Life Sciences Tools & Diagnostics Industry Update Q3 2023

M&A activity has been relatively quiet in 2023 YTD after witnessing record numbers in 2021 and a strong start to 2022. With respect to the LSTDx sector, 2023 YTD has seen 104 deals (down 56.3%) with an associated deal value of $15.6 BB (down 23.6%). The LSTDx M&A figures are in line with the broader healthcare M&A figures (deal value of $55.3 BB in 2023 YTD compared to $77.9 BB in 2022 YTD – down 29.0%).

From a regulatory and policy standpoint – As of late, M&A, including in healthcare, has seen more frequent intervention from FTC which, in most cases, has delayed (but not ultimately stopped) transactions. Other relevant macro factors include the impacts of the Inflation Reduction Act and drug pricing. Additionally, legislation related to biomarker testing, now passed in 10+ states, mandates private payor coverage of biomarker testing for diagnosis and treatment of oncology patients. We believe these legislative efforts will continue to provide tailwinds for oncology Dx testing companies over the next several years.

Disruptive transformation in the tools and diagnostics sector – The LSTDx industry is expected to undergo significant transformation in the next five to ten years, partially due to the disruption caused by innovative technologies as well as a greater emphasis on early detection screening. Relevant technologies include complex genomic tests, liquid biopsies, and advanced bioinformatics. This innovation is also driving M&A activity. For example, Quest Diagnostics recently acquired Haystack Oncology, which is focused on minimal residual disease (MRD) testing to aid in the early detection of cancer. Additional transactions include Agilent’s sale of Resolution Biosciences, a maker of blood based diagnostic tests, to Exact Sciences, and the acquisition of Apton Biosystems, a maker of a proprietary sequencing technology, by PacBio.

Strategics remain active in M&A on both the buy and sell-side – While a number of transactions over $1 BB have occurred this year (which are profiled in the next section), larger companies are also pursuing both traditional tuck-in opportunities as well smaller development-stage targets. As many large corporations in the space have become highly diversified through M&A over the past several years, many of these players are now focusing on streamlining their business operations by divesting non-core businesses/assets in order to focus on their growth priorities. These divestitures will continue to create numerous opportunities for other corporates and private equity firms.