A Diagnostics & Imaging Week

The diagnostics sector has two levels – a handful of Goliaths in one group, a multitude of Davids in the other.

Industrial conglomerate Siemens (Munich, Germany) last week could claim expanded Goliath status in the human testing space – No. 2 to Roche Diagnostics (Basel, Switzerland) – with a blockbuster-style consolidation. It agreed to acquire Bayer Diagnostics (Tarrytown, New York), the diagnostic unit of Bayer AG (Leverkusen, Ger-many), for $5.3 billion.

After-tax proceeds to Bayer are expected in the range of about $3.6 billion.

For Siemens, the acquisition provides a strong complementary fit to its purchase, in April, of Diagnostic Prod-ucts Corp. (DPC; Los Angles) for $1.68 billion (Diagnostics & Imaging Week, May 4, 2006). The company said that with the additions of DPC and the Bayer unit it will garner the No. 2 position in immunodiagnostics worldwide.

In unveiling its part of the deal, Bayer said the spin-off is intended to reduce debt and refocus its health division. "We are concentrating on pharmaceuticals for both humans and animals, and products that can be promoted directly to patients," said Bayer CEO Werner Wenning. The company noted that its diabetes business as well as Schering's (Berlin) contrast agents business were not included in the Siemens transaction.

The deal supports financing of Bayer's takeover of Schering for about EUR 3.7 billion.

But Wenning also said the motive for the spin-off was "part of the consolidation phase in the diagnostics market – we are convinced that the successful laboratory equipment business has even better long-term development prospects in a company specializing in medical technology" – such as Siemens.

Dr. Klaus Kleinfeld, president/CEO of Siemens, said, "Demographic change is greatly increasing global demand for healthcare services and thereby generating excellent growth opportunities for Siemens," and he touted the acquisition of Bayer Diagnostics as part of the company's strategy "to create the healthcare industry's first integrated diagnostics company by combining the entire imaging diagnostics, laboratory diagnostics and clinical IT value chain under one roof."

Kleinfeld also noted that this acquisition targets "promising growth fields," driven by worldwide demand and aging demographics.

A company statement said the acquisition also allows it "to tap the rapidly growing market for molecular diagnostics based on gene analysis (nucleid acid testing). Bayer Diagnostics is also a world market-leader in clinical chemistry with a leading position in near-patient testing, laboratory automation and hematology (blood cell diagnostics)."

Dr. Erich Reinhardt, president of Siemens' Medical Solutions Group and member of the Siemens managing board, said, "Molecular medicine is becoming increasingly important since it enables healthcare professionals to identify the causes of disease using genetic profiles. With the help of molecular medicine, it will be possible not only to predict the effects of the medications selected and tailor treatment for individual patients, but also to diagnose disease at an early stage."

The DPC purchase, he said, "has provided us with access to laboratory diagnostics. With the acquisition of Bayer Diagnostics, we will now have a comprehensive portfolio in this key future-oriented market. These deals will enable us to considerably expand our range of expertise and further our leading position as a trendsetter in healthcare."

The sale – approved the evening of June 29 by Bayer's supervisory board and subject to various approvals – is scheduled to close in the first half of 2007.

In 2005, Bayer's diagnostics operations posted EUR 1.4 billion in sales. The company employs some 5,000 persons worldwide.