More IVD Consolidation as Danaher Acquires Iris

Danaher to pay $338 million to buy Iris in a transaction expected to close by year’s end

CEO SUMMARY: Danaher Corporation continues to fuel growth by continually acquiring in vitro diagnostics (IVD) companies. Its latest purchase is Iris International, which manufactures automated urine microscopy systems. Danaher also has $5 billion available that it could spend in the next two years on acquisitions. Because of its acquisitions over the past decade, Danaher now generates a combined $6.4 billion in annual revenue just from its life sciences and diagnostics business units.

IT’S THE LATEST BIG ACQUISITION among major in vitro diagnostics (IVD) companies. Iris International, Inc., of Chatsworth, California, has agreed to be acquired by Danaher Corporation of Washington, DC.

Announced last month, Danaher will pay a reported $338 million for Iris and the deal is expected to close by year’s end. Iris is a major player in automated urine microscopy and chemistry systems. It has placed 3,800 such systems in 50 countries and had revenue of $118.3 million for 2011.

IVD Consolidation Trend

Danaher’s purchase of Iris is notable for lab executives for two reasons. First, this deal is the latest example of ongoing consolidation within the IVD industry. Such acquisitions leave fewer companies to compete for the business of clinical labs.

Second, this purchase continues Danaher’s own IVD acquisition binge. Its IVD purchases began in 2003, when it paid $730 million to acquire Radiometer. In 2005, Danaher did not have a Life Sciences & Diagnostics division. However, since that date, the company has spent almost $9 billion to acquire Leica Microsystems (2005), AB Sciex (2010), Molecular Devices Corporation (2010), Beckman Coulter Corporation (2011), and now Iris International.

By following this business strategy, Danaher Corporation has joined the ranks of the largest IVD companies. For 2011, its combined life sciences and diagnostics business generated $6.4 billion in revenue. In fact, Danaher is one of three companies which have become IVD heavyweights in recent years by doing serial acquisitions.

The other two companies with fast-growing IVD businesses are Alere, Inc. (formerly Inverness Medical Systems), of Waltham, Massachusetts, and Hologic, Inc., of Bedford, Massachusetts. For 2011, revenue from their diagnostic divisions was $1.7 billion and $566 million, respectively. (See sidebar below.)

Financial analysts commenting on these IVD acquisitions are generally bullish on the prospects for the IVD industry. They put forth three reasons for this optimism. First, the population of the United States and other large developed countries is aging. This will create an increased demand for clinical laboratory testing.

Second, financial analysts point out that the emphasis on preventive measures in healthcare will be a future driver to the utilization of lab tests. More lab tests will be ordered as physicians strive to detect disease earlier and to monitor patients with chronic diseases.

Third, Congress passed the Affordable Care Act in 2010, and one element of this legislation is to provide health insurance coverage to 30 million Americans who are currently uninsured. Financial analysts expect that the utilization of lab tests will increase as physicians begin to provide care to these newly-insured patients.

It is because of these market trends that IVD companies have the capital they require to fund their acquisition strategies. In turn, the ongoing pace of IVD acquisitions means that clinical laboratories often find fewer sources for the lab instruments, reagents, and consumables they need to purchase.

THE DARK REPORT believes that the pace of acquisitions within the IVD sector will continue. Moreover, the pattern is one of a conveyor belt. Small IVD companies emerge with innovative technology and products. As they grow and add to their market share, they become attractive acquisition candidates for the larger IVD compa- nies. That is another reason why more IVD acquisitions can be expected.

Inverness Medical Systems Morphs into Alere as It Regularly Snaps up Various IVD Companies

BY FOLLOWING A STRATEGY of serial acquisitions, Alere, Inc., has built its diagnostics business into a billion-dollar powerhouse. As noted elsewhere on these pages, along with Danaher Corporation and Hologic, regular acquisitions allow these three companies to consistently build market share and revenue for their respective in vitro diagnostics (IVD) businesses.

For Alere of Waltham, Massachusetts, (formerly Inverness Medical Systems), 2003 was the seminal year in its IVD acquisition strategy. Alere began a string of purchases that one analyst describes as an “acquisition rampage.” Reflecting strong growth through acquisitions, Alere’s company-wide net revenue grew by 11% last year from $2.1 billion to $2.4 billion, Hoover’s reported. About $1.7 billion of this is from its diagnostics businesses.

Alere already had a significant presence in the point-of-care testing business when it spent $375 million last year to acquire Axis- Shield. This UK company develops point-of- care diagnostic tests for bacterial and viral infection, cardiovascular disease, and diabetes.

In 2010, it purchased a majority interest in Standard Diagnostics of Korea, a company that makes reagents for diagnosing infectious disease. Also in 2010, Alere paid $263 million for Epocal, which makes blood analysis systems. Epocal adds to Alere’s port- folio of point-of-care diagnostic testing products for use at the bedside, in physicians’ offices, and in hospitals.

Also that year, Alere bought Kroll Laboratory Specialists for $110 million and renamed it Alere Toxicology Services. Alere added to this division when it spent $270 million for eScreen, a company that makes optical scanning systems to analyze urine samples and report results within minutes.

In the previous year (2009), Alere spent $76 million to buy Concateno, a company in the UK that makes drugs-of-abuse tests.

The big acquisition was in 2007. That is the year that Alere out bid Beckman Coulter to purchase Biosite Incorporated for a purchase price of $1.7 billion. (See TDR, April 23, 2007.) Also that same year, Alere bought Cholestech Corporation for $326 million.


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