Friday, July 20, 2007

Hit #172 (Cytyc)

Hologic (HOLX) is buying Cytyc (CYTC) in a deal that is set to create a powerhouse in women's health. The part cash / part stock offer, of $6.2 billion translates to $46.46/share, representing a gain of 189.4% over my average cost of $16.02.

This sector has seen incredible activity over the last year. In spite of the activity, and in spite of Even Ensler, there is a stubborn unwillingness to talk about things like endometriosis, menorrhagia or cervical cancer. For most men, and an overwhelming number of investors are, these topics are downright scary!

Here is a glimpse of the recent activity in this sector. Cytyc had bought Adeza not too long ago, paying a sizeable premium (I had missed Adeza by just a few days!). The furious bidding battle over Biosite ended just recently - Beckman Coulter and Inverness Medical were fighting with ever higher offers. Qiagen bought Digene just weeks ago. Going a bit further into imaging/diagnosis, MDZ bought Molecular Devices a few months ago. Ventana Medical just got a hosite bid from Roche. And now Hologic is itself rumored to be a prey after its stock fell following the offer for Cytyc.

The pace is set to continue. There are still a large number of takeover candidates out there, including recently public companies. To understand the trends and leading edge research in this sector is critical for long-term investors. I would recommend reading books like End of Medicine, Inside the FDA and Survival of the Sickest. They give a great summary and they are well-written too.

I expect to see a huge shakeout in this sector, and the broader diagnosis/automation/equipment/reagents sector. Companies like Invitrogen (IVGN), Cepheid (CPHD), Beckman Coulter (BEC), Quest Diagnostics (DGX), Inverness Medical (IMA), Bio-Reference Laboratories (BRLI), Dade Behring (DADE), Sigma Aldrich (SIAL), Qiagen (QGEN), Invacare (IVC), Varian Medical Systems (VAR), Becton Dickinson (BDX), MDS Inc. (MDZ) are worth following to buy on serious dips. I have recently opened positions in Invitrogen and MDS.

An attractive buy at this point would be Genomic Health (GHDX) which develops genomic tests to determine the odds of cancer recurrence and the nature of response to chemotherapy. Genomic's test for breast cancer is now formally approved by various health insurance providers. The company went public about a year ago, and hasn't been noticed much. I have been buying shares regularly, and will continue to buy.

Quidel (QDEL) and Iris (IRIS) are also recommended buys given their growth potential, and eventual buyout likelihood.

Meridian Bioscience (VIVO) looks like another target, and has been on my watchlist for a while. Branching further into imaging and related areas, companies like Vital Images (VTAL), Digirad (DRAD), Microvision (MVIS), Volcano (VOLC), American Medical Systems (AMMD), Urologix (ULGX) are worth watching, though except for Vital Images and American Medical, I would consider them to be speculative.

Previous hit - Oakley (#171)


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