Diagnostics & Imaging Week

Touting an opportunity for growth as a driving factor, Quest Diagnostics (Lyndhurst, New Jersey) yesterday said it has agreed to buy AmeriPath (Palm Beach Gardens, Florida) for about $2 billion, including roughly $770 million in debt at closing.

AmeriPath, a company controlled by Welsh, Carson, Anderson and Stowe, provides dermatopathology, anatomic pathology and esoteric testing, and has annual revenues of more than $800 million.

Asked about the potential synergies associated with the deal, Quest’s CFO Bob Hagemann told investors during a morning conference call that cost synergies were not the key drivers behind the company’s acquisition of AmeriPath.

Hagemann said there would be very little integration, that AmeriPath would continue to operate in much the same way as it currently does, and that Quest does not plan to close any of AmeriPath’s major facilities.

“We’re doing this because it’s a growth opportunity . . . With that said, though, there are some synergy opportunities: overhead costs, purchase logistics, and potentially some bad debt. We’ll realize some of that in the first year with the rest of that realized in the second year,” Hagemann said.

Hagemann also told conference call listeners that Quest believes $2 billion is a reasonable price for AmeriPath and that the acquisition will generate a good return for the company overtime.

“That’s really the value for our shareholders, accelerated earnings growth and accelerated revenue growth,” Hagemann said.

Surya Mohapatra, PhD, CEO and chairman of Quest, also emphasized the value of the $2 billion cash deal.

“This acquisition will establish our leading position in cancer diagnostics with a focus on dermatopathology, anatomic pathology and molecular diagnostics,” Mohapatra said. “AmeriPath is respected for its leadership in dermatopathology and anatomic pathology, two of the fastest growing segments in diagnostic testing. Additionally, its Specialty Laboratories will further strengthen our hospital and esoteric testing business. The acquisition will accelerate Quest Diagnostics’ revenue and earnings growth and provide compelling benefits for patients, physicians, hospitals and payers through enhanced customer service and expanded test offerings.”

AmeriPath operates three divisions. Dermpath Diagnostics has a team of more than 80 board-certified dermatopathologists who interpret 2.4 million biopsies a year. Its anatomic pathology division, which operates under the AmeriPath brand, has expertise in gastroenterology, urology, oncology and women’s health. Specialty Laboratories, its esoteric testing business, is a full-service clinical laboratory serving hospitals, reference laboratories and physicians nationwide. AmeriPath has about 400 pathologists and clinical scientists and nearly 4,000 employees.

“AmeriPath and Quest Diagnostics share a deep commitment to providing the highest quality diagnostic services to physicians and their patients,” said Donald Steen, CEO and chairman of AmeriPath. “The joining together of our companies will facilitate and accelerate our mission of becoming the leader in the innovative delivery of quality pathology disease management services.”

The companies expect to complete the transaction this quarter.

“I am extremely excited that this is going to play an important role in cancer and not only for diagnostics but also for treatment and monitoring,” Mohapatra said during the conference call.

Quest said it will pay for the transaction, refinance AmeriPath’s existing debt, and the debt from the acquisition of HemoCue ( ngelholm, Sweden) completed earlier this year with the proceeds of a new $1 billion one-year bridge loan and a new five-year $1.5 billion term loan, both committed to be underwritten by Morgan Stanley. The bridge loan is expected to be refinanced shortly after the closing.

Welsh, Carson, Anderson and Stowe bills itself as one of the largest and most successful private equity investment firms in the U.S. Since its founding in 1979, Welsh Carson has organized 14 investment partnerships with capital of more than $16 billion.

In other dealmaking news:

• Invitrogen (Carlsbad, California), a provider of life science technologies for disease research and drug discovery, reported completing the sale of its BioReliance (Rockville, Maryland) business to Avista Capital Partners for $210 million.

Invitrogen only acquired BioReliance in 2004 for $48 a share, giving it an entry into the biologic testing marketplace, and the decision to sell the company comes as somewhat of a surprise.

“The decision to sell BioReliance followed a thorough portfolio review aimed at identifying our core competencies,” said Greg Lucier, CEO and chairman of Invitrogen. “This divestiture allows us to focus on our core platform of tools and technologies and to grow our position as the premier consumables company in the marketplace.”

Tim Derrington, general manager of BioReliance under Invitrogen, has been appointed CEO. Charles Harwood has been appointed executive chairman of the BioReliance board of directors. Harwood was previously president/CEO of Focus Diagnostics (Cypress, California), where he worked closely with the Avista Capital Partners team.

BioReliance is a contract service organization that provides biological safety, testing, toxicology, viral manufacturing and laboratory animal diagnostic services.

• pSivida (Perth, Australia) reported that its subsidiary, AION Diagnostics (Subiaco, Australia) will be sold to GEM Global Yield Fund (Boston), a portfolio management firm.

GEM will pay pSivida $3 million in two equal installments of $1.5 million upon the completion of an initial public offering of AION’s stock on the Frankfurt Stock Exchange; and $1.5 million payable no later than 12 months after transaction close, in exchange for pSivida’s entire holdings in AION.

pSivida has exclusively licensed the non-electronic imaging diagnostic applications of its BioSilicon technology to AION for which pSivida will receive royalties from all commercialized products. BioSilicon has applications in drug delivery, wound healing, orthopedics, and tissue engineering.

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