Friday, May 30, 2008

Investors uneasy about Inverness’ latest buys

Diagnostic test firm Inverness Medical Innovations Inc. appears to have fallen from grace with some investors who question its move into the disease-management business.

The Waltham-based company, which has made more than $4 billion in acquisitions since 2006, has seen its stock price cut in half since January of this year, when the firm revealed its plans to buy health-management firm Matria Healthcare Inc. of Georgia for $1.2 billion. Inverness common stock, which closed at $55.02 per share on Jan. 2, finished trading at a much-slimmer $32.60 on May 22. The Matria buyout closed this month.

“The primary issue that has been weighing on the stock’s price is this foray into disease management,” said Bruce Cranna, an analyst for investment banking and equities research firm Leerink Swann LLC of Boston. Cranna believes that the stock has already hit its floor and expects it back in the mid-$50 range within a year.

Inverness is best known for such products as home pregnancy tests and diagnostics to predict cardiovascular conditions, but the company surprised many on Wall Street last year with its purchases of disease-management firms ParadigmHealth Inc. of New Jersey and Alere Medical Inc. of Nevada in deals worth an estimated $230 million and $302 million, respectively.

Disease management companies offer nursing care and other support, typically to patients with chronic illnesses, and some investors have questioned how Inverness CEO Ron Zwanziger plans to integrate his health management firms with his core diagnostics business. Calls to Inverness were not returned.

Wall Street rewarded Zwanziger’s earlier acquisitions through 2006 and 2007, during which Inverness’ stock price climbed steadily from about $25 per share to as high as $65 per share. However, those purchases were of product companies — such as California diagnostics firms Cholestech Corp. and Biosite Inc. — which were viewed as complementary to the buyer’s core business.

While Inverness has slowed its rate of buyouts in 2008, Zwanziger told Thomson Reuters on May 19 that the company plans to resume its deal-making ways after this summer with acquisitions of technology-related companies. Meantime, Inverness has said it plans to sell a 50 percent share of its disease-management business, which Leerink’s Cranna said would be a good idea in order to share risk. In a similar move last year Inverness sold to The Procter & Gamble Co. a stake in its home diagnostics business for $325 million in cash, forming a joint venture with the Cincinnati-based consumer products giant.