Diagnostics and imaging systems maker Hologic (Bedford, Massachusetts) continues to improve its toolkit of women's health products with the acquisition of human papillomavirus (HPV) test developer Third Wave Technologies (Madison, Wisconsin) for $11.25 per share, or $580 million a 24% premium to Third Wave's average trading price over the last three months.

What's more, the company expects to have the purchase paid off inside of three years.

"It's an outstanding opportunity for Hologic to enter the molecular diagnostics market," said Jack Cumming, Hologic's chairman/CEO, during a conference call with investors. "Third Wave's HPV tests, currently under FDA review, represent a highly strategic addition to our portfolio of products focused on women's health."

Hologic is borrowing $600 million to finance a senior credit facility. "The new $600 million term loan is expected to be paid off in a 2.5-year time frame," said Hologic CFO Glenn Muir.

Cumming said that, with last year's $6.2 billion acquisition of Cytyc (Marlborough, Massachusetts), "We gained access to a completely new franchise with a strong distribution presence in key markets. This led us to seriously consider the molecular diagnostics market."

Muir reported that because it's ahead of plan, the remaining $90 million owed on that purchase is scheduled to be paid off at the end of this month. "We continue to generate cash flow," he said.

Hologic has apparently been evaluating the molecular diagnostics market for some time. Cumming said the Third Wave acquisition will help the company strengthen its diagnostics portfolio, provide near-term access to the HPV market and enable new growth in several non-HPV test areas.

"We believe, when fully commercialized, Third Waves' Cervista for high risk screening of HPV will provide a competitive alternative to existing HPV tests," Cumming said. "This will allow Hologic to participate in the growing HPV market."

Muir said Hologic is expecting overall revenue growth of 50% due specifically to HPV sales.

Third Wave makes molecular diagnostic reagents for a wide variety of DNA and RNA analysis applications based on its Invader chemistry for conditions such as cystic fibrosis, hepatitis C, cardiovascular risk and other diseases. The company recently submitted to the FDA pre-market approval applications for two HPV tests.

There are about 10 million HPV tests performed in the U.S., representing a $200 million market and growth in excess of 40% in each of the past five years. Hologic reports the global market for HPV testing will increase to $800 million in the next few years.

"We view the cervical cancer market as core to the franchise," Cumming said. "The addition of Third Wave will strengthen our business internationally. We plan to launch the high-risk test which is CE-marked, internationally immediately after the transaction closes, beginning with the EU. Once approval is granted in the U.S., we will immediately begin to market here. We view this acquisition as a critical step to maintaining Hologic's commitment to women's health and continuing our strong earnings growth into the future."

Because Pap testing and HPV are linked in the recommended protocols of ob/gyns (HPV can cause cervical cancer), Cumming said Hologic's existing sales channels are well suited to handle the HPV products.

The senior management team of Third Wave is so confident about the future of this technology that six top executives voluntarily deferred the vesting of their options and the acceleration of most of their long-term incentive plan payments otherwise due upon a change in control until after the receipt of FDA approval.

Hologic has secured committed debt financing for the full consideration from Goldman, Sachs & Co.

The transaction will be conducted through a tender offer to be launched as promptly as possible, to be followed by a merger to acquire any untendered shares. This transaction is expected to be slightly dilutive to Hologic's non-GAAP EPS in FY2008 and the company anticipates 2 cents to 3 cents per share dilution to its previous guidance, excluding acquisition-related charges.

Muir said the transaction will be cash-flow neutral in FY2009.

Goldman, Sachs & Co. acted as exclusive financial advisor to Hologic, and Brown Rudnick provided legal counsel. XMS Capital Partners and Merrill Lynch & Co. acted as financial advisors to Third Wave. Kirkland & Ellis LLP and Kennedy, Covington Lobdell & Hickman provided legal counsel to Third Wave.

In other dealmaking news:

Orthopedic device maker Wright Medical Group (Arlington, Tennessee) reported that it has acquired certain assets of A.M. Surgical (Smithtown, New York), a company focused on providing endoscopic soft tissue-release products for foot and ankle surgeons.

The purchase consists of an initial cash payment of $2.1 million and potential additional cash payments, not to exceed $700,000, based upon future financial performance of the acquired assets.

Wright has been marketing A.M. Surgical's foot and ankle products since October 2007 pursuant to a previously disclosed distribution agreement between the parties.

Assets acquired include all of A.M. Surgical's endoscopic soft tissue release products for the foot and ankle market, which consist of the AM EPF (plantar fascia release), AM UDIN (interdigital nerve decompression) and AM EGR (gastrocnemius release) Systems. These three systems address the decompression and soft tissue release procedures most commonly performed by foot and ankle surgeons.

Wright will continue to offer the AM foot and ankle tissue release systems through its U.S. sales force, as it has since last October, and expects to begin commercialization into certain international markets during 2009.

• Kardia Health Systems (Rochester, Minnesota) said it will expand its cardiology platforms with the acquisition of Freeland Systems (Westminster, Colorado), a provider of multi-modality medical imaging and reporting software solutions.

The move provides a more comprehensive line of high-performance products and services for cardiology, Kardia said.

Freeland Systems has been developing digital imaging technology for cardiac ultrasound since 1980 and has a worldwide installed base of more than 2,000 systems.

Kardia said that with this acquisition, it will be able to offer customers a complete web-based clinical, diagnostic and reporting solution for end-to-end management of multiple imaging modalities.

• Escalon Medical (Wayne, Pennsylvania) said its wholly owned subsidiary, Drew Scientific (Wayne), acquired JAS Diagnostics (Miami).

Drew purchased 100% of the outstanding shares of JAS for about $1.2 million in cash and $800,000 in notes payable.

JAS is a privately-held manufacturer of class I and II in vitro diagnostics (IVD) reagents that markets its products to physician, reference, hospital and veterinary laboratories throughout the world.

JAS generates annual revenues of about $2 million.

While Drew is focused on the equipment side of the IVD business, JAS synergistically expands our current position into the clinical chemistry consumable market. We look forward to the JAS team becoming part of our organization and contributing to our future growth," said Richard DePiano Sr., CEO/chairman of Escalon.

JAS was established in 2000 and specializes in the manufacture of a broad range of liquid stable, diagnostics chemistry reagents used in IVD tests.

• Dawning Technologies (Fort Myers, Florida) and Medical Automation Systems (MAS; Charlottesville, Virginia) reported a joint project with the intention of leveraging product synergies and creating added value for customers.

The project will focus on the integration of Dawning's instrument interface and laboratory middleware products with MAS's RALS-Plus POC Data Management solutions. RALS-Plus is a point-of-care (POC) data management system developed and marketed by MAS. The joint project between Dawning and MAS will enable users of the RALS system to connect a wider range of POC devices through their existing RALS-Plus system, according to the companies.

The immediate benefit of this project is to provide MAS's RALS-Plus system with connectivity to devices in Dawning's Java Instrument Driver Library, the companies noted.

Dawning is a supplier of connectivity solutions to the clinical laboratory market.

MASprovides data management systems used by hospitals to monitor and manage diagnostic testing performed at the patient's bedside.