GE Strikes a Healthy Deal for Cancer Diagnostics Company Clarient


General Electric (GE) Vice Chairman John Krenicki recently said the company was revving up for more acquisitions, and today it announced plans to buy Clarient (CLRT), a maker of cancer diagnostic solutions, for $587 million.

GE has structured the deal as a tender offer and has already received approval from 47% of the shareholders. In today's trading, Clarient shares are up 33% to $4.98.

This is a sign that Corporate America is going to do something with its hoard of cash. Also, acquisitions are critical for finding revenue growth -- whether in the U.S. or in emerging markets.

A Leader in Cancer Diagnostics

While Clarient got its start back in 1993, the company actually transformed itself in 2005. And it was a good move. The company realized that the completion of the genome project would be extremely valuable in creating advanced oncology testing systems. So Clarient invested money in developing a lab to pursue this opportunity. The company also made some key hires.

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As a result, Clarient is now one of the leaders in the fast-growing space of molecular diagnostics. The company's tests provide granular details of patients and can provide optimal treatments. Clarient can analyze breast, prostate, lung, colon and blood-based cancers. What's more, pathologists can view the testing results from a internet portal, called PATHSITE.

And yes, Clarient has been growing at a rapid clip. In the latest quarter, revenues increased by 21% to $28.7 million. The total customer base -- of pathology and oncology practices -- is roughly 1,300. And, the retention rate is an impressive 98%.

Clarient has been making strides with its operating cash flows, which came to $2.5 million in Q2. There was improvement in collections and management of bad debts, which are often challenges in the health care sector.

A Big Deal, Even for GE

The market opportunity for Clarient is enormous. The projection is that the global demand for cancer-profiling solutions will ramp from $15 billion in 2009 to $47 billion in 2015. Of course, aging populations will mean increases in cancer daignoses and the need for better treatments. While this is a grim prospect, advances like molecular diagnostics will be vitally important to fighting cancer.

Already, GE Healthcare has a strong footprint in medical diagnostic and information systems. All in all, the business has been growing and the addition of Clarient will certainly be a boost, given its strong pipeline of new products, especially tests for breast cancers.

In fact, GE thinks it can turn the molecular diagnostic business into more than $1 billion in revenues. Even for a company of its size, this is still a big deal.