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GE's Pharma Ambitions Lead to a Lilly Deal

Executive Summary

GE Healthcare's joint research collaboration with Eli Lilly is small and easy to miss. It's very early stage and doesn't involve money exchanging hands. But it's the first manifestation of GE's efforts to expand its relationships with pharma companies following its acquisition of Amersham PLC. GE will comb Lilly's extensive molecular libraries for targets that could help diagnose Alzheimer's disease earlier. GE could turn these targets into imaging agents. Lilly is eager for tools to help diagnose and manage Alzheimer's disease because it has several Alzheimer's drugs in development.

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GE Grabs the Spotlight in IVD

The entry by GE into the core lab business via its acquisition of Abbott's clinical diagnostics businesses follows a similar move by Siemens last year, and suggests IVD may be best suited for generalist industrial giants. While the pricing pressures that have dogged this segment of diagnostics are not likely to abate, existing players--including Abbott--are continuing to develop high-margin molecular diagnostic tests that they expect the new players will want to incorporate into their platforms.

GE'S Perception of Convergence

Although much smaller in scale, General Electric Co.'s $9.4 billion acquisition of Amersham PLC (now GE Healthcare's division GE Healthcare Bio-Sciences Inc.) [See Deal] early last year is every bit as radical in its space as Johnson & Johnson's $25.4 billion acquisition of Guidant Corp. is in the cardiovascular world. [See Deal] And while J&J's move highlights the decades-long consolidation movement in major medical device sectors, GE's actions illustrate another key trend: convergence. The Amersham purchase puts GE for first time in the life sciences industry and has a systems-oriented, engineering company talking about intangible, biology-focused strategies like personalized medicine.

GE's Personalized Play for Amersham

GE Medical's pending $9.5 billion acquisition of Amersham PLC, while cast in terms of the company's commitment to accelerate progress in personalized medicine, is fundamentally a hard-headed numbers play aimed at maintaining momentum of GE's gargantuan $10 billion medical systems business unit. GE needs healthy businesses oriented towards growing markets to maintain its momentum. And Amersham, with its stable, predictable contrast agent and protein separations businesses fits well into the portfolio. Meanwhile, the personalized medicine play holds mid-to-long term promise.

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