San Diego’s Quidel Corp. to buy Diagnostic Hybrids in Athens, Ohio, for $130 million

Quidel logoUpdated 4:41 p.m.

ATHENS, Ohio — Quidel Corp., the San Diego, Calif., company that makes diagnostic tests used at the point of patient care, has agreed to acquire Diagnostic Hybrids Inc. in Athens for $130 million in cash.

Quidel develops and makes rapid diagnostic tests for pregnancy, infectious diseases, oncology, bone health and autoimmune disorders that ares used at the point of care — doctors’ offices, hospitals, clinical labs and wellness screening facilities.

Diagnostic Hybrids develops and makes cellular and molecular diagnostic kits for viral respiratory infections, herpes, chlamydia and other viral infections and thyroid diseases.

“Diagnostic Hybrids will broaden Quidel’s current portfolio into complementary, nonseasonal infectious and autoimmune diseases and help diversify our revenue base,” Doug Bryant, president and chief executive of Quidel, said in a press release. “Moreover, Diagnostic Hybrids has a solid track record of generating strong and profitable sales growth.”

Viewing diagnostic tests as a continuum, Quidel supplies the first one-third of the continuum with quick, point-of-care tests, Bryant said during a Monday conference call with securities analysts. The company started in 1979 and launched its first products — dipstick pregnancy tests — in 1984. During the 1990s, Quidel branded most of its business under the name QuickVue.

Diagnostic Hybrids supplies the continuum’s second one-third with its direct fluorescent antibody assays. Started in 1983 by a group of Ohio University professors, Diagnostic Hybrids was spun out of the university to commercialize sophisticated diagnostic tests used mostly by hospital and reference laboratories. The Ohio University Foundation, which invested more than $1 million in Diagnostic Hybrids, will receive more than $35 million from the acquisition, according a university news story.

Both companies have moved into the final one-third of the market: molecular diagnostic tests, many of which are just emerging. With the acquisition of Diagnostic Hybrids, Quidel will have “doubled our capacity to develop molecular assays,” Bryant told analysts.

“We do see opportunities in commercial operations to drive higher revenue growth rates and in research and development to accelerate product development,” said John Radak, Quidel’s chief financial officer, during the conference call.

That’s because Diagnostic Hybrids sells its products through a direct sales force to more than 700 North American customers. In addition, the Ohio company leverages its antibody development and cell culture expertise to develop new products that address significant market opportunities.

For instance, Diagnostic Hybrids has licensed technologies from Case Western Reserve University in Cleveland that gauges the success of AIDS treatments. In March, the U.S. Food and Drug Administration approved a new product for the Ohio company that will identify human metapneumovirus, which is thought to cause some childhood bronchitis, colds and inner-ear infections.  At that time, David Scholl, president and CEO of Diagnostic Hybrids said the respiratory virus detection kit would be the first of several new kits introduced that year.

In August, Diagnostic Hybrids said the FDA had approved for sale Thyretain TSI, a new thyroid test to detect antibodies that indicate Graves’ disease. Today, Diagnostic Hybrids announced another FDA-approved test: A D3 FastPoint identification kit that identifies respiratory syncytial virus and human metapneumovirus in less than 25 minutes.

Quidel intends to operate Diagnostic Hybrids, which employs more than 230 people in Athens, as a wholly owned subsidiary. Diagnostic Hybrids also employs seven research and development professionals at an HIV research lab and office in Cleveland, Ohio. The deal is expected to close near the end of the first quarter and is subject to regulatory approvals.

“Quidel is a synergistic and cultural fit for Diagnostic Hybrids, and this transaction presents us with an excellent opportunity to have a larger presence in our markets and to leverage key aspects of our research and development teams to accelerate product development,”  Scholl said in Quidel’s release. “Our combined organization will have greater channel strength, and together we will provide our customers a full-service offering of best-in-class diagnostic products.”

Scholl, who has been with Diagnostic Hybrids for most of its life, will remain president of the company and has been appointed as a senior vice president of Quidel. A Quidel spokeswoman said the company plans to leave Diagnostic Hybrids and its workforce in Athens. The privately owned company had 2008 revenue of $38 million and has posted a compound three-year growth rate of 21 percent.

Diagnostic Hybrids is using a $5 million grant from the Ohio Third Frontier project to fuel research in HIV, influenza and hepatitis.

Quidel had revenue of $128.1 million, net income of $18.8 million and diluted earnings per share of 58 cents in 2008, according to a regulatory filling. For the first nine  months of 2009, Quidel reported revenue of $97.7 million, up 3 percent from $94.6 million at the same time in 2008. Net income was $12.8 million, or 42 cents a diluted share, in the nine months ended Sept. 30. That was flat from $12.8 million, or 39 cents a diluted share, in the year-ago period.

Shares of Quidel, which trade on the NASDAQ Stock Market, rose 63 cents to $14.78 on Monday. The company made its announcement on Sunday. Today, Quidel  shares fell 10 cents to $14.68.