CEO SUMMARY: On the same day that Inverness Medical Innovations announced that it would acquire Biosite, thus beating out Beckman Coulter in the bidding war for Biosite, Inverness also announced that it had entered into a joint venture with Procter & Gamble. Together, the two companies will develop, make, and market consumer diagnostics products to be sold in retail outlets. Inverness expects to mine the Biosite development pipeline for other assays that can be marketed as point-of-care tests.
IT WAS A BIDDING WAR for Biosite, Inc., and Beckman Coulter Corporation came up short as Inverness Medical Innovations, Inc., walked away with the prize. But there is bigger news connected to Inverness’ acquisition of Biosite.
On May 17, after announcing that it would pay $1.68 billion to acquire Biosite, Inverness Medical made a second announcement, one that has significant implications for the laboratory industry. Inverness Medical and consumer products giant Procter & Gamble Company have formed a joint venture company specifically to develop and market diagnostic tests for the consumer self-test market.
The joint venture company will be called SPD Swiss Precision Diagnostics GmbH (SPD). The goal of this 50-50 partnership is to develop, manufacture, market, and sell consumer diagnostic products. Excluded from the product mix of the joint venture will be tests related to cardiology, diabetes, and oral care.
Inverness Medical has existing assets in the consumer self test market. It is contributing these assets to the joint venture. Procter & Gamble’s contribution is an investment of $325 million. The new company will be based in Geneva, Switzerland, and develop, make, and market rapid at-home diagnostic products. The two companies said SPD will be the world’s leading provider of home pregnancy tests and fertility/ovulation monitoring products.
Both deals announced on May 17 by Inverness Medical are examples of the land rush by investors and companies to position themselves in promising areas of clinical diagnostics, particularly by acquiring companies that have a development pipeline that can feed new molecular tests into the marketplace.
Biosite and its portfolio of diagnostic tests was a prize desired by both Beckman Coulter and Inverness Medical. On March 25, Beckman announced an agreement to acquire Biosite for approximately $1.55 billion. Within days, Inverness Medical had upped that bid, forcing Beckman Coulter to respond with a richer offer for Biosite. (See TDR, May 5, 2007.)
By going after Biosite, Beckman and Inverness were seeking increased presence in the immunoassay testing market. Inverness, which specializes in pregnancy and fertility tests, has been considering expanding into other areas, according to Med Tech Sentinel. In its reporting, the publication described a new point-of-care business that Inverness Medical was developing in rapid HIV testing.
In February, Inverness Medical Innovations acquired the exclusive mar- keting rights from Chembio Diagnostics, Inc., of Medford, New York, to sell Chembio’s FDA-approved rapid HIV tests. As a result of that agreement, Inverness will market any future tests developed using Chembio’s proprietary Dual Path Platform (DPP) technology, for which Chembio was recently awarded a U.S. patent. Experts believe the DPP technology will offer considerable advantages over today’s single path tests.
In February, Inverness started marketing Chembio’s Rapid HIV tests in the United States under an exclusive marketing agreement between Chembio and Inverness. The joint venture is using the brand name “Inverness Clearview.” Its first products are the Clearview HIV 1/2 Stat-Pak and Clearview Complete HIV 1/2. Both are rapid qualitative screening tests for the detection of antibodies to HIV-1 and HIV-2 in human whole blood, serum, and plasma. The tests use a single lateral flow test strip which displays results through visual observation of a control line (non-reactive result) and a test line (reactive result) within 15 minutes.
In announcing the marketing agreement, Chembio’s President and CEO, Lawrence Siebert, said, “I believe Inverness is well positioned as it has an extensive U.S. point-of-care marketing organization which supports a large distributor network.”
In addition to offering tests for pregnancy, ovulation/fertility, and HIV, Inverness also offers cardiac tests. This fact led observers to believe Inverness wanted Biosite because the combined companies would have a significant presence in the fast growing field of cardiac diagnostics.
In fact, Biosite was coveted for its diagnostic heart tests. Recognizing that cardiovas- cular disease will become the leading cause of death worldwide by 2020, surpassing infectious diseases, biotechnology companies are racing to develop tests and forge alliances to take advantage of this trend. These companies believe the goal is to stop the spread of cardiovascular disease by identifying those patients who are at the highest risk of a cardiac event, such as a heart attack or stroke, according to published reports.
THE DARK REPORT observes that the laboratory industry should expect more consoledation in the in vitro diagnostics marketplace. Established IVD companies will be hunting smaller firms that have established assays, along with a development pipeline that includes promising diagnostic testing.
Further, pathologists and laboratory directors should not be surprised when consumer products companies, such as Procter & Gamble, and retailers, such as Wal Mart, Walgreens, and CVS, make investments that position them to offer diagnostic tests directly to consumers. These companies recognize the profit potential of providing useful clinical information to consumers in a retail environment. Collectively, these developments point to even more rapid changes in the lab testing marketplace.
Biosite’s Fast Growth Follows Slow Start
FOR BIOSITE, INC., OF SAN DIEGO, CALIFORNIA, growth came slowly at first. The company was incorporated as Biosite Diagnostics, Inc., in 1988. But it did not commercialize its first product, the Triage Drugs of Abuse Panel, until February 1992.
Five years later, it completed an initial public offering (IPO) and Biosite stock began trading at $12 per share under the stock symbol: BSTE.
In March 1998, Biosite got FDA clearance to market the Triage C. difficile Panel, a test designed to support the rapid diagnosis of C.difficile-associated disease. Later that same year, Biosite won FDA approval to market the Triage Parasite Panel, a test used to aid in the diagnosis of intestinal parasitic disease.
Biosite entered the cardiovascular disease market in February 1999 when it launched the Triage Cardiac System, a rapid blood test to aid in the diagnosis of heart attack.
In November 2000, Biosite got FDA clearance to market the Triage BNP (B-type natriuretic peptide) Test, an aid in the rapid diagnosis of congestive heart failure.
Three years later, in 2003, Biosite got FDA clearance to market the Triage Cardio ProfilER. This test panel includes assays for Troponin I, CK-MB, myoglobin, and BNP. It can by used by clinicians in assessing such conditions as heart attack, congestive heart failure, and for the risk stratification of patients with acute coronary syndromes.
In January 2004, Biosite won FDA clearance to market the Triage BNP Test for use with capillary whole blood, as obtained by a finger prick. Last year, Biosite was given a CLIA waiver for the Triage BNP Test.
For 2006, Biosite had revenue of $309 million. This was up from 2005 revenue of $288 million.
Inverness’ Willingness to Fight For Biosite Deal Demonstrates High Value of IVD Acquisitions
ONCE AGAIN, AN IN VITRO DIAGNOSTIC (IVD) MANUFACTURER agreed to purchase another IVD firm, only to find an unwanted bidder enter the picture with a substantially higher offer for the target company. This time, it is Beckman Coulter Corporation being outbid for Biosite, Inc. by Inverness Medical Innovations, Inc.
Last fall, it was Ventana Medical Systems that announced a friendly acquisition agreement with Vision Systems Limited of Melbourne, Australia, for a price of $346 million. Within weeks, Cytyc Corporation jumped in with an offer of $375 million for Vision Medical. But even that offer was topped when a third bidder, Danaher Corporation (a division of Leica Microsystems) tendered a price of approximately $520 million. (See TDR, November 6, 2006.)
These stratospheric prices for IVD companies were verified by another recent deal. On May 20, 2007, Hologic, Inc., dis- closed an agreement to purchase Cytyc Corporation. It is paying $6.2 billion for Cytyc, which had 2006 revenue of $608.2 million. Hologic paid a 33% premium above Cytyc’s closing share price on the day before the deal was announced. (See Dark Daily, March 22, 2007.)
These examples show how Wall Street recognizes the potential of in vitro diagnostics to generate substantial profits in coming years, as new technologies create diagnostic assays which have greater sensitivity to identify disease and to guide clinicians in selecting those therapies that may work best for the patient.
This same heightened investor interest in diagnostic testing is a factor that drives the higher prices paid for laboratory companies. The most recent example is Quest Diagnostics Incorporated’s purchase, for $2 billion, of AmeriPath, Inc., which posted revenue of $752.3 million for the fiscal year ending on December 31, 2006. (See TDR, April 23, 2007.)