BANGALORE Quest Diagnostics Inc (DGX.N) agreed to buy gene sequencing pioneer Celera Corp CRA.O for about $657 million to gain access to its gene-based testing technology, but investors pushed Celera's stock above the offer price in anticipation of a higher bid.
Quest, which has been on the look out for genetic test developers since 2008, said it will pay Celera shareholders $8 per share, a premium of 28 percent to their Thursday close of $6.27.
Celera shares, which last traded at $8 levels in June 2009, rose as much as 33 percent to $8.37 in early trade on Friday. More than 22 million shares changed hands, over 50 times their average volumes.
Natixis Bleichroeder analyst Ashim Anand said despite the premium, "the offer price represents a discount of 21 percent to its peers," given Celera's promising pipeline.
"Other possible suitors could be Abbott Labs (ABT.N), with whom Celera co-owns a product, and Life Technology (LIFE.O), with whom it co-owns a technology."
"Celera has probably one of the most personalized medicine tests and that's where all diagnostic companies are going," the analyst said.
Clinical diagnostics, one of the most lucrative segments of the healthcare industry, has seen increased consolidation recently, given a rapidly aging population and an emphasis on preventive medical care.
In February, Danaher Corp (DHR.N) said it will buy medical diagnostics company Beckman Coulter Inc BEC.N for $5.8 billion in cash. Novartis AG NOVN.VX has offered $475 million for U.S. cancer test maker Genoptix GXDX.O.
Anand, who expects more deals in the diagnostics business, said there were possibilities of third party bids from competitors like Laboratory Corp of America Holdings (LH.N), Abbott and Life Technologies Corp (LIFE.O).
Celera, co-founded in 1998 by pioneer geneticist Dr. J. Craig Venter with the aim of sequencing the human genome, now focuses on developing genetic tests for cardiovascular diseases, cancers and neurological disorders.
It conducts most of its molecular diagnostic business through distribution and royalty agreements with a unit of Abbott Laboratories (ABT.N).
"The proprietary products are patent protected. Obviously there's going to be higher margins that makes (clinical diagnostics) a good business," William Blair & Co analyst Amanda Murphy said.
Quest Chief Executive Surya Mohapatra said the deal will gain immediate access to an impressive range of proprietary tests and products, and a strong pipeline of biomarkers.
A full 65 percent of Celera's revenue is protected by patents, Mohapatra said in an analyst call.
Quest, whose fourth-quarter profit fell as patients took fewer blood and other tests in an effort to cut their bills, expects the deal to slightly hurt its 2011 earnings per share.
Quest expects the transaction, which is expected to close at the end of April, to add about 1 percent to its 2011 revenue growth.
Separately, Celera said it would restate results for several periods beginning in 2008 due to overstatement of revenue and costs.
The company said internal control over financial reporting was not effective as of December 25, 2010.
Alameda, California-based Celera also reported a wider-than-expected adjusted loss of 8 cents a share for 2010 fourth quarter on revenue of $34.9 million.
(Reporting by Krishnakali Sengupta and Rajarshi Basu in Bangalore; Editing by Anthony Kurian, Vyas Mohan)