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

 |  Includes: ABAX, ALR, AMRI, HOLX, REGN
by: Rod Raynovich

Our Life Science Tools and Diagnostics Portfolio had a nice hit today with GenProbe (NASDAQ:GPRO) up 18.75% on the Agreement that it would be sold to Hologic (NASDAQ: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 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 (NYSE: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/share)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 (NASDAQ:ABAX) ($36), Albany Molecular (NASDAQ:AMRI) ($3.23), and Regeneron (NASDAQ: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 biopharmaceutical stocks are getting a little too frothy. The IBB (iShares NASDAQ biotechnology ETF) 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.

Disclosure: I am long ALR, AMRI.