CEO SUMMARY: Roche will pay $11 billion to buy Corange Ltd., parent company of Boehringer Mannheim, the world’s number two diagnostics company. Wall Street expects this deal to quicken the pace of consolidation in the healthcare industry. The surprise move will impact clinical laboratories.
WALL STREET and the clinical laboratory industry were both caught off guard by the announcement last Monday that Roche Holdings. Ltd. would pay $11 billion to acquire Corange Ltd.
Because Boehringer Mannheim GmBh is a division of Corange, Roche will now own and operate Boehringer. It is too early to understand what Roche intends to do with Boehringer. Because Boehringer is a major player in the diagnostics marketplace, clinical laboratories will eventually see changes to how Beohringer markets its products.
Roche’s first foray into diagnostics started slowly, but rapid growth in earnings and profits in the diagnostics division apparently encouraged the company to expand diagnostics. Boehringer’s acquisition should quadruple Roche’s annual diagnostics sales.
With the acquisition, Roche now eclipses Abbot Laboratories Inc. as the world’s largest diagnostics company. The Corange acquisition is still subject to regulatory approval, but there are no indications that such approval would be withheld.
For laboratory executives, this acquisition is a reminder that the same type of consolidation that transformed the commercial laboratory industry is hitting other segments of healthcare. Wall Street analysts expect this deal to trigger others in the diagnostics industry, possibly involving Johnson & Johnson, Abbott and Bayer AG.What will cause such transactions is the fact that developing diagnostic technology requires huge amounts of capital and resources which smaller companies do not possess.
THE DARK REPORT believes that Roche may want to enter the marketplace with a combined diagnostic-therapeutic package. This would pair diagnostic tests with appropriate pharmaceuticals. Were this to occur and catch on in the marketplace, it might impact the type of services commercial laboratories provide.
Imagine the sales force of a clinical laboratory offering both the diagnostic test and the related prescription drugs for the indicated treatment. THE DARK REPORT sees this trend already occurring with certain boutique laboratories.
In the press stories about the Roche-Corange merger, there was no mention of Laboratory Corporation of America, in which Roche holds a 49% stake. The Corange acquisition may lead Roche to reassess what strategic value LabCorp can contribute to the combined parent company.