Lab M&A Deals in June Show Market Direction

Buyers support labs offering unique tests for companion diagnostics and personalized medicine

CEO SUMMARY: Despite a dismal economy, the month of June spawned two interesting merger/acquisition transactions in the lab testing industry. In one case, a blood brother gobbled up a specialty diagnostics company. In another transaction, two cross-town neighbors in Kansas City merged to form an enhanced specialty diagnostics laboratory company. The common theme behind both transactions was motivation to acquire resources and technology in companion diagnostics and personalized medicine.

JUNE WAS AN ACTIVE MONTH for laboratory mergers and acquisitions. Two transactions occurred, spurred by the race to serve the nascent demand for companion diagnostics and tests that support personalized medicine.

First came the announcement on June 23 that Laboratory Corporation of America of Burlington, North Carolina, would acquire Monogram Biosciences, Inc., of South San Francisco, California. In an all-cash deal, LabCorp will pay $106.7 million, or $4.55 per share.

Monogram sells a number of tests used in HIV testing and to determine which therapeutic drugs may be appropriate for an HIV-infected patient. It also has a HER/2 test for breast cancer.

The second transaction was a merger involving two laboratory companies located just 22 miles from each other. On June 30, ViraCor Laboratories of Lee’s Summit, Missouri, announced its merger with IBT Laboratories of Lenexa, Kansas.

In the merger, ViraCor, a molecular diagnostic testing company specializing in infectious diseases, joined together with IBT, a clinical diagnostics and biomedical- research laboratory that specializes in immunology and allergy assays. The new ViraCor IBT company is a specialty diagnostics laboratory.

“This merger was driven by rapid changes in the lab testing marketplace,” stated John Martin, President of the combined lab company. “Clients want more from their diagnostic laboratory providers in terms of state-of-the-art diagnostic testing and technology platforms. We thus saw the need to increase our menu of offerings to allow us to more effectively partner with healthcare providers in support of better case management and better ways to treat patients.”

Sign Of A Larger Trend

“These two examples (ViraCor-IBT and LabCorp-Monogram) affirm a trend that has been going on internally with the big companies for some time,” said Gregory J. Tsongalis, Ph.D., Director, Molecular Pathology and Co-Director, Pharmacogenomics Program, at the Dartmouth Hitchcock Medical Center in Lebanon, New Hampshire. “That is, acquisition of smaller diagnostic companies with novel lab test technologies and expertise to help move things more quickly through the pipeline.

Matching R&D And Clinical

“In fact, the lab here at Dartmouth is an example of this trend” noted Tsongalis. “We formed our own translational research lab for R&D purposes. Not only did that result in significant savings for the clinical lab, but it has brought us many more academic collaborations than we could have accomplished with just the clinical laboratory.

“Based on our experience, this same thing is happening with the larger laboratory companies,” he added. “Among these companies, the competition is fierce. Having a program to acquire and access unique diagnostic technology that can support companion diagnostics is becoming a critical success factor.”

That’s the same message coming out of the recently merged ViraCor IBT, which points out that it has a strong research and development infrastructure. This gives it broader scientific proficiency for physicians, hospitals, and researchers in immunology and infectious diseases. Together, Viracor and IBT can offer enhanced services to bio-pharmaceutical companies doing drug discovery and clinical-trial testing.

Want Three Lab Capabilities

“Physicians and hospitals want laboratory and diagnostic providers—and especially the specialized segments of our industry—to do more than simply provide lab test results,” Martin explained. “They look for three capabilities. First, they want labs that will help them better serve their patients. Second, they want the state-of-the-art science and service. Third, they want labs that can grow with them. Essentially, clients tell us that they want their laboratory to be a long term partner as lab test technology advances in support of companion diagnostics and personal- ized medicine services.

“At ViraCor and IBT, we broadly define our target market as conditions affecting the immune system,” he continued. “This market includes allergy, immunology, infectious disease, and the like—along with hospitals, physicians, and pharmaceutical clients developing therapeutics in this field. For these clients, the new ViraCor IBT company has an extremely comprehensive offering. “In response to the evolution we see in the clinical and research marketplace, our business strategy is to marry diagnostic technology with a scalable business model,” concluded Martin. “This keeps us relevant in the eyes of our clients, who value our broad test menu which is specialized to their needs.”

Lab Mergers & Acquisitions

With two laboratory merger and acquisition deals in June, it can be considered a busy month, given an economy in recession. However, there is a more important insight from these two deals for pathologists and lab managers.

In both examples, motivation for the transaction was buyer interest in a laboratory that had specialty molecular expertise and the capability to service the emerging demand for companion diagnostic assays and testing in support of personalized medicine. Interesting confirmation of this market development came from Tsongalis, who reported on the success that resulted from the creation of the translational research lab at Dartmouth Hitchcock Medical Center.

Collectively, these developments demonstrate the importance for laboratories to have the right partners and access to advanced diagnostic technology. That’s because clients of specialized lab testing seem to be raising the bar on their lab providers.

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