Digene Sold to Dutch Biotech

Facing increased competition for its main product – the HPV Test – and questions about its plans for growth, Gaithersburg’s Digene Corp. agreed yesterday to be acquired by a foreign company in a $1.6 billion cash and stock deal designed to boost the local biotech firm’s international sales effort and speed technology development.

Under the agreement, Netherlands-based Qiagen N.V. would pay $61.25 for Digene shares – up to $880 million – on a first-come, first-served basis. That represents a 37 percent premium over Digene’s $44.77 closing price Friday on the Nasdaq. Digene shareholders also could trade for 3.545 shares of Qiagen, which closed Friday at $17.28 on the Nasdaq. Qiagen, whose U.S. headquarters is in Germantown, makes diagnostic tests to identify diseases.

Digene is the second major Maryland biotech firm in six weeks to announce its acquisition by a foreign company, highlighting the difficulty of remaining a stand-alone business in the industry. In April, Gaithersburg-based MedImmune Inc. said it was selling to London’s AstraZeneca PLC in a $15.6 billion deal, the highest price ever paid for a Maryland company.

Maryland officials have long claimed the field, which produces medical therapies and diagnostic tests by fusing biology with technology, as an economic driver. But such deals raise questions over whether the state can rely on big biotech businesses to stick around for the long term. And the sales of MedImmune and Digene leave few leading companies for others to emulate.

Few biotech companies have products on the market, and even fewer turn a profit. And after years of working to launch a successful product, MedImmune and Digene still faced challenges in identifying the next stage in their development.

MedImmune’s sale is expected to close this month, and Digene’s is expected to be complete by September. AstraZeneca and Qiagen have said they plan to maintain local operations after the deals close, though the global headquarters will no longer be in Maryland.

Qiagen manufactures more than 100 diagnostic tests, used to search for DNA and protein cues that can help diagnose disease.

Many believe that the diagnostic sector is where “biotech is really going to make its mark,” said Michael J. Werner, president of the Werner Group, a biotechnology and biomedical research consulting firm in Washington.

The sector is built on the idea that medical professionals can take genetic information and review it for certain disease indicators, then take preventive action.

Digene and Qiagen have a “long-standing relationship” going back more than a decade, said Digene Chief Executive Daryl J. Faulkner. Qiagen co- developed and manufactures Digene’s Rapid Capture System, which allows labs to run three Digene diagnostic tests – for HPV, chlamydia and gonorrhea – on one technology platform.

That relationship led to merger talks beginning about three months ago, said Faulkner, who joined Digene in December after the previous CEO retired.

Acquiring Digene, which had sales of $153 million and net income of $8.4 million in fiscal year 2006, is likely to give Qiagen a leg up in one of the fast-growing sectors within medical diagnostics: tests that can detect cancer-causing strains of a family of viruses known as human papillomavirus, or HPV.

Digene’s HPV Test is the only test approved by the U.S. Food and Drug Administration, which allows it to be used in routine gynecological screening for women over 30 and as a follow-up test for younger women whose annual cervical exams show abnormal cell changes.

The virus has drawn attention during the past year in particular as politicians and ethicists have set their sights on sexually transmitted strains of the virus and whether young girls should be vaccinated against them.

There are more than 100 strains of HPV, 30 of which are sexually transmitted. In 1996, the virus was documented as the viral cause of cervical cancer. It also has links to some oral and rectal cancers.

The federal Centers for Disease Control and Prevention estimate that 6.2 million Americans contract a genital version of the virus each year, and 80 percent of U.S. women will have had some form of HPV by the time they’re 50 years old.

That has led several companies to focus on the HPV market recently. In March, a diagnostics division of Swiss pharmaceutical giant Roche Holdings Ltd. announced that the FDA was reviewing its version of an HPV diagnostic test. California’s Gen-Probe Inc. and Wisconsin’s Third Wave Technologies also are developing HPV-related screening mechanisms.

A year ago, the FDA approved Gardasil, an HPV vaccine made by Merck & Co. A similar vaccine is under development by GlaxoSmithKline PLC.

“This is such an important market to be in. One woman [in the world] dies every two minutes from cervical cancer, which is caused by HPV,” Qiagen Chief Executive Peer M. Schatz said in a phone interview yesterday.

His company has about 2,000 employees, with 150 in Maryland. Schatz said he plans to maintain Digene’s facilities in Gaithersburg, where about 370 of the company’s 570 workers are employed.

“This is a very strong commitment to the Washington/Maryland area,” Schatz said.

Qiagen said the merger is expected to result in pre-tax cost savings of $35 million to $45 million. Both Qiagen and Digene have been in a hiring stage, and Schatz said he doesn’t expect significant changes. But he left the door open to staff reductions.

“You never know,” he said. “Integration is always a complex network of processes. … That’s something we’ll detail over the next few weeks.”

It is unclear whether Digene’s Faulkner will have a role at the company once the deal is done, though he said he will remain on board for now to ensure a smooth integration.

Faulkner said his focus was not on selling the company when he joined Digene. “I came here to run the company,” he said. “This is a situation where this is a great combination.”

Biotech analysts typically identify Digene as the player to beat in the HPV diagnostic world, though the expected increase in competition has led some to wonder what the company planned to do to maintain its growth. Faulkner was scheduled to outline a long-term strategy at an investor conference tomorrow in New York City, but the meeting was canceled after the Qiagen deal was announced.

The combined molecular diagnostic company would have more than $350 million in revenue. That is expected to rise to $800 million by next year, the companies said yesterday. Qiagen had U.S. sales of about $150 million last year and Digene $117 million.

About half the deal, 55 percent, would be done in cash, with 45 percent completed through a stock-for-stock transaction. At the close of the merger, Qiagen shareholders would own about 78 percent of the company and Digene stockholders 22 percent. The deal requires shareholder and regulator approval.

SOURCE: BALTIMORESUN.COM