the greenback quantities might not be fairly as massive and the gamers could also be completely different than standard. “I feel M&A goes to proceed by way of 2021 for many causes,” mentioned Harry Glorikian, a diagnostic trade marketing consultant and normal associate at Scientia Ventures. “There’s a lot out there money on the market that a few of it’ll should proceed … as a result of some firms are going to have to amass completely different capabilities to form of get into these new areas.”
For numerous firms, COVID-19 testing has made 2020 a stable 12 months financially, which DeGeeter mentioned may spark curiosity in offers and “give the groups and their company boards confidence to maneuver ahead on investments, whether or not they be inside or whether or not they be acquisition in 2021.”
Nonetheless, Mah is not satisfied there shall be main offers based mostly on COVID-19 testing, largely as a result of there are vaccines out there now. If firms aren’t within the SARS-CoV-2 testing house already, they’re “a bit of bit late to the sport,” Mah mentioned. However that is “to not say those who got here up with applied sciences will not get acquired later,” he added, resembling Lucira Well being, which acquired the primary Emergency Use Authorization from the Meals and Drug Administration for an at-home SARS-CoV-2 check. There are lots of rivals within the at-home testing house, however they’re targeted on the expertise quite than COVID-19 particularly, he mentioned.
There may very well be one-off offers from greater firms like Danaher, Thermo Fisher Scientific, or Roche, or consolidations throughout the sector, Mah added.
Though there are two approved vaccines out there, and certain extra on the way in which, Mah mentioned that this does not imply testing for COVID-19 will disappear. “You continue to have a sturdy flu testing enterprise yearly,” he mentioned, however he expects the development will transfer towards respiratory pathogen panel testing for a number of viruses.
Mah echoed Cooper’s opinion that the variety of offers may go up in 2021, particularly as journey alternatives turn into extra out there, and mentioned he particularly expects to see rollups of CLIA laboratories.
Different potential areas of curiosity associated to COVID-19 testing are within the contact tracing and digital well being arenas, as a result of there’s a must streamline reporting of testing to public well being officers and to handle knowledge, Mah mentioned. Glorikian additionally famous there may very well be elevated curiosity in sampling applied sciences or different applied sciences associated to COVID-19 scientific trials.
Silicon Valley Financial institution’s Norris mentioned he thinks firms that are not based mostly in diagnostics ought to present warning as they make entrances, as a result of there is a lack of information of the sector they usually may encounter difficulties sustaining a long-term presence. Most of the firms which have pivoted to SARS-CoV-2 testing might not have long-term plans to remain as soon as the pandemic is over and may very well be right here for the one-off alternative, Norris mentioned.
He did notice that there are some firms which might be actually making the most of the pandemic to point out off their expertise and its talents, although they might not be planning to remain within the infectious illness enterprise for the lengthy haul. Acquirers would most definitely be involved in nimble firms that had been capable of pivot to SARS-CoV-2 testing and convey their checks to market rapidly, Norris mentioned.
Glorikian mentioned that the diagnostics trade as a complete is not going to “flip round and snap again” to the way in which issues had been, as a result of individuals need testing in distributed amenities, and the pandemic has catapulted the Dx house ahead quicker than anybody anticipated. Market dynamics have modified in consequence, resulting in extra of an emphasis on telemedicine and scientific trials, in addition to ancillary capabilities to help check improvement, he mentioned.
For the businesses that had been aiming to fill a niche because of the pandemic, Glorikian advised that if these corporations increase their product strains, they may carve out a long-lasting area of interest for themselves. In the event that they use the funds from SARS-CoV-2 testing to make second or third merchandise with a wider attain, they may have a combating probability, he mentioned. A few of these firms can also want to amass new capabilities, he mentioned, resembling Everlywell, which has had a big presence within the at-home testing market however is dealing with competitors from others, resembling Abbott and Ellume.
Glorikian additionally forecasted a reckoning of types because the pandemic attracts nearer to its conclusion, as a result of “there are lots of issues … that the FDA has let by way of that I am simply not comfy with from a efficiency perspective.” He expects a 2021 “shake out” with the company trying deeper into a few of the checks it has approved to be used, particularly within the serology house, and probably rescinding EUAs.
This story first appeared in our sister publication, 360Dx, which gives in-depth protection of in vitro diagnostics and the scientific lab market.