Consolidation in diagnostics continues apace, with Diasorin SpA set to take over Luminex Corp. in an all-cash deal that values the multiplex diagnostics and molecular testing specialist at $1.8 billion.
At $37 per share, the price is a 23% premium to the Luminex (NASDAQ:LMNX) share price on Feb. 23, which is when rumors of the acquisition began to circulate, and 12% above the close last Friday, April 8.
The bounty of COVID-19 testing has left the sector awash with cash. However, Saluggia, Italy-based Diasorin is funding the deal through a $1.1 billion five-year loan and $500,000 in bridging finance.
The acquisition takes Diasorin outside its traditional market in supplying single use in vitro diagnostics (IVD) to hospitals and private laboratories, giving it access to multiplex technologies capable of assessing numerous analytes in a single test, with a dozen tests running in parallel. It also moves Diasorin up a league in terms of the customer base, with Luminex having multiple partnerships with pharmaceutical companies that use its equipment in drug discovery and development.
Carlo Rosa, Diasorin CEO, said a recent strategic review had concluded the company had all the resources and strategic alliances required to keep growing the IVD business for the foreseeable future, but it needed to expand its molecular diagnostics business.
Austin, Texas-based Luminex fits perfectly with that strategy, Rosa said. “It’s a great combination between our companies; I think we share a lot in terms of culture.”
Rosa previously has expressed his ambition that Diasorin generates 50% of its revenue in the U.S. Buying Luminex marks a decisive shift, which will see 53% of revenue coming from the U.S. as soon as the transaction completes in Q3.
“Now we will have more U.S. employees than Italian employees. We will transform into an American Italian company,” Rosa told a teleconference held to discuss the deal. The combined company will have 2020 revenues of €1.25 billion (US$1.47 billion) and €335 million cash in hand. There is a promise of $55 million in cost synergies within three years.
Luminex has more than 900 customers, but most of these are in the U.S. Diasorin’s extensive commercial and geographical reach will accelerate international sales of Luminex’s diagnostics for respiratory, hospital-acquired, vector-borne and gastrointestinal tract infections.
Rosa admitted there will be some resistance to overcome in winning over European hospitals that are used to paying for a single test for a single analyte. “One thing making [multiplex] difficult to accept is they don’t understand why they have to pay for it. Why run 25 analytes?” The flexibility of Luminex’s Verigene platform, not least in how the cost of tests is accounted for, will make these customers look at multiplex tests in a different way, he said.
Diasorin also will be able to cut the cost of Luminex equipment. “We come from the cheap side of the business. We have developed the ability to work with the supply chain, to work with plastics. We can reduce the cost of cartridges; we will have a good costing structure on one side and innovation on the other,” Rosa said.
Diasorin’s move on Luminex is the third such deal in a month in which traditional IVD companies have looked to move into the rapidly expanding multiplex market. In March, Roche Holding AG said it was to acquire Genmark Diagnostics Inc., for $1.8 billion. Accessing the multiplex market also was the rationale for Hologic Inc.’s $795 million acquisition of Finnish specialist Mobidiag Oy, reported on April 7.
Diasorin does have some existing molecular diagnostics expertise, having acquired Focus Diagnostics Inc.'s immunodiagnostic and molecular diagnostic products for $300 million in cash from Quest Diagnostics Inc. in March 2016.
“We said that was a chance to get our hands dirty,” and “allow us to develop specialist products,” Rosa said. When COVID-19 hit, Diasorin used this expertise to develop a molecular diagnostic for the virus, becoming the third company to get an emergency use authorization in the U.S.
It rapidly went from running 50,000 tests per month, to the current capacity of 1.2 million tests per month. Pre-COVID, the Focus business was entirely U.S.-based. Since the pandemic began, the installed base has doubled in size and now has a global footprint.
“We developed an appetite for scale: a small part of the business very quickly become significant,” said Rosso. Looking beyond the pandemic and wall-to-wall COVID-19 testing, it was evident molecular diagnostics and multiplexing would be key to future growth.
Peter Welford, analyst at Jefferies said there is “sound strategic rationale” for the deal. It expands the molecular diagnostics business, a franchise made more relevant by the COVID-19 pandemic, but which still lacks critical mass. While boosting its U.S. presence, Diasorin also will be able to leverage its European footprint to accelerate rollout of Luminex products, Welford said.