Furthering its reach in the diagnostics area, Cytyc Corp. will acquire Digene Corp. in a stock and cash deal valued at about $554 million.
The proposed acquisition would extend Cytyc’s role in diagnosing women’s cancers and infectious diseases, and join a pair of longtime partners in the sector.
“We’ve been involved with Digene over the past several years in a variety of ways,” Cytyc CEO and Vice Chairman Patrick Sullivan said in a conference call.
In 1997, Cytyc, of Boxborough, Mass., conducted a trial for Gaithersburg, Md.-based Digene related to Cytyc’s ThinPrep Pap test. In January 2001, the companies entered a co-marketing agreement for Digene’s human papillomavirus (HPV) test in the U.S. Digene’s lead product is the only FDA-approved test for HPV, the cause of greater than 99 percent of cervical cancer cases. The test is used in the U.S. as an adjunct to the Pap smear for cervical cancer screening.
“We believe this acquisition is a logical progression of our relationship since it further solidifies and strengthens our position in cervical cancer screening and provides us a platform for continued growth both in the United States and internationally,” Sullivan said. “The sales and marketing synergies between [ThinPrep and the HPV test] in the United States are very significant and a major benefit to the transaction. The addition of HPV capability provides us with additional international opportunities that we believe are much more attractive than just the ThinPrep Pap test alone.”
Digene CEO and Chairman Evan Jones will become a Cytyc board member.
“Together, we believe we can offer the first integrated solution for cervical cancer screening and testing for infectious diseases,” Jones said during the call.
Cytyc will issue 23 million shares of common stock and pay $76.9 million in cash for all outstanding equity of Digene (calculated on a fully diluted basis using the treasury stock method). Cytyc currently has about 119 million shares outstanding on a fully diluted basis, as reported in the company’s most recent quarterly report.
Each Digene shareholder will receive $4 per share in cash plus 1.1969 shares of Cytyc common stock for every share of Digene common stock. Cytyc is paying a 13 percent premium to Digene’s Friday closing price of $25.51, giving Digene shareholders $28.81 for each unit.
“We remain comfortable with guidance for the first quarter of 2002,” said Cytyc Chief Financial Officer Robert Bowen, adding that company revenues are expected to range from $67 million to $69 million. “We believe our 2002 pro forma fully diluted per-share earnings will be in the range of 59 cents to 62 cents. After 2003, we believe our pro forma fully diluted per-share earnings will be in the range of 92 cents to 95 cents.”
The transaction is expected to be 4 cents to 5 cents per share dilutive to Cytyc’s 2002 earnings and accretive in 2003 and beyond. In addition, the transaction is expected to result in a one-time charge of up to $65 million, largely for in-process R&D. The acquisition, subject to the tender of more than 50 percent of Digene’s stock, regulatory approval and other customary closing conditions, is expected to close in the second quarter. The deal is structured as a tax-free reorganization.
The companies’ sales forces will merge in a to-be-determined fashion to co-market their products.
“Our sales force is fully trained and is building momentum for establishing HPV triage as the new standard of patient management,” Cytyc President and Chief Operating Officer Daniel Levangie said. “We believe that this combination of our businesses will further catalyze our sales and marketing efforts, and will produce even more dramatic results than either Cytyc or Digene have achieved independently.”
Digene’s Hybrid Capture 2 HPV Test is the only test currently approved by the FDA for the detection of HPV, and Cytyc’s ThinPrep Pap Test is the only liquid-based cervical cancer screening technology currently approved by the FDA for HPV testing directly from the collection vial.
U.S. Bancorp Piper Jaffray advised Cytyc in the transaction, while Goldman, Sachs & Co. advised Digene. Cytyc’s stock (NASDAQ:CYTC) fell 70 cents Tuesday to close at $20.03. Digene’s stock (NASDAQ:DIGE) gained $2.06, or 8.1 percent, to close at $27.57.