Music to their ears

WALTHAM, Mass.—Putting up $470 million for the honor and expecting the deal to be accretive to earnings per-share next year, Thermo Fisher Scientific Inc. in early September signed a definitive agreement to acquire Hennigsdorf, Germany-based B.R.A.H.M.S. AG. The company, located near Berlin and having sales offices both in Europe and the United States, is a provider of specialty in vitro diagnostic tests based on its patented biomarkers for sepsis, cardiovascular and pulmonary diseases, as well as intensive care treatments and prenatal screening.

B.R.A.H.M.S. is best known for its flagship product, Procalcitonin (PCT), a proprietary biomarker for the diagnosis and treatment of sepsis, a potentially life-threatening condition in which a patient's bloodstream is overwhelmed by bacterial infection. This very same PCT test has become the gold standard in Europe for the early diagnosis of sepsis—a critical factor in patient survival—and the subsequent monitoring of treatment. Aside from the value of owning the gold standard in Europe, Thermo Fisher stands to gain potentially in the United States as well, where it is expected that the European testing model will soon be replicated. Approximately 750,000 cases of sepsis occur in the States every year, and one-third of those cases are fatal.

In addition to the PCT test, the German company is described as having a strong development pipeline that is focused on new biomarkers for other bacterial infections, cardiovascular disease and neurological disorders. B.R.A.H.M.S. also offers diagnostic tests and instrumentation for thyroid, prenatal, autoimmune and oncology screening in both laboratory and point-of-care settings.

"B.R.A.H.M.S. is a significant addition to our specialty diagnostics portfolio, bringing exciting new products and technologies to an area of our company that offers some of our greatest opportunities for growth," says Marijn E. Dekkers, president and CEO of Thermo Fisher Scientific. "B.R.A.H.M.S. assays and instrumentation are a strong complement to our existing products for immunoassay testing, and its robust R&D pipeline creates promising opportunities to commercialize new patented diagnostic tests."

Dekkers also notes that the acquisition gives us Thermo Fisher a "significant reagent manufacturing footprint in Europe, while allowing us to leverage our deep customer access in the U.S. to market innovative new B.R.A.H.M.S. products, such as PCT and others now in development. This acquisition reinforces our strategy of building on our leadership in niche specialty diagnostics markets."

Thermo has made several other acquisitions of companies or technologies from companies in recent years to build up its leadership position in niche specialty diagnostics, and this is simply the latest one, says Dr. Yuh-Gen Tsay, president of Specialty Diagnostics and a senior vice president at Thermo Fisher Scientific. "We will continue to look for innovative products that are specialty offerings and we'll continue down the path of niche diagnostics."

"One of the things that stood out with B.R.A.H.M.S. is that it's been a while since anyone has developed many truly innovative biomarkers," Tsay adds. "And B.R.A.H.M.S. not only has the one for sepsis but also for myocardial infarction, congestive heart failure, infectious disease and Alzheimer's disease that are in the pipeline and that we think the company is capable of delivering to the marketplace in the near future."

Analysts have noted that at least one of the areas in which B.R.A.H.M.S. operates, prenatal screening, is an area in which Thermo Fisher rival PerkinElmer is particularly strong. The B.R.A.H.M.S. acquisition also has stood out to some analysts because of the fact that PerkinElmer has also been active on the acquisition front, "announcing several small deals a year" as Zacks Investment Research puts it. Reuters has reported that PerkinElmer is possibly zeroing in on a couple new acquisition deals in the $50 million to $100 million range.

Cowen & Co. analyst Doug Schenkel pointed out in a research note that he considers this a relatively small deal on its own, but added that "it is a good example of the type of high-growth 'tuck-in' Thermo can pursue accretively."

"We view this deal as positive for Thermo as it bolsters Thermo's niche diagnostic platform and immunoassay offering—two high-growth areas that are relatively insulated from economic downturns," wrote Peter Lawson, a Thomas Weisel Partners analyst, in a research note.

The transaction was expected to close in late September 2009, after which time B.R.A.H.M.S. was to be integrated into the Specialty Diagnostics business within Thermo Fisher's Analytical Technologies Segment.

"What we really want to do, and what we made clear early on in the acquisition talks," Tsay says, "is to turn the B.R.A.H.M.S. operation into our European center of excellence, essentially."