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Gen-Probe to Serve as 'Cornerstone' of Hologic's MDx Franchise, Primarily Through STD Test Offerings

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Hologic's planned $3.7 billion acquisition of Gen-Probe, announced earlier this week, is expected to create the largest diagnostics company focused on women's health, according to Hologic officials.

Moreover, the deal gives Hologic a "major foot in the door" to the molecular diagnostics market — not only in the area of women's health and sexually transmitted disease, but also in infectious disease and blood screening — through the addition of Gen-Probe's various nucleic acid amplification-based platforms and test menu, which are expected to become a "cornerstone" of Hologic's molecular diagnostics franchise, company officials said.

However, as was already the case with Hologic, women's health is expected to remain the sweet spot of the combined company — with nearly 90 percent of business focused on that market, Hologic said.

In particular, Hologic's larger direct-to-physician and international sales force is expected to accelerate uptake of Gen-Probe's STD-related molecular diagnostic products; and the combined company's complementary offerings for human papillomavirus testing may help it wrest market share from major competitors Qiagen and Roche.

"This transaction combines best-in-class technology with strong market presence and global distribution to more effectively target the rapidly growing molecular diagnostics market [and] strengthen Hologic's diagnostic business through the addition of Gen-Probe's broad product portfolio and automation platforms," Hologic President and CEO Robert Cascella said in a conference call this week discussing the acquisition.

"More specifically, this gives Hologic critical mass in the molecular diagnostics market and makes Hologic the largest diagnostic company focused on women's health," Cascella added. "It enables Hologic's direct sales and dealer network internationally to further drive adoption of Gen-Probe's tests in both developed and emerging markets around the world."

Gen-Probe CEO Carl Hull, who will oversee the combined company's diagnostics business following closure of the deal, told PCR Insider this week that Gen-Probe sees Hologic's distribution channels "as being a real catalyst for potential growth and sales of the current portfolio of Gen-Probe products. Obviously as we are launching HPV, there is an immense opportunity to show physicians the clinical performance of the test … directly through the sales force."

Gen-Probe gained US Food and Drug Administration 510(k) clearance for its HPV assay late last year (PCR Insider, 11/3/2011).

Through the acquisition, Hologic gains access to Gen-Probe's automated Tigris and Panther platforms. Tigris, which is available in the US and Europe, has higher throughput than Panther and is intended for use in high-volume clinical testing labs. Panther, which is CE-marked and available in Europe, but is still pending approval by the US Food and Drug Administration, is intended for use in low- to mid-volume labs.

Both platforms feature similar core technologies, including a proprietary target capture method based on capture oligomers and magnetic microparticles; and transcription-mediated amplification, an isothermal amplification method that can produce billions of RNA amplicons from a single target molecule in less than one hour.

In addition, Gen-Probe said in January that it is already developing a next-generation version of Panther that will incorporate real-time PCR capabilities along with the TMA technology (PCR Insider, 1/19/2012).

The current STD test menu for Tigris, and Hologic's biggest target in the acquisition, includes the Aptima Combo 2 assay, which qualitatively detects and differentiates ribosomal RNA from Chlamydia trachomatis and Neisseria gonorrhoeae to aid in the diagnosis of chlamydial and gonococcal genital disease; Aptima HPV for detecting the HPV types likely to progress to cancer; and the Aptima Trichomonas vaginalis assay.

In addition, Gen-Probe last month submitted an application with the FDA for regulatory approval of an HPV genotyping assay that will detect type 16 or types 18 and 45 of the virus.

It is these products that Hologic and Gen-Probe believe can further penetrate the market through Hologic's larger and more diversified sales and marketing team. Hologic has an international sales force of nearly 400 direct representatives and 135 dealers on several continents.

"We intend to … leverage the products of Gen-Probe with the existing distribution that Hologic currently has," Hologic's Cascella said. "We are direct throughout all of Europe and have an infrastructure of training, applications, and support people around the world. So the rationalization is a very simple one. Gen-Probe's early on in that development. So what this does is really accelerate the market penetration of their products with a ready-made distribution channel and an infrastructure to support them."

The companies did not disclose the size and breadth of Gen-Probe's sales force, but underscored the opportunity in China as a prime example.

"We believe Hologic's strong presence in China alone represents an outstanding opportunity for future growth," Cascella said. "We have 500 people in China today and a direct sales operation." By comparison, Hull said, Gen-Probe currently has two sales representatives in China.

"We are very well known, and we think respected in the US with our customers, and about 70 percent of our business is in the US," Al Kildani, senior director of investor relations and corporate communications at Gen-Probe, told PCR Insider. "But we're much less well known in … Asia, and in particular in places like Europe where we're going more head to head with established companies like Roche, Becton-Dickinson, and Abbott."

In addition, Hologic has a strong direct-to-physician sales force, while Gen-Probe's marketing prowess is in the clinical laboratory space. As such, Hologic may be able to increase adoption of Gen-Probe's STD tests by generating greater awareness among clinicians.

"One of the questions we've often been asked in the past is whether we thought we'd need a physician sales force to go out and help physicians understand the benefits of our tests and technologies," Kildani said.

"For example, recently we've [often] heard that in regards to our RNA-based HPV test," Kildani added. "We think there is a great opportunity for the existing OB-GYN sales force of Hologic to deliver the message to the physician community about how there needs to be more testing of chlamydia and gonorrhea." Both Kildani and Hull noted a recent study published by the US Centers for Disease Control surmising that fewer than 40 percent of women who should be screened for CT/NG according to approved clinical guidelines are actually being screened.

Cascella noted during the conference call that Hologic's sales team will be "instrumental in growing test utilization, driving compliance, and communicating screening guidelines, all to increase overall organic growth."

Gen-Probe's Kildani later added that the companies "then have a sales force delivering the message clinically to doctors about the benefits of our test, combined with a lab sales force that helps labs understand the benefits of our automation, and putting those two things together — we think you have a pretty compelling commercial message."

In general, company officials said that Gen-Probe's molecular testing products would become the major building block in Hologic's molecular diagnostics play. Hologic noted that while its business has traditionally had an approximately 32 percent focus on diagnostics, Gen-Probe's business has a 61 percent focus on diagnostics, and the combined company will maintain about half its focus on diagnostics. The remaining focus will be on Hologic's existing women's imaging and surgical businesses.

Hologic is not completely bereft of molecular diagnostics prowess, however. In 2008 it acquired Third Wave Technologies and its Invader chemistry, which underlies Hologic's Cervista HPV HR cervical screening cancer test. Invader chemistry is a homogeneous, isothermal, DNA probe-based system that amplifies a target-specific signal but not the target itself.

Cervista qualitatively detects DNA from 14 high-risk HPV types, but doesn't determine the specific type of HPV present. The test can be performed either manually or using the Cervista High-Throughput Automation system, according to the test's package insert.

It is unclear how much market share either Cervista or Gen-Probe's HPV test currently have. However, both Qiagen, with its Digene HC2 HPV DNA test; and Roche, with its Cobas 4800 HPV test, have in past years claimed leadership in the molecular HPV testing market, or published studies claiming superior sensitivity or specificity for their respective tests (PCR Insider, 8/12/2010).

"It's early days [for our] HPV test, so we're not generally at a point where we can provide much granularity to the numbers," Gen-Probe's Kildani said. "Our technology is being evaluated, we do have some customers ordering tests, but … we've been approved for about six months. And there is a certain process that labs go through to evaluate new technologies and choose them and transition to them."

However, Gen-Probe and others have been trumpeting a study published in the International Journal of Cancer around the time the FDA approved its HPV test that demonstrated that the test has a comparable or higher degree of specificity than competing tests.

Hologic's Cascella said that the companies will now offer a "combined class-leading cervical cancer screening solution, with Cervista playing a key role serving lower-volume hospitals and cytology labs, while Aptima HPV running on the Tigris and Panther platforms will serve high-volume customers benefiting from automation and menu. This bifurcated market approach will also play a valuable role in international markets to address both centralized and decentralized lab models."

While tucking in Gen-Probe's STD and women's health products makes sense for Hologic, analysts and other industry insiders seemed skeptical about how Gen-Probe's other products — which are not trivial in terms of the company's overall revenues — would fit within Hologic's portfolio.

Chief among these is Gen-Probe's blood screening business. Gen-Probe maintains a partnership with Novartis Diagnostics under which the companies develop and market the Procleix line of assays for use on the Tigris and Panther to screen HIV-1, hepatitis C, hepatitis B, and West Nile virus in the blood supply both in the US and abroad (PCR Insider, 3/15/2012).

That collaboration is set to run until 2025. In the first quarter of this year, Gen-Probe logged blood screening revenues of $52.5 million, a 12 percent increase over the prior-year period, and about one-third of the company's overall Q1 revenues of $153.4 million.

Another major product line for Gen-Probe is its Prodesse line of RT-PCR-based assays for respiratory diseases such as influenza, human metapneumovirus, and parainfluenza. The company also offers various Lifecodes immunoassay products for organ transplant and transfusion monitoring.

Cascella said during the call that Gen-Probe's Procleix products allow it to participate in "a large market with an attractive financial profile and potential for international growth;" and that the acquisition "also moves Hologic into the adjacent diagnostic markets of organ transplant and infectious disease. These are new markets for Hologic that also offer new opportunities for growth. The combined business will have the ability to accelerate innovation and bring important new products to markets sooner than either company could achieve on its own."

Further pressed by analysts during the conference call, Cascella noted that Hologic will "continue to maintain" those non-core businesses. "It's early on in the transaction, but we think that there [are] strong opportunities in those markets and with those technologies, and … although outside of our core focus on women's health, we would like to exercise those to their fullest."

With respect to Gen-Probe's blood screening business, Cascella said that although "it's not a part of the women's health focus … [it's] a very stable, very profitable business from a US perspective, and we truly believe that [outside the US], as national screening programs begin to emerge in some of the … developing markets, we think there's opportunity for strong growth in that area as well. So over time, we believe that it will be a strong contributor to both top line and bottom line."

Hull told PCR Insider that from his perspective, "the entire portfolio of business that we have built over the last several years has all been part of our discussions with Hologic. And to me they've expressed interest in the full range of products. Obviously Hologic completed due diligence on the entire business, and they view all aspects that we brought to the table as being attractive."

Terms of the all-cash transaction call for Hologic to acquire all outstanding shares of Gen-Probe for $82.75 per share, funded through available cash and additional financing. The transaction is expected to be $0.20 accretive to Hologic's adjusted earnings per share in the first fiscal year after closing and "significantly more accretive" thereafter, the company said.

Gen-Probe employs approximately 1,400 people and expects 2012 revenues of between $630 and $655 million. The projected annual pro-forma revenue of the combined company is expected to total approximately $2.4 billion, with a combined adjusted EBITDA of approximately $822 million.

Hologic said that it expects to generate annual cost synergies of approximately $75 million within three years following the close of the transaction, and $40 million in cost synergies in year one. These synergies include cost efficiencies, overhead consolidation, and shared resources, CFO Glenn Muir said during the conference call.

Cascella also noted during the call that Gen-Probe will become a wholly owned subsidiary of Hologic, and that Hologic expects to retain Gen-Probe's senior management and a "significant presence in San Diego." The deal is expected to close in the second half of this year, subject to approval by GenProbe's shareholders and other customary closing conditions.

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