By Pierre Caye, Giuliana Vadacchino, Jules Donzelot, Mathis Grandchamp, Alexander Megrelis, Loïc Meunier (McGill University), Devon Rashid, Mitch Goldstein, Alyssa Cohen (Cornell University).
Photo: Hush Naidoo Jade Photography (Unsplash)
Overview of the deal
Acquirer: Siemens Healthineers
Target: Diagnostic division of Novartis’ Advanced Accelerator Applications (AAA)
Total Transaction Size: $224 million
Closed date: 4Q24E
Siemens Healthineers is set to acquire the diagnostic division of Novartis' Advanced Accelerator Applications (AAA) for over €200 million ($224 million). This deal, expected to close by the end of the year pending regulatory approval, aims to strengthen Siemens' position in medical imaging, particularly in the production of radioactive materials used in PET scans for cancer detection. The acquisition also expands Siemens' reach in the European market, leveraging AAA's extensive cyclotron network.
Novartis, which purchased AAA in 2017 for $3.9 billion, is selling the diagnostics arm to focus on molecular imaging. While AAA's drug Lutathera is projected to reach $704 million in sales this year, the diagnostic division is the smaller part of the business. Siemens and Novartis will collaborate to enhance the supply of nuclear isotopes for radiopharmaceuticals like Lutathera, with Siemens maintaining a partnership in Novartis' radioligand therapy business.
Novartis chose to divest AAA’s diagnostics division — the smaller segment of the business — after determining that: “the growth of the molecular imaging business would be best supported under the ownership of a dedicated diagnostics shareholder"
Company Details (Acquirer - Siemens Healthineers)
Siemens Healthineers is a leading global provider of healthcare products, offering imaging and in-vitro diagnostic products, cancer-care technologies, and various other integrated products across multiple clinical fields to healthcare providers in over 180 countries.
Founded in 1847, headquartered in Erlangen, Germany
CEO: Bernd Montag
Number of employees: 71,800
Market Cap: €55.74bn (as of 09/12/2024)
Company Details (Target - The diagnostic division of Novartis’ Advanced Accelerator Applications)
The diagnostic division of Advanced Accelerator Applications (AAA), currently owned by Novartis, specializes in producing radioactive chemicals essential for PET (Positron Emission Tomography) scans, which are used to detect cancers, heart disease, and neurological disorders. AAA operates Europe’s second-largest network of cyclotrons, critical for manufacturing the radioactive compounds used in PET scans. These scans help in detecting solid tumors, tracking cancer spread, and monitoring treatment progress.
Founded in: 2002 (AAA was founded in 2002, although the diagnostic division itself doesn't have a separate founding year)
Headquartered in: Saint-Genis-Pouilly, France
Number of employees: Not specified for the diagnostics division; AAA overall had around 500 employees before being acquired by Novartis.
Projections and Assumptions
Short-term consequences
The acquisition of Novartis's Advanced Accelerator Applications (AAA) diagnostic arm by Siemens Healthineers will have immediate impacts on both companies as well as the medical imaging industry. Siemens Healthineers will obtain access to AAA's cyclotron network, which would significantly enhance its capacity to produce radioactive compounds for PET scans, crucial for cancer detection. In the short term, immediate market reaction may spur fluctuations in stock price as investors may view this as a lucrative investment opportunity and adjust their expectations based on the potential risks and benefits observed with this deal. This acquisition will also boost Siemens Healthineers' presence in European markets, serving as a complement to its already robust U.S.-based PET radiopharmaceuticals business. Novartis, on the other hand, will benefit from a financial injection redirected toward expanding its molecular imaging and radioligand therapy businesses. Overall, this deal will likely improve Siemens’ supply chain for critical imaging materials, ensuring a more reliable production of PET-related chemicals allowing them to better meet market demand.
However, short-term challenges could arise from the integration of new operations into Siemens' existing workflow and corporate environment. Potential operational disruptions and complexities could occur during the merging of the technologies and systems which would require both companies to manage changes in corporate culture and employee roles in addition to client and supplier relationships. Furthermore, regulatory approval may delay the deal’s completion set for late 2024, in turn affecting any timelines set to achieve this deadline.
Long-term Upsides
The long term benefit of Siemens Healthineers' acquisition of the diagnostic arm of AAA, is that it positions the company for growth in the medical imaging sector. This acquisition will particularly improve Siemens production of radioactive chemicals which are essential for PET scans. By leveraging AAA's cyclotron network, Siemens will be able to expand beyond its existing foothold in the U.S. market. Investment in radiopharmaceuticals programs has been growing, and requires a steady supply of radioactive compounds. These compounds must be produced close to patients due to their short half-lives. With this acquisition, Siemens will add 14 manufacturing sites in France, Spain, Portugal, Italy, Germany, and Switzerland, gaining the ability to service European markets. Furthermore, Siemens has committed to continue to collaborate with Novartis to produce radiopharma drugs. This partnership fosters innovation, and could lead to increased profitability and growth for both companies.
This industry is expected to grow globally, as the demand for PET scans is growing. This is a result of scientific advancements, aging populations, and rising cancer incidence across the world. Additionally, PET scans are beginning to be implemented outside of oncology. Recent advancements in the treatment of Alzheimer's disease have led to the implementation of PET scans in that field. PET scans have the ability to measure build up of abnormal amyloid protein in the brain, a key characteristic of the disease. Looking into the future, this acquisition was instrumental for Siemens to increase their market share and stay on top of this expanding market.
Risks and Uncertainties
Despite the strategic advantages, Siemens Healthineers’ acquisition of Novartis' Advanced Accelerator Applications (AAA) diagnostics division presents notable risks and uncertainties. Regulatory challenges are a significant concern, as navigating healthcare and pharmaceutical regulations in both Europe and the U.S. can be complex. Approval from authorities may take longer than anticipated, potentially delaying or even preventing the completion of the transaction. Moreover, integrating AAA's cyclotron operations into Siemens' existing infrastructure could pose operational challenges. This process will involve aligning different company cultures, overcoming logistical hurdles across international borders, and managing potential supply chain disruptions, which have become increasingly common in today's global economy.
In addition, Siemens faces market-related risks. The anticipated growth of the PET scan market is a key driver of the acquisition, but unforeseen developments—such as the emergence of new diagnostic technologies—could disrupt the market, reducing demand for current methods and impacting Siemens' return on investment. For Novartis, divesting its diagnostics arm may create a temporary gap in its imaging capabilities, potentially hindering its broader radiopharmaceutical initiatives. Finally, external economic factors like fluctuating currency exchange rates and ongoing geopolitical tensions could affect the financial outcomes of the deal, adding further uncertainty to the anticipated benefits for both companies. Ultimately, while the acquisition offers potential growth opportunities, it is not without significant risks.