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Agilent Buying Cancer Diagnostics Company Dako for $2.2B

The story has been updated to include comments from a conference call.

NEW YORK (GenomeWeb News) – Agilent Technologies and Swedish private equity firm EQT today announced that Agilent will acquire cancer diagnostics firm Dako from EQT for $2.2 billion.

The deal, the largest in Agilent's history, is expected to close within the next 60 days and moves Agilent deeper into the diagnostics space.

Agilent is funding the deal entirely with its off-shore cash.

Dako will operate as an independent company within Agilent at least until the beginning of fiscal 2014, and the Dako management team will be joining Agilent.

"In the rapidly growing diagnostics market, Dako's products and capabilities are a strategic complement to Agilent's existing offerings," Agilent President and CEO Bill Sullivan said in a statement. "Dako is one of the world's leading providers of cancer diagnostics tools, and together we will be able to develop a wider range of products that help in the fight against cancer.

"Agilent's strategy in acquiring Dako is about strengthening the company's presence in life science and about revenue growth," Sullivan continued. "Dako employs extremely talented people with specialized expertise that we highly value. Their knowledge and experience will be very important as we move forward together."

Sullivan added on a conference call that the deal will build up Agilent's presence in the life sciences space, one of the firm's biggest long-term growth opportunities. Agilent is currently a $1.8 billion player in the space, which he estimated at $21 billion with an annual growth rate of between 4 percent and 6 percent.

"The addition of Dako and its portfolio will help Agilent accelerate our growth in several rapidly expanding areas of diagnostics," including a $2.2 billion anatomic pathology market that is growing at 8 percent to 10 percent annually, as well as the $4.5 billion molecular diagnostic market, which he said is growing at 10 percent to 15 percent annually.

He added that Dako has channel and regulatory experience which will allow Agilent to enter into those markets immediately.

Didier Hirsch, chief financial officer for Agilent, said that Dako is expected to generate $373 million in revenues in fiscal 2013 with $68 million operating profit and an operating margin of 18 percent.

Dako will help grow Agilent's SureFISH business and increase its presence in emerging markets, and in 2013 such revenue synergies are projected to add $39 million to Agilent's top line and $25 million to the bottom line, he said. Agilent will add an additional $10 million to its R&D and sales related to the acquisition in order to expand the reach of Dako and Agilent's technologies in emerging markets as well as the US and Europe.

The deal, Sullivan said, provides Dako with Agilent's broad range of technologies and global presence, particularly in emerging markets "where Dako has a significant opportunity for further penetration," he said.

Based in Denmark, Dako operates largely in the immunohistochemistry space and provides antibodies, reagents, scientific instruments, and software primarily to customers in pathology laboratories. In collaboration with drug manufacturers, it also is developing companion diagnostics.

Earlier this month, Dako said it was partnering with Roche business Genentech on the regulatory submission of companion diagnostic tests for a breast cancer drug. And earlier this year, it announced two deals to develop companion diagnostics for oncology drugs from Amgen.

Separately, Dako and the Van Andel Research Institute announced late on Wednesday an agreement to develop cancer diagnostics based on the Met4 antibody, which was developed by researchers at Van Andel and the Fred Hutchinson Cancer Research Center. Dako will develop and manufacture tests based on the antibody for "clinically relevant diagnostic indications," and commercialize the tests worldwide.

"The application of the Met4 antibody in Dako's extensive pharmDx development pipeline will expand the growing numbers of high quality companion diagnostic pharmDx kits solutions released from Dako and further improve patient characterization and selection for tailored drug treatment," Dako CEO Lars Holmkvist said in a statement.

Dako's products are sold in more than 100 countries, and in 2010 the company posted revenues of about $340 million. It has more than 1,000 employees, mostly in Denmark and in Carpinteria, Calif.

Sullivan said on the call that while Agilent expects to realize some cost synergies, first and foremost the deal will add to Agilent's revenue growth. More than 90 percent of Dako's business is in reagents and services. As a result, Agilent expects to see an immediate increase in its recurring revenues to 30 percent of total revenues from 25 percent.

"This will help reduce volatility through economic cycles," he said.

The deal provides Agilent with added capabilities in the IHC and in situ hybridization spaces, and in a research note, Mizuho Securities analyst Peter Lawson said the addition of Dako will put Agilent in direct competition with Danaher's Vision Systems subsidiary and Roche's Ventana Medical.

The deal marks a major push by Agilent into the diagnostics arena, which represents an emerging business opportunity for the Santa Clara, Calif.-based firm. Agilent partnered with Integrated Diagnostics earlier this year on protein biomarker-based assays, and last summer registered its 80,000-square-foot facility in Cedar Creek, Texas with the US Food and Drug Administration as a medical device establishment, enabling it to manufacture diagnostic products.

The company has been quiet about is diagnostics plans, and during the firm's fiscal first-quarter conference call in February, Nick Roelofs, president of Agilent's Life Sciences Group, said that the company is "just getting our toe in the water." He added, "We do not yet have a big push here, we do not yet have a big, significant presence in regulatory or clinical trial management, so these are elements that we'll need to work through."

The planned purchase is also the second major acquisition in the life sciences tools and molecular diagnostics space in recent weeks, following Hologic's announcement at the end of April that it was buying Gen-Probe for $3.7 billion.

In Thursday afternoon trading on the New York Stock Exchange, shares of Agilent were up about 1 percent at $40.17.