Beckman Coulter, of Fullerton, Calif., a developer of automated complex biomedical tests, and San Diego-based Biosite, a biomedical company commercializing proteomics discoveries, have entered into a definitive merger agreement under which Beckman Coulter will acquire all of Biosite's outstanding common stock in a cash tender offer of $85 per share, or about $1.55 billion on a fully diluted share basis.

Wall Street liked the news: Biosite's stock (NASDAQ:BSTE) closed at $83.80, up $28.42, or 51.3 percent.

The proposed blockbuster transaction is expected to immediately accelerate Beckman Coulter's revenue growth, improve operating margins and be accretive to GAAP earnings in 2008 and beyond, the company said.

"This is an exciting transaction which adds significant capability, content and breadth to our organization. This positions us for continued profitable growth with some compelling near-term economics," Scott Garrett, Beckman Coulter's president and CEO, said in a conference call on the deal Monday morning. The deal is expected to close in the second quarter of the year, Garrett said. "Financing has been fully committed by Morgan Stanley and Citigroup," he said. "Long term, the financing is likely to be a combination of convertible and term debt."

Garrett described the new combined entity as "the leading U.S. immunoassay complementing Beckman Coulter's leadership positions in U.S. chemistry and hematology," Biosite, he said, is the "top developer of novel tests" and has "set the standard for market and product development in our industry." He called the two companies "a natural fit," and in fact, the deal builds on an existing relationship between the two companies.

Kim Blickenstaff, Bosite's chairman and CEO, said the company's board of directors unanimously backed the acquisition, noting that Beckman Coulter's reputation and global reach will help expand Biosite's line of Triage diagnostic products. "We have enjoyed a close relationship with Beckman Coulter, and together we can enhance our delivery of high value diagnostic solutions that improve clinical and economic outcomes for acute diseases.

Biosite was founded in 1988 as Biosite Diagnostics, and commercialized its first product, the Triage Drugs of Abuse Panel, in 1992. Through the years it has developed a suite of Triage products designed to provide fast diagnostic results. This currently includes the Triage BNP Test to assess severity of heart failure; the Triage Cardiac Panel, an immunoassay used in diagnosing acute myocardial infarction (AMI); the Triage CardioProfilER, used to aid diagnosis of AMI and congestive heart failure; and the Triage D-Dimer Test, an immunoassay used to evaluate patients suspected of having disseminated intravascular coagulation or thromboembolic events

The transaction grew out of Beckman Coulter's relationship with Biosite over the past four years in the area of B-type Natriuretic Peptide (BNP), a test that aids in the diagnosis, risk stratification and assessment of severity of heart failure and the risk stratification of patients with acute coronary syndromes. It combines Beckman Coulter's laboratory instrument systems, each of which delivers a "predictable recurring revenue stream based on sales of consumables, revenues from service and payments on operating-type leases," with Biosite's "high-value" near-patient tests

For example, Garrett said that on revenues of slightly more than $2.5 billion for Beckman Coulter in 2006, about 76 percent could be "characterized as recurring," he said during the call.

"This high percentage of recurring revenue provides a growing and reliable stream of earnings and cash flow," he said.

"Biosite utilizes third-party distributors, and more than 85 percent of sales come from within the U.S. A major source of value in the transaction is our ability to leverage our global commercial infrastructure and installed base to expand sales of Biosite's immunoassay tests, including BNP."

Biosite, he said, grew its high-margin recurring revenue to more than $300 million in 2006, "almost all of which is attributed to consumables." The lion's share, or about 80 percent, of 2006 revenue came from the cardiovascular disease area, including tests designed to enable the diagnosis of a "range of conditions, including congestive heart failure, chest pain and heart attack," as well as pulmonary embolism.

Garrett described the Biosite pipeline as "extensive," with products planned for the assessment of acute kidney injury, sepsis, abdominal pain, acute coronary syndrome, and others.

He added, "We expect the transaction to be accretive to GAAP earnings in 2008, and we remain on track to achieve our full year 2007 outlook, as stated in our Feb. 8 earnings release, excluding any impact from the Biosite acquisition. We expect significant revenue growth resulting from the improved effectiveness of our global commercial franchise selling BNP along with other cardiac markers. Biosite will bring to Beckman Coulter an entrepreneurial culture and talented work force recognized for product and market development. Everyone at Beckman Coulter looks forward to expanding our collaboration with the Biosite team in San Diego and elsewhere, as we maintain and grow the center of excellence that Biosite has established."

Beckman Coulter will promptly commence a tender offer for all of Biosite's outstanding common stock. The offer is conditioned upon at least a majority of the outstanding Biosite shares, determined on a fully diluted basis, being tendered, as well as the satisfaction of regulatory and other customary conditions. Approval of the transaction by Beckman Coulter's shareholders is not required.

Jeffrey Frelick, vice president and Diagnostic Devices & Laboratory Equipment analyst at Lazard Capital Markets, issued a buy rating on Beckman Coulter, citing both positives and slight negatives of the deal.

On the positive side, Frelick said the "point-of-care market could provide opportunities for Beckman beyond the central laboratory. In our opinion, as labs continue to be faced with personnel challenges, point of care use should rise, not just because of its rapid turnaround time, but also because it doesn't require laboratory staff to perform the tests."

However, Frelick characterized the price that Beckman Coulter is paying for Biosite as "a bit rich, given that sales grew only 7 percent last year and are expected to hover around the same single-digit growth over the next few years."

Morgan Stanley served as financial advisor to Beckman Coulter in connection with the acquisition and is serving as dealer manager for the proposed tender offer. Goldman Sachs is acting as financial advisor to Biosite. Latham & Watkins, LLP is serving as legal counsel to Beckman Coulter and Cooley Godward Kronish LLP is serving as legal counsel to Biosite.

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