Diagnostics & Imaging Week

Biomedical diagnostics instrument maker Beckman Coulter (BC; Fullerton, California) said Friday it will buy the lab-based diagnostics business of Olympus (Tokyo) for 77.45 billion yen, or about $800 million.

BC said the deal will provide it with new chemistry products, give it more tests for sale to hospital laboratories, and bring new customers to its immune system tests.

The company said it will cover $500 million of the buyout costs by issuing new debt, with the remainder — up to 37.5% of the purchase price — paid for in BC stock. The diagnostics business is part of the Olympus life science unit. BC said it expects the buyout to close in 3Q09, following regulatory approvals and other clearances.

"This compelling transaction combines the chemistry product lines of our two companies into a complete chemistry systems offering. It enhances Beckman Coulter as a leading provider of chemistry products with additional opportunities to expand our immunoassay reach into their chemistry installed base," said BC chairman/ president/CEO Scott Garrett in a company statement.

"Customers will benefit from the expanded range of products, particularly those large hospital and university laboratories where higher throughput systems are preferred," he said. "In addition, Beckman Coulter's strength in total lab automation will be complemented by Olympus' strong pre-analytical automation position in Europe and Asia."

In a conference call on the deal, Garrett said the BC and Olympus product lines "fit together perfectly." He noted that while Beckman Coulter has U.S. scale, with about 50% of its revenue being generated from U.S. sales, the addition of the Olympus lab-based diagnostics unit "adds considerable scale in Europe," which accounts for roughly 48% of that company's revenue as opposed to 22% for BC.

Olympus generates roughly 30% of its revenue from the U.S. Along with a "respectable" position in the Asian market, Garrett noted that "through this combination, we achieve scale on a global basis.

"While Beckman Coulter products provide category-leading ease of use, Olympus products provide category-leading reliability," he said, adding that through this combination "we will be better able to serve our customers."

Garrett also noted that Beckman has always "had a gap at the ultra-high-throughput end . . . so this [deal] really does accelerate our plans to move up into" that area.

Piper Jaffray (Minneapolis) analyst William Quirk said in a research note that the deal would likely increase Beckman's presence in reference labs and large-volume hospital labs, but is expensive in the near term.

BC said it expects the deal to add to its non-GAAP earnings per share in 2010. It expects the Olympus diagnostics business to increase revenue by about $500 million in 2010, on a full-year basis, and generate operating income of about $40 million to $50 million.

Importantly, the company said it does not think ratings agencies will revise their outlook on the company based on the new debt.

Morgan Stanley is acting as financial adviser and Latham & Watkins is serving as legal counsel to BC.

In other dealmaking news:

• Cellatope (formerly StageMark; Philadelphia), a cell analysis company developing research and diagnostic products and services for autoimmune diseases, said it has completed the sale of certain rights and intellectual property to its technology platform based on cell-bound complement activation products (CB-CAPs) to Cypress Bioscience (San Diego).

Cellatope has been developing the technology principally for the diagnosis and monitoring of systemic lupus erythematosus. The companies believe the technology may have applications in other fields of medicine in addition to Lupus, such as diagnosis and monitoring of other autoimmune conditions and monitoring of rejection in patients undergoing organ transplantation.

In connection with the asset purchase, Cypress has assumed the license held by Cellatope from the University of Pittsburgh and received intellectual property and certain other intangible assets owned by Cellatope, including CB-CAPs assay formats and protocols that were being developed by the company for commercial use. Cypress said it plans to complete the development program and add important Lupus personalized medicine services to its Avise product line, which includes tests for diagnosis, prognosis and monitoring or the treatment of Rheumatoid Arthritis.

Lab21 (Cambridge, UK), a provider of state-of-the-art diagnostic products and services, reported that it has purchased the majority shareholding of Biotec Laboratories (Ipswich, UK), a clinical diagnostic company with particular emphasis on infectious diseases, most notably tuberculosis (TB). Financial details of the transaction were not disclosed.

As part of the sale, Lab21 also acquired Biotec's South African subsidiary, Biotec Laboratories SA (Johannesburg, South Africa) which is a joint venture with the Cape Biotech Trust.

Commenting on the acquisition, Graham Mullis, CEO of Lab21 said, "Our goal is to grow Lab21 into a major international diagnostics business through both organic growth and acquisition this transaction is an important step in that process. Our combined businesses, which have very complementary products, provide a great platform from which to build further our infectious disease and immunodiagnostic portfolio."

Biotec Laboratories has developed a portfolio of diagnostic products with a particular focus on infectious diseases. The two companies have had an ongoing commercial relationship, with Biotec Laboratories distributing some of Lab21 diagnostic products through its established global network of distributors in 80 countries worldwide. This will strengthen the Lab21 global reach, in particular in Africa and South America and will allow it to immediately access new markets for its products. Biotec Laboratories SA has developed proprietary phage amplification technology that is being used to develop rapid diagnostic and susceptibility tests for both active and Drug Resistant TB.

For the immediate future, Biotec Laboratories will continue to trade as a subsidiary of Lab21 group.

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