Siemens bids $5.3 billion for Bayer IVD business

June 30, 2006

In a move calculated to establish Siemens Medical Solutions as an integrated provider of in vitro and in vivo diagnostics, the German juggernaut has struck a $5.3 billion (€4.2 billion) cash deal to acquire Bayer HealthCare Diagnostics, a business unit within Bayer focused on IVDs.

In a move calculated to establish Siemens Medical Solutions as an integrated provider of in vitro and in vivo diagnostics, the German juggernaut has struck a $5.3 billion (€4.2 billion) cash deal to acquire Bayer HealthCare Diagnostics, a business unit within Bayer focused on IVDs.

The deal was approved yesterday by Bayer's and Siemens' supervisory boards and, unlike many other corporate deals, is not subject to shareholder approval. It will require, however, approval by regulators in several countries, who will examine antitrust issues, a process that could be complete by the end of the calendar year.

Siemens' bid for Bayer's diagnostics unit may be examined by regulators in the context of its pending acquisition of Diagnostic Products Corporation, a Los Angeles-based IVD firm specializing in immunodiagnostics. These two companies together would transform Siemens into the third largest provider of in vitro diagnostics with 13% of the global market (combining DPC and Bayer Diagnostics), behind Roche with 22% and Abbott with 14%. In the subcategory of immunodiagnostics, Siemens would be number two behind Abbott.

Bayer executives are keen for the purchase to go through, as they hope to use cash from the deal to assist in that firm's pending $20 billion plus (€16 billion) acquisition of Schering, which itself was a prospective target for Siemens before Bayer snapped it up.

The deal-making between Bayer and Siemens raises the question whether more such agreements might be in the offing, once Schering has been acquired, specifically the sale of the Schering business unit focused on contrast media. This was the object of Siemens' interest in Schering from the start, and is of less interest to Bayer.

In an exclusive interview today with DI SCAN, Erich R. Reinhardt, president and CEO of Siemens Medical Solutions, fended off speculation about future deals, focusing on the ones at hand. But he stopped short of denying that a deal with Bayer to acquire the Schering contrast media business would not be pursued, noting only that the diagnostics deal and any future deals are "two independent topics."

Acquisition of the contrast media business would be very much in keeping with Reinhardt's stated goal of assembling a diagnostics powerhouse in IVD and in vivo agents. The company began moving toward this goal with the purchase last year of CTI, which brought expertise in the development of molecular contrast agents and pharmaceutical tracers related particularly to PET.

The bid for Bayer HealthCare Diagnostics is particularly striking coming as it does in the wake of Siemens' efforts to acquire DPC (DI SCAN 4/28/06 Siemens bids nearly $2 billion cash for immunodiagnostics firm).

In a teleconference this morning, Siemens executives put the two pending acquisitions in the context of a broad strategy that involves the development of products and services that both improve healthcare and reduce costs. The key, said Klaus Kleinfeld, Siemens president and CEO, is the discovery of disease at a very early stage so that less costly treatment can be applied with a better outcome for the patient.

"Quality and cost are not a contradiction," he said. "If we use technology right, we can do both in parallel by finding mechanisms that allow us to diagnose disease very early and be specific in the treatment, to have individualized treatment."

Finding disease earlier increases the chances of a cure and reduces hospital and home care costs, he said.

In this teleconference, Reinhardt said IT is the "core element" to achieving this, as it provides the foundation for evidence-based medicine.

"Powerful IT solutions can increase quality while decreasing costs because IT provides the information needed for the physician to come out with the best decision for the patient," he said.

The second element is innovation in medical imaging, he said. The third is in vitro diagnostics.

Recent efforts in these areas highlight the major aspects of Siemens' healthcare approach: prevention, diagnosis, therapy, and care. Last year's acquisition of CTI addressed the in vivo element of this equation. DPC and Bayer address the in vitro.

"We are building on strengths," Kleinfeld said. "We have the leading position in IT worldwide and the leading position in imaging. Now we are adding the third pillar to our group and that is in vitro diagnostics."

DPC specializes in automated body fluid analyzers and in vitro diagnostics. Bayer HealthCare Diagnostics offers IVDs for detecting and monitoring the therapy of cardiovascular and kidney diseases, as well as cancer, infections, and diabetes. Specifically, this unit of Bayer has molecular diagnostics based on gene analysis - nucleid acid testing - and provides near-patient testing, laboratory automation, and hematology tests.

Sales last year rose to €1.4 billion, an 8% bump over 2004 revenues. The company achieved a "double-digit profit margin" in fiscal 2005, according to Siemens.

Reinhardt has previously described IVDs as the gatekeepers to patient management and critical to understanding the implications of different diagnostic and therapeutic cycles. They might also be the first step toward the development of very specific in vivo imaging agents.

"We see synergies between in vitro and in vivo diagnostics," Reinhardt said. "Maybe they do not use the identical proteins but there is a correlation between the protein you have detected in the blood sample and the tumor proteins. Then you have to design a contrast agent that is able to dock on those tumor molecules and you are in the business of an in vivo biomarker."