Thermo Fisher's acquisition of Mesa Biotech
By: Jinesh Bothra, Ivar Johann Lassesen, Koel Jelfs, Kerim Hassan, Josh Shah
Thermo Fisher Scientific Inc. - an American provisioner of scientific instrumentation, reagents and consumables, and software and services to healthcare, life science, and other laboratories - has announced its acquisition of Mesa Biotech, a privately held molecular diagnostic company. Based in San Diego, California, Mesa Biotech has developed and commercialised a PCR-based rapid point-of-care testing platform available for detecting infectious diseases such as SARS-CoV-2, Influenza A and B, respiratory syncytial virus and Strep A.
Mesa Biotech's patented technology expands the availability of current industry standard nucleic acid PCR amplification to point-of-care diagnostics. The company's Accula™ Flu A/Flu B, RSV and Strep A tests have obtained 510(k) approval and Clinical Laboratory Improvements Amendments waivers from the U.S. Food and Drug Administration (FDA). Furthermore, the Accula System has received Emergency Use Authorization from the FDA for SARS-CoV-2 in-vitro diagnostic testing and is currently in use in patient care settings, generating results within 30 minutes with a greater accuracy than other rapid tests available on the market.
Thermo Fisher’s scientific expertise and global outreach will allow Mesa Biotech to expand the impact of their technology to a global scale, benefiting communities not just during the pandemic, but long into the future as well. The deal is expected to be completed in the first quarter of this year, with Mesa Biotech becoming part of Thermo Fisher's Life Sciences Solutions Segment.
Company Details: Thermo Fisher
Founded in 1956, headquartered in Massachusetts, United States
CEO: Marc Casper
Number of employees: 75,000
Market Cap: 177.24B USD
EV: 189.5B USD
LTM Revenue: 32.22B USD
LTM EBITDA: 10.23B USD
LTM EV/Revenue: 5.88
LTM EV/EBITDA: 18.53
Company Details: Mesa biotech
Founded in 2009, headquartered in California, United States
CEO: Ingo Chakravarty
Number of employees: 500
The cost of the deal to Thermo Fisher initially is $450M- in cash. This will then be increased by $100M once certain business milestones are hit- this creates a level of protection for $100M of the deal, which can be preserved if these milestones and therefore revenue aren’t reached.
Thermo Fisher have quoted themselves that this acquisition is an important part of their expansion strategy and they have acquired Mesa Biotech to start with COVID-19 testing. Whilst this is definitely a move that will benefit them short term, WHO have warned about the many variants which have been discovered and for Thermo Fisher to be able to keep up with this mutation rate, that would need to have a greater information base and research more into the virus. At present, Mesa Biotech’s PCR technology can detect Flu, RSV and Strep A so therefore outside of the current pandemic, there will still be many ongoing uses for their diagnostic system so this will not require short term, large influxes of research and development costs.
Thermo Fisher is a much larger organisation than Mesa Biotech and therefore some immediate synergies we will be able to observe is Thermofischer’s sales and access to materials being boosted in volume and rate from the innovation and research from Mesa, we should expect a faster rate of bringing diagnostics to market and at a much greater scale.
This is Thermo’s second largest deal to be announced in quick succession with announcement of the acquisition of Novasep’s viral vector manufacturing business for $880m. Clearly there is an aim to utilise the short-term tailwinds to invest and grow to benefit from long-term growth trends. Not only does Mesa help with meeting demand for Covid-19 testing, but to plan ahead to develop POC tests for other infectious diseases. Furthermore. Mesa was awarded an $561,000 contract last March and a $15m contract to scale up testing. This has boosted revenue of Theroma Fisher to above $2bn, which will help maintain and grow its 34% sales growth and 91% EPS growth. Particularly, this revenue increase will provide substantial capital growth for other pipeline products, or further corporate strategy development.
Looking at the long-term benefits, the addition of Mesa Biotech's easy-to-use, rapid PCR-based test will be highly complementary to Thermo Fisher's existing offering. It will further help them meet the continuing demand for COVID-related testing. At the same time, they work to rapidly scale and develop point-of-care tests for other infectious diseases in the future. Mesa Biotech will become part of the Life Sciences Solution Segment and is expected to add approximately $200 million in revenue in 2021. In addition, Thermo Fisher's scale, innovation, and global reach will allow them to more significantly amplify the impact that Mesa's technology will have on human health during the pandemic and far beyond.
Mesa Biotech also plays an important part in Thermo Fisher's strategy to expand the benefits of molecular diagnostics at the point of care, starting with COVID-19 testing. By combining Thermo Fisher's operational excellence, access to raw materials and existing distribution and sales channels with Mesa's innovative platform, they can rapidly scale manufacturing volume, drive cost efficiencies and bring much-needed diagnostics to market faster and at greater scale.
Mesa's Accula system complements Thermo Fisher's existing offerings and immediately provides their clinical customers with more options and flexibility for COVID-19 testing. As the point-of-care diagnostic market expands globally, the company will be well-positioned to deliver a broader menu of tests to meet increasing demand.
Thermo Fisher's CEO Marc Casper said that demand for PCR "continues to be very strong" and that he expects it to continue in 2021, despite the rollout of COVID-19 vaccines. Thermo Fisher also believes that Mesa Biotech's testing platform will allow the company to accelerate the availability of reliable and accurate advanced molecular diagnostics at the point of care in the future.
Risks and uncertainties
As of February 26th, The Accula SARS-CoV-2 Test has not been FDA cleared or approved. It has only been approved for ‘emergency use authorization’, and even so only for CLIA-certified laboratories that meet certain requirements for complexity tests. This restriction and added bureaucracy means the commercialisation of this high-demand test is unlikely to come into fruition soon, hence the revenue synergies are not as high as they could be. This also allows competitors significant time to produce their own SARS-CoV-2 tests to challenge Mesa Biotech’s version- reducing its competitiveness in the long run.
Yet, this risk may have been included in the valuation of the company, where an EV/revenue multiple of 10 is significantly lower than the industry’s 2021 normal of ~17. Hence, the proposed revenue synergies of $200m will be expected significantly later down the line, possibly when Covid-19 is no longer a large threat.