By Grant Zeng, CFA
Early yesterday morning, Laboratory Corporation of America® Holdings, or LabCorp (LH) and Monogram Biosciences, Inc. (MGRM) announced that they have entered into a definitive agreement and plan of merger under which LabCorp will acquire all of the outstanding shares of Monogram in a cash tender offer for $4.55 per share.
The deal has an implied total equity value of approximately $106.7 million, or a total enterprise value of approximately $155 million at March 31, 2009, including net indebtedness. The closing of the acquisition is expected in the third quarter of 2009.
Monogram Biosciences, Inc. is a leading provider of companion diagnostics -- molecular diagnostic products that help guide and target appropriate treatments. The company's focus is on infectious disease and oncology. Lead marketed products include Trofile assay which identifies patients who are eligible for the CCR5 class of HIV drugs, and is the widely-adopted companion diagnostic for Pfizer's (PFE) HIV drug Selzentry, PhenoSense and PhenoSense GT HIV tests, which measure individual patient viral drug resistance, thereby enabling physicians to design optimal, individualized treatment plans for each patient.
PhenoSense® and PhenoSense GT® are among the most widely used HIV resistance tests in the market today. Monogram's HIV tests are used routinely by physicians for managing patient therapy and are an integral component of anti-HIV drug development and clinical evaluations for the pharmaceutical industry.
In the oncology front, Monogram's proprietary VeraTag technology has been used to develop a sensitive means to assess HER-2 status in tissue samples and has significant potential as a tool to help guide therapy decisions in breast cancer patients. Based on the VeraTag platform, Monogram has multiple tests in development for measuring a variety of protein markers that may have clinical utility to help guide treatment decisions across a broad range of cancer drugs.
More Deals Expected Following the Transaction
The transaction could have a significant impact for the whole molecular diagnostics industry, in our view. The M&A activity has been very active in the Pharma/Biotech industry for the last a couple of years. However, most of those transactions have been focused on the area of therapeutics.
Molecular diagnostics has enjoyed rapid growth in the past decade due to the breakthrough in genomics and proteomics. Personalized medicine has played a critical and important role to improve therapeutic agents and reduce whole healthcare costs. Europe continues to outpace the US in the area of molecular diagnostics.
In the US, the diagnostic market is relatively fragmented with many small players. Two relatively big players are LabCorp and Quest Diagnostics (DGX), which command a majority of the market shares. Small players like Monogram, Myriad Genetics (MYGN), Celera Group (CRA) and Genomic Health (GHDX) are more focused on one or two areas in which they have expertise.
We are positive about the molecular diagnostics industry in general and anticipate more deals following the LabCorp/Monogram transaction in the industry. We think consolidation is necessary to achieve economy of scale and sustainable growth for the whole diagnostics industry.