Dive Brief:

• Quidel on Thursday announced it has entered into an agreement to buy Ortho Clinical Diagnostics in a deal valued at $6 billion. Quidel shares fell 17.8% in Thursday morning trading on the news.
• The acquisition, which is expected to close in the first half of 2022, includes $24.68 per share of common stock using a combination of cash and newly issued shares in the combined company, representing a 25% premium over Ortho's closing price Wednesday. The merging of the two in vitro diagnostics companies is meant to target a combined total addressable market of $50 billion, according to Quidel's announcement.   
• Quidel anticipates that the combined company will realize approximately $90 million of synergies, excluding one-time costs, by the end of year three. CEO Doug Bryant in a statement said the combination will have a "broader geographic footprint" thanks to Ortho's reach across 130-plus countries. However, investors did not seem impressed with the announcement as evidenced by Thursday's drop for Quidel's stock price. 

Dive Insight:

Quidel has heavily benefited from COVID-19-related revenues over the past nearly two years of the pandemic producing a massive cash windfall. However, the point-of-care diagnostics manufacturer, which makes several coronavirus tests, faces long-term growth concerns with the inevitable decline in testing demand.

Bryant said during last month's third-quarter earnings call that while Quidel believes there will be continued demand for COVID-19 rapid antigen testing for at least the next few quarters, the "unpredictability of this pandemic makes everything fluid and a firm baseline level of demand is still too early to call."

With Thursday's announcement of the Ortho buy, Quidel hopes to access new and emerging markets by tapping Ortho's global reach as one of the world's largest pure-play in vitro diagnostics companies and combining complementary portfolios "spanning high-throughput systems to near-patient and at-home testing."

Bryant in a statement said the goal of the Quidel-Ortho combination is to "emerge as a global player with top-tier R&D capabilities, a more diverse product pipeline, and broader geographic footprint."

Quidel in Thursday's announcement also made the case for revenue and operating synergies as a result of the Ortho acquisition, saying it expects to drive "strong cross-selling revenue synergies" in excess of $100 million by 2025.

Besides developing the world's first tests for the detection of antibodies against HIV and hepatitis C, Ortho earlier this year claimed to have secured the first emergency use authorizations from FDA for mass-scale antigen, antibody, quantitative antibody, as well as nucleocapsid and spike antibody tests.

Bloomberg in February reported that Quidel was in preliminary discussions to combine with molecular test maker Qiagen. However, that deal never panned out.

Quidel last month said that as of the end of September the company had $578.4 million in cash and cash equivalents and expected to exit 2021 with a year-end cash balance in excess of $800 million.

Asked during a third-quarter call with investors about Quidel's M&A strategy, Bryant said "it's about strategic fit" and "having products that set our commercial team across the globe." The CEO added that Quidel was "looking at things that are tuck-ins, but also we are looking at a couple of things that are a bit larger."