Investopedia: Will Nestle Succeed Where Others Have Failed?

A curious announcement came out this week when Swiss food and nutrition giant Nestle (OTC:NSRGY) announced that it was acquiring U.S.-based medical therapeutics and diagnostics company Prometheus Laboratories. Nestle will fold Prometheus into its newly formed Nestle Health Science division and likely will guide the company's efforts toward more research into nutrition-based therapeutics as well as areas like metabolism. Although Prometheus' $250 million or so in ongoing annual revenue will not make a major dent in Nestle, it is an interesting deal on multiple levels. (For background reading, see Investing In The Healthcare Sector.)

What Nestle Is Getting 

In acquiring Prometheus, Nestle is getting a business that has focused on diagnostics and therapeutics for indications in gastroenterology and oncology. Prometheus recently got approval to sell a Crohn's diagnostic test, and the company sells a variety of drugs for conditions like cancer and irritable bowel disease.

Nestle did not specify the price it is paying for Prometheus. Considering others deals like Novartis' (NYSE:NVS) acquisition of Genoptix, Quest's (NYSE:DGX) acquisition of Celera, and Thermo Fisher's (NYSE:TMO) acquisition of Phadia, Nestle likely paid at least $650 million, but that is purely speculation at this point.

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Investopedia: Novartis Building Itself Into One-Stop Shop

Monday's announcement that Novartis (NYSE:NVS) will acquire Genoptix (Nasdaq:GXDX) offers an interesting lesson in how quickly things can change in the medical technology market. It was not so long ago that Genoptix was a hot idea and analysts treated it as an example of how the practice and business of medicine was changing. At that same time, Novartis was seen as a sluggish pharmaceutical company and a lagging part of the old guard. 

More recently, though, Genoptix appeared to have hit a wall in its near-term growth and management seemed to have a nearly empty bag of tricks to change that. Novartis, though, has remade the investment community's vision of the company, with more credit being given to its attractive pipeline and growing generics business. To that end, Monday's deal gives Genoptix shareholders a decent exit strategy, while giving Novartis yet another growth option for the future. (For more, see The Latest Greatest Corporate Mergers And Acquisitions.)

The Terms of the Deal 

Novartis announced that it will acquire Genoptix for $25 in cash, a 27% premium to Friday's price, but still a relative bargain on an EV/revenue or EV/EBITDA basis. Even acknowledging the low apparent valuation ratios on the deal, the terms were in line with the recent General Electric (NYSE:GE) acquisition of Clarient (a similar business) and reasonable relative to Genoptix's own near-term growth outlook. (For more, see Investment Valuation Ratios: Enterprise Value Multiple.)

What Novartis Is Getting 

Genoptix is a specialized lab services provider that targets community-based oncologists and hematologists with its specialized diagnostic services in leukemias and lymphomas. In very simple terms, an oncologist will send a patient sample to Genoptix, who will perform a variety of advanced tests on it to determine whether the sample is cancerous (and if so, what type).

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GE Goes Outside The Box In Healthcare

There is an old saying that if you are going to make predictions, you may as well make a lot of them. Even though I recently laid out multiple medical technology acquisition prospects for General Electric (NYSE:GE), GE managed to go off the board with an interesting purchase. 

On Friday morning, GE announced an agreement to acquire Clarient (Nasdaq:CLRT), a specialist in oncology diagnostics services. GE is paying cash in this deal, giving common shareholders $5 a share (versus Thursday's close of $3.74) and preferred shareholders $20 per share. That is a total deal value of $580 million for a company with about $100 million in trailing revenue.

As a major holder (more than 30 million shares as of September), Safeguard Scientifics (NYSE:SFE) will benefit significantly from this deal, booking roughly a $145 million gain in the transaction. (For more, see Is GE About To Stir Up The Medical Arena?)


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Lab Corp And Genzyme Find Some Common Ground

Apparently Genzyme (Nasdaq:GENZ) is not adverse to all deals, just the current deal that Sanofi-aventis (NYSE:SNY) is offering. On Monday morning, Genzyme announced that it had reached an agreement to sell Genzyme Genetics to Laboratory Corporation (NYSE:LH) for $925 million in cash. It had been widely known that Genzyme was looking to sell some non-core businesses (including a diagnostics product and pharmaceutical intermediaries), and Genyzme did not waste a lot of time finding a buyer.

A Buyer's Market for Labs
Although this division goes by the name of "Genzyme Genetics", it is basically a laboratory testing business; one that has a rather strong brand in prenatal and hematopathology testing. Accordingly, it fits in pretty well with Lab Corp.'s stated interest in expanding its genetic and esoteric testing business.

Genzyme made the unfortunate decision to sell in the middle of a tough market. Labs are struggling with weak volume as doctor visits are down and people seem to be foregoing health care during the current economic troubles. With weak volume and strong competition from major players like Lab Corp., Quest (NYSE:DGX) and Bio-Reference Laboratories (Nasdaq:BRLI), a lot of labs are choosing to sell out and routine deals are going for about 1.5x sales.

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