By Matthew Willett

Meridian Diagnostics Inc. said Thursday it agreed to acquire all the outstanding stock of Viral Antigens Inc. (VAI), a Memphis, Tenn.-based specialty viral reagent company with the ability to produce proteins for new drug and vaccine discovery. The transaction consists of $9 million in cash and earnout opportunities.

The move is the first in an initiative, announced in August, intended to expand the medical diagnostic company's capabilities in reagent development and biotechnology. Of particular interest to Meridian, positioning for drug discovery, is the protein production capability gained in the deal.

Meridian (NASDAQ: KIT) specializes in diagnostic kit manufacture.

VAI, founded in 1982, manufactures custom and specialty viral reagents. Its monoclonal antibodies are used in the production of IgG or IgM antibody test kits for cytomegalovirus, hepatitis A, mumps, rubella and other infectious diseases.

"The energy of the company is focused on infectious diseases and diagnostics," Meridian Chairman and CEO William Motto said. "This is going the other way, developing actual proteins for the biopharma industry and interacting with vaccine and drug discovery companies. We see it as rounding out the company - in addition to interacting with vaccine and drug discovery work, we should come up with some innovative diagnostics as well, since one of the steps in development is identifying the particular disease that a biotech company is studying."

He added that the deal, which he said was priced fairly, creates new opportunities for partnerships.

"We also envision those partnerships as developing working relations with biotech companies," Motto said, "We could be interested in taking an equity position in a startup biotech company, or taking a position for work performed so that we'd be a part of a biotech business."

Motto described his company as taking a middle development position in drug discovery, producing proteins for genomics research companies to use in development, in quantities sufficient to see the compounds through Phase II trials.

"We're much more toward partnerships," he said. "We're not into the drug and vaccine discovery business. We see an interfacing with biopharma in terms of developing proteins in large quantities to do Phase I or Phase II studies: developing proteins, purifying them, hopefully making them in an efficient manner and making a large quantity efficiently, and continuing on with Phase I or Phase II studies for a biotech company."

Motto touted the synergy of the merged company's strengths.

"What they lacked was a sales, marketing and distribution system, and the merger brings that to the party. We've got a very strong sales, marketing and distribution system, and we're very well connected worldwide."

The acquisition, he said, will also allow for efficiencies of scale in buying and reduction of redundancy in administrative expense.

Motto added that the move isn't the last for Meridian. In the coming weeks, he said, sector watchers should expect further developments.

"You'll see, certainly, in the next two to six weeks, there should be announcements we'll be making leaning toward the genetics side. You should anticipate some more press releases, and we'll be making some strategic moves here."

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