Money Pours into Clinical Diagnostics

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THIS IS AN AMAZING ISSUE OF THE DARK REPORT! In the past four weeks, there’s been an unusual surge of corporate mergers and acquisitions. Individually, some are noteworthy, but collectively, the message is undeniable.

A flood of money is currently flowing into clinical diagnostics and the laboratory industry. Look at this issue’s roll call: First up is the sale of Focus Diagnostics to Quest Diagnostics for a price of $185 million. (See pages 2-5.) Next is the merger of Fisher Scientific International, Inc. and Thermo Electron Corp., to the tune of $9 billion in market value. (See pages 12-13.) And, by the way, I should note that Fisher Scientific is acquiring Athena Diagnostics, Inc., for $283 million in a deal announced in March. Then, there’s the recently-announced sale of Diagnostic Products Corporation (DPC) to Siemens Medical Solutions (SMS) for $1.86 billion. (See pages 14-15.)

A simple calculation indicates a total of $2.32 billion was spent to buy laboratories or lab vendors, plus the $9 billion in the Fisher-Thermo deal! That’s a lot of money flowing into the laboratory space in just a few weeks. It sends an unmistakable message: Wall Street likes laboratory medicine and clinical diagnostics. It sees plenty of opportunity and is ready to place big bets on the table to hold its place as the game develops.

There is another message, which I think is equally important. It is that consolidation is continuing, both within the laboratory industry and among IVD vendors. This means the biggest will continue to get bigger, competitors will get fewer, and anytime a company manages to avoid being acquired long enough to reach a certain size, likely buyers will offer its owners such a large premium that it will end up being sold.

Hospital-based laboratory administrators and pathologists should pay particularly close attention to these developments. First, it means they are competing against a different type of laboratory owner/operator than in past years. Second, it also means that the number of suppliers from which they can shop for products will continue to shrink.

And maybe you want me to close by answering an obvious question…how much consolidation will take place? My crystal ball is a bit cloudy on this issue, but I can say, with some confidence, that it is likely to be as much as the anti-trust regulators will allow.

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