MDx and M&A Markets Experience Lull in Late 2011

The second half of 2011, however, saw a significant downturn in M&A activity as 20 deals were completed or announced, down from 25 in the comparable year-ago period.

Throughout much of the year, there was uncertainty surrounding government funding—and while the picture coming out of Europe has played out better than feared, the United States funding landscape continues to concern many, even with the recent passage of a 1 percent increase in National Institutes of Health (NIH; Bethesda, MD, USA) funding for fiscal year 2012.

A Congressional Super Committee failed to reach a budget-cutting deal last month, which could lead to significant cuts in scientific research funding in fiscal year 2013. This failure is cause for concern and it has made everyone more cautious, especially those in smaller firms.

Not only did the number of deals dwindle as the year progressed, the size of the deals also became more modest. No acquisition in the second half of the year approached the USD 6.8 billion that Danaher (Washington DC, USA) agreed to pay in February to acquire Beckman Coulter (Brea, CA, USA).

Acquisitions during the second half of 2011 mostly consisted of small to mid-sized firms combining their businesses. The most high-profile transaction in the last six months of the year was probably PerkinElmer's (Waltham, MA, USA) USD 600 million purchase of Caliper Life Sciences (Hopkinton, MA, USA). Overall, PerkinElmer was the most acquisitive company in the life science tools space with seven purchases in total during the year, including four companies offering bioinformatics-related products.

Other active buyers in 2011 were Thermo Fisher Scientific (Waltham, MA, USA), which made five purchases, and Agilent Technologies, which acquired four firms, including most recently Halo Genomics (Uppsala, Sweden) and BioSystem Development (Madison, WI, USA).

In the life science tools and 'omics space, M&A activity may be even livelier in the coming years. Generally, there are more growth opportunities in the space than in the general IVD market, in part because the technologies that have been in development are now finally mature enough to be commercialized.

Pharmaceutical firms are becoming increasingly interested in the use of 'omics technologies to develop companion diagnostics for drugs in their pipelines. As an example, Swiss pharma giant Novartis created a molecular diagnostics unit three years ago to focus specifically on developing diagnostics for determining which patients may benefit from certain drugs.

Peter Lawson, an analyst at investment firm Mizuho Securities (Japan), commented that as a whole, 2011 shaped out to be better year on the M&A front than 2010 in the broader life science space. Although the number of deals may have stayed level year over year, the number of "impactful" acquisitions in 2011 will total about USD 20 billion this year compared to USD 3 billion a year ago.

Investment bank Goldman Sachs (London, United Kingdom) also anticipates a healthy rate of acquisitions in the near-term. In a report this month, analysts Isaac Ro and David Roman said that companies in the life science tools and diagnostics space have employed cash "more offensively in the form of M&A," as opposed to share repurchases in recent years.

Related Links:
National Institutes of Health
Danaher
Beckman Coulter