When completed, this acquisition means that the third largest public lab company in the United States will be owned by a multinational biopharmaceutical and diagnostics firm
It’s a big medical laboratory acquisition that has some experts on Wall Street shaking their heads. Last Thursday, it was announced that OPKO Health Inc. of Miami, Florida, would pay $1.47 billion to acquire Bio-Reference Laboratories Inc. (NASDAQ: BRLI), the nation’s third largest full-service clinical laboratory. OPKO (NYSE: OPK) is a multinational biopharmaceutical and diagnostics company in Miami, Florida.
No cash is involved in this purchase. OPKO will pay for the acquisition by exchanging 2.75 shares of OPKO common stock for each share of BRLI common stock. The deal puts a value of BRLI’s common stock of $52.58 per share, the companies announced.
The boards of directors of both companies have already approved the deal, which should close in the second half of the year.
Wall Street Analysts Surprised by Clinical Laboratory Acquisition
Financial analysts on Wall Street were caught off guard by the news. One reason is that OPKO, a company with only $91 million of annual revenue, was purchasing a company that is more than eight times larger. (BRLI’s annual revenue exceeds $832 million.) Another reason is that OPKO has only a small presence in the clinical laboratory-testing marketplace. Its acquisition of Bio-Reference Laboratories will make it one of the nation’s larger medical laboratory companies.
However, some pathologists and clinical laboratory managers will remember that OPKO did acquire another lab company. In October 2012, it purchased Prost-Data Inc., the owner of OURLabs, an anatomic pathology reference laboratory offering gastrointestinology and dematopathology, among other services, in Nashville, Tennessee. For OURLabs, OPKO paid $9.4 million in cash and $30.6 million in shares to Prost-Data Inc.
Anatomic Pathology Company Offered Reference Testing Services Nationally
OURLabs operated OURLab, a urologic reference laboratory that owned the proprietary 4Kscore Test. The 4Kscore Test provides a personalized risk profile for aggressive prostate cancer by combining the test results of four different kallikrein assays (total PSA, free PSA, intact PSA, and hK2) with other data, such as a patient’s age and whether he had a prior biopsy, OPKO said.
At the time of the acquisition of OURLabs, Jonathan Oppenheimer, M.D., the founder of Oppenheimer Urologic Reference Laboratory (OURLab), described why the deal with OPKO was important. In an interview with The Dark Report, Oppenheimer said the merger had three significant benefits and those benefits are strikingly similar to the benefits OPKO says it plans to get from its acquisition of BRLI.
OPKO Expects Same Synergies with Bio-Reference as with OURLabs
“First, because of proprietary diagnostic and therapeutic technologies at OPKO Health, our clinicians will be engaged in activities that go beyond laboratory medicine and pathology,” he said. That’s similar to what OPKO said about BRLI.
“Second, it leverages our sales force by giving them more products to sell,” noted Oppenheimer. Again, this strategy is one OPKO will use once it owns BRLI.
“Third, in addition to our work in diagnostic medicine, we can now get involved in the development of pharmaceuticals, which is a fast-growing area of medicine today,” Oppenheimer said. OPKO plans to use this strategy with BRLI as well.
Few observers were aware of the similarities of the two deals, and so, focused on what effect the deal had on BRLI’s stock price.
Marc Grodman, M.D., is CEO and President of Bio-Reference Laboratories, Inc., of Elmwood Park, New Jersey. On June 4, his company announced an agreement to be sold to OPKO Health Inc. for a sales price of $1.47 billion. Grodman is shown speaking at the 2012 Executive War College on Laboratory and Pathology Management. (Photo by Duane Stork, copyright The Dark Report.)
Mixed Opinions about Potential Success of OPKO’s Agreement to Acquire BRLI
“Shareholders don’t seem all that thrilled with news that OPKO Health has agreed to acquire gene-sequencing diagnostics company BRLI in a stock deal valued at $1.47 billion, or a roughly 60% premium,” Barron’s reported. “Bio-Reference shares surged more than 34.5% on the news to $44.33, but OPKO, which has almost doubled in value this year, dropped 7.5% to $17.70 in recent trading.”
Interestingly, The Street reported the same data and reached the opposite conclusion. “Shares of BRLI were spiking, sharply up 33.01% to $43.84 on heavy volume in late morning trading Thursday, after the clinical testing laboratory agreed to be acquired by OPKO Health (OPK) for $52.58 per share or roughly $1.47 billion,” the website reported.
Yet the bigger question is why Bio-Reference Laboratories is willing to sell itself to a company that is just one-eighth its size? Your editorial team at Dark Daily, and its sister publication, The Dark Report, believe that two factors may have had a role in this acquisition. First, BRLI’s executive team has made no secret of its desire to remain independent and not be acquired by either of the two blood brothers. Thus, it can be assumed that becoming a business division of OPKO probably makes it more difficult—and more expensive—for BRLI to be acquired by either of the two billion-dollar lab companies or a private equity company.
Second, for the past five to seven years, Bio-Reference Laboratories has been a target for short sellers on Wall Street. Several times over the years, these short sellers have engineered negative publicity campaigns against BRLI with the hope that they could drive down the share price of BRLI stock and thereby profit handsomely. Thus, it may be that one element behind the sale of BRLI to OPKO is that it will be tougher for these short sellers to manipulate the shares of OPKO after it becomes the owner of Bio-Reference Laboratories.
This morning, Bio-Reference Laboratories will conduct a conference call with analysts to discuss its second quarter 2015 earnings before the open of market trading. Its CEO, Marc Grodman, M.D., has told the press that the OPKO transaction will be one of the topics discussed during the conference call. Also, in its next issue, The Dark Report will have an in-depth analysis of how this acquisition could alter existing dynamics in the clinical laboratory-testing marketplace.
—Joseph Burns
Related Information:
OPKO Health Buys Bio-Reference for $1.47B; Deal Gets Cold Reception
Maker of Cancer Test Buys Diagnostics Company for $1.47 Billion
OPKO Health to Acquire Bio-Reference Laboratories
Bio-Reference Laboratories (BRLI) Stock Spiking Following $1.47 Billion Takeover Deal by OPKO Health
