Life Science Stocks Capture M&A Premium

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Yesterday’s Alkermes (ALKS) deal with Elan (ELN) supports the major M&A trend in the life science market. Timing is everything in a hot market. The rationale for the current M&A activity is:  technologies and pipeline fit strategically, money is cheap, and growth (growing internally takes too long). The parade is ongoing:

  • go GenProbe (GPRO) news that it was up for sale on April 29 with Morgan Stanley as bankers has boosted the stock 17%. GenProbe is a leading Company in blood screening and infectious diseases diagnostics and trades at 6X 2012 estimated revenue. Obvious buyer is Novartis (NVS) with JNJ, GE and other possibles.
  • Genzyme sold out to Aventis-Sanofi for a premium based on their orphan drug franchise. The other pieces of Genzyme, genetic testing and diagnostics, were of low strategic value.
  • Genoptix a diagnostics laboratory focused in cancer was sold to Novartis (NVS) for $470M in cash or a modest 3X revenue. Genoptix becomes part of Novartis Molecular Diagnostics unit. Novartis is investing in companion diagnostics.
  • follow link Celera (CRA) unable to leverage its acquisition Berkeley Heart Labs is being acquired by Quest Diagnostics (DGX) for $671M. Price is about 4.7X revenue plus about $300M in cash. Quest gets genetic testing capability.
  • Danaher (DHR) is buying Beckman for $6.8B , $83/sh a ~$30 premium over the trading price before the deal was announced. Does this mean that larger life sceince distribution companies want to get into pure play Dx as Perkin Elmer(PKI) also was interested in Beckman.

Ken Powell a long time biomedical executive now of Genesis Business Development LLC said,”

“M & A is accelerating across both the clinical diagnostics and life sciences market segments. It appears that this is flying under the investment analyst radar, but its pinging louder ever day. There are important drivers that point to increased 2011 M&A activity. These include strategic acquisitions to drive top line revenue, access high growth emerging markets and enter and/or transition to new market segments. The economic recovery now underway following the recession has left major players with cash positions needed to capitalize on new opportunities.”

Today Luminex (LMNX) soared to 52 week highs on earnings with Revenues up 30% to $43.3M and earnings up $8.3M compared to $3.7M to previous quarter,

Many diagnostic stocks are near all time highs . We will compare some core diagnostic companies and their valuations post Q1 2011 earnings. Here are some of the companies currently in the Rayno Life Science Dx Portfolio:

Abaxis(ABAX), Exact Sciences(EXAS), GenProbe (GPRO), Illumina(ILMN), Immucor (BLUD),NeGen(NEOG), Qiagen(QGEN), Quidel(QDEL), Sequenom (SQNM) and SeraCare (SRLS).

Diagnostics and tools stocks are strong today. Some genetic testing and genomics plays may even be getting a little frothy as Genetic Technologies (GENE) was up 11% today and up 740% YTD!! The Australian  Company is focused in forensics, reproductive and genetic testing with revenues ending June 30,2010 of $4.9M with losses of $7.9M.

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