Third Wave to be sold
10.06.2008 05:05
Health
- Source: JS Online
Third Wave Technologies Inc., which is seeking federal approval of a new test for the virus that causes cervical cancer, has struck a deal to be sold to Hologic Inc. for $580 million. Hologic, based in Bedford, Mass., agreed to pay $11.25 a share in cash for Madison-based Third Wave. The price is a 7.1% premium to the stock's close of $10.50 on Friday and more than double the stock's 52-week low of $5.17 share. Third Wave shares closed at $11.14 Monday. Third Wave, a molecular diagnostics company, has developed technology that can detect variations in a patient's genetic makeup. Those variations can indicate whether the patient is predisposed to certain diseases. More than 230 laboratories use the company's technology. Hologic plans to keep Third Wave's manufacturing and research and development operations in Madison. Third Wave employs 143 people full-time in Madison, up from 110 two and a half years ago. The deal comes only months after Third Wave completed a clinical trial of two tests for the human papillomavirus, or HPV, which causes cervical cancer. The company sought Food and Drug Administration approval for the tests in April. "The release of the company's clinical trial results for HPV further strengthens our conviction that this was the right opportunity for us," Jack Cumming, chairman and chief executive of Hologic, said in a teleconference Monday. The acquisition boosts Hologic's products and services for women's health, Cumming said. Hologic, a diversified medical technologies company, specializes in products for mammography, diagnosing osteoporosis, cervical cancer screening and other areas of women's health. The company, which has seen quick growth partly due to acquisitions, reported net income of $94.6 million, or $1.72 a share, on revenue of $738.4 million in its fiscal year ended Sept. 29. That compares with net income of $2.9 million, or 7 cents a share, on revenue of $204 million in its 2002 fiscal year. The two companies hope to complete the acquisition this summer. Hologic said it has secured $600 million in financing to buy Third Wave. Hologic was approached by investment bankers hired by Third Wave's board after another company expressed interest in buying the Madison company. Complementary needs The sale would cap a turnaround led by Kevin Conroy, who was promoted to Third Wave chief executive on Dec. 12, 2005. Third Wave stock closed at $3.02 a share that day. "Third Wave had done everything it needed to do," said Quintin Lai, an analyst with Robert W. Baird & Co. Conroy is credited with focusing research and development on the HPV test. Completing the clinical trial, though, was just the first step. Third Wave still would need to develop a sales force to market the tests if it wins FDA approval. "Third Wave is still a fairly small company when it comes to sales," Lai said. The company, which employed 179 people as of Dec. 31, had revenue of $31.1 million in 2007. It also posted a net loss of $16.8 million. Other companies have announced plans to enter the market for HPV testing, potentially putting pressure on Third Wave to establish a market for its new test quickly. The much larger Hologic has a sales force and relationships with clinical labs, obstetricians and gynecologists. "They obviously have the feet on the street for the sales channel," Lai said. The pending acquisition of Third Wave would also mesh well with Hologic's acquisition of Cytyc Corp. last October. Cytyc provides products and services, such as a pap test, for women's health. Hologic said the market for HPV testing, estimated at $200 million a year, is growing 40% a year. It estimates the global market will increase to $800 million in the next few years. The company hopes to win FDA approval for the HPV test in the first half of next year. Third Wave's six top executives must remain at the company until the tests win FDA approval for their stock options to vest and for other payments that they would have received under the terms of their employment contracts. Third Wave, founded in 1993, has never posted an annual profit and has lost a total of $194.6 million since it was founded. The company also struggled after going public in 2001 at $11 a share. The company recently received approval from the FDA for a test for cystic fibrosis. And Conroy, the company's chief executive, said the company plans to introduce other diagnostic tests. The people at Third Wave, Conroy said, "have achieved things that a lot of people never thought were possible."
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