A Diagnostics & Imaging Week

Based on the bidding war it has generated, Vision Systems (Melbourne, Australia) appears to be a very hot property. And getting hotter.

Cytyc (Marlborough, Massachusetts) and Ventana Medical Systems (Tucson, Arizona) are continuing their competition to acquire Vision Systems. Cytyc reported on Wednesday that it intends to increase its all-cash tender offer to their respective shareholders and increased bids.

Cytyc last week increased its offer for Vision Systems to A$3.25 per outstanding share, or a total consideration of A$692 million ($517 million). It said it will declare its all-cash tender offer unconditional and pay shareholders who accept its all cash tender offer as soon as practicable, but in any event, within five days after acceptance.

The increased offer of A$3.25 per Vision Systems share represents a 53% premium to the A$2.13 price provided to Vision Systems' shareholders under the proposal by Ventana Medical Systems (Tucson, Arizona) to merge with Vision Systems. The offering price is also more than $195 million greater than its own initial asking price for Vision that it made more than two weeks ago.

Also last week, Ventana reported that it was acquiring a 12% stake in Vision to give it a "blocking" stake against rival bidders.

Cytyc apparently doesn't see that as a deal stopper.

Patrick Sullivan, Cytyc president/CEO and chairman, said: "We decided to increase our offer to underscore our commitment to completing this transaction as soon as possible. We firmly believe that the combination of Vision Systems and Cytyc will provide the maximum benefit to customers of both companies while generating attractive value for both Vision Systems and Cytyc shareholders. Our increased offer is at a significant premium to the offer by Ventana and to the current Vision Systems' share price reflecting increased interest from potential acquirers."

He added that Cytyc's offer "has already secured pre-bid acceptances from shareholders for about 25 million shares and 3.6 million convertible notes which convert into an additional 4.6 million shares."

By announcing its intention to declare the tender offer unconditional, Cytyc said the offer will not be subject to any regulatory risks, including antitrust concerns, as it believes "is likely with Ventana's proposal." Additionally, it said that its offer "will not be affected by any current or future litigation from Ventana."

Sullivan said that Cytyc's offer is the only offer for Vision Systems "that provides certainty and the distinct timing advantage of a cash payment within five days of accepting our offer. We urge Vision Systems' shareholders to take advantage of this certainty by accepting into the Cytyc offer when it opens next week."

Cytyc said it will incur certain one-time charges, which will be detailed at the close of the transaction. Excluding transaction-related expenses and transaction amortization, Cytyc expects the acquisition of Vision to be breakeven to modestly dilutive to non-GAAP adjusted earnings per share in 2007. The transaction is expected to be accretive to earnings per share in 2008.

Cytyc provides diagnostic and minimally invasive surgical products targeting cancer and women's health.

In other dealmaking news:

• Beckman Coulter (Fullerton, California) reported that it has signed an agreement to acquire Lumigen (Southfield, Michigan) for $185 million in cash.

Lumigen develops detection chemistries for high-sensitivity testing in clinical diagnostics and life science research.

"Lumigen's proprietary chemiluminescent chemistry is the detection method used in our Access family of immunoassay systems," said Richard Creager, PhD, vice president of R&D for Beckman Coulter's immunoassay business. "Now, with Lumigen as part of the Beckman Coulter family, we are assured access to all of their current and future technology for immunochemical and other high-sensitivity testing."

About 40% of Lumigen's 2005 revenues of $33 million were from sales of chemiluminescent substrate to Beckman Coulter for use in its immunoassay analyzers. Going forward, the related-party revenues will be eliminated in the consolidation. Lumigen also manufactures and licenses chemicals used by other clinical diagnostics and life-sciences manufacturers.

The transaction is expected to close by Nov. 1.

Beckman Coulter manufactures biomedical testing instrument systems, reagents and supplies that are designed to simplify and automate laboratory processes.

• In a move indicating a more concentrated focus in the medical device market, pharmaceutical powerhouse Merck (Whitehouse Station, New Jersey) has agreed to acquire a roughly 11% stake in FoxHollow Technologies (Redwood City, California) and expand the scope of their existing collaboration for atherosclerotic plaque analysis.

Merck is buying $95 million worth of FoxHollow stock while investing another $100 million in the company over four years to expand the collaboration, with an option for further expansion for an additional 11 years.

The agreement calls for Merck to pay $40 million to FoxHollow over four years in exchange for FoxHollow's agreement to collaborate exclusively with Merck in specified disease areas. If Merck extends the collaboration program beyond this period for further collaboration, Merck would pay $10 million per year, which may be offset by potential royalties and milestones.

Merck also will provide a minimum of $60 million in funding to FoxHollow over the first three years of the four-year program for research to be conducted by FoxHollow under Merck's direction, including removal of atherosclerotic plaque from patient arteries for analysis, conduct of clinical trials and drug profiling by Merck. FoxHollow will receive milestones on development of drug products or diagnostic tests using results from the collaboration, as well as royalties.

Merck also will acquire newly-issued shares of FoxHollow common stock at $29.629 a share. FoxHollow will appoint a Merck representative to its board, increasing its size to six members, and receive certain protective provisions.

"We see great potential in the combination of our expertise in the medical device space with Merck's worldwide leadership in cardiovascular research, drug discovery and development as we continue to move forward in the fight against vascular disease," said Duke Rohlen, president of strategic operations for FoxHollow during a conference call discussing the collaboration.

In September 2005, the two companies formed what they called the first pharmaceutical/medical device partnership for identifying cardiovascular biomarkers for diagnostics and as tools for drug development.

The expanded collaboration remains focused on the analysis of atherosclerotic plaque collected from patients treated with FoxHollow's SilverHawk plaque excision system. The scope of the studies has substantially increased and other disease areas have now been added, the companies said.

The expanded collaboration will also enable FoxHollow to use human plaque analysis to enhance the capabilities of its NightHawk intravascular plaque imaging system, and accelerate its anti-restenosis drug therapy program.

• BioReference Laboratories (BRLI; Elmwood Park, New Jersey) reported that it has acquired the laboratory operations of Diagnostic Pathology Services (DPS; Clarksburg, Maryland), which offers specialized testing in the areas of hematopathology, cytology, and anatomic pathology and expects revenues for the current calendar year to be in excess of $3.5 million. Terms were not disclosed.

BRLI said the acquisition would bring some key additions to its technical and professional staff and extend service and support to its customers in the middle Atlantic states currently served by DPS in Maryland, Virginia, and Washington.

BioReference also said that it has completed its acquisition of GeneDx (Gaithersburg, Maryland), first reported in August.

BRLI says it is the largest independent regional clinical laboratory in the Northeast and that it has major market positions in physician offices, nursing homes, and correctional institutions. The company is a clinical laboratory with specialty capabilities, especially in the areas of genomics, oncology, correctional health, and complimentary medicine.