Dive Brief:

• Beckman Coulter is taking over distribution of a congestive heart failure assay from Quidel as part of an agreement that will settle litigation between the two companies.
• Quidel, which acquired the B-type natriuretic peptide (BNP) assay from Alere, will continue to supply Beckman Coulter with antibodies used to make the product. Beckman Coulter will pay Quidel between $70 million and $75 million a year through 2029.
• While analysts at Craig-Hallum and William Blair said that they thought Quidel had a solid legal case, the agreement eliminates the remaining risk and frees the company to focus on other matters.

Dive Insight:

Quidel acquired the BNP assay in 2017 as part of Alere's divestiture of assets to get the antitrust approvals needed for Abbott Laboratories' then-pending takeover. Writing at the time, analysts at William Blair said the deal diversified Quidel's business "at a valuation and accretion that seems almost hard to believe." However, the deal exposed Quidel to an unusual business arrangement. 

"It always seemed to us to be a bit of a goofy arrangement from the time the original deal was struck between Biosite and Beckman Coulter from the early 2000s, as it meant Beckman Coulter had agreed to only sell BNP made by Biosite on the Beckman Coulter instrumentation and even precluded Beckman Coulter from being able to make its own version to sell," the William Blair analysts wrote on Monday.

The unusual arrangement functioned under Biosite and Alere but quickly landed Quidel in court. One month after Quidel closed the acquisition, Beckman Coulter pursued commercial litigation to seek the right to sell the assay directly to its customers without sourcing antibodies from Quidel. 

Analysts at Craig-Hallum said an August 2019 ruling "greatly diminished" the risk to Quidel but the potential for the case to eliminate "~50% of their pre-COVID EBITDA" meant the downside, however unlikely it was to happen, remained significant. The agreement removes that downside risk.

Quidel is transferring the BNP business to Beckman Coulter. From 2022 to 2029, Quidel will receive at least $70 million a year from Beckman Coulter, with the potential to earn an additional $5 million a year depending on sales of the assay. As Quidel discontinues its TRIAGE BNP assay, Beckman Coulter will start selling a rebranded Access BNP product. 

Management at Quidel expects the arrangement to be neutral to earnings per share and cash flow. Quidel's elimination of a threat to its business and the distraction of litigation without taking a financial hit was well received by analysts.

"We see no downside to this in any way, be it financially or strategically for Quidel. The only tangential read we think people may make is removing any speculation Danaher would be an acquirer of all of Quidel and would have used the BNP arrangement as partial justification for that move. We saw that as a limited possibility," the William Blair analysts wrote.