The European cord blood banking and stem cell application sector is characterised by high fragmentation and low economies of scale. An industry consolidation is inevitable. Navigator recently completed a due diligence and merger analysis for four cord blood banking laboratories in Europe. The investment is estimated at EUR 20 million, and will achieve significant economies of scale and transform four loss-making operations into a single, profitable one that will rank among the European market leaders.
Athens Greece – May 6th, 2014
Stem cells are non-specialised cells characterised by their capacity to differentiate into specialised cells, forming human tissue. Stem cells are found in all human beings: the procedure of extracting and storing these stem cells is known as cord blood banking.
There are over 1.6 million cord blood units stored world-wide, the majority of them in private or “family” banks. Stem cells from umbilical blood have been used in more than 30,000 transplants world-wide to the end of 2012. The sector is growing rapidly. In 2005, there were only 23 active cord blood banks; in 2012 there were 485. Navigator forecasts a total of 161,500 samples processed in Europe in 2013, rising to over 192,000 in 2018.
Navigator recently analysed the European cord blood banking and stem cell market in Europe on behalf of a leading European cord blood bank. We found that the rapid growth of cord blood banks has resulted in an over-supply of market operators in Europe. While attempting to provide high value services, the large majority of banks are losing money because of low economies of scale and high fixed costs. An industry consolidation in the private cord blood banking market is inevitable.
Moreover, the revenue strategy of the sector will have to change. The European financial crisis and the low rate of therapeutic applications per samples stored means that the global cord blood banking market risks customer fatigue. In order to expand revenue, cord blood banks will have to invest in innovative services, including genetic screening and diagnostics of diseases. The number and range of stem cell therapies for autologous and allogenic application must also increase.
Our study was aimed at merging four leading national cord blood banks in Europe. Our analysis found that:
Reducing the number of processing laboratories from five to two among the merger targets resulted in important economies of scale;
Eliminating duplications in staff positions among the four cord blood banks would reduce staff by approximately 20% while offering higher value and higher quality services to patients, parents and medical clinics;
Laboratory and sales staff training and productivity vary tremendously and require distinct processes, ICT-backed monitoring and continual training and development;
Many cord blood banks are suffering from high-cost expansion during previous years. The availability of private equity funds and stock market listings has fed a boom in this sector, which cannot be sustained according to standard ROI or ROE valuations;
Additional resources must be invested by operators in research and development and innovation.
Our study included a detailed financial analysis of restructuring four European cord blood banks, and a 5-year financial forecast and exit valuation. A complete business plan for the combined operation was developed, as was a market study for cord blood banking in Europe. Negotiations with potential investors are now underway.
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