June 9, 2008 / 11:47 AM / 12 years ago

Hologic to buy Third Wave for $580 million

CHICAGO (Reuters) - Medical diagnostics company Hologic Inc (HOLX.O) said on Monday it would buy Third Wave Technologies Inc TWTI.O for $580 million to expand its range of tests to detect women’s health conditions.

Third Wave has applied for U.S. Food and Drug Administration (FDA) approval to sell two tests for the human papilloma virus, or HPV, a sexually transmitted infection that can cause cervical cancer.

“We view the cervical cancer market as core to the Hologic franchise,” Hologic Chief Executive Jack Cumming told analysts on a conference call.

Hologic, whose products include digital mammography systems, Pap tests and surgical instruments, agreed to pay $11.25 a share for Third Wave, a premium of 7 percent over Third Wave’s closing share price of $10.50 on Friday.

Third Wave, based in Madison, Wisconsin, also makes diagnostic tests for cystic fibrosis, hepatitis C and cardiovascular disease.

“At first glance, I think it improves their diagnostic segment and their pipeline,” said Morningstar analyst Jeffrey Stafford, but he cautioned the HPV tests still must be approved by U.S. regulators.

“There’s definitely some uncertainty surrounding the acquisition given FDA approval has not been obtained yet for what looks to be the main cog in this deal, which is the HPV tests,” Stafford said.

Hologic, based in Bedford, Massachusetts, said it expects the deal to reduce its previous outlook for 2008 earnings, excluding acquisition-related charges, by 2 cents to 3 cents a share.

The company previously forecast earnings of about $1.15 to $1.18 a share for the year. Analysts were expecting $1.16 a share, before items, according to Reuters Estimates.

Hologic said the deal, which it expects to close in the third quarter, would reduce earnings excluding items by about 10 cents a share in fiscal 2009 but contribute to per-share profit beginning in 2010.

Hologic estimated the HPV testing market is currently worth $200 million a year and could reach $800 million in the next few years. The company hopes Third Wave’s HPV tests will get FDA approval in the first half of 2009.

Oppenheimer analyst Amit Hazan said Third Wave’s HPV platform should fit well into Hologic’s Pap test business but added that clinical study data yet to be released would be key to how well the product is received.

Hologic will compete against market leader Qiagen QGEN.DE in the HPV testing market. Hazan said Roche ROG.VX and Gen-Probe Inc (GPRO.O) are also preparing to enter the market but they are a few years away.

“With TWTI’s data yet to be made public, the main question marks right now are the strength of its data and the product’s capability inside of large high-volume labs,” Hazan wrote in a note to clients.

Hologic plans to borrow $600 million to finance the deal through a senior secured credit facility. Goldman Sachs & Co, which acted as financial adviser to Hologic, is providing the financing, the company said. XMS Capital Partners and Merrill Lynch & Co advised Third Wave.

Hologic said it expects to have $90 million in term loans used to finance its October 2007 acquisition of Cytyc Corp paid off by the end of the month.

Hologic shares were down 65 cents, or 2.78 percent, at $22.76 Monday on Nasdaq, while Third Wave’s stock rose 65 cents, or 6.19 percent to $11.15.

Reporting by Susan Kelly in Chicago and Varsha Tickoo in Bangalore; Editing by Amitha Rajan, Toni Reinhold

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