Consolidation Continues in Mid Cap DX Companies: Bull Market in Biotech Hits New Highs

Our Life Science Tools and Diagnostics Portfolio had a nice hit today with GenProbe up 18.75% on the Agreement that it would be sold to Hologic (HOLX $18.82 down 11.2%) for $3.7B or $82.75/sh. This is a strategic deal that builds upon Hologic’s women’s health franchise focused on breast imaging and bone health with a strong GPRO platform HPV(Human Papilloma Virus),  STD diagnostics and blood screening (HIV, HCV).Until we hear something to the contrary this deal would appear to be  a good fit with substantial synergy. Hologic has diversified over the years moving into molecular Dx from its core in radiology for bone health.Hologic met recent revenue and earnings expectations of $471M and 0.33 cents sh.

This makes it the 5th acquisition from companies in our Tools and Dx portfolio: Celera, Immucor, Microfluidics and SeraCare. While we do not pick companies based on acquisition potential there is strategic value in many small and mid-caps that have strong product revenue in a niche market.

Alere (ALR $24.16) was off 5.9% today after releasing earnings despite beating estimates. The stock is trading at a 0.7 Market Cap/Revenue multiple -good value -and we believe the stock is a turnaround candidate with a buy for the long term despite the loss ($4.1M and 0.05 cents/sh.)and heavy debt burden of about $4.5B and Shareholder Equity of $2.27B. The Company is still digesting an M&A feast over the years but has developed strong DX product niches in a variety of markets.A key strategy for the Company is the Health Management segment with $131M in Revenue for the quarter down $13M compared to the 2011 prior quarter.

There were other big movers in our Life Science Portfolio over the past week : Abaxis (ABAX $36),  Albany Molecular (AMRI $3.23), and Regeneron (REGN $137.20). With Regeneron hitting all time highs up 147% YTD and a market cap of $13B we would take a little off as biopharma stocks are getting a little too frothy. The IBB hit an all time high Friday at $126.65 up 20.6% YTD. The drivers of the bull market in biotech continue to be M&A, new product growth and good news from the clinic.


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