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Tuesday, Jul 16, 2024
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Diagnostics Co. Must Wait for the Results

Douglas Bryant

One of San Diego’s bigger (yet little-known) public companies, Quidel Corp., just inked a deal that could double its annual revenue. But the deal’s closure is dependent on outside forces that may or may not go Quidel’s way.

The San Diego company, which has a public valuation of $1.4 billion, is buying $440 million worth of assets from an East Coast medical test maker named Alere Inc. Big and expensive deals don’t always fuel investors to buy a company’s stock, and yet Quidel’s stock price skyrocketed nearly 39 percent on the news.

That’s because Quidel got a bargain on Alere’s assets, and the new businesses it’s buying could be huge for the company’s bottom line.

More Tests, More Revenue

Quidel’s revenue is built on medical tests that are sold to the health care sector, with 37 percent of its revenue coming from the sale of flu tests. That’s a problem because influenza spikes during certain parts of the year and ebbs in others. As a result, Quidel’s revenue fluctuates significantly.

Quidel president and CEO Douglas Bryant said the company has been “looking at acquisition opportunities in high-growth segments” for a long time, especially in point-of-care settings (tests that are given to patients bedside or in the clinic).

The businesses Quidel is buying from Alere sell cardiovascular, toxicology, and — stay with us — B-type natriuretic peptide (BNP) blood tests, often used to test for heart failure.

The assets could potentially add nearly $200 million to Quidel’s annual revenue. In 2016, Alere’s Triage MeterPro segment (the cardiovascular and toxicology tests) had $146 million in revenues, and the BNP business revenues were $51 million, Quidel said. That revenue bump is significant, considering Quidel’s total revenue was $191.6 million in 2016, according to its last annual earnings statement.

Industry analyst Brian Weinstein from William Blair & Co. estimated Quidel’s revenue breakdown would change significantly if this deal goes through, with flu tests then making up only 18 percent of its revenue, down from 37 percent previously.

Getting a Good Price

An important thing to note about this deal was how cheap the assets came to Quidel. The San Diego company is paying roughly 2.2 times the businesses’ $197 million in revenue. According to Bloomberg, the median for recent U.S. diagnostic-equipment takeovers is more like three times annual revenue.

The reason Quidel is getting such a good deal on Alere’s assets is the company needs to divest its assets. Alere is in the middle of a pending takeover, with health care giant Abbott Laboratories acquiring the company later this year.

The acquisition negotiations have been messy. Within two months of announcing Abbott’s future takeover, Alere received a grand jury subpoena related to its sales practices, and failed to file its financial results with regulators on time. After months of public squabbling, each company sued the other, with Alere attempting to force the deal to go through and Abbott accusing Alere of violating the terms of their agreement.

In April, the two companies agreed to play nice. About $500 million was shaved off the original price of Alere, with Abbott agreeing to pay $5.3 billion for the company.

The bad news for Quidel is, if the deal falls through, then so does its cheap purchase of Alere’s assets. As part of the purchase agreement, Quidel said the purchase was subject to the completion of Abbott’s acquisition of Alere, as well as antitrust approvals.

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