TRENDS & PERSPECTIVES
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The ThinPrep Imaging System by Cytyc Corp. |
Cytyc will pay $60 million in cash up front as well as make milestone payments, including a four-year earnout based on sales growth, for Adiana. According to the terms of the deal, total payments will not exceed $215 million.
Meanwhile, a second acquisition of the publicly traded Adeza Biomedical Corp. (Sunnyvale, CA), which markets tests for risk of pre-term birth and infertility, was poised to close by the end of March.
After extending its tender offer for Adeza in mid-March, Cytyc said that its wholly owned subsidiary, Augusta Medical Corp., had purchased more than 90% of Adeza’s shares, effectively sealing the acquisition. Cytyc has offered $24 per share, or about $452 million for, Adeza.
Plans for the acquisition of the two companies had been announced in February. In conference calls shortly after each announcement, Patrick J. Sullivan, Cytyc’s chairman, president, and chief executive officer, said the two companies would further solidify Cytyc’s position in the women’s health arena.
Sullivan said Adiana’s hysteroscopic sterilization device will be highly complementary to Cytyc’s NovaSure Endometrial Ablation System, a surgical product for endometrial ablation procedures. After a woman has a NovaSure procedure, she must go on some form of contraception. The Adiana product is an effective contraceptive alternative for those women and can be performed by the same gynecologist who performs the NovaSure procedure.
In addition, the Adiana product is an alternative for the approximately 700,000 women in the United States who have tubal ligations each year. Cytyc estimates the market opportunity for the product in the United States to be in excess of $1 billion. While the product is not yet approved by FDA, the regulatory process is under way.
Likewise, Adeza is very similar to Cytyc in that they are both publicly traded companies with a focus on women’s health, Sullivan said. Adeza’s “business model is exactly the same as ours,” he said. Sullivan also said the addition of Adeza would significantly leverage Cytyc’s worldwide commercial capabilities because its products are marketed to obstetricians and gynecologists, and its tests are performed in hospital or commercial laboratories. “This is exactly the same as our ThinPrep Pap Test.”
Adeza has had few sales of its products outside of the United States. Cytyc, on the other hand, has a commercial operations team of about 150 people selling directly in 17 countries. “This worldwide sales force is fully capable of selling Adeza’s products, which will significantly expand the commercial presence for Adeza,” Sullivan said.
Analysts agreed both acquisitions are a good fit for Cytyc as its products already cover a range of applications in women’s health and cancer treatment and diagnostics.
“Both Adeza and Adiana have products that play to Cytyc’s sales and marketing strength in the obstetrics and gynecology markets,” said Bruce Jackson, senior healthcare diagnostics and tools analyst at RBC Capital Markets (Minneapolis).
Jackson thought Cytyc made the right moves by acquiring the companies now. “Management has been looking for new products that could help it meet its long-term growth objectives, and these companies presented good opportunities,” he said. Part of it, he added, “is to defend the overall business in case the market gets more competitive for Cytyc’s core products, ThinPrep and NovaSure.”
Jeff Ellis, head of diagnostics M&A for CrossTree Capital Partners (Tampa, FL), also believes that Cytyc is building an impressive position in women’s health. “The Adiana and Adeza deals are both synergistic acquisitions that will leverage and continue to strengthen Cytyc’s core strengths: a well-established sales channel into women’s health physicians and laboratories, and tremendous brand recognition,” he said.
Cytyc enjoys a substantial base of recurring cash flow from its core ThinPrep product line, thereby positioning the company exceptionally well for acquisitions, Ellis said. He also expects Cytyc to continue to acquire innovative products that leverage its established sales channels and goodwill. “Women’s health is clearly an ideal focus for such innovation,” he said.
In the conference call regarding Adeza, Sullivan confirmed that Cytyc would continue to look at acquisition opportunities. “The business development group doesn’t get a vacation just because we’ve done this transaction.”
