Catching something in China

PerkinElmer acquires China-based infectious disease diagnostics company Shanghai Haoyuan Biotech

Jeffrey Bouley
WALTHAM, Mass.—Seeking in large partto complement its screening capabilities and allow it to enter theChinese nucleic acid-based blood screening market, PerkinElmer Inc.in late 2012 completed the acquisition of Shanghai Haoyuan BiotechCo. Ltd., a China-based infectious disease diagnostics company.

In addition to extending PerkinElmer'scapabilities into nucleic acid blood screening and allowing it abetter position to capitalize on the growing molecular clinicaldiagnostics market in China, the acquisition will also beinstrumental in, as PerkinElmer notes, "further strengthening thecompany's position as a diagnostics leader in China as well as acrossthe globe."

The purchase price for the transactionwas $38 million in cash and potential future additional considerationbased on the achievement of revenue-based targets. The acquisitionwas anticipated to be immaterial to PerkinElmer's adjusted earningsfor the remainder of 2012 and in 2013, and then accretive beginningin 2014.

Haoyuan, a supplier of molecularinfectious disease screening technologies for blood bank and clinicallaboratory settings throughout China, reportedly extendsPerkinElmer's portfolio by adding four infectious disease assaysthat are approved by China's State Food and Drug Administration.These infectious disease diagnostics tools include a qualitative3-in-1 assay for the detection of hepatitis B (HBV), hepatitis C(HCV) and human immunodeficiency virus (HIV), two clinicalquantitative assays that screen for HBV and HCV, and one qualitativeassay screen for Chlamydia trachomatis and Neisseriagonorrhoeae.

The deal isn't a sudden one; theacquisition talks go back some two-and-a-half years, "when wedecided that we wanted to build a nucleic acid testing business tocomplement Sym-Bio Life Science, a leading provider of diagnosticsreagents and technology and a major supplier to hospitals in Chinathat PerkinElmer acquired in 2009," recalls Aaron Geist, vicepresident of business development at PerkinElmer. Although there wasno direct connection between Haoyuan and PerkinElmer before thosetalks, Geist does note that the Shanghai, China-based company did usethe services of Chemagen Chemistry, a company PerkinElmer acquired in2011.

As to how Haoyuan ended up onPerkinElmer's radar, "We follow the blood screening industry veryclosely," Geist notes. "In China, there are only five companieswho have the required license to sell blood screening tests. Two aremultinational (Roche and Chiron/GenProbe) and three other Chinesefirms. Of the three Chinese companies, only one has the necessarytechnology and business model that interested us."

"The acquisition of Shanghai HaoyuanBiotech Co. Ltd. provides PerkinElmer with a clear strategic roadmapfor expansion into the high-growth molecular diagnostics market inChina as well as other emerging markets," says Dan Marshak, chiefscientific officer at PerkinElmer. "It enables PerkinElmer to entera new market, blood screening in China, and expand into thehigh-growth nucleic acid market as an extension of our currentimmunoassays."

"In China, we are seeing significantgovernment support for pharmaceutical and diagnostics innovation,"Marshak adds, pointing to market forces and other factors that madethis a good time to acquire the Chinese company. "Many companieshave begun introducing newer and more complex therapeutics, eventhough some come with a higher price point. As average income rises,people are expecting more from the healthcare system and bothgovernment, pharmaceutical and diagnostics organizations areresponding. The healthcare industry is making a focused effort torecruit and retain talent in China and the government continues toencourage advanced education, biomedical research and infrastructuredevelopment."

PerkinElmer notes that one near-termopportunity related to the acquisition is found in the fact that withChina facing an annual 15 percent increase in the demand for donatedblood, the Chinese government is now mandating and funding infectiousdisease screening of such blood. The Chinese government's latestfive-year plan mandates that all blood be tested using nucleic acidtechnologies by the end of 2015.

According to PerkinElmer, compared toantibody testing methods, nucleic acid testing reduces the potentialfor failed detection of certain infection diseases that exhibit longincubation times between infection and detection. The company alsonotes that there are approximately 780,000 people living withHIV/AIDS in China and that the World Health Organization reportschronic infection rates of 8 percent to 10 percent of the adultpopulation with HBV and 3.2 percent of China's 1.4 billion peopleliving with HCV.

Marshak says that a brand strategy willbe developed over the next few months "to ensure that PerkinElmerleverages the existing Haoyuan brand equity. We will replicate thestrategy with Sym-bio as we had success with maintaining the brand inChina with the backing of a multinational company."

Zacks Investment Research emphasized inan investor's note about the acquisition deal that PerkinElmer hasestablished itself as a market leader, particularly in the geneticscreening segment, and holds one of top two market-share positions inseveral important subsets of the life-sciences technology and geneticscreening markets. Zacks further wrote, "With this takeover,PerkinElmer further cements its role as a global leader indiagnostics," and added, "The company continues to execute wellacross all its product lines aided by rebounding markets and costcontainment efforts. PerkinElmer's transfer of select manufacturingto China has expanded its operating margins. The company hasincreased its productivity and improved product mix in favor ofhigher value-added products, resulting in higher operating margins."

However, the investment research firmdoes point out that PerkinElmer competes in a highly competitiveindustry that is characterized by "rapid technological change andevolving industry standards" and notes that because of this, thecompany would have to make large R&D investments to retain acompetitive pipeline. As such, Zacks gave PerkinElmer its short-term#2 rank (buy) in the wake of the Haoyuan acquisition.
 
 

Jeffrey Bouley

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