SYDNEY, AUSTRALIA: Sonic Healthcare (ASX: SHL) has signed binding agreements to acquire Pathology Watch, a medical technology business headquartered in Salt Lake City, Utah, USA, which has developed and commercialised an integrated, end-to-end digital pathology platform for skin pathology (dermatopathology).

Pathology Watch was recently named as part of the Inc. 500 fastest growing private companies in America, a statement noted.

The Pathology Watch acquisition is attractive to Sonic Healthcare as it creates multiple return opportunities, including acceleration of Sonic’s transition to digital pathology, provision of competitive advantage in existing dermatopathology markets and the promotion of significant synergies with Franklin.ai, Sonic’s AI partner.

The purchase price of US$130 million (cash and debt free) will be funded in USD from Sonic’s existing cash and debt facilities.

Pathology Watch is currently at pre-profit stage, however Sonic expects to achieve attractive earnings per share and return on invested capital accretion as the opportunities listed below are realised over coming years.

The transaction is subject to customary conditions and is expected to close in December 2023.

The founders, management team and staff of Pathology Watch will join Sonic’s USA and global team structures.

Digital Pathology

Digital pathology is a revolution in anatomical pathology that is rapidly gaining momentum around the world. It involves scanning glass slide-mounted tissue sections to create a digital whole slide image that can be accessed and reported by a pathologist located remotely using a computer screen or mobile device.

Workflow efficiencies from digital pathology are due to the elimination of the physical handling of glass slides, accuracy enhancements, and the ability to distribute images from multiple sites to pathologists in any location to balance workloads, and to expedite expert second opinions.

Additionally, digital pathology enables the use of AI in anatomical pathology to further increase the efficiency of pathologists, while enhancing quality and improving case turnaround times.

Anatomical Pathology

Sonic Healthcare is one of the world’s largest anatomical pathology providers, with annual revenues from anatomical pathology of approximately A$1 billion.

Anatomical pathology represents a vital component of Sonic’s services and is required for all cancer diagnoses. From a business perspective, expertise in anatomical pathology has driven hospital and specialist clinician relationships which, in turn, have augmented “cross-sell” revenues from clinical pathology tests from these referral sources.

Sonic’s strength in anatomical pathology is particularly notable in Australia, the USA, Switzerland, and Germany, where the majority of Sonic pathologists are trained and qualified as specialist anatomical pathologists.

With large anatomical pathology practices in these countries, sub-specialist expertise has flourished to the point where Sonic now employs more than 1,000 expert and well-recognised anatomical pathologists covering almost every sub-speciality in medicine.

Sonic´s CEO, Dr Colin Goldschmidt said: “The acquisition of Pathology Watch is an important and enormously exciting step in Sonic’s transition to digital pathology and pathology AI and offers multiple avenues for value creation. We look forward to working together with this innovative and respected group to enhance our digital pathology and AI strategy, and to provide competitive advantage for Sonic through a superior service offering to referring physicians and their patients.”

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