INDUSTRY NEWS
Rapid-diagnostics manufacturer Inverness Medical Innovations Inc. (Waltham, MA) has entered into a definitive agreement to purchase Acon Laboratories Inc. (San Diego) for $175 million, subject to adjustment for working capital and net indebtedness. The acquisition, which adds to Inverness’s already dominant position in the $630 million pregnancy and fertility consumer diagnostics market, ends more than three years of legal wrangling between the two companies. In a 2002 lawsuit, Inverness, along with its Unipath Diagnostics unit, claimed that Acon’s test-strip products infringed its patent for colored-particle immunoassays.
As part of the deal, Inverness will also acquire Acon’s newly built manufacturing facility in Hangzhou, China. Inverness has announced a strategy to lower production costs by moving much of its manufacturing segment to China over the next few years.
“We’re extremely excited about this acquisition. We’re the market leader in many ways, but to offer low-cost distribution…is extremely advantageous for us,” said Inverness CEO Ron Zwanziger during a presentation at the Lehman Brothers Global Healthcare Conference in March. Inverness currently operates a plant in Shanghai. Through a pilot program with the Chinese government, the company says it will produce about 30 million tests this year.
Since its formation in 2001, through 2005, Inverness saw a jump in sales, from $47.3 million to $421.9 million, due in large part to a flurry of company purchases. However, during the same period, its gross margins have suffered, falling from 48 to 36%.
“During the three years that the patent litigation raged in Boston, Acon demonstrated its skill in producing lateral-flow products in China, and Inverness’s need for a lower-cost manufacturing solution grew over that same time period,” said David Doyle, an attorney at Morrison and Foerster, the law firm that represented Acon in its patent litigation and advised the company on its acquisition. “It was the intersection of Inverness’s need for lower-cost manufacturing and Acon’s impressive track record of lower-cost manufacturing in China that drove the litigation settlement and resulting business transaction.” The purchase also gives Inverness access to Acon’s large menu of drugs-of-abuse tests, an area in which Inverness had only limited investments.
The claim filed against Acon centered on Inverness’s so-called ‘982 patent, which covers much of the lateral-flow technology behind the company’s pregnancy and ovulation tests. Over the last few years, Inverness has brought suits against a number of other companies in the United States and abroad that it claims have infringed its intellectual property.
“Intellectual property is a strategic asset for our company, and not only does it underpin the profits in our over-the-counter and professional businesses, but we aggressively assert it against others to establish and consolidate a market position and to generate cash flows that are in turn applied back to our research and development activities,” explained Inverness CFO Chris Lindop at the Lehman Brothers conference.
In 2003, a suit against Pfizer Inc. resulted in a five-year supply agreement to manufacture Pfizer’s e.p.t. pregnancy testing products. In a 2005 settlement related to the patent, Quidel Corp. (San Diego) agreed to pay Inverness $17 million in cash and 8.5% royalty on most of the business revenues Quidel generates through 2013. In January, a patent claim against Advanced Clinical Systems International Pty. Ltd., an Australia-based manufacturer of devices and diagnostics, ended with Inverness buying the company.
“The settlement and related business transaction between Acon and Inverness is an excellent result for both companies,” said Doyle. “The willingness of both companies, after three years of intense litigation, to step back and look for a business solution based on mutual respect is a credit to the flexibility and resourcefulness of both companies.”
