Diagnostics & Imaging Week

In an effort to accelerate its profitability, Nanogen (San Diego), a developer of molecular and rapid in vitro diagnostic products, has agreed to combine its business with the Elitech Group (Paris), a private French diagnostics company, in an all-stock deal.

During Nanogen's second-quarter earnings call, Howard Birndorf, Nanogen's chairman/CEO, told investors that the company's 2Q08 financials demonstrate that it is moving toward profitability.

"However, we need to accelerate reaching profitability and improve the predictability of cash flow and recognize that combining our business with the Elitech Group will gives us the critical mass necessary to address worldwide market opportunities for our technologies and products, and will greatly strengthen our company with investors and the stock market," Birndorf said.

Birndorf said the combination would create a global, in vitro diagnostics company with a broad product range, expected first-year revenues of more than $150 million and positive EBITDA. The boards of both companies have already approved the deal, which is expected to close by the end of 1Q09. The transaction is subject to approval by Nanogen's stockholders.

"Most of our competitors of a similar size offer a narrow product range and many of them don't earn a positive return. The combined company will be financially strong with a broad reach into our customers' laboratory needs," Birndorf said. "While our larger competitors focus on expensive system solutions for the high-volume laboratory customer, we will offer clinical chemistry, microbiology, molecular diagnostics and point-of-care solutions with a focus and an ability to reach the medium- and smaller-size customer."

The combination is structured as a tax-free, stock-for-stock exchange of shares of Nanogen common stock for all of the Elitech capital stock and is a reverse acquisition of Nanogen by Elitech. The combination is expected to create a transatlantic company that will continue to be listed on Nasdaq. The name of the combined company has not yet been determined, but it will be headquartered in San Diego.

Elitech shareholders are expected to receive shares of Nanogen common stock that have a value of €66.5 million. The number of Nanogen common shares issued to Elitech shareholders is subject to a "collar," which among other things provides that Elitech shareholders will receive a minimum of 58.7% and a maximum of 68.7% of the total pro forma fully diluted shares outstanding upon completion of the merger subject to other limitations.

Nanogen said that it expects to improve its cash flow by at least $15 million a year as a result of the merger.

Company executives often use the term "synergy" when two companies merge, and this deal is no exception, with Elitech President Pierre Debiais calling the transaction a "true example of synergy between two companies in the in vitro diagnostics industry."

Debiais will lead the combined company as CEO. Michael Saunders, currently group VP of marketing and business development for Elitech, will become one COO, with a focus on European business and global commercial operations. David Ludvigson, currently president/COO for Nanogen, will become another COO, with a focus on the U.S. business and global business and finance. Nick Venuto, currently VP/CFO of Nanogen, will serve in the same capacity for the combined company.

The companies expect that the new board will have a majority of members from or nominated by Elitech, including Debiais. However, Birndorf is expected to serve as chairman of the new company.

In conjunction with the share exchange agreements, Nanogen also has entered into interim funding agreements with Elitech and certain existing Nanogen investors pursuant to which they will loan Nanogen $8 million to fund Nanogen's operations during the period between signing and closing of the combination. Nanogen will issue to these lenders senior secured convertible promissory notes that are convertible into shares of Nanogen common stock at the closing bid price of the Nanogen common stock immediately preceding the signing of the interim funding agreements. In connection with the interim funding agreements, Nanogen and existing investors also restructured Nanogen's existing convertible notes.

Cowen and Company is serving as financial advisor to Nanogen and Morgan, Lewis & Bockius as legal counsel. BNP served as financial advisor to Elitech and Jackson Walker as legal counsel.

Nanogen's products include molecular diagnostic kits and reagents and kits for rapid, point-of-care diagnostic tests.

Elitech bills itself as the largest independent distributor of in vitro diagnostic products in France. It operates globally, leveraging products from its own biochemistry and microbiology equipment and reagents manufacturing facilities as well as third party products.

In other dealmaking activity, Beckman Coulter (BC; Fullerton, California) reported that it signed an agreement to buy out its U.S. royalty obligation to Nephromics (Chestnut Hill, Massachusetts), a company focused on women's health. The license, the details of which were not disclosed, is for tests related to the detection, monitoring and risk assessment of preeclampsia, a leading cause of maternal death. In addition, BC obtained rights to acquire the worldwide diagnostics assets of Nephromics.

"Currently, there are no specific in vitro diagnostic tests for preeclampsia, even though the disease threatens the lives of thousands of women and their babies, and places a significant burden on healthcare systems worldwide," said Mike Whelan, vice president of Beckman Coulter's High Sensitivity Testing Business Group.

Beckman Coulter has initiated the clinical trial phase of its test development program. The new tests, expected to be useful as an aid in helping physicians diagnose preeclampsia, are being developed for use on the company's family of UniCel DxI and Access immunoassay systems, as well as UniCel DxCi chemistry-immunoassay work cells. The company plans to begin offering the tests by the end of 2009.

Preeclampsia, often characterized by hypertension and protein in the urine, occurs in up to 10% of all pregnancies in the developed world. During preeclampsia, the child is at risk from reduced placental blood circulation and function. The condition may result in premature birth, low birth weight and respiratory distress syndrome. For the mother, preeclampsia can mean seizures, brain, liver or other organ damage, even death.