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Biosite Buy Will Arm Beckman With Dx Portfolio, Enable It to Grow in Europe

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In a deal that would create the largest immunoassay company in the US, Beckman Coulter this week said it plans to acquire Biosite for $1.55 billion.
 
While giving Beckman a portfolio of proteomic-based diagnostics, the deal would also significantly increase geographic opportunities for Biosite’s technology.
 
Biosite’s lead product is the BNP Triage test for the presence of B-type natriuretic peptides, a hormone that exists in patients with heart failure. The companies have been offering the test on Beckman’s automated immunoassay testing platforms since 2004.
 
In a conference call with analysts, Beckman officials said that the two companies have been talking about a possible merger since 2003 when they first developed a business relationship.
 
“We have the installed base, they will bring new, valuable tests, driving utilization and shared expansion,” said Scott Garrett, president and CEO of Beckman. “We really see the ability to compete more effectively together than as two separate companies with just a collaborative relationship.”
 
Under the terms of the proposed deal, which is subject to regulatory approval, Beckman would pay $85 for each share of Biosite’s common stock, a 53.5-percent premium over Biosite’s closing price of $55.38 before the deal was announced.
 
The companies valued the sale at $1.55 billion. The transaction is expected to close during the second quarter.
 
If completed, the deal would “accelerate Beckman Coulter’s revenue growth, improve operating margins, and be accretive to earnings in 2008 and beyond,” the companies said in a joint statement this week.
 
Biosite said it had revenues of $308.6 million in 2006. Beckman generated $2.53 billion in revenue that year.
 
Dx ‘Crown Jewels’
 
From a proteomics perspective, Beckman is a comparatively minor player: Its main proteomic product is the ProteomeLab protein discovery and analysis platform. The purchase of Biosite’s proteomics-based technology would raise its profile in that space.
 
According to Garrett, the acquisition would give Beckman access to the near-patient test market, something it didn’t have before, but the key driver in the deal for Beckman was Biosite’s portfolio of diagnostics.
 
“It’s kind of a one-two punch where certainly the novel tests have to be the crown jewels of Biosite,” Garrett said.
 
Biosite’s diagnostic portfolio includes protein biomarker-based tests for congestive heart failure and cardiovascular diseases, which together account for about 80 percent of the company’s revenues.
 
It also has tests for intestinal parasitic disease and drug screening, and is developing a test for sepsis. Last year, the company announced a deal with Oxford Genome Sciences to develop a diagnostic for colorectal cancer [See PM 04/06/06]. Oxford Genome has said it and Biosite plan to validiate the biomarkers on which its colorectal cancer test will be based during the summer.
 
Biosite also has an agreement with Hopitaux Universitaires de Geneve for a renal disease test [See PM 08/31/06]. Both the colorectal and kidney tests will be based on protein biomarkers. Biosite has more than 90 patents issued in the US for novel, proprietary markers, Garrett said.
 
Biosite plans to launch its sepsis and kidney-injury tests in Europe this year and in the US next year, Ken Buechler, president and CSO of Biosite, said this week. The company this week reported preliminary results of a study of its sepsis test, saying that researchers had identified three biomarkers that may be clinically useful for assessing sepsis.
 
Biosite is also conducting trials for a test based on myeloperoxidase, a biomarker linked to the vasculature inflammation found elevated in patients at acute risk of near-term cardiac events.
 
It expects to submit the test for clearance with the US Food and Drug Administration in the second quarter, Buechler said.
 
Commenting on the market for such tests during this week’s conference call, Garrett said that the US spends $17 billion annually treating sepsis, $14 billion on renal disease, and $400 billion on cardiovascular disease.
 
“All of these diseases are targets within the Biosite pipeline. Better tests, better assessment, better outcomes for patients, and lower costs: We have a tremendous opportunity to create value for our shareholders by addressing these unmet needs,” Garrett said.
 
For Biosite, the deal would extend the geographical market for its products. In September the company relocated its European headquarters to Morges, Switzerland, from Bruc, France, a move designed to grow its business in Europe.
 
At the time, Gary King, vice president of Biosite’s international operations, said in a statement that “Biosite's presence in the European market has grown dramatically since we opened our first international office in France in 2003. The growth in our direct sales operations in Europe requires a strategically located facility to support our business strategy, particularly in the areas of marketing, clinical and customer support."
 

“It’s kind of a one-two punch where certainly the novel tests have to be the crown jewels of Biosite.”

Still, sales outside the US represent only 15 percent of Biosite’s total sales. By comparison, Beckman derives 47 percent of its business internationally.
 
In a research note, Quintin Lai, an analyst with Robert W. Baird, said Beckman “could potentially benefit by leveraging Biosite’s primarily US-based sales across its global infrastructure.”
 
Market Jitters
 
Overall, however, Wall Street expressed concern about the deal and its potential repercussions for Beckman. Following the acquisition announcement, investment bank Piper Jaffray downgraded Beckman’s stock to “market perform” from “outperform.”
 
Also, Beckman’s stock has been down around 6.5 percent since the deal was announced Monday. By comparison, Biosite’s stock surged more than 51 percent on the day of the announcement, and has barely budged.
 
In particular, investors questioned the $1.55 billion price tag. JP Morgan Securities analyst Tycho Peterson wrote in a research note that “While the pipeline and distribution opportunities are compelling, we believe that the high price could cause some investors to balk.”
 
He also wrote that near-term challenges include reimbursement hurdles, increasing price pressures, and “less than stellar” recent BNP performance.
 
Peterson also pointed out that competition from Dade Behring, which has an N terminal-pro-BNP test, and GE, which is in the process of purchasing Abbott’s in vitro and point-of-care diagnostic business, including its i-STAT BNP test, could eat into financial gains Beckman stands to realize from the deal.
 
Frank Pinkerton at Bank of America said in an analyst note that his “preliminary estimates suggest significant revenue and cost synergies will be required for the transaction to deliver promised results.”
 
Beckman officials, however, insisted the price paid will be more than offset by earnings from Biosite’s base business, general and administrative cost savings, and a “modest assumption for incremental sales growth” driven by leveraging the combined company’s global infrastructure
 
“We think that we’re paying the right price — the right price for Biosite shareholders and the right price for Beckman Coulter shareholders,” Garrett said.
 
Morgan Stanley is acting as the financial advisor to Beckman on the deal. Goldman Sachs is the financial advisor to Biosite. Latham & Watkins is Beckman’s legal counsel on the transaction. Cooley Godward Kronish is providing legal counsel to Biosite.

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