And ViroLogic is starting to see strength in its business. In the prior quarter, revenues increased 29% to $9 million. The company also expanded its distribution agreement with Quest Diagnostics
While the HIV/AIDS market for ViroLogic is roughly $150 million per year, there are other markets with much more market potential. One segment is cancer, which is at least 10 times bigger.
A month ago, the CEO of ViroLogic met with the CEO of Aclara BioSciences
Aclara is the developer of the proprietary technology called the eTag System. This allows for the effective testing of cancer tumors.
True, Aclara could have developed its own infrastructure to deliver its new technology. But, speed-to-market is critical for the fast-growing personalized medicine space. The merger allows Aclara to leverage ViroLogic's labs, testing expertise, and pharma relationships.
In terms of the finances, the new company will have about $75 million in cash. Although, ViroLogic reaffirmed its 2004 revenue guidance of $42 million to $47 million (which does not include the merger). Nonetheless, management of both companies said that there are lots of possible cost savings.
The purchase price is unique. Besides stock, Aclara stockholders will also get contingent value rights. Depending on how the stock of the new entity performs, Aclara shareholders can get up to $0.85 per share in cash. In other words, there is some degree of downside protection in the deal, which is always a key consideration in the volatile biotech space.
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Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements. He does not own shares in any of the stocks mentioned.