TRENDS & PERSPECTIVES
IVD manufacturers have welcomed among their ranks a new major player that everyone is certainly familiar with in some way. General Electric Co. (GE; Fairfield, CT) agreed to acquire the primary IVD businesses of Abbott Laboratories (Abbott Park, IL) and Abbott Point-of-Care for $8.13 billion in cash. These divisions generated estimated revenues of about $2.5 billion in 2006.
Through this acquisition, GE would broaden its $16 billion healthcare business and become a full-fledged IVD company. According to GE officials, the company envisions IVDs complementing its existing positions in in vivo diagnostic imaging, molecular imaging, information technology (IT), and patient monitoring. IVDs will become an integral part of GE’s “early health” strategy of combining early diagnosis with IT to enable a new model of care focused on presymptomatic disease detection and prevention.
“This acquisition is part of a long-term plan to spread GE’s continuum of care into IVDs and point-of-care diagnostics,” says Brian McKaig, communications director at GE Healthcare. “It’s expanding our diagnostic capabilities by bringing together IVDs and point-of-care with our current in vivo imaging systems and molecular imaging agents.”
Indeed, GE has been interested in entering the IVD market for several years. The company made its first foray into IVDs when it acquired Amersham Biosciences for $9 billion in 2004. GE officials said the Amersham acquisition was meant to serve as an initial bridge into IVDs and the acquisition of Abbott would complete the picture of its comprehensive diagnostic offerings. However, before approaching Abbott with a formal offer, GE wanted to make sure Amersham and its technologies were fully integrated into the company, which took about two years.
“We felt we couldn’t penetrate the IVD market properly without Amersham’s strengths in biochemistry and protein chemistry,” says McKaig. “We have had our sights on the IVD business for over five years, and we’ve always known that the IVD business would be an excellent fit for our portfolio. While we knew we wanted to get into the IVD market, we wanted to do it the right way.”
Abbott decided to sell these business units because of perceived changes in the IVD market. According to Abbott officials, such changes caused the company to re-examine its goals and objectives regarding IVDs.
“During the last 10 years, the IVD business has shifted from one that is driven by benchtop instruments with innovative assays to one that’s migrated to large systems integrated with a lot of different software and automation components, which is a different kind of business than when we first started,” says Kelly A. Morrison, director of external communications at Abbott. “This business has become much more capital equipment intensive, requiring a lot of automation software, which are core competencies that will fit well with GE. But from our perspective, Abbott has shifted its strategic vision over the last several years to focus more on high-growth, innovation-driven businesses.”
GE’s acquisition did not include Abbott’s Molecular Diagnostics and Diabetes Care businesses, which will remain a part of Abbott. By retaining these businesses, Abbott has indicated that its future involvement in the IVD market will focus on these two areas.
“Molecular diagnostics is a smaller part of our portfolio, but a very fast growing business,” says Morrison. “It also has a lot of synergies with our pharmaceutical business, and a lot of research and development. Especially considering the potential of personalized medicine and the capabilities of doing research that links up with our pharmaceutical side, it made a lot of sense for us to keep this high-growth business.”
In addition, during the past few years, Abbott has been making acquisitions and other transactions in an effort to shift toward innovation-driven businesses. The company hopes these acquisitions will position it for higher growth by strengthening the mix of its medical and pharmaceutical portfolio toward technology-driven businesses. Abbott’s recent acquisitions include Knoll Pharmaceuticals, TheraSense, Guidant’s vascular business, and Kos Pharmaceuticals.
Analysts believe this acquisition is a win-win situation for both GE and Abbott since it gives each of them exactly what they were hoping to get.
“Much like Siemens, GE’s capabilities in information technology, imaging, and now IVDs will provide a complete solution to its customer base,” says Jeff Ellis, head of diagnostics mergers and acquisitions at Crosstree Capital Partners Inc. (Tampa, FL). “On the other hand, Abbott has shed relatively low margin business units and can focus its attention on expanding its higher-growth segments such as molecular diagnostics. The cash inflow will also free up significant financing capacity to pursue future acquisitions.”
