Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Bio-Reference Laboratories (UNKNOWN:BRLI.DL) jumped by more than 30% earlier today after the company announced that it will be acquired by billionaire Phillip Frost's Opko Health Inc. (NASDAQ:OPK) in a deal worth $1.47 billion.
So What: Bio-Reference Labs is the nation's third largest laboratory services business, and its leadership in genetic diagnostics and specialty testing has allowed it to post an enviable track record that includes 20% compounded annual sales growth between 1995 and 2013.
Thanks to that revenue growth, Bio-Reference Labs has become increasingly profitable. In the first quarter, the company reported that sales of $208 million resulted in earnings per share of $0.24, up significantly from $0.11 a year ago. Bio-Reference Labs also issued guidance in its first quarter conference call that sales and earnings per share would climb 10% and 20%, respectively, this year.
In inking this deal, Bio-Reference Labs shareholders will receive Opko Health shares worth $1.47 billion as of yesterday's close, and Opko Health will immediately increase its footprint in a move that could help boost demand for its products in development, including its 4Kscore prostate cancer diagnostic test.
Now What: This deal transforms Opko Health itself from a company with $30 million in sales last quarter into a laboratory leader with combined annualized sales north of $900 million. It also gives Opko Health a profitable business unit that can help offset some of Opko Health's spending on drug programs, including its prohormone vitamin D drug Rayaldee and its human growth hormone drug hGH-CTP.
Importantly, Opko Health lands Bio-Reference Labs' long-standing relationships with healthcare payers, including major insurers, which could expedite Opko Health's commercialization efforts for its 4Kscore blood test, which launched last year.
Since investors will be receiving Opko Health's stock, rather than cash, for their shares, Bio-Reference Labs shareholders are going to face a decision on whether or not to stick it out with Opko Health. Although Opko Health is a young company that's still losing money, its product potential and Frost's blue chip leadership could be promising for investors who want to hang on.