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In mid-November, speculation began that ThermoFisher was in talks with QIAGEN surrounding a potential acquisition. A hypothetical tie-up could help Thermo bolster its reach into clinical diagnostic tests and nucleic acid sample preparation, two areas of strength for QIAGEN. Before the November announcement, QIAGEN was entering an inflection point, with their long-time CEO announcing his departure and a restructuring of their sequencing business to focus on kit development and compatibility with Illumina’s systems, rather than continuing the development of the GeneReader, their own clinical sequencer that failed to gain significant traction. This latter effort also brought about a long-term collaboration with Illumina to develop additional diagnostic tests to expand their systems’ menu offerings, starting within oncology.
While Thermo has their own sequencing platform and kits, some of their chemistries (e.g., AmpliSeq) do offer cross-compatibility with Illumina’s systems as well. Thermo’s focus has been on ease-of-use to users, simplifying input time and overall workflow; their latest platform, the Ion Torrent Genexus systems continues in this same vein. Similarly, QIAGEN has focused its efforts on workflow with their “sample-to-insight” solutions including the QIACube (> 8,000 placements as of the end of 2018), Connect, and QIASymphony automated preparation systems, as well as bioinformatics solutions. A theoretical combination of these offerings and a unified R&D team under one roof could help bolster this value proposition. Thermo is also trying to grow their diagnostic test business, building on the approval for their Oncomine Dx Target Test (approved for guiding treatment for metastatic non-small cell lung cancer). Again, QIAGEN’s strengths and efforts in this area would be a synergistic addition to Thermo, particularly given the margin QIAGEN has driven for these products and the growing demand as more cancer therapies enter the market requiring diagnostic guidance.
QIAGEN’s revenues are dominated by consumables purchases, which accounted for 87% of revenues in 2018 and a similar amount through the first 9 months of 2019. Consumables related to sample preparation and nucleic acid extraction and their diagnostic kits have been a primary focus, which stand to increase with the decision to discontinue development of sequencing hardware. This contrasts with Thermo’s global consumables offerings accounting for a little over 50% of revenues in 2018 and the first 9 months of 2019. This is, of course, across a larger product offering, but reflects their heavier investment in hardware. The large fraction of consumables revenue for QIAGEN is reflective of their strength in sample preparation and diagnostic offerings, two areas that are not particular strengths of Thermo’s. In addition to QIAGEN’s relationship with Illumina, they also have a similar deal in place with DiaSorin to develop non NGS-based diagnostic tests for the latter’s automated Liaison analyzers, targeting hospital laboratories. Indeed, the partners announced FDA clearance of their latest test for latent tuberculosis detection in late November. This test leverages QIAGEN’s QuantiFERON technology capable of stimulating both CD4 and CD8 positive T-cells for greater accuracy and faster turnaround time.
This diagnostic kit and consumables business could compliment Thermo’s hardware focus nicely. Thermo just introduced a new Ion Torrent Genexus System designed to enable a one-day sample to sequence data turnaround time and having a menu of tests to offer on it is important. The system consists of two boxes. The first automates the process of nucleic acid purification and quantification. The second automates the process of library preparation and sequencing. While the latter box became available last month, the automated sample-prep system will not be available until 2020.
News of these talks lead to a jump in QIAGEN’s stock price, which currently puts their market cap > $9B. A potential acquisition at this valuation would represent one of the largest Thermo has made, potentially surpassing their 2017 $7.2B acquisition of contract manufacturer Patheon. Interestingly, QIAGEN’s recent decision to drop their internal sequencing hardware development may have solidified Thermo’s interest given their own competing systems and the tendency to make directly accretive acquisitions. While the final valuation remains to be seen, a QIAGEN acquisition could be complimentary for Thermo’s businesses.
Carl has experience with opportunity identification, new product development, and growth strategies within the areas of tools, devices, and therapeutics. He has expertise with respect to drug development and regulatory concerns, including projects informing R&D prioritization, lead selection, and regulatory strategies. Connect with him on LinkedIn.
Disclaimer: Companies listed above may be DeciBio clients and/or customers