Diagnostic imaging companies have a chequered history when expanding into in vitro diagnostics, and GE Healthcare has shown what a loss-making proposition this can be. It had bought the cancer diagnostics specialist Clarient for $587m, but five years on is selling the subsidiary to NeoGenomics for only half that amount.
However, GE insists that it is not getting out of the field altogether. The company, which did not previously have a holding in NeoGenomics, will own a 32% stake once the transaction is closed, a spokesperson told EP Vantage.
Still, the move does not look like great business. The spokesperson said that the US cancer diagnostics market had been hit in the past five years by falling reimbursement, adding: “The transaction price reflects the value of the business now.”
But he conceeded that Clarient had done well to even survive in the current climate. “With the introduction of the Affordable Care Act we’ve seen considerable consolidation across the cancer diagnostics industry and among the hospitals using pathology services.
“Many cancer diagnostics companies struggled and some even went out of business. As part of GE, Clarient was able to weather that storm.”
But it will not be part of GE for much longer, joining the cancer genetic testing specialist NeoGenomics for $80m in cash, $110m in preferred stock and 15 million shares of common stock – around $100m at their current value. As well as having a stake in NeoGenomics, Kieran Murphy, chief executive of GE's life sciences division, will also take a seat on its board.
Even though it has made a loss, GE believes the transaction is the best outcome under the circumstances. Clarient never really fitted well within the life sciences unit, which is focused on bioprocessing, diagnostic imaging agents and emerging areas like cell therapy and regenerative medicine.
The move will allow GE to put more money into these sectors, with the hot area of immuno-oncology a strong contender. “The manufacture of CAR-T cells, for example, is a natural place for us to invest in,” the spokesperson says.
Meanwhile, NeoGenomics has expertise in blood-based cancers, and Clarient specialises in solid tumour analysis, so the two companies should be better suited.
Ultimately, Clarient is no longer GE’s immediate concern – but the question is whether this means that the company is not interested in in vitro diagnostics at a time when its imaging rival Philips is making strides in the sector (Interview – Philips sees the point of point-of-care testing, October 07, 2015).
“We have our Whatman portfolio, so we’re a provider of products that go into the technology of others’,” the spokesperson said. “But whether we’d look at internal development or an acquisition [in IVDs], I couldn’t tell you.”
Perhaps GE has learnt the same lesson as its other big rival, Siemens, which spent billions on three diagnostics companies nearly 10 years ago but does not have much to show for it. Sometimes, it seems, it is best to stick to what you know.