Inverness Sparks Bidding War for Biosite

Inverness ups the ante against Beckman Coulter for the medical diagnostics outfit

In a move signaling continuing consolidation in medical diagnostics, Inverness Medical Innovations (IMA) offered to acquire fellow medical diagnostics outfit Biosite (BSTE) for $90 per share in an all cash deal. The news sent shares of Biosite up $8.81 to close at $93.11 on Apr. 5. The news comes days after Biosite agreed to be acquired by Beckman Coulter (BEC) for $85 a share, valuing the company at approximately $1.55 billion.

The planned Beckman merger had already sent shares in Biosite rocketing up more than 50% as many analysts balked at the heady valuation. (see, 3/26/07, "A Hefty Price for Biosite").

At $90 per share, Inverness would be buying Biosite for well over half its own market cap of about $2 billion. “There are a lot of unanswered questions here,” especially the price, says Gregory Simpson, an analyst with Stifel Nicolaus, who downgraded Inverness to hold from buy. “The market doesn’t like deals of this size from companies this size.”

He adds that it’s a measure of investor confidence in Inverness and CEO Ron Zwanziger that the stock wasn’t “crushed.” Shares in Inverness ended down 6.7% to $41.82 on the American Stock Exchange.

Biosite’s primary revenue source is a line of products that measures the level of hormone B-type Natriuretic Peptide in hospitalized patients to assess the severity of their heart disease. Inverness markets consumer diagnostics including pregnancy and ovulation as well as a line of cardiac diagnostics. Additionally, Biosite has a development pipeline including diagnostics for sepsis and acute kidney injury that Beckman-Coulter originally laid out as contributing to their rationale.

“It is all about the synergies you can get and the cost savings,” says Simpson. While ample skepticism accompanied the Beckman offer, “I’ve got some of the same people telling me that at $90 this is a great deal.”

Mark Richter, an analyst with Jefferies, says an Inverness-Biosite deal makes “strong strategic sense” -- more so than Beckman which he projects would have trouble integrating the company. For Inverness, which holds almost 5% of Biosite shares already, “even if they lose they win” by pushing up the price, he says. In the end, he thinks Inverness will win the company.

Simpson says Inverness would respond in kind if Beckman raises its bid. Despite a tidy profit from upping the share price before selling to Beckman, Simpson thinks CEO Zwanziger “never gave it a thought.” A highly acquisitive company, Inverness acquired private home drug test outfit First Check Diagnostics for a much more modest $25 million in February.

The battle for Biosite comes as analysts say the medical diagnostics space could see further consolidation. On Wednesday, Swiss health care giant Roche (RHHBY) said it would buy Gaithersburg (Md.) outfit BioVeris (BIOV) for $600 million or $21.50 per share. The announcement sent shares in BioVeris up 52% Apr. 4 to close at $20.66.

(Note: Both Stifel and Jefferies have a business relationship with Inverness.)

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