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" (MDD, May 22, 2007).
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 FY08 and the company anticipates $0.02 to $0.03 per share dilution to its previous guidance, excluding acquisition-related charges.
Muir said the transaction will be cash-flow neutral in FY09.
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 LLP provided legal counsel to Third Wave.
Last year, Hologic greatly expanded its women's health offerings with the purchase of Cytyc. The combined company has a product portfolio that includes such brands as ThinPrep, Lorad, NovaSure, Suros ATEC, Discovery, FullTerm, R2 and MammoSite. The combined company also has direct operations in more than 20 countries, with more than 3,300 employees, including 1,200 sales and service professionals.
A month after the Cytyc deal, Hologic agreed to acquire BioLucent (Aliso Viejo, California) and its MammoPad breast cushion business for $70 million (MDD, June 25, 2007). The pad is a radiolucent foam cushion that covers the cold, hard surfaces of all commercially available mammography equipment to reduce discomfort that keeps many women from getting regular mammograms.
In other dealmaking news, C. R. Bard (Murray Hill, New Jersey) reported that it has closed the previously reported acquisition of the outstanding shares of Specialized Health Products International (Bountiful, Utah).
The company agreed in March to acquire Specialized for $1 a share in cash, or $68.4 million. Bard's Access Systems (Salt Lake City) subsidiary will assume marketing responsibility for the related products, the company said.
Specialized makes vascular access products, including winged infusion sets, which are used to deliver therapeutic agents through vascular access ports. Many of its devices, including the SafeStep Huber Needle Set, are designed to reduce the risk of accidental needlesticks for both patients and clinicians, according to the company. Specialized Health Products is an original equipment supplier of winged infusion sets to Bard.
Specialized said the transaction was overwhelmingly approved by its stockholders at a special meeting held this past Thursday, with 90% of the votes cast in favor of the merger.