When Monoclonal Antibodies, a small biotech company, announced in July that it was merging with Quidel, a bigger and privately held diagnostic test-kit maker, Monoclonal's stock dived from 7 to 3 in just a month. Part of the reason: Monoclonal had to issue 9.7 million new shares to acquire Quidel. The deal is to be completed at the end of January.
But some savvy pros see a big future for the merged companies. They say that their product lines and proprietary technologies could give the new company a sizable share of a fast-growing market worth several billion dollars. Monoclonal makes pregnancy-test kits and has a marketing agreement with Johnson & Johnson's Ortho division. Quidel makes tests for diagnosing infectious diseases, allergies, and auto-immune diseases.
"The merger creates a major independent diagnostics company similar to Diagnostic Products, which sells for 7 times revenues and 30 times earnings," says Robert Grossmann, director of research at Stratton Oakmont, a securities firm in Ashland, Ore. Grossmann expects the combined Monoclonal-Quidel, which doesn't have a name yet, to earn similar market valuations. If his revenue and earnings estimates prove accurate, "the stock could rise to 10 sometime this year," says Grossmann.
Akzo, the large Dutch drug company, is funding the production of Monoclonal's new birth-control test kit, which "will tell women when it's safe to have sex," says Grossmann. The product is expected to be ready for Akzo to start marketing it in Europe this summer. The company confirmed Akzo will start selling the product in Europe this year.
Several big investors have purchased large stakes in the merged company, including the Pritzker family of Chicago, Johnson & Johnson, J. P. Morgan, and the pension funds of Becton Dickinson, Harvard University, General Electric, and John Hancock.