Earlier this week, Myriad Genetics (NASDAQ: MYGN) announced the acquisition of Counsyl for $375 million. This deal brings together a long-standing leader in hereditary cancer diagnostics with a highly-regarded start-up focused on non-invasive prenatal testing (NIPT) and exemplifies the consolidation themes Intrepid previously predicted in the diagnostics space following the sale of Ambry Genetics.
This purchase price raises several interesting questions about Counsyl, which reportedly raised approximately $237 million in capital. The enterprise value represents approximately 2.8x Counsyl’s last 12 months (LTM) revenue. Interestingly, Myriad is acquiring Counsyl for about the same dollar value that LabCorp acquired Sequenom in 2016, also an NIPT competitor. In contrast, low-cost genetic diagnostics platform Invitae continues to trade at a revenue multiple of more than 5x its LTM revenue. Invitae is forecasting substantial revenue growth that translates into a next 12 months (NTM) revenue multiple of 2.9x, rather similar to the Counsyl valuation. Further, based on the financials presented, Counsyl is estimating revenue of $138 million for the year ending June 2018, an increase of only $4 million from the LTM period reported. This raises the question of whether Counsyl projected such limited revenue growth because of exogenous weakness in the NIPT sector or internal struggles with increasing test volumes or reimbursement, and whether Myriad’s increased efficiencies can change that trajectory. But, for other genetics diagnostics businesses, does this deal suggest that a nearly 3x revenue multiple should be the new threshold for a flat revenue company in this sector?
In Counsyl, Myriad is acquiring a well-established player with strong technology roots that has been disruptive in the NIPT space with its test menu and workflow automation. Further, the deal gives Myriad a strong entry point and foothold in the large NIPT market (with well-established reimbursement) to fill out its test portfolio. One of the additional highlights of the transaction is the combination of the commercial sales efforts. By broadening its test menu and sales team reach with Counsyl’s 80 representatives, Myriad is capitalizing on the power of consolidation to leverage its resources for greater profitability.
This deal may signify the future of M&A activity in the sector. Given the costs and resources necessary to build a leading genetic diagnostic enterprise, it is more important than ever for the both established and emerging industry players to find new operating efficiencies and revenue opportunities. As a result, in order to secure the best assets, buyers may be willing to pay large revenue multiples that used to be reserved only for high-growth businesses. Stay tuned as the next deal unfolds.