World’s Largest Food Company Spends $567 Million to Buy into Pathology Laboratory Testing and Pharmaceuticals

As reported this week from the Dark Report, “World’s Largest Food Company Spends $567 Million to Buy into Pathology Laboratory Testing and Pharmaceuticals, Nestle says its Prometheus Laboratory acquisition will help it develop products for patients with metabolic conditions and to promote brain health.”

The injection of investment by large companies into healthcare and specifically into diagnostics will dynamically change the landscape for the lab industry and most likely expedite awareness of the value of diagnostic information, not only in the management of individual healthcare, but more importantly in the management of the delivery of the remaining 98% of the healthcare spend.

Nestle buys Prometheus is just the most recent foray of a Fortune 100 company into the lab space. Previously the most common non-lab acquirers of labs were in the pharmaceutical industry and the fit with companion diagnostics is evident as demonstrated by the recent acquisition of Genoptix by Novartis. The latest acquisition of Clarient by GE, while unexpected, makes sense for a company already ingrained in imaging and healthcare to broaden its diagnostics play. GE, ranking 6th in the Fortune 500, organizes GE Healthcare as a division of its GE Technology Infrastructure, investing in both the expansion of the diagnostics portfolio, as well as committing significant resources to digital imaging and information technology. Nestle, ranking 44th, has a healthcare division that will leverage its nutritional bonefides to develop comprehensive healthcare solutions over a 10 year horizon that are likely to generate higher margins than its current portfolio of nutritional products.

Companies like GE and Nestle are more strategic in their acquisitions than is common in lab acquisitions. Public labs buy smaller labs to acquire markets and sustain a level of growth they cannot easily achieve organically or strategically in order to satisfy shareholders. Investors buy labs to roll them up to sell at a premium to public lab companies. Now there are new buyers with deeper pockets and a financial model that enables these strategic buyers to pay higher premiums for a tactical shift of their longer term business goals. The largest companies have a healthcare strategy, because most things impact our health. They have done their homework and know there is a convergence of imaging, diagnostics, genetics and information systems that makes healthcare a dynamic growth sector less affected by economic cycles. GE has been actively growing is disease-diagnosis business understanding the rapid growth in the cancer profiling market. Its acquisition strategy is not based on short term expense reduction synergies, but rather the long term synergistic fit of the business to its other business units in completing the knowledge loop. Just as the industrial revolution (printing press, steam/diesel engine, cotton gin, electricity, telephone, sewing machine, camera etc.) brought us the industrial age, the digital revolution brought us into the information age, which is the era of formulaic communication and knowledge. Knowledge is not an accumulation of data, but the ability of cognitive processes to assimilate that data into meaningful and actionable information. No area today has a greater capacity to use and monetize knowledge than healthcare. Without the digital revolution the human genome could not have been mapped and the explosion in genetics, proteomics and pharmacogenomics would not be possible.

Published by XiFin