Cytyc (Marlborough, Massachusetts), a provider of surgical and diagnostic products targeting women's health and cancer diagnostics, reported that it has entered into an agreement to acquire Adeza Biomedical (Sunnyvale, California) a publicly traded company, which makes products for women's health for $452 million, to be paid out of Cytyc's existing cash, the cash on Adeza's balance sheet and Cytyc's existing credit facility.
The deal values Adeza at 185 times its estimated 2006 earnings compared with a sector average of 39 times, Cytyc said.
Adeza's primary product, FullTerm, a fetal fibronectin test, is used by OB/GYN's to identify women at risk for preterm birth. The tests are processed by hospital and reference laboratories.
The market opportunity for FullTerm is estimated at more than $500 million worldwide, and Adeza says that its current revenue for this product is roughly $50 million annually.
Cytyc said the acquisition will leverage its existing worldwide sales force that includes a U.S. OB/GYN sales force of about 200 people, a U.S. laboratory sales force of about 50, and an international commercial operations team of about 150.
"The FullTerm fetal fibronectin test offers an excellent complement to our diagnostic products portfolio and will allow us to leverage our formidable sales force which is already calling on obstetricians and gynecologists, as well as commercial labs, in the U.S. and abroad," said Patrick Sullivan, Cytyc's chairman, president/CEO during a conference call discussing the acquisition. "This technology offers clear clinical and cost benefits for maternal-fetal care and we believe our infrastructure, experience, and expertise in this sector will accelerate adoption of this product worldwide."
Based on a purchase price of $24 a share, and excluding one-time costs related to this proposed acquisition, Cytyc said it expects the acquisition to be break-even to earnings in 2007 and at least 5 cents accretive to 2008 diluted EPS.
FullTerm is a single-use disposable cassette run on the TLiIQ system, Adeza's instrument which assesses the level of the fetal fibronectin protein in vaginal secretions.
Fetal fibronectin is highly correlated with preterm birth, and is important for enabling physicians to triage pregnant women more effectively by determining the necessity for hospitalization, since the product has a negative predictive value of more than 99%.
The presence of Fetal fibronectin also may serve as a signal for therapeutic intervention, which can increase the health of the baby.
Adeza has several products in its pipeline including Gestiva, a drug candidate for the prevention of preterm birth for those with a history of preterm birth. Adeza received an approvable letter for Gestiva from the FDA in October 2006, and the drug was recently granted Orphan Drug status, a designation providing the company seven years of market exclusivity. Cytyc estimated that the worldwide market opportunity for Gestiva at in excess of $100 million.
The acquisition will be conducted via a tender for all of the outstanding shares of Adeza. The board of Adeza has unanimously recommended that the stockholders of Adeza accept the offer.
Holders of about 22% of the outstanding shares of Adeza have agreed to tender their shares in the offer and to vote their shares in favor of the agreement and against any other transaction, subject to the provisions of the agreement.
The deal is expected to be completed before the end of March.
JPMorgan acted as exclusive financial advisor to Cytyc on the transaction. Hogan & Hartson acted as legal counsel to Cytyc on the transaction. UBS Investment Bank is acting as exclusive financial advisor to Adeza, and Heller Ehrman is acting as legal counsel to Adeza.
In other dealmaking activity, Zimmer Holdings (Warsaw, Indiana) said it will acquire privately held Endius (Plainville), in a cash transaction, the amount undisclosed.
Endius, a maker of minimally invasive spine products, will become a Zimmer subsidiary, with the transaction to be about 2 cents dilutive per share in 2007 and accretive thereafter.
"We have indicated since 2003 that one of our top priorities is to invest in growing our spinal business," said Ray Elliott, Zimmer president/CEO and chairman. "The Endius acquisition is an important element in our overall plan to acquire promising minimally invasive and posterior-based technologies that can be leveraged for future growth and provide direct support for the Dynesys dynamic stabilization system and other internal developments."
Founded in 1997, Endius' key products include the Atavi atraumatic spine surgery system, TiTLE 2 pedicle screw system and the Minit upper thoracic fixation and posterior cervical system.
Another key product line, according to Zimmer, is the NorthStar cannulated screw delivery system, an implant and instrument pedicle screw system which can be used for all open and minimally invasive lumbar rod fixation procedures.
Zimmer said it intends to maintain Endius' current operations in Plainville, Massachusetts, while it works to integrate the company into its existing Zimmer Spine business unit. Endius has about 43 employees, with most involved in product development, marketing, operations and customer service.