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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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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