Siemens’ IVD Purchases Are a Major Investment

By acquiring DPC and Bayer Diagnostics, Siemens has triggered much speculation

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CEO SUMMARY: In the space of just nine weeks, Siemens AG purchased Diagnostic Products Corp. (DPC) and Bayer Diagnostics. Siemens paid $1.86 billion and $5.31 billion, respectively, for the two invitro diagnostics (IVD) companies. Once it closes the acquisition of Bayer Diagnostics, Siemens will have the third largest IVD business in the world. Experts predict more consolidation in the IVD industry.

IF THERE WAS ANY SINGLE TOPIC that dominated conversations at last month’s annual meeting of the American Association of Clinical Chemistry (AACC) in Chicago, it was about the upheaval that might result in the in vitro diagnostic industry as a result of Siemens AG’s recent IVD buying spree.

On April 27, Siemens Medical Solutions announced that it would pay $1.86 billion to acquire Diagnostic Products Corporation (DPC), based in Los Angeles, California. That purchase was completed on June 28. (See TDR, May 22, 2006.)

One day later, on June 29, Siemens announced that it would pay $5.21 billion to acquire Bayer Diagnostics from Bayer Healthcare AG. Bayer Diagnostics had sales of approximately $1.8 billion during 2005.

With Siemens placing a major bet on in vitro diagnostics, Wall Street analysts predicted that Siemens’ two largest competitors in imaging, GE Healthcare and Philips Medical Systems, would now be under pressure to do their own acquisitions of major IVD companies.

Given the ample war chests available to both companies, it meant that almost any IVD company could be a target of interest—if GE and Philips intend to match the strategic business moves of Siemens. Thus the rampant speculation around the AACC exhibit hall as to which IVD companies might be next in the ongoing consolidation of this lab industry segment.

THE DARK REPORT believes the bigger story can be found in the motives of Siemens to spend more than $7 billion to buy a major presence in the IVD marketplace. Public statements by Siemens’ executives consistently center around their intent to pursue specific strategic objectives.

“Demographic change is greatly increasing global demand for healthcare services and thereby generating excellent growth opportunities for Siemens,” stated Dr. Klaus Kleinfeld, President and CEO of Siemens. With this statement, Kleinfeld describes Siemen’s expectation that the aging baby boomer generation is going to fuel a steady increase in demand for diagnostic services.

Integration of Diagnostics

But it was Kleinfeld’s next statement which is more telling. He then said “The acquisition of Bayer Diagnostics is part of our targeted strategy to create the healthcare industry’s first integrated diagnostics company by combining the entire imaging diagnostics, laboratory diagnostics, and clinical IT value chain under one roof.”

Siemen’s grand vision is provide the healthcare system with an integrated diagnostics capability—one that includes imaging, in vitro diagnostics, and the information technology solutions necessary to support the clinician in making the right decision as early as possible.

In particular, Siemen’s recognizes the potential of molecular technologies to do the following: 1) to identify the causes of diseases by genetic profiles; 2) to predict the effects of medications selected; 3) to tailor treatment for individual patients; and, 4) to diagnose disease at an early stage.

THE DARK REPORT believes that Siemens has a more sophisticated strategy for clinical diagnostics than most observers realize. The key words underpining this strategy are “presymptomatic diagnosis.” Siemens wants to be first to have the ability to identify problems in a patient before any of the traditional symptoms can be seen.

Early Diagnosis Of Disease

In its public statements, Siemens generally describes this capability as the “ability to diagnose disease at an early stage.” Erich R. Reinhardt, President and CEO of Siemens Medical Solutions, specifically said as much when he stated that Siemens views molecular medicine as having the proven potential to “isolate the molecular makeup of an illness long before a patient ever experiences out- ward signs of disease.”

At the AACC meeting, Mohammed Naraghi, Siemens’ Senior Vice President of Global Business Development, conducted a press briefing. In the audience was Bruce Friedman, M.D., Professor of Pathology at the University of Michigan Medical School in Ann Arbor, Michigan. Friedman, a recognized expert in laboratory informatics, observed that Naraghi’s comments consistently centered around the company’s goal of developing new technology in imaging and in vitro diagnostics that would bridge the gap between the two fields and achieve the ability to accurately make a presymptomatic diagnosis.

More IVD Consolidation?

So what does all this mean for pathologists and laboratory executives? In the short term, Siemen’s willingness to spend billions to buy into IVD may indeed trigger a reaction from GE and Philips. That would mean further consolidation in the IVD marketplace.

In the long term, Siemens’ $7.2 billion investment into in vitro diagnostics signals that laboratory testing is soon to achieve a higher profile within healthcare. That can only be positive for the laboratory profession.

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