PolyMedica stock up on Medco acquisition; Inverness to buy Matritech, shoving shares down

By Sheri Kasprzak

New York, Aug. 28 - Two major biotech names grabbed headlines on Tuesday.

Medco Health Solutions, Inc. sealed its bid to buy PolyMedica Corp. in a deal valued at $1.5 billion.

Sell-side traders said Tuesday that the transaction is a positive one and the price is right too.

The move sent shares of PolyMedica soaring, with the stock up $6.35, or 14.02%, before the opening bell. The company's stock went on to gain 14.13%, or $6.40, to end at $51.69 (Nasdaq: PLMD).

Medco's shares, however, slipped, losing 51 cents in pre-market action. The stock closed down $1.00 at $85.11 (NYSE: MHS).

Meanwhile, Inverness Medical Innovations, Inc. said it plans to buy Matritech Inc. in a $36 million stock transaction.

In other news, Home Depot, Inc. once again dropped its asking price on its distribution business, sealing the deal with its three buyers.

The home improvement retailer's stock improved itself slightly, gaining 3 cents to close at $35.05 (NYSE: HD).

PolyMedica shares bought at premium

A sell-side trader said Tuesday that the purchase by Medco was a good deal for PolyMedica.

"Of course it's good for their stock," said the trader Tuesday afternoon. "They sold at a 17% premium and that's pushing their stock up today."

Another sell-side trader said the move isn't that big of a surprise.

"They've been collaborating for some time now so this really isn't like it just came out of the blue with no warning," he said.

The two have been collaborating since 2006, with Medco filling more than 50,000 prescriptions for PolyMedica's clients. PolyMedica began providing Medicare Part B administration services and supplies to some Medco clients earlier this year, according to a statement from both companies released Tuesday morning.

The second trader said the price seems reasonable.

"It's not that big of a premium, if you ask me," he added.

Medco to pay $53 per share

Medco will pay $53 per share for PolyMedica's stock. The price is 17% over the company's $45.29 closing stock price on Monday.

In the deal, PolyMedica will retain its patient engagement and service model, its Liberty brand, culture and focus and will provide services and solutions in support of Medco's Therapeutics Resource Center for diabetes care, according to a statement released by both companies Tuesday.

The merger is set to close by the end of the year.

PolyMedica, based out of Wakefield, Mass., distributes glucose testing devices while Medco Health Solutions, headquartered in Franklin Lakes, N.J., is the country's largest pharmacy benefit manager.

"PolyMedica has developed a deep expertise and focus in diabetes care and, through the Liberty brand, excels at attracting seniors to their high-value mail-order pharmacy," said David Snow Jr., Medco's chief executive officer, in a news release.

"We will continue to invest strategically in capabilities supporting our Therapeutic Resource Centers - which deliver both clinical and financial benefits to our clients and members, and differentiate Medco in the marketplace."

"Combining Medco's clinical care solutions with our patient-centric service model enables us to deliver a gold standard of care to patients with diabetes," said PolyMedica's CEO Patrick T. Ryan, in the statement.

"After doubling our business in the past three years, this provides PolyMedica with the resources to take our service model to the next level. There is a natural cultural fit between our organizations driven by an unwavering commitment to clinical excellence and customer service."

Inverness to buy Matritech

Elsewhere in the healthcare sector, Inverness Medical Innovations said it agreed to buy almost all of the assets of Matritech for $36 million.

The news sent shares of Matritech way down. The stock closed down 32.67%, or 6.37 cents, to end at $0.1313 (Amex: MZT). Shares of Matritech were off by 23.38%, or 5 cents, by 10:43 a.m. ET.

Inverness's stock also slid, losing 77 cents, or 1.64%, by 10:43 a.m. ET. The stock fell by 60 cents, or 1.28%, on Tuesday to close at $46.33 (Amex: IMA). The stock fell another 15 cents after hours.

Inverness plans to pay for Matritech's assets in stock and would also pay up to $2 million in incremental consideration in either cash or stock, based upon certain revenue targets over the year following the purchase.

"It's a positive for Inverness because they are a growing company and an acquisition like this expands their presence," said one analyst familiar with the medical device company. "This is consistent with their growth plans and we feel it's a really good opportunity for them."

Headquartered in Newton, Mass., Matritech develops protein-based diagnostic products to detect cancer and Inverness, located in Waltham, Mass., is a diagnostic products company.

"We are excited about the addition of Matritech's bladder cancer technology to the Inverness portfolio and look forward to realizing the market opportunities available to us through combining the Matritech products with our global distribution capabilities," said Inverness's chief Ron Zwanziger, in a statement.

"We are extremely proud of the achievements of our scientists and sales force that developed and built a market for our non-invasive bladder cancer test," said Matritech's CEO Stephen Chubb, in the news release.

"We believe Inverness has the resources, experience and commitment to increase penetration of our products in the point-of-care cancer diagnostics market and improve the early detection of cancer."

Home Depot's stock edges up

In other news, Home Depot took another $600 million off the asking price for its distribution business and made other changes to sweeten the transaction, sealing the deal with three private investors for $8.5 billion.

Last week, the Atlanta-based retailer said it was taking $1.2 billion off the price.

"I knew they'd have to come down a bit more," said one sell-side trader who had speculated earlier that the price would have to be reduced again for the deal to go through. "The way the credit market is right now, there was really no way they were going for $10.3 [billion]. I imagine this will probably not be the only instance where a company will have to come down on the price of the sale of one of its businesses. The market has forced this kind of action."

The sale is set to close on Thursday with Bain Capital Partners, the Carlyle Group and Clayton, Dubilier & Rice as the buyers.

Home Depot's stock had gained 38 cents, or 1.09%, by 10:38 a.m. ET. At the end of the session, the stock was up 3 cents to close at $35.05 (NYSE: HD).

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