The line between selling diagnostics as medical devices and providing diagnostics services is getting blurrier. In buying Boston Heart Diagnostics, Eurofins Scientific has made a definitive move away from its core expertise in bioanalytical services towards becoming active in the medtech sector proper.
Though the $140m deal is Eurofins’ fourth acquisition this year, it is the first of a company that could be reasonably termed a device maker. But Boston Heart’s products are lab-developed tests, unregulated by the FDA, which could spell trouble in the future if new rules governing the sale of diagnostics come into force. Moreover, Boston Heart is one of several cardiac testing companies under investigation by the US Department of Justice concerning kickbacks to doctors.
The deal is front end-loaded: the $140m upfront payment will be followed by milestone payments expected to add up to around $60m. Boston Heart’s 2014 sales are expected to reach about $95m, representing annualised growth of over 75% since 2011, according to Eurofins. This is remarkable even by the standards of the IVD sector, which is the largest and one of the fastest-growing in medtech.
This year had already seen three acquisitions for Eurofins: in January it bought the discovery and development business of Merck KGaA, which performs bioanalytical testing and early-stage drug discovery for biopharma companies, and IDmyk, a laboratory that identifies and analyses microbes, again on behalf of pharma companies.
Then in May it spent $255m on ViraCor-IBT Laboratories, a reference laboratory providing biomarker testing and molecular sequencing services to hospitals, doctors and the biopharma sector. Like Boston Heart, ViraCor is based in the US; Luxembourg-based Eurofins appears to be moving westwards.
Unlike these three groups, Boston Heart’s products are ultimately aimed at patients rather than client companies. Its technology incorporates clinical and genetic tests as well as cardio-informatics and is used to diagnose cardiovascular diseases, diabetes and other chronic conditions.
Boston Heart’s laboratory in Framingham, Massachusetts is certified under the Clinical Laboratory Improvement Amendments Act (CLIA), enabling it to perform diagnostic tests without further oversight. This means that all the samples it assesses must be tested at that particular location – but these tests do not have to be approved by the FDA.
This is set to change, however, meaning that Eurofins may have to familiarise itself with the FDA’s device approval process (Vantage Point – FDA regulation of lab-developed tests could hurt smaller companies, June 19, 2013).
The other snag is the US governmental investigation hanging over Boston Heart. It is one of several companies in the cardiac biomarker laboratory services industry that have attracted the attention of the US Department of Health and Human Services and the US Department of Justice thanks to payments that it made to doctors every time they sent a sample to the Framingham site for processing, rather than to one of Boston Heart’s competitors.
According to the Wall Street Journal, Boston Heart stated that it paid doctors $15 per test, in the belief that the practice was lawful. Boston Heart received $13m from Medicare in 2012.
Eurofins says Boston Heart is cooperating fully with the probe and, having done a thorough job with its due diligence, is confident that the acquisition will be accretive.
Investors appear comfortable - shares in the company climbed 5% yesterday on news of the deal. They will have to hope that the company's move into a new business area does not prove a step too far.