Friday, May 18, 2007

Biosite in a Box

We knew the game was up for Beckman Coulter the minute Inverness Medical Innovations topped B-C's bid for Biosite. A stretch at $85 per share, we weren't even sure B-C'd come back to challenge Inverness' $90 offer, given the drain on capital and the dilution B-C faced down the road, which made investors queazy about the combination's prospects, even at the original offer price. (It matched it, then bowed out after Inverness upped the ante another $2.50.)

At a earlier time, Biosite might have considered staying independent. But facing single digit growth for its BMP POC cardiac test, it had no choice but to sell out once it was put in play -- the premium Beckman Coulter first offered was more than 50% above the stock price at the time. The only question was who'd end up with it.

Nothing against Inverness, whose founder Ron Zwanziger has repeatedly shown he knows how to build companies and find exits for them, and with due respect for the imperative for Biosite's management to make the most out of what it had, we suspect it is accepting its fate with some chagrin. That's because B-C -- never known as an R&D shop -- and Biosite had already established a good development relationship around automating BMP and could look forward to doing the same around POC, including adopting several of B-C's current tests. There was no discussion of a rationalization of R&D capabilities when B-C presented the deal. Those people mattered. (Ironically perhaps, that same fact made the proposed acquisition a departure for B-C and therefore raised its own concerns.)

Inverness, for its part, is already a POC company with an established platform and a product menu crafted largely from acquisitions. It has a stated intention to expand its presence in the cardiac POC business, which makes Biosite a good fit. Inverness is also in the midst of a three-year agreement with ITI Scotland, however, principally to fund R&D for identifying novel cardiac markers for POC tests. The combination is spending £67 million on the program, and Inverness has established a research center in Scotland around which it has consolidated cardiac diagnostic R&D and eventual product commercialization.

In many aspects in addition to the geographic, members of the Biosite team that make the trip from San Diego to Scotland may find themselves a world apart from the Left Coast. And yes, for a company that tackled a new and medically important market with a novel technology and ended up with a product that worked, the result, if financially fortunate, is bittersweet. We do not think the decision, though clear, came easily.

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