Celera is not a medical laboratory, but develops biomarkers and molecular diagnostics tests

For the second time since the New Year, Quest Diagnostics Incorporated (NYSE:DGX) has announced an acquisition. Last Friday, Quest Diagnostics said it had agreed to purchase Celera Corp. (NASDAQ:CRA) for a purchase price that Reuters reported to be $657 million.

What makes this acquisition different from those typically done by Quest Diagnostics and its major competitor, Laboratory Corporation of America (NYSE:LH), is that Celera is primarily not a provider of clinical laboratory tests. Rather, it specializes in identifying biomarkers that can be used to develop genetic tests. It is active in the fields of cardiovascular diseases, cancers and neurological disorders. Berkeley HeartLab is one clinical laboratory testing division owned by Celera.

Alert readers of Dark Daily will recall that Celera was founded in 1998 by J. Craig Venter, Ph.D. specifically to enter the race to be first to sequence the entire human genome (See The Dark Report, “Private Consortium Plans To Decode Human Genes” June 15, 1998). It took Venter and his team under two years to achieve that feat. It was June, 2000, when President Bill Clinton announced that the first complete human genome had been sequenced. At that press conference, both Venter, as leader of the private effort, and Francis Collins, M.D., as leader of the Human Genome Project, were recognized for their respective contributions to this feat.

Assuming that Quest Diagnostics successfully closes this acquisition and becomes the owner of Celera Corp., it will give the nation’s largest medical laboratory and pathology testing company a portfolio of patent-protected biomarkers and assays. For 2010, Celera reported revenue of $128.2 million. During a conference call, Surya N. Mohapatra, CEO at Quest Diagnostics, stated that 65% of Celera’s revenues were protected by patents.

Other Companies May Submit Bids to Purchase Celera
 
Reuters also reported last Friday that at least one financial analyst was predicting that it was possible that other companies might still enter bids for Celera. Mentioned in this regard were LabCorp, Life Technologies (NASDAQ:LIFE), and Abbott Laboratories, Inc., (NYSE:ABT). Abbott Laboratories holds distribution and royalty agreements for certain molecular diagnostic technologies with Celera.

Quest Diagnostics’ first acquisition for 2011 was Athena Diagnostics. This deal was made public in February. Thermo Fisher Scientific, Inc. (NYSE:TMO) sold Athena to Quest Diagnostics for a sales price of $740 million. Athena’s annual revenues are in the range of $110 million. Thus, Quest Diagnostics paid a rather high multiple of earnings to acquire Athena Diagnostics (See Dark Daily, “Quest Diagnostics to Pay $740 Million to Acquire Athena Diagnostics from Thermo Fisher”, February 24, 2011).

Similarly, Quest Diagnostics is paying $657 million to Celera, which posted $128.2 million in revenue for 2010. That represents a multiple of 5.1 times annual revenue, and suggests that this purchase price would be at the higher end of the valuation range.

Strong Prices for Clinical Pathology Laboratory Companies
 
The prices of these two acquisitions by Quest Diagnostics, however, are in the same range as the price paid by General Electric when it acquired Clarient, Inc., in October, 2010. GE paid $587 million to purchase Clarient, which had 2011 revenue of about $115 million. This price represents a 5.1 times multiple of purchase price to revenue (See Dark Daily, “GE Healthcare Pays $587 Million to Purchase Clarient, the Specialty Pathology and Cancer Testing Firm,” October 22, 2010).

Another significant clinical laboratory company acquisition during 2011 was Novartis’ purchase of Genoptix. In this case, Novartis paid $470 million, which was 2.6 times Genoptix’ 2010 revenue of about $200 million (See Dark Daily, “Novartis to Pay $470 Million to Buy Pathology Testing Company Genoptix,” January 25, 2011).

For owners of clinical laboratories, and for pathologists holding partnerships in anatomic pathology group practices, the strong prices buyers are willing to pay for selected medical laboratory companies are a welcome development. There will be a review of clinical laboratory and pathology mergers and acquisitions presented at the upcoming Executive War College on Lab and Pathology Management.

This “deal review” will be conducted by Christopher Jahnle, Managing Principal at Haverford Healthcare Advisors. Jahnle will also provide an assessment in current valuations and sales price trends for medical laboratories. In a separate session, Michael Rodriguez, Senior Vice President and CFO of Clarient, Inc., will provide a seller’s perspective and lessons learned from Clarient’s highly-successful sale to General Electric.

These and other sessions will take place during the full-day workshop, titled “Clinical Laboratory and Pathology Mergers & Acquisitions” that takes place on Thursday, May 5th, immediately following the first two days of the Executive War College on May 3rd-4th. The full agenda and registration are available at www.executivewarcollege.com.

 

Related Information:


Quest Diagnostics to Acquire Celera, Strengthening Position as World’s Leading Innovator in Molecular Diagnostics and Development  

Quest makes $657 million bid for Celera

Quest Diagnostics to Acquire Celera 

Quest Diagnostics to Pay $740 Million to Acquire Athena Diagnostics from Thermo Fisher