A Diagnostic Tongue Twister

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Isis sold Ibis to Abbott.

Say that one five times fast.

It's not a big surprise. The sale of Isis Pharmaceuticals' (Nasdaq: ISIS) subsidiary -- which developed an instrument to run diagnostic tests for infectious diseases -- to Abbott Labs (NYSE: ABT) has been in the works for almost a year. But unless you've been practicing, it's still hard to say.

The total purchase price works out to $215 million, including the $40 million Abbott invested earlier this year. Isis will also get earn-out payments, essentially royalties, on sales of the products that Ibis has developed. Isis stock ended up about 7% after the announcement.

The deal seems pretty balanced and should benefit both companies in the long run.

Isis, a drugmaker at heart, pawns off a side business that has a lot of potential, but which needs a bigger company to move the development of its T5000 Biosensor System into a clinical setting. It's currently used only for research, and there are less than 20 systems in place. Isis didn't really need the cash; it had more than $450 million on its books, but the subsidiary was still losing money, so the sale will keep Isis from burning through the cash as quickly.

Abbott gets to strengthen its diagnostics business -- a division it almost sold off to General Electric (NYSE: GE) last year. I like that Abbott ended up holding onto the division. It makes Abbott a pint-sized version of Johnson & Johnson (NYSE: JNJ), and the diagnostics division gives the drugmaker a little more diversity.

You have to look no further than the 2008 charts of Sequenom (Nasdaq: SQNM) and Myriad Genetics (Nasdaq: MYGN) to see that diagnostics is big business. Abbott's division posted a solid 15% year-over-year increase in sales last quarter and, with the expansion of personalized medicine, the industry is poised for further growth.

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