Dive Brief:

• Hologic announced late Tuesday its acquisition of Biotheranostics for $230 million, marking the second tuck-in for the medical device maker less than a week into 2021. The deal is expected to close in February.
• Biotheranostics is a privately-held company that sells molecular diagnostics tests for breast and metastatic cancers. Hologic said the company generated about $33 million of revenue in calendar year 2020.
• Wall Street analysts were positive on the deal, though some acknowledged the target was a little surprising. "Based on an expected cash generation of $2 billion we had thought it was possible the team was closing in on a larger transaction than this, and one that overlapped more directly with current diagnostic markets the team has been involved in," William Blair analysts wrote.

Dive Insight:

Hologic's core business is women's health; however, its diagnostics unit has been boosted by the coronavirus pandemic as it entered the COVID-19 testing world and increased production of tests throughout last year. In the company's 2020 fourth quarter, which ended Sept. 26, global molecular diagnostic revenue jumped by roughly 376% to $818.9 million.

Just days into the new year, Hologic is following through on CEO Stephen MacMillan's vow to put its cash flow to work via M&A. On Monday, it announced acquisition of Somatex Medical for $64 million, a buy also in the women's health space. 

Hologic's $230 million valuation is roughly seven times the $33 million of revenue Biotheranostics generated in 2020 and roughly six times the revenue range of high $30 million to low $40 million projected for 2021, according to William Blair.

However, the analysts said that the valuation "certainly is not unreasonable and some would even argue it is a discount to what should be expected, especially given the 70%-ish gross margins Biotheranostics already sports."

Biotheranostics' business should see about 20%-plus revenue growth and 70%-plus gross margins as a base case, according to William Blair.

While the analysts were a bit surprised by the acquisition because Hologic is relatively inexperienced in the genomic based oncology side of women's health, they wrote that "different is not [necessarily] a bad thing" and the deal fits into the company's broader business.

Investors seemed to have bought into Hologic's back-to-back acquisitions. After the medical device maker's stock price increased by nearly 4% Tuesday, it jumped again by over 3% shortly after the market opened Wednesday.

SVB Leerink analysts said that the Biotheranostics deal puts Hologic into "an attractively growing and large oncology adjacency" within the molecular diagnostics market and will help strengthen the company for a post-pandemic environment.

"This deal makes solid strategic sense, in our view," the analysts wrote. "The deal broadens [Hologic's] molecular diagnostics business into the breast cancer and broader oncology market. As well, it gives [Hologic] the technical expertise and reimbursement expertise of the Biotheranostics team."