AFFX Affymetrix, Inc.

Luminex Corporation (LMNX), a developer of biological testing technologies, has forged a definitive agreement to buy Madison, Wisconsin-based privately-held diagnostic testing company EraGen Biosciences, Inc. for $34 million in cash.

The transaction, which is subject to the clearance of EraGen shareholders and other customary conditions, is expected to complete within the next few weeks. 

EraGen, with annual sales of $8 million, makes molecular reagent products for infectious diseases and genetic-based conditions. The company’s products are based on its proprietary MultiCode technology platform.

EraGen received, in May 2010, the approval of the U.S. Food and Drug Administration (“FDA”) for its MultiCode-RTx HSV 1&2 Kit. It is the first FDA-approved molecular test for the herpes simplex virus (“HSV”).

The acquisition will provide Luminex a highly complementary portfolio of molecular diagnostic tests based on the MultiCode platform. Besides expanding its product offering to the existing customers, the acquisition will enable the company to tap new markets leveraging EraGen’s innovative technologies.  

Luminex anticipates the acquisition to add between $5 million and $7 million to its consolidated revenues for 2011. Moreover, the company expects the transaction to dilute its earnings (on a reported basis) in 2011 and accretive in 2012. On an adjusted basis (excluding acquisition-related charges), the acquisition is expected to be neutral to earnings in 2011.

Texas-based Luminex develops and markets proprietary biological testing technologies, which have applications across the life sciences industry. Its proprietary open-architecture xMAP technology enables fast, cost-effective and accurate conduct and analysis of biological tests. The company continues to expand its xMAP technology-based installed instrument base.

Luminex possesses an extensive product portfolio and a healthy pipeline of novel assays, which if successfully developed and launched, would facilitate further growth. The company expects to launch the RVP Fast assay in the U.S. and the NeoPlex 4 newborn screening assay in Europe in fiscal 2011. Luminex is expected to provide an update on its pipeline at its forthcoming investor event slated to take place in Atlanta on July 25.

Luminex operates in the highly competitive life sciences industry, characterized by rapid and continuous technological innovation. The company competes with Affymetrix (AFFX) and Sequenom (SQNM), among others.

Moreover, Luminex is challenged by sluggish growth in its core markets, faces regulatory uncertainties, and heavily depends on partners to market its instruments and assays, a strategy that has its risks. Our Neutral recommendation on the stock is in agreement with a short-term Zacks #3 Rank (Hold).

 
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