Medical Device DailyContributing Writer

Continuing its push to grow through acquisitions, global diagnostic testing leader Quest Diagnostics (Madison, New Jersey) said Friday that it would add Celera (Alameda, California), a pioneering genetic diagnostics firm, in a merger deal valued at just over $670 million.

The companies said they have entered into a definitive agreement under which Quest will pay $8 a share for Celera, with the transaction having already been approved by the boards of both companies. The $8 a share cash deal represents a premium of 28% over Thursday's closing price. The deal is expected to close at the end of April.

The deal announcement caused Quest shares to rise 7 cents to $54.27 in morning trading Friday, while Celera shares jumped 33%, or $2.07, to $8.34. Celera stock has traded in a 52-week range of $5.35 to $7.72.

The agreement on acquiring Celera comes on the heels of last month's Quest announcement that it would buy the Athena Diagnostics (Worcester, Massachusetts) business from scientific instruments maker Thermo Fisher Scientific (Hampton, New Hampshire) for $740 million in cash (Medical Device Daily; Feb. 25, 2010). Athena is focused on diagnostic tests for neurological conditions, including Alzheimer's disease. That deal is expected to close during the second quarter.

It is a measure of Quest's vast size that each of the latest planned acquisitions will add about 1% to the company's 2010 revenues.

Surya Mohapatra, PhD, chairman/CEO of Quest, said the acquisition of Celera "advances our growth strategy to be the leading innovator and provider of esoteric and gene-based testing for cancer, cardiovascular disease, infectious disease and neurological disorders." He referred to the planned deal as "an important transaction which will further strengthen our leadership position in molecular diagnostics discovery and development and drive sustainable revenue growth."

Mohapatra said his company would gain "immediate access to an impressive range of proprietary tests and products, and a strong pipeline of biomarkers for the future."

Celera CEO Kathy Ordonez said, "We are pleased to have reached an agreement through which Celera and our Berkeley HeartLab unit become part of the world's most respected diagnostic testing company." Adding that Celera's discovery and validation of new biomarkers "has exceeded our capacity to commercialize them," she said that combining the company's expertise in genetics with Quest's market access and scale should "speed the realization of our vision to personalize medicine. We believe this is a compelling transaction that accelerates the delivery of value to our shareholders."

Quest noted that the actual transaction value is about $344 million, after accounting for $327 million in acquired cash and short-term investments. It said the transaction value is expected to be further reduced through the realization of a significant portion of Celera's available tax credit and net operating loss carryforwards and capitalized R&D, which totaled $117 million as of the end of 2010.

Celera also said Friday that its fourth-quarter net income fell by 31%. The company earned $2.5 million, or 3 cents per share, in the quarter ended Dec. 25 compared with net income of $3.6 million, or 4 cents per share, in the final quarter of 2009. Revenue fell 11% to $34.9 million. Celera said it had to restate previous financial statements, including those from each 2009 quarter, due to accounting errors.

Among the assets and capabilities Quest will acquire in the transaction are immediate access to proprietary genetic tests and a pipeline of biomarkers. It noted that Celera's "renowned discovery program has identified numerous genetic biomarkers that assess disease risk or help clinicians select appropriate therapies for many diseases."

Celera has generated a portfolio of genetic biomarkers for numerous key clinical needs across the disease spectrum, and has about 100 issued or pending patents. The company's current R&D pipeline is focused on cardiovascular disease and cancer.

Another key acquired asset will be Berkeley Heartlab's (South San Francisco, California) test offerings and specialized sales force, along with a strong program of support by clinical educators who provide patient disease management services. Its tests include HDL and LDL lipoprotein analysis to help characterize a patient's cardiovascular disease risk, a KIF6 genotyping test to predict risk of coronary heart disease and response to statin therapy, a 9p21 genotyping test to predict the risk of early onset myocardial infarction, and an LPA genotyping test to predict risk of coronary heart disease and response to aspirin therapy.

Celera also is a provider of molecular test products for transplantation genetics, cystic fibrosis, HIV drug resistance and Fragile X syndrome.

Quest said it expects the acquisition to be dilutive to its GAAP earnings per share by an "immaterial" amount in 2011, before anticipated charges related to the transaction, and is not expected to have a material impact on the company's 2012 earnings per share.

Quest said it has secured fully committed bridge financing for the transaction.

In other dealmaking news:

$#0149; Bacterin International Holdings (Belgrade, Montana), developer of bone graft material and anti-infective coatings for medical applications, said it has agreed in terms to acquire Robinson MedSurg (RMS; Lone Tree, Colorado), a distribution company focused primarily on maxillofacial and craniofacial surgery devices.

The proposed transaction will involve an initial exchange of Bacterin common stock valued at $1 million at the closing date, in exchange for all the assets of Robinson MedSurg, including about $500,000 of inventory, existing commercial agreements and intellectual property. Another $1 million in Bacterin stock may be earned upon the achievement of certain revenue goals by RMS over a two-year period.

The letter of intent is subject to final due diligence, the execution of definitive purchase documents and the approval of the boards of directors of both companies.

Guy Cook, chairman/CEO of Bacterin, said the CMF market "is large, with metal sales totaling approximately $277 million annually. This proposed acquisition will be margin-enhancing and importantly leverages our sales force, which will now have additional product to sell into the same call points." He said the RMS product has received approval at various marquee hospitals and approved vendor status is anticipated soon in the VA Hospital system.

He said Bacterin plans to expand the RMS distribution through its 60 company sales reps and 450 independent reps, as well as further enhance the RMS product line with his firm's antimicrobial coatings. "A number of months ago, we began the 510(k) process to add our coatings to the RMS product line," Cook said. "We believe this will add an additional and important differentiating IP protection to the product line and hope to receive approval in early 2012."

Robinson MedSurg distributes implantable medical devices for maxillofacial, craniofacial, and orthopedic uses, including complete compact bone-plating systems; small-bone generator and craniofacial bone generator distraction devices; and the QuickScrew system, a pre-loaded surgical screw delivery system that provides speed and convenience during surgery.

Bacterin manufactures biologics products to domestic and international markets. Its methods optimize the growth factors in human allografts to create what it describes as "the ideal stem cell scaffold" and promote bone and other tissue growth. The products are used in a variety of applications, including enhancing fusion in spine surgery, relief of back pain with a facet joint stabilization, promotion of bone growth in foot and ankle surgery, promotion of skull healing following neurosurgery and cartilage regeneration in knee and other joint surgeries.

The company's Medical Device division develops anti-microbial coatings based upon proprietary coating technologies. Bacterin's strategic coating initiatives include antimicrobial coatings designed to inhibit biofilm formation and microbial contamination.

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