Recently, Quest Diagnostics (DGX) completed the acquisition of Celera Corporation. Earlier, in March 2011, Quest announced its intention to acquire Celera for $8 per share, representing a transaction value of $344 million, after taking into account $327 million of cash and short-term investments.
Through the acquisition of Celera, Quest plans to strengthen its footing in molecular diagnostics discovery and development. Celera’s proprietary genetic tests, pipeline of biomarkers, along with esoteric cardiovascular test, offered by Berkeley HeartLab should drive Quest’s revenues. Celera, with revenues of $128 million in 2010, is expected to add just over 1% to Quest’s 2011 revenue growth.
Quest Diagnostics is focusing on areas with high potential such as gene-based, esoteric and anatomic pathology testing, which accounted for approximately 36% of the company’s total revenues in 2010. Earlier, in April 2011, Quest acquired Athena Diagnostics from Thermo Fisher Scientific (TMO) for $740 million. Athena, with $110 million in revenues in 2010, provides diagnostic tests for neurological and other diseases with an emphasis on gene-based tests.
The year 2010 has been quite difficult for Quest Diagnostics due to general slowdown in physician office visits. However, the company undertook several initiatives to prepare itself for an economic recovery which included controlling its cost structure that would improve margins over the long term and upgrading the sales force. The company has also organized specialty sales force that would cater to physicians, hospitals and cancer patients. Moreover, the deals with Athena and Celera would provide specialty sales force for neurological disorders and cardiovascular diseases.
Quest has been investing in esoteric, gene-based and anatomic pathology to demarcate cancer diagnostics from cardiovascular disease, infectious disease and neurological disorders. The company believes that these four platforms with specialty force will act as the growth engine for the future. The company is already witnessing some traction from these measures, which should further lead to top line growth and margin expansion gradually.
We are currently ‘Neutral’ on the stock, which also corresponds to the Zacks #3 Rank (hold) in the short-term.
QUEST DIAGNOSTC (DGX): Free Stock Analysis Report
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