On a Quest for Celera
May 2011
by Kelsey Kaustinen  |  Email the author

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MADISON, N.J.—Diagnostic testing company Quest Diagnostics Inc. and Celera Corp., a leader in genetic diagnostics discovery and development, have entered into a definitive merger agreement. Under the agreement, Quest Diagnostics will acquire Celera for approximately $344 million, or $8 per share, net of $327 million in acquired cash and short-term investments. The transaction value of the deal is expected to be reduced through the realization of a portion of Celera's available tax credit and net operating loss carry-forwards and capitalized R&D, which together represented $117 million at the end of last year. Both companies' boards of directors have approved the acquisition.  
 
"This is an important transaction which will further strengthen our leadership position in molecular diagnostics discovery and development and drive sustainable revenue growth," says Dr. Surya N. Mohapatra, chairman and CEO of Quest Diagnostics. "We will gain immediate access to an impressive range of proprietary tests and products, and a strong pipeline of biomarkers for the future."
 
Per the agreement, Quest will commence a cash tender offer through a wholly owned subsidiary to purchase all outstanding shares of Celera's common stock for $8 per share in cash. A merger will follow the tender offer, and completion of the offer is subject to customary closing conditions, including that a majority of Celera's outstanding shares of common stock are tendered into the offer.  
 
"We are pleased to have reached an agreement through which Celera and our Berkeley HeartLab become part of the world's most respected diagnostic testing company," says Kathy Ordoñez, CEO of Celera.  
 
The acquisition grants Quest access to a variety of assets, including Celera's portfolio of proprietary genetic biomarkers and the Berkeley HeartLab and its proprietary cardiovascular tests, such as the KIF6 genotyping test for predicting a patient's risk of developing coronary heart disease and response to statin therapy, LPA genotyping test for predicting the risk of coronary heart disease and response to aspirin therapy, HDL and LDL lipoprotein analysis to aid in characterizing a patient's cardiovascular disease risk and 9p21 genotyping test to predict a patient's risk of early onset myocardial infarction.
 
Celera also offers genetic in-vitro diagnostics products, including test products for conditions such as cystic fibrosis, HIV drug resistance, transplantation genetics and Fragile X syndrome. Dr. David Speechly, vice president of corporate affairs at Celera, says "the rich pipeline that Celera has in its genetic discoveries" is really the engine behind the deal, a sentiment echoed by Mohapatra.   "This transaction advances our growth strategy to be the leading innovator and provider of esoteric and gene-based testing for cancer, cardiovascular disease, infectious disease and neurological disorders," Mohapatra says. "I am pleased at the prospect of Celera's CEO Kathy Ordoñez and key members of her team becoming part of Quest Diagnostics."  
 
Speechly says the two companies have worked together since 2002. Quest and Celera had a collaboration in cardiovascular diseases and diabetes, "looking at the discovery of novel diagnostic markers in those disease indications." With both companies' experience in diagnostic testing, the transaction is a good fit, especially given the fact that, as Speechly says, "Quest's real focus is to drive innovative, highly differentiated testing products."
 
"By incorporating Celera into Quest's organization, it gives it sufficient scalability to address, to leverage the sales and marketing opportunities," says Speechly. "From the Quest perspective, they get access to all this R&D, all of this discovery capability." He adds that "Celera will be its own unit within Quest, and the majority of the employees and facilities will remain in place."  
 
Speechly notes that a key factor of the deal for Celera is scale, as does Ordoñez, who says that Celera's "discovery and validation of new biomarkers has exceeded our capacity to commercialize them."
 
"Combining Celera's expertise in genetics with Quest Diagnostics' medical leadership, market access and scale is expected to speed the realization of our vision to personalize medicine," Ordoñez states. "We believe this is a compelling transaction that accelerates the delivery of value to our shareholders."  
 
Quest expects the acquisition of Celera to be dilutive to its GAAP earnings by an immaterial amount in 2011, and doesn't expect it to have a material impact on its 2012 earnings per share. When the transaction closes at the end of April, Celera is expected to add a little more than 1 percent to Quest's 2011 revenue growth.
Code: E051114

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