Multi-billion-dollar mega-deal positions Thermo Fisher to offer a broader spectrum of gene sequencing systems to clinical laboratories and pathology groups
Earlier this week, Thermo Fisher Scientific, Inc., (NYSE: TMO) of Waltham, Massachusetts, announced a deal that will shake up the market for next-generation gene sequencing and genetic testing. It will acquire Life Technologies Corporation (NASDAQ: LIFE) of Carlsbad, California.
More IVD Industry Consolidation That Affects Clinical Laboratories
It is another example of consolidation involving two companies that sell products to the clinical laboratory and anatomic pathology sectors of the lab medicine marketplace. It is also a multi-billion dollar transaction. Thermo Fisher will pay $13.6 billion for Life Technologies, or $76 per share, according to a Reuters report. This amount represents an 11.7% premium over the $68 price per share of Life Technologies’ stock when trading began Monday morning.
Wall Street analysts are calling this one of the largest corporate takeovers of the year. The deal will make Thermo Fisher second only to Illumina in the field of gene sequencing for personalized medicine, Reuters reported. In making this acquisition, Thermo Fisher competed against Sigma-Aldrich, a biotechnology company; and a consortium of private equity firms, including the Blackstone Group and Kohlberg Kravis Roberts, The New York Times reported.
Gene Sequencing Market Is Developing at a Fast Pace
Life Technologies posted revenue of $3.8 billion during 2012. Its products include reagents, consumables, instruments, and systems for forensics and food safety testing. But among clinical laboratory managers and pathologists, it may be best known for its next-generation gene sequencing analyzers for research and clinical purposes.
These analyzers are attractive assets for Thermo Fisher, the world’s largest maker of scientific and laboratory equipment. Thermo Fisher already has a significant presence in research and clinical laboratories worldwide. The company generated revenues of $12.5 billion last year and has 39,000 employees.
Pending approval from U.S. regulators and shareholders, the sale is expected to be completed early next year. At that time, Thermo Fisher could offer some of Life Technologies’ products to its clinical laboratory customers.
Bigger Role for Next Generation Sequencing in Specialty Diagnostics
The upside potential to next-generation gene sequencing was a big motivator in this acquisition. “Genetic sequencing is an area that will become increasingly important over the years in terms of specialty diagnostics, and Thermo needs to compete in that market because they have a number of products in that area that ultimately could get displaced by sequencing applications,” stated Jonathan Groberg, an analyst with Macquarie Capital, in an interview with Reuters.
Thermo Fisher offers a range of scientific instruments from basic equipment to advanced mass spectrometers. It also sells chemicals, agents, and antibodies for biotech research, reported Reuters. Life Technologies’ products complement these offerings.
Another factor making the deal attractive to Thermo Fisher has been flat federal research funding from the National Institutes of Health in recent years. As a result, Thermo Fisher’s sales to research labs have been flat as well. By acquiring Life Technologies, Thermo Fisher can boost revenue and earnings.
The company said the deal would add 90 cents to $1 to its per-share profit in the first full year. Within three years of closing the deal, Thermo Fisher expects to achieve cost savings of $250 million by consolidating facilities and support functions.
As part of the deal, Thermo Fisher will assume Life Technologies’ debt of about $2.2 billion. Analysts estimated that the combined companies would generate about $17 billion in revenues during 2013.
The acquisition is the largest deal Thermo has made since forming the company in 2006, with the $12.8 billion merger of Thermo Electron and Fisher Scientific International, noted the Reuters report. Life Technologies was formed in 2008 when Invitrogen Corp., paid $6.7 billion in cash and stock to buy Applied Biosystems, the company that provided most of the equipment used in the Human Genome Project, The New York Times reported.
Pathologists Not Likely to See Much Change in Short Term
Because clinical applications of next-generation gene sequencing technologies are still limited, few clinical laboratories and anatomic pathology groups will be directly affected by the merger of these two companies, at least in the short term. However, that will not be the case going forward. Thermo Fisher has a large, established base of clinical lab and pathology group customers. Thus, it is well positioned to leverage these relationships to introduce the gene-sequencing systems and products made by Life Technologies to these customers.
—By Joseph Burns