One Lambda Sale Nets Opportunity

The $925 million sale of Canoga Park-based One Lambda will allow the leading transplant diagnostics company to expand into emerging markets such as China and Brazil, where organ transplantation is a booming market, company officials said. One Lambda CEO George Ayoub said the company’s recent sale to Waltham, Mass.-based Thermo Fisher Scientific Inc. also is expected to help the company grow its post-transplant testing and monitoring business, which has the potential to quadruple in future years. But more than anything, the sale will assure a succession plan for the company founded by transplant pioneer Paul Terasaki, who started One Lambda in 1984 after developing some of the first methods for matching organ donors and testing. “This is a family-owned company and Dr. Terasaki is the major shareholder,” Ayoub said. “There was a need for a succession plan.” None of the 83-year-old founder’s children were interested in continuing with the company, according to company officials. Under the deal announced July 16, the company that pioneered the methods for matching organ donors through tissue typing and antibody screening will become part of Thermo Fisher’s $2.5 billion specialty diagnostics division. The deal is expected to close in the fourth quarter. One Lambda, which has grown to 320 employees and $182 million in sales, explored many options for a succession over the last eight to nine years, including bringing a new management team on board and going public, Ayoub said. It also weighed overtures from a host of other companies, including Novartis, Abbott Laboratories, and competitors Life Technologies Corporation and Gen-Probe Inc. After considering many options, the company settled on the buyout offer from Thermo Fisher, a company that resolved to honor the legacy of Terasaki and adhere to the core values and mission of his company, Ayoub said. “We worked hard to select the right buyer,” he said. “We have a success story here based on a certain culture and a family atmosphere…When we looked at Thermo Fisher, we liked their approach. It gives us comfort that the legacy of One Lambda — of saving lives and creating innovation in products — will continue.” Ayoub said there should not be much change for the current 320 employees. The growth trajectory of recent years, which saw employment at the life sciences company double in four years, should continue, he said. Emerging markets With the U.S. transplant market flat, Thermo Fisher is looking to emerging markets and new products to fuel growth. The Chinese and Brazilian transplant markets are especially promising, according to industry observers. The U.S. saw 16,814 kidney transplants in 2011, an 18 percent increase from 2001, making that market essentially flat, according to the United Network for Organ Sharing, which matches organ donors with recipients under a contract with the federal government. Kidney transplants account for some 70 percent of all organ and tissue transplants in the U.S. There was a surge about five years ago after transplant centers and nonprofits dedicated to expanding the number of donors came together to promote organ donation, said Thomas Mone, CEO of One Legacy, the Los Angeles nonprofit that helps recover organs and match donors and recipients. Since then, however, the numbers have flat-lined, he said. “We are hitting the law of diminishing returns,” Mone said. The demand for organs remains huge; some 114,669 people are on a national organ wait list. But transplant operations are determined by the available donors. In Southern California, some 70 percent of people who are able to donate organs already do so, Mone said, a respectably high number that’s unlikely to increase much more due to language and cultural barriers. In Brazil and China, however, the transplant industry has huge growth potential, based on the large population numbers alone. China alone does 40,000 to 50,000 transplants a year, at least a third more than in the U.S. and those numbers are expected to soar despite the political questions surrounding transplants in China, Mone said. And One Lambda currently has made limited in-roads into those markets with its tests. “We see really good opportunities in Brazil and China,” said Thermo Fisher spokesperson Karen Kirkwood. “One Lambda’s presence outside North America right now is not that strong. Thermo Fisher has a good foundation and commercial infrastructure in that part of the world so there is a significant opportunity to expand the product line into those expanding markets.” New opportunity Ayoub also sees opportunity for One Lambda to expand its post-transplant monitoring business under Thermo Fisher. Until recently, much of the company’s focus has been developing antibody detection tests prior to a transplant, Ayoub said. The company’s newest line focuses on post-transplant monitoring. “We have new technology that allows us to look at a single antigen assay that would detect antibodies specific to donor antigens,” Ayoub said. These products can be used for many years following a transplant surgery to help reduce the risk of organ rejection. “It could become a routine test for people years after surgery.” The market, worth about $100 million globally today, could grow to be four to five times that large within a few years, he said. Since its founding, One Lambda has been a leading player in the transplant diagnostic business. “They were absolutely the most significant contributor to the development of tissue typing for organ transplantation,” Mone said. “At one time, they provided 90 percent of tissue typing for all organ transplants.” The company has more competitors today, among them Life Technologies and Gen-Probe. But with revenues of $182 million, it still has almost 50 percent of a diagnostic market believed to be worth about $480 million globally, Kirkwood said. The deal will help cement a future for One Lambda although Ayoub himself may step down after a transition period, he said. “I’ve been running the company for 28 years,” he said. “My wife says I need a break.” The deal was structured to ensure that key company employees will stay on board. The $925 million purchase price includes the cost of a three-year retention program established by One Lambda for the benefit of all employees who have been with the company at least five years, although Ayoub said that some employees who have been on board for less time also will participate in the payout. At least 200 employees will participate in the retention plan, Ayoub said. “We wanted to reward those long-term employees who have been with the company a long time and give them something in case they decide to leave, but more importantly to motivate them to stay,” he said. The deal also includes payouts in exchange for non-compete agreements, and a one-year earn-out provision based on the achievement of certain financial targets. Terasaki, Ayoub and a handful of other significant shareholders will not participate in the retention plan, but instead will receive payments in line with their ownership share. Terasaki is expected to stay on as a scientific advisor to Thermo Fisher and will remain involved with his research in organ transplantation through his foundation, the Terasaki Foundation Laboratory. “Thermo Fisher is interested in working with him to fund his research,” Ayoub said. “His mission is to continue the process of finding a cure for organ rejection and that aligns with the mission of the company, so they would need his help with that.”