In a move expected to both help Caliper Life Science Inc.'s bottom line, as well as increase its service offerings, it is buying NovaScreen Biosciences Corp. for $22 million up front with another $8 million tied to milestones.
Caliper wanted "a company small enough so that we could diversify and complement our instrumentation focus, vs. making a dramatic shift to become a services company," said CEO and President Kevin Hrusovsky in a conference call.
But anything worth buying also had to be "big enough to be cash flow positive and profitable," he said, so as not to ruin Caliper's shorter-term financial goals. A good reputation and a strong staff would sweeten the deal. Some observers complained all that would be hard to find.
"The great news is that NovaScreen is that dream company," Hrusovsky said.
The acquisition also enables Caliper to "better meet the changing needs" of drug discoverers, he added, and detailed three rising trends in the industry.
The first, he said, is that "in the post-Vioxx world," drug developers need better tools to help find "potential safety and side effect issues sooner." A second trend is that "outsourcing in general is growing," as companies try to "stay flexible and productive while decreasing their financial risks." The third trend is at the bench level, where "scientists are becoming more interested in the quality of their screening data."
Caliper, of Hopkinton, Mass., will pay 80 percent of the $22 million for NovaScreen via stock and the rest in cash. At 80 percent, that stock value works out to be about $17.6 million, and the number of shares will be based on the volume-weighted price for the two weeks leading up to the close, expected in the fourth quarter.
Caliper's stock (NASDAQ:CALP) closed Thursday at $6.85, unchanged.
The $8 million in additional payments are linked to revenue milestones over the next 30 months. The acquisition is subject to approval by NovaScreen shareholders.
NovaScreen would stay at its Hanover, Md., headquarters and would operate as a subsidiary of Caliper. All 55 NovaScreen employees are expected to be retained, and the company's CEO and president, David Manyak, would become part of the combined company, the company said.
NovaScreen, focused on providing in vitro screening assays and in silico predictive screening tools, had $8.6 million in revenue in 2004. The company has expertise in G protein-coupled receptors and other molecular targets that mediate disease states and side effects in the central nervous system. When closed, the deal would be immediately accretive and is expected to add $2 million to Caliper's fourth-quarter revenues.
Caliper uses advanced liquid handling and LabChip technologies for life science tools that accelerate drug discovery and allow for disease diagnosis. For the quarter closed June 30, the firm reported total revenues of $20.3 million, up from $18.9 million in the same period the year prior, with a net loss of $4.2 million, or 14 cents per share. Selling strong in the second quarter were LabChip 90 systems, LabChip 3000 products and contracts for assay development.
Cash and marketable securities totaled $40.8 million as of June 30. Caliper anticipates becoming cash-flow positive in the fourth quarter, and Hrusovsky said the NovaScreen acquisition "won't hurt" that plan.
Caliper has signed in the past nine months assay development deals with Pfizer Inc., of New York; Merck & Co. Inc., of Whitehouse Station, N.J.; Johnson & Johnson, of New Brunswick, N.J.; Amgen Inc., of Thousand Oaks, Calif.; and Serono SA, of Geneva. It expects to sign other deals this year, and plans to continue to grow its offerings.
"Will we do other acquisitions? I think we will," Hrusovsky said. "We see organic growth as a very core area of our focus, [but we] will augment that with technologies and certain aspects that we think complement the ability to provide what we know is the total solution for drug discovery."