Deal of the Year: Cancer Genetics, Inc. Acquisition of Gentris Corp
Cancer Genetics is an oncology-focused diagnostics company. We develop and market proprietary diagnostic and prognostic tests for difficult-to-diagnose cancers including lymphomas, leukemias, kidney cancer, and HPV-associated cancers.
Our business falls into three general categories: Clinical Services, Biopharma Services, and Discovery Services. Through our Clinical Services, we provide hospitals and cancer centers with state-of-the-art genomic testing. Our reference laboratory utilizes both our proprietary tests, as well as more common tests, to offer comprehensive testing for a number of cancers. In addition to clinical testing, Cancer Genetics provides clinical trials support services to biopharma and biotech companies for oncology based clinical trials. These companies are able to leverage CGI’s oncology testing for patient selection and stratification, monitoring, and treatment selection for their clinical trials. The third segment of our business is Discovery Services. Our research and development team has established strong research collaborations with major cancer centres such as Memorial Sloan-Kettering, The Cleveland Clinic, Mayo Clinic and the National Cancer Institute and work in collaboration with both academic and clinical centres to develop new, cutting-edge technologies to better diagnose and prognose patients.
In May 2013, Cancer Genetics launched a joint-venture with Mayo-Clinic, Oncospire Genomics, which is focused on developing and commercialising Next-Generation Screening (NGS) testing for high need oncology categories.
In 2014, CGI acquired two companies: Bioserve Biotechnologies Pvt. Ltd. (based in Hyderabad, India), and Gentris, LLC (based in Raleigh, North Carolina, USA).
Gentris is a market leader in providing pharmacogenomics, genotyping, and biorepository services to the pharmaceutical and biotech industries. Gentris advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs with the goals of delivering safer, more effective drugs to market more quickly and improving patient care.
How would you describe the current business environment in your region?
In the US, the business environment for healthcare and biotech is very favourable to mergers and acquisitions. However, smaller companies continue to find it challenging to adequately finance their growth and operations. The biggest change that we’ve seen in the last year has been the IPO window – IPOs this year have been very slow and anemic as compared to 2013. This has forced several companies in the genomic and biotech category to consider M&A over public market financing.
Fill us in on the basics of the deal in question (who are the parties involved, what are the timelines for the deal, are there any figures you can share with us?).
We closed the acquisition of Gentris July 16, 2014 after having announced it only one month prior. We were very fused on closing the acquisition in a timely and expedited fashion so as to minimize disruption to the client base and work-flow of the site. We paid $4.75 million, comprised of $3.25 million in cash and $1.5 million in CGI stock, as well as additional performance-based earnouts of up to $1.5 million. At the time of the acquisition, Gentris had more than 40 employees and our plans are to continue to grow the operation.
What were the strategic aims behind the deal? Why did it take place and what is it hoped it will achieve for all parties involved?
Our strategy in acquiring Gentris was twofold: primarily, it was to accelerate our biopharma business, and secondarily, to expand our capabilities into pharmacogenomics and germline DNA testing. CGI’s clinical testing experienced significant growth over the past two years as a result of biotech and pharma customers using our proprietary technologies as part of their clinical trials. Because of this, we were focused on developing a center of excellence for clinical oncology trials, which we will be able to do at the Gentris site in Research Triangle Park.
Talk us through the deal process. Who was involved and what needed to be achieved for the deal to be a success?
We began communications with management and board members in early 2014 and dealt directly with the chairman of Gentris, Tim Gupton, as well as the former CEO and CFO. Our primary focus for a successful deal was ensuring a durable customer base and minimizing disruption to customer projects and employees. The deal presented a number of challenges, many of which are encountered in any merger or acquisition. The three major challenges were communicating with customers about the transition, ensuring employees a stable work environment, and implementing a new management team and growth strategy.
Overcoming the challenges:
We started the customer communication process early, and worked directly with project managers and sales professionals who were in day-to-day contact with the customers. We carefully crafted communications – both written and telecommunication – and followed up at all points when the deal was publicly communicated. In the first two weeks after the deal was closed, we visited with major customers.
During the process, we made it clear to the board and key management that our intention was to retain all of the Gentris staff and that we planned to grow the site and invest in more operations. In order to ease anxiety, we made a point to reiterate this throughout the process. While many companies talk about this during the process, post-closing we quickly worked to demonstrate our commitment to growing existing staff and operations by investing in IT, reviewing compensation structures and bonus programs, closing on key positions that had been previously unfilled, and ensuring continuity of benefits packages. From the time of the announcement to closing, we made sure that CGI people were on site on a routine basis in order to integrate the teams, brands, pipelines, and personnel.
Going into the deal, it was clear that our business goals would be different than the Gentris business goals on a stand-alone basis. Based on this, we were very open with both boards about the fact that the management would need to be replaced immediately upon closing to ensure rapid integration and implementation of a new, combined strategy. By ensuring a transparent process and clarity of communication on the management changes, we were able to foster a more stable work environment for existing employees long-term.
Was the current business climate conducive to a problem-free deal? Is it harder or easier than it previously has been to complete a deal of this nature?
The current business climate makes it easier to acquire and integrate companies and genomics and biotechnology, since investors and customers are favouring companies that have scale.
How does the deal fit with the work the business was previously doing with regards to growth and expansion?
A key part of the CGI growth strategy is to expand and deepen our relationship with biotech and biopharma customers. Gentris had many contracts with top 20 biotech and pharma companies globally. These contracts and projects allow us to more rapidly sell into that customer base, and accelerate our biopharma strategy. In addition, it expands our capabilities in pharmacogenomics, which was an area of significant interest to CGI, but was not a technology or service offering that was being provided at the time. Going into 2015 we will now have a centre-of-excellence for clinical trials as well as an integrated offering for our biotech and pharma customers that includes comprehensive oncology and pharmacogenomics testing.
What do you believe are the essential elements to successfully completing a deal and ensuring its success long-term?
There are four essential elements necessary to ensuring the long-term success of a deal: vision/strategy, people, change, and investment. Without a clear road map on all of these topics, it’s hard to successfully close and integrate acquisitions. One of the most important elements is having a vision of what the combined business is going to look like. Second, you have to have people who are dedicated to helping you take it there – people who have the same vision and who will work hard to reach it. There’s no perfect integration plan, but if you have the right people who know where the business needs to go long term, that is a big determinate of success. When you do acquire a business, you have to make changes on both sides, and businesses have to be relentless about making them happen. A lot of business know changes need to happen, but they may not follow through on seeing them to fruition. It’s essential to stay vigilant and engaged to ensure changes are made throughout the process. Finally, on investment – you need to have a clear sense of what you’re going to financially invest in, what the priorities of those investments are, and what you hope to achieve from them.
What are your prediction for the future, regarding the parties involved in the deal and are there any specific plans for your business that you can share with us?
In terms of specific plans, we have three major objectives. Over the next two years, we plan to rapidly scale the RTP facility into a center-of-excellence for clinical trials, develop and launch comprehensive next-generation sequencing (NGS)-based panels for pharmacogenomics, and start projects that integrate capabilities across multiple sites.
Originally published in print and online by Acquisitions International.