Trends & Perspectives

Published: March 14, 2012
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Report offers insights into IVD M&A activity

The Pricewaterhouse Coopers report provides an overview of M&A deal activity in the IVD industry during the past two years and the factors driving it, an assessment of the development of new prospects for early detection testing, and a review of significant events for the development of personalized medicine.

By: Richard Park

Pricewaterhouse Coopers report on diagnosticsLast December, PwC released a new report, “Diagnostics 2011: M&A Surges, Companion Diagnostics Accelerate, and Early Detection Offers New Prospects.” This report provides an overview of merger and acquisition deal activity in the IVD industry during the past two years and the factors driving it, an assessment of the development of new prospects for early detection testing, and a review of significant events for the development of personalized medicine. The report also includes an in-depth discussion about trends in companion diagnostics and business model considerations for pharmaceutical companies.
The report highlights how multibillion-dollar deals in the IVD industry during the first seven months of 2011 more than tripled the merger and acquisition deal value from 2010 to more than $15 billion. According to the report, investor interest in the global IVD market is expected to grow in 2012-2014, following a surge in merger and acquisition deal values, an acceleration of companion diagnostics partnerships, and the emergence of new prospects for early detection testing.
Interest in the IVD market is coming from not only existing players but also new entrants such as financial investors, life sciences research groups, clinical laboratories, and medical technology players. The report expects that the competitive landscape in the IVD industry will be redefined by new market leaders and larger deals as players bulk up on market share. However, sustained momentum of companion diagnostics partnerships with pharmaceutical companies will depend on actions taken by governments, regulators, payers, and industry to support diagnostics innovation.
The report covers the following themes that will likely shape future merger and acquisition activity in the IVD industry until 2015:
•    New entrants continue to add IVD businesses. For some newer IVD entrants, recent deal activity may represent only a beginning. Such companies could pursue additional acquisitions to maintain the momentum that is required to achieve critical mass quickly.
•     Historical major IVD companies responding in kind. If current IVD industry leaders do not respond with significant acquisitions, they may lose market share in key segments. Making deals might be challenging because of increasing competition for the most compelling new technologies.
•     Private equity companies searching for opportunities. An increase in bigger private equity–backed deals is likely to crystallize, provided capital markets do not slump.
•     Major pharmaceutical companies buying molecular or tissue diagnostics businesses. Though this kind of deal activity has been slow in recent years, some major pharmaceutical companies will be increasingly motivated by the confirmation of the drug-diagnostic co-development model. Those drug firms that are not part of a company with a significant IVD division have started building business development teams with diagnostics expertise to support better licensing decisions. Some of these companies will also consider buying a diagnostics business to deepen their expertise, increase technology options, and provide direct commercial access.
•     Significant players moving into early detection. Several companies are driving the development of a wave of new tests for early detection of major cancers. Only time will tell whether the market adopts the concept of using noninvasive IVDs for early detection. If it does, a major diagnostics or pharmaceutical company could move to acquire one or several of the promising new ventures in this field.
“It is obvious that PwC spent a great deal of resources to produce this market research piece,” said Harry Glorikian, MBA, managing partner at Scientia Advisors LLC (Cambridge, MA). “The near-comprehensive M&A and partnering coverage utilizing only public sources in the IVD industry is commendable, particularly in this quickly changing industry. The outlook on cancer screening and early detection is consistent with our internal thought leaders and, to our knowledge, is the first publicly available thought piece.”
“However, where the report predominantly falls short is in understanding the complex interactions within and beyond diagnostics, and how these forces will affect personalized medicine,” added Glorikian. “Whether by choice or by necessity, the report opted to concentrate on trendy segments within diagnostics. However, traditional diagnostics players will continue to play an instrumental and strategically adept role to remain dominant forces.”
“The PwC report hints at the improving state of the IVD industry,” said Manfred Scholz, PhD, MBA, president, Scholz Consulting Partners (Medford, MA). “While some of the M&A activity was encouraged by favorable valuations in the recent recession, the key drivers are structural changes in the IVD industry. The key themes are and continue to be content and utility.”
Scholz noted that content is important and reflected in acquisitions such as Ipsogen and Caris. Ipsogen provided a set of new assays to Qiagen, and Caris anchored patient stratification for Miraca Holding. Meanwhile, utility is reflected in the acquisitions of Accuri and Claros. Although neither Accuri nor Claros offered fundamentally new technology platforms to their buyers BD and Opko Health, they made their respective technologies much more user friendly. For example, Accuri put flow cytometry on the benchtop, and Claros delivered immunoassays from fingerstick samples that can be performed anywhere without the need for venipuncture, centrifuges, and power-hogging lab systems.
Additional information about this report is available here.

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