Danaher Corporation has announced the acquisition of medical diagnostics company Cepheid, strengthening their presence in the Molecular Diagnostics market. Danaher will pay $53 per share in cash, a premium of 54% based on Cepheid’s pre-bid closing price of $34.42, valuing the deal at $4 Billion including debt.
This is an excellent acquisition for Danaher, who can now claim they are the market frontrunner in point of care molecular diagnostics. They have gained what is agreed by many as the class-leading system in the GeneXpert series. This is due to its technical features, which include user setup simplicity, scalability and an extensive and increasing test menu that now spans healthcare-associated infections, critical infectious disease, sexual health, virology, oncology and genetics.
However, the acquisition is a departure from Danaher’s preferred M&A strategy, which usually focuses on companies that are in profitability. Whilst Cepheid’s sales have consistently grown year-over-year, with 2015 recording $538.6M an annual increase of 15%, the company has posted net losses every year with the exception of 2011. For 2015, a net loss of $48.5M was posted, along with an accumulated deficit of approximately $342.2M. Cepheid anticipate 2016 revenue to increase to between $618M and $635M.
Ultimately the business challenge for Cepheid is building its clinical installed unit base and maximising its clinical reagent revenue. Whilst reagent sales are growing and currently constitute 79% of Cepheid’s revenue, sales of units dropped 2% in 2015, accounting for 15% of revenue.
“There are substantial opportunities to grow the unit revenue in both developed and emerging markets, although price erosion is likely to be a challenge,” notes Dr. Frank Rinaldi, Director of Market Intelligence & Innovation at Evolution Bioscience. “One would imagine that Danaher, who will be bringing significant scale support, have already identified this as a potential issue, hence the change in M&A strategy to consider loss-making entities.”
In addition to the internal stockholders, a number of major investors who have significant positions have done very well out of the acquisition including:
- Artisan Partners Limited Partnership
- The Vanguard Group, Inc
- Wellington Management Company, LLP
- Columbia Wanger Asset Management, LLC
- Riverbridge Partners, LLC
- BlackRock Institutional Trust Company, N.A
- Champlain Investment Partners, LLC
- Fidelity Management & Research Company
- Goldman Sachs Asset Management (US)
- PRIMECAP Management Company
- State Street Global Advisors (US)
- OppenheimerFunds, Inc
- Schroder Investment Management North America Inc
- Kornitzer Capital Management, Inc.
- The Northern Trust Company
Following news of the deal, Cepheid’s stock rose more than 50% to $52.40 per share, just shy of Danaher’s $53 per share offering. This acquisition, as well as Pfizer’s recent $14bn acquisition of Medivation, highlights the lucrative returns possible in Biotechnology investing.