Danaher has announced the acquisition of medical diagnostics company Cepheid, bolstering their presence in the Molecular Diagnostics market. Danaher Corporation 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 Cepheid’s GeneXpert series. This is due to its technical features, which include user set-up 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.