A Diagnostics & Imaging Week

IRIS International (Chatsworth, California), a manufacturer of automated IVD urinalysis systems and medical devices, yesterday unveiled its acquisition of Leucadia Technologies (Carlsbad, California), a molecular diagnostics firm, for $10.1 million.

Terms include a cash payment of $3.1 million and about $7 million in IRIS common stock, $2 million of which is based on common stock earn-out consideration.

In a conference call, Cesar Garcia, president and CEO of IRIS, said that Leucadia will be folded into a new Iris Molecular Diagnostics subsidiary and will bring it "two new significant technology platforms: Nucleic Acid Detection ImmunoAssay, a diagnostic method at least 10,000 times more sensitive than current immunoassay technology; and a separation and concentration technology which uses a proprietary method to develop albumin micro-bubbles coated with antibodies designed to attach and float specific cell types."

These products, Garcia said, broaden the company's offerings "with ultra-sensitive diagnostic products that include applications for breast cancer and HIV with near-term commercialization as we begin to tap the $1.5 billion molecular diagnostics market . . . . We are already planning to submit a 510(k) application . . . later this year for an ultra-sensitive PSA test for monitoring of prostate cancer after prostatectomy."

He billed this test as 50,000 times more sensitive than conventional assays, enabling identification of early relapse and further therapy. He predicted an '07 market launch for the product.

Garcia said the acquisition is expected to have a 6 cents per-diluted-share effect on company 2006 earnings, including an increase in R&D investment to about 13% of revenue and share dilution related to the acquisition. The company said it anticipates operating income margin of about 16% and earnings of about 45 cents a diluted share, to include anticipated expenditures in infrastructure to support future growth. The company reaffirmed its '06 revenue guidance of $72 million-$76 million.

Thomas Adams, CEO and chairman of Leucadia, will join IRIS as chief technology officer. Adams was a co-founder and former CEO and chairman of molecular diagnostics specialist Gen-Probe (San Diego), and Genta (Berkeley Heights, New Jersey), a leader in antisense therapeutics.

Richard Williams, chairman of IRIS, said that adding Leucadia's products, "in combination with the new urine chemistry products in development, our next generation urine microscopy product line and our product efforts to eliminate most urine cultures, will strengthen our strategic position . . ." in the diagnostics space.

"Leucadia's novel and highly specific technology platforms create a potential stream of high value stand-alone molecular diagnostic products focusing on early detection of relapse of cancer and HIV. IRIS has a strong track record and we are looking forward to working together as a team to bring its products to commercialization."

These products include a test for isolating circulating epithelial cells for cancer detection in blood with a PMA application planned for 2007; an HIV Viral Load test to monitor the residual amounts of HIV in the blood of patients treated with anti-retroviral drugs which are undetectable by current diagnostic tests – PMA in 2008; and a Her-2/neu test for monitoring breast cancer after mastectomy or lumpectomy – PMA in 2009.

Williams said that development of a test to rapidly diagnose bacteria and yeast in urine, eliminating 70% of the urine cultures, is expected to be completed in 2007 as a result of a collaborative program with IRIS. Urine culture screening, the conventional method for diagnosing urinary tract infections, is, he noted, is a slow, labor intensive process that has never been automated.

He put the worldwide market for automated urine culture at about $300 million.

Garcia said the acquisition of Leucadia "came after a lengthy evaluation process which determined that it was a natural fit with IRIS strategy to expand its product portfolio into new high value applications.

"Molecular diagnostics is expected to be the growth engine for clinical diagnostics and a 20% annual growth rate is anticipated over the next five years based on increases in oncology tests and infectious diseases testing. We are very confident and committed to capitalize in the growth opportunities of our successful core business and the technology we have just acquired."

In other dealmaking:

• Reflect Scientific (Mountain View, California), a manufacturer of laboratory equipment and supplies, reported completing the purchase of JMST Systems (Colorado Springs, Colorado), an OEM that makes chemical detection instruments used in the pharma, biotech and homeland security markets, enabling researchers to analyze chemical formulations for their composition and identity. Terms of the purchase – first unveiled last month – were not disclosed.

Tom Tait, vice president of Reflect, said that the addition of JMST technology "provides a tremendous opportunity for us to expand our revenue base and significantly increase our market share in the pharmaceutical and biotechnology segments."

Reflect provides products for the biotech, pharma and medical industries. The company said that JMST is its first acquisition and will provide it "a profitable revenue stream."