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May 1, 2012

Shareholders to Investigate Hologic's $3.72B Deal for Gen-Probe

  • Several shareholders have initiated lawsuits to investigate Hologic's plans to buy Gen-Probe for $3.72 billion to expand its molecular diagnostic business. On April 30, Hologic said it would acquire all outstanding shares of Gen-Probe for $82.75 per share in an all-cash deal expected to be completed in the second half of this year.

    While the per-share price marks a 20% premium over Gen-Probe’s Friday closing price of $68.71, the deal angered enough shareholders that no fewer than 11 law firms representing them almost immediately announced investigations focused on whether the board of Gen-Probe breached its fiduciary duties by failing to maximize shareholder value.

    Hologic expects the merger to create a $2.4 billion-a-year entity with tests focused on women’s health, sexually transmitted disease (STD), and infectious disease. Gen-Probe’s portfolio includes the Aptima line of women's health products focused on chlamydia/gonorrhea, human papillomavirus, and trichomonas assays; plus Tigris and Panther automation platforms; and the Procleix line of HIV, HCV, HBV, and West Nile virus blood screening products, developed by Gen-Probe in collaboration with Novartis Diagnostics.

    “Gen-Probe is an ideal partner and strategic fit to Hologic's existing diagnostics business and complements our focus on scaling and diversifying our diagnostics franchise,” noted Rob Cascella, president and CEO of Hologic. Analyst Steve Brozak, president of WBB Securities, told the Associated Press that Hologic had "no choice" but to make the deal because of expected growth in demand for diagnostics.

    Hologic and Gen-Probe said they expected their combined company to wring out $75 million in savings over three years, without offering details about what operations might be combined or cut. According to their most recent annual reports, Hologic had more than 5,000 employees as of the year ending Sept. 24, 2011, and Gen-Probe, almost 1,400 at the end of last year.

    Those reports showed Hologic finished the year ending September 24 with net income of $157.15 million, compared with a net loss of $62.8 million a year earlier, on revenues of $1.79 billion, up 6.5% from 2010. Gen-Probe finished 2011 with $50.124 million in net income, down more than half from the $106.937 million recorded a year earlier, on revenues of $576.234 million, up 6% from 2010.

    Hologic attributed its gains first to a 19.8%, or $45.5 million, jump in service revenue, and a $24.5 million, or 4.7%, increase in product sales for breast health products. The company also cited an $18.8 million, or 3.4%, gain in diagnostics revenues, primarily due to its Cervista HPV tests and, to a lesser extent, growth in ThinPrep revenues, most of which related to its acquisition last year of Beijing-based TCT International.

    Gen-Probe’s top source of revenue in 2011, accounting for 63% of sales, was clinical diagnostics products for women’s health, other infectious disease, transplant diagnostics, and genetic testing products. Those products accounted for $353 million in sales last year, up $47.2 million, or 15%. Gen-Probe attributes the increase to increased Aptima sales, the inclusion of product sales of GTI Diagnostics, acquired by Gen-Probe in 2010 for $53 million; and increased sales of transplant diagnostics and other infectious disease products.

    Next-highest source was sales of blood screening assays and instruments distributed through its collaboration with Novartis under that company’s Procleix and Ultrio brands. But Gen-Probe saw blood screening sales dip 2%, or $2.7 million, year-over-year, to $199.4 million in 2011. The company blames the decrease on more test shipments as a proportion of overall share of blood screening revenues, a lower overall gross margin percentage at its acquired Tepnel businesses, and increased sales of lower margin instrumentation.

    Hologic projected the Gen-Probe deal will raise its earnings per-share by 20 cents in the first year after the deal closes and “significantly more” in future years. Hologic also said it expects the transaction to accelerate top- and bottom-line growth.

    Most recently in February, Gen-Probe won FDA approval for its Progensa PCA3 (Prostate Cancer Antigen 3) assay, the first molecular test to help determine the need for repeat prostate biopsies in men who have had a previous negative biopsy.

    --
    To read the story from the Associated Press, click here.


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