Wednesday, July 6, 2011

Alere Makes a Takeover Bid for Axis Shield

Axis Shield's Daiabetes Franchise is the Key Attraction for Alere

Axis Shield was today made subject to a takeover proposal by Alere $ALR which you can read linked here and the subsequent response of the Axis Shield board was to reject the offer in a statement linked here

Alere was formerly known as Inverness Medical and has form for picking up UK diagnostics plays on the cheap. For example, over the last few years the co bought out UK co's BBI Holdings and Concateno. Both were a natural fit as Alere owns the patents for horizontal lateral flow strip diagnostic tests. BBI provided Alere with reagents and assays which could be used to develop tests and Concateno (primarily a drug and alcohol testing company) allowed them to naturally expand the product offerings.

With regards Axis Sheild, this company was covered at great length by EarningsView an article linked here and please read this for more background. I think the deal makes good sense but mainly for the Afinion point of care tests. It will allow Alere to accelerate sales of this system in the US as it competes with Siemens DCA Vantage system. Alere should be able to develop new tests for the system and also be able to expand sales of Nycocard (a cheap less accurate point of care system) mainly to emerging markets. The main attraction of Axis Sheild's point of care solutions is in its diabetes franchise and this is a good opportunity for Alere.

What's in it for Axis Shield Shareholders?

I think shareholders should accept this offer. ASD management has disappointed before with delivering unsatisfactory performance. I like Afinion and much of what the co is doing, but the distribution division clearly needs to be sold off and Nycocard's revenues are subject to the uncertainty of the flu season. In addition, Afinion US sales have missed targets last year-despite the co's tone- and I question whether CRP testing really is a useful way to differentiate between viral and bacterial infections.

The overwhelming majority of infections are viral and doctor's already know this. I've discussed this with a few doctors and opinion is divided as to the merits of CRP testing for this reason. However, CRP testing is widescale and Afinion is generating impressive-albeit lower than forecast- sales growth.

I think it is a good deal all round as I think that taking Axis Shield (and particularly Afinion) forward from here is better done by Alere. We shall see.