Health and Healthcare

Why Opko's Acquisition Will Transform Its Future Growth

The health care sector continues to gain and make moves with mergers and acquisitions. Bio-Reference Laboratories Inc. (NASDAQ: BRLI) is one of many stories, but Opko Health Inc. (NYSE: OPK) is making the acquisition.

Both companies announced Thursday morning that they have a definitive merger agreement in which Opko will acquire Bio-Reference. The board of directors for each company has approved this acquisition, and the transaction is expected to be completed during the second half of 2015.

Under the terms of the agreement, holders of Bio-Reference common stock will receive 2.75 shares of Opko common stock for each share of common stock they own. The transaction is valued at roughly $1.47 billion, or $52.58 per share of Bio-Reference common stock.

Bio-Reference Laboratories is the third largest full service clinical laboratory in the United States and is known for its innovative technological solutions and pioneering leadership in the areas of genomics and genetic sequencing. After the transaction is completed, Opko intends to allow laboratory operations to continue to operate seamlessly, but at the same time enhancing it with Opko’s pipeline of diagnostic products. Another benefit is that Bio-Reference’s national presence will add valuable distribution capability to Opko’s diagnostic services.

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Marc Grodman, M.D., chairman, CEO and president of Bio-Reference, commented:

Bio-Reference Laboratories has been a pioneer in commercial laboratory use of next generation sequencing for diagnostic purposes. GeneDx believes it was the first commercial laboratory in the world to offer next generation genetic sequencing panels based on specific clinical symptoms; it has maintained its leadership position in offering advanced panels, sophisticated analysis, in-depth reporting, and by scaling these tools to a high-volume commercial environment. Bio-Reference Laboratories has accumulated a plethora of genetic and genomics data that will be invaluable to the drug discovery programs at OPKO and other drug developers. The Bio-Reference Laboratories data is diagnostic, or disease-related, and therefore provides an important connection between disease, treatment and cure.

Bio-Reference has consensus revenue estimates just below the $1 billion mark at $930.3 million for the 2015 fiscal year. The fiscal third-quarter has a consensus estimate of $241.07 million. It is worth noting that these revenues are fairly significant, compared to the company’s current market cap of $1.2 billion. This revenue ultimately will play a huge role in Opko’s Diagnostic segment.

As for Opko, it has a market cap of about $8 billion, but its revenues are significantly less. The consensus estimate calls for $165.15 million for the 2015 full year. Even last year, this company only had $91.12 million in revenue.

According to the companies:

Bio-Reference Laboratories’ national presence will add valuable distribution capability to OPKO’s diagnostic services. Bio-Reference Laboratories is a full service clinical laboratory that can provide key areas of opportunity for OPKO’s services. Moreover, the seasoned management team at Bio-Reference Laboratories will bring valuable market intelligence to the combined operations.

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Phillip Frost, M.D., chairman and CEO of Opko, commented:

GeneDx was the first commercial laboratory to offer next generation sequencing for rare disorders and almost a quarter of a million patients have benefited from these services including almost 20,000 patients who have undergone exome analysis. Their newly introduced sequencing services for use in oncology are both innovative and impressive.

Shares of Bio-Reference were up about 40% to $46.00 just after the opening bell Thursday but drifted lower throughout the morning. The stock has a consensus analyst price target of $36.00 and a 52-week trading range of $26.10 to $36.75.

Opko shares were down 3.4% to $18.48 in early trading, and down 8.2% to $17.54 approaching midday, in a 52-week trading range of $8.02 to $19.20. The consensus price target is $16.33.

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