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Gen-Probe spreads infectious disease reach
SAN DIEGO—Although its early October agreement to acquire Prodesse 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 and regulatory milestones in 2010 and 2011.
"There are three milestones, in fact," notes Michael Watts, vice president of investor relations and corporate communications for Gen-Probe. "Two of them are financial milestones, one in 2010 and the other in 2011, and we haven't disclosed details about them, but they are related to revenue targets. The third milestone is tied to approval of a product that Prodesse has developed, but we cannot disclose the nature of that product for competitive reasons. But I will say that most of the $25 million in milestones is tilted toward revenue targets."
In connection with the acquisition, Gen-Probe and Prodesse also signed an agreement under which Gen-Probe's sales representatives in the United States, Canada and Europe would begin co-promoting Prodesse's products in mid-October, even though at press time, the acquisition deal wasn't expected to close officially until late October or early November.
Gen-Probe describes privately held Prodesse as a "leader in molecular testing for influenza and other infectious diseases," and Watts adds: "They've done a great job as a relatively small company at both development and getting approved by FDA. Also, they are in the infectious disease area and we are in large part a molecular infectious disease-oriented company, so it was a good fit."
"We believe acquiring Prodesse supports our strategic focus on commercializing differentiated molecular tests for infectious diseases," said Carl Hull, Gen-Probe's president and CEO, in a news release about the deal. "The acquisition is expected to boost our near-term earnings and revenue growth by providing additional leading-edge assays for our experienced sales force to promote to our global customer base."
Perhaps one of the more attractive aspects about Prodesse in terms of being an acquisition target is that the company operates in a segment of 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 significant progress we have made in developing and commercializing molecular assays that help doctors and laboratories diagnose respiratory and other infectious diseases more accurately than traditional methods," says Tom Shannon, Prodesse's president and CEO. "We believe we can prepare for and accelerate our next stage of growth by leveraging the resources and expertise of one of the most established and highly respected molecular diagnostics companies in the world."
Both companies' boards of directors unanimously approved the transaction, and by early October, the Prodesse shareholder votes necessary to approve the transaction had already been obtained, with a goal of closing the transaction by no later than the first week of November, subject to customary conditions.
Prodesse develops molecular diagnostic reagents for a variety of infectious disease applications. Prodesse sells three U.S. Food and Drug Administration (FDA) 510(k) cleared products in the United States, and two additional CE-marked products in Europe. The company's products can be used in conjunction with various nucleic acid extraction and real-time polymerase chain reaction platforms.
Prodesse's ProFlu+ test was cleared by the FDA in January 2008 for the detection and discrimination of influenza A virus, influenza B virus and respiratory syncytial virus. It is, reportedly, the only commercially available, FDA-cleared molecular test for these respiratory viruses that uses real-time PCR technology. Test results are said to be obtainable in as little as three hours using the assay, which Gen-Probe and Prodesse call "a significant improvement over culture-based methods," adding that during a public health emergency, "this speed to result and the high sensitivity of molecular tests can make important contributions to effective infection control efforts."
Prodesse also sells FDA-approved, real-time PCR assays for the clinical diagnosis of Clostridium difficile, a bacteria that is the most serious cause of antibiotic-associated diarrhea, and human metapneumovirus, a common cause of lower respiratory infection in children.
Gen-Probe expects to finance the transaction with cash currently on its balance sheet. Gen-Probe's initial expectation is that the acquisition will add approximately 5 cents to the company's 2010 earnings per share, based on approximately $15 million in total revenues.