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Why Roche's $1.8 Billion Acquisition of GenMark Is a Smart Move

By Keith Speights and Brian Orelli, PhD - Mar 24, 2021 at 6:15AM

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GenMark appears to be a good fit for Roche's diagnostics business.

Healthcare giant Roche Holding (RHHBY 0.91%) recently announced plans to acquire GenMark Diagnostics (GNMK) in a deal valued at around $1.8 billion. The news sent GenMark's shares soaring close to 30%. In this Motley Fool Live video, recorded on March 17, Motley Fool contributors Keith Speights and Brian Orelli talk about why this acquisition is a smart move for Roche.

Keith Speights: Earlier this week on Monday, healthcare giant, Roche, ticker, there's RHHBY, it's traded over the counter in the U.S. So Roche announced that it plans to acquire GenMark Diagnostics, ticker there is GNMK. It's a $1.8 billion deal. GenMark has been a huge winner over the last year thanks to soaring demand for its COVID-19 test.

So Brian, this is a pretty big deal, especially in the COVID-19 space. What do you think about it? Was this a smart move by Roche to go and scoop up GenMark Diagnostics?

Brian Orelli: Yes. GenMark's machines perform multiplex testing. That's just a fancy word for testing multiple things with the same samples. So you take one sample and you can test a for whole bunch of different diseases. It makes sense because a lot of diseases have overlapping symptoms.

So for instance, you can test for COVID-19, but you can also test for the flu, and other viruses, and bacteria that cause respiratory issues. When COVID-19 becomes less prevalent, GenMark's machines should still be used because it just one extra test within the samples. So it's not costing that much more to add COVID-19 even if it's not that prevalent. The doctor would be able to eliminate it by testing it on GenMark's machine.

The takeout puts the price-to-sales at around 9.4, which is pretty high compared to other COVID-19 testers. Fulgent Genetics is at 6.1 and Quidel is at 3.6. Roche has a really strong diagnostics business. So GenMark will fit right in, then they're likely to find some synergies to make that higher price to sales ratio be profitable to them, even if it's not necessarily profitable to a company as a stand-alone company.

Speights: So overall, good move for Roche, right?

Orelli: Yeah, I would call it a good move.

Speights: Yeah.

Orelli: It's a little hard to tell in the long term, but I think it makes business sense to me.

Speights: Yeah, and obviously a very good move for GenMark shareholders. [laughs]

Orelli: They're doing quite well at this.

Speights: They're doing quite well, yeah. Anyone who bought GenMark about a year ago, you are sitting on some pretty hefty gains there.

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Stocks Mentioned

Roche Holding AG Stock Quote
Roche Holding AG
$41.11 (0.91%) $0.37
GenMark Diagnostics, Inc. Stock Quote
GenMark Diagnostics, Inc.
Quidel Corporation Stock Quote
Quidel Corporation
$99.91 (1.61%) $1.58
Fulgent Genetics, Inc. Stock Quote
Fulgent Genetics, Inc.
$56.08 (-2.66%) $-1.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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