SAN DIEGO—Although its early October agreement to acquireProdesse Inc. is for approximately $60 million in cash, Gen-Probe Inc. could,in fact, pay as much as $85 million if Prodesse achieves certain financial andregulatory milestones in 2010 and 2011.
"There are three milestones, in fact," notes Michael Watts,vice president of investor relations and corporate communications forGen-Probe. "Two of them are financial milestones, one in 2010 and the other in2011, and we haven't disclosed details about them, but they are related torevenue targets. The third milestone is tied to approval of a product thatProdesse has developed, but we cannot disclose the nature of that product forcompetitive reasons. But I will say that most of the $25 million in milestonesis tilted toward revenue targets."
In connection with the acquisition, Gen-Probe and Prodessealso signed an agreement under which Gen-Probe's sales representatives in theUnited States, Canada and Europe would begin co-promoting Prodesse's productsin mid-October, even though at press time, the acquisition deal wasn't expectedto close officially until late October or early November.
Gen-Probe describes privately held Prodesse as a "leader inmolecular testing for influenza and other infectious diseases," and Watts adds:"They've done a great job as a relatively small company at both development andgetting approved by FDA. Also, they are in the infectious disease area and weare in large part a molecular infectious disease-oriented company, so it was agood fit."
"We believe acquiring Prodesse supports our strategic focuson commercializing differentiated molecular tests for infectious diseases,"said Carl Hull, Gen-Probe's president and CEO, in a news release about thedeal. "The acquisition is expected to boost our near-term earnings and revenuegrowth by providing additional leading-edge assays for our experienced salesforce to promote to our global customer base."
Perhaps one of the more attractive aspects about Prodesse interms of being an acquisition target is that the company operates in a segmentof the infectious disease market in which Gen-Probe doesn't currently play,making this very much a strategic acquisition, Watts notes.
"Our acquisition by Gen-Probe validates the significantprogress we have made in developing and commercializing molecular assays thathelp doctors and laboratories diagnose respiratory and other infectiousdiseases more accurately than traditional methods," says Tom Shannon,Prodesse's president and CEO. "We believe we can prepare for and accelerate ournext stage of growth by leveraging the resources and expertise of one of themost established and highly respected molecular diagnostics companies in theworld."
Both companies' boards of directors unanimously approved thetransaction, and by early October, the Prodesse shareholder votes necessary toapprove the transaction had already been obtained, with a goal of closing thetransaction by no later than the first week of November, subject to customaryconditions.
Prodesse develops molecular diagnostic reagents for avariety of infectious disease applications. Prodesse sells three U.S. Food andDrug Administration (FDA) 510(k) cleared products in the United States, and twoadditional CE-marked products in Europe. The company's products can be used inconjunction with various nucleic acid extraction and real-time polymerase chainreaction platforms.
Prodesse's ProFlu+ test was cleared by the FDA in January2008 for the detection and discrimination of influenza A virus, influenza Bvirus and respiratory syncytial virus. It is, reportedly, the only commerciallyavailable, FDA-cleared molecular test for these respiratory viruses that usesreal-time PCR technology. Test results are said to be obtainable in as littleas three hours using the assay, which Gen-Probe and Prodesse call "asignificant improvement over culture-based methods," adding that during apublic health emergency, "this speed to result and the high sensitivity ofmolecular tests can make important contributions to effective infection controlefforts."
Prodesse also sells FDA-approved, real-time PCR assays forthe clinical diagnosis of Clostridium difficile, a bacteria that is the most serious cause of antibiotic-associateddiarrhea, and human metapneumovirus, a common cause of lower respiratoryinfection in children.
Gen-Probe expects to finance the transaction with cashcurrently on its balance sheet. Gen-Probe's initial expectation is that theacquisition will add approximately 5 cents to the company's 2010 earnings pershare, based on approximately $15 million in total revenues.