Roche to Buy BioVeris for $600 Million

Roche to Buy BioVeris for $600 Million

Roche to Buy BioVeris for $600 Million

Roche, one of the world's largest diagnostics firms, is buying Gaithersburg-based BioVeris for $600 million in cash, giving the Swiss company unfettered control of powerful testing technology used in life sciences research and drug development.

The companies said Roche would pay $21.50 a share for BioVeris, a 58 percent premium over the company's market value on Tuesday. The deal, which is subject to shareholder approval, could be worth about $114 million to BioVeris chief executive Samuel J. Wohlstadter, who owns 20 percent of the company.

Shares of BioVeris surged 52 percent yesterday, closing at $20.66.

BioVeris and Roche have had a long, complicated and often unpleasant David vs. Goliath relationship, in large part because of electrochemiluminescence, a word that most investors have a difficult time getting off their tongues. ECL, as it is commonly known, is a technology that makes certain biological agents light up so they can be more easily measured.

It was developed in the 1980s by Igen International, a company founded by Wohlstadter. In 1992, in a deal that bolstered the fledgling company, Igen licensed the technology to a company later bought by Roche. But things started to unravel about five years later, when Igen sued Roche in federal court over a dispute about licensing fees.

Igen won more than $500 million in damages, but the U.S. Court of Appeals for the 4th Circuit later threw out most of the award in 2003. However, the court also ruled that Roche had violated its contract to sell the testing technology and said Igen could terminate the licensing agreement. So Igen did, giving Roche's business the equivalent of a punch in the face.

Less then a month later, in a somewhat unusual deal, the companies announced that Roche was buying Igen for $1.4 billion and that Igen would be spun off to its shareholders, creating a firm eventually called BioVeris. As a result of the deal, Wohlstadter ran BioVeris, which continued to own the ECL technology, and Roche got another licensing agreement to sell the ECL tests.

But the licensing deal limited the market for Roche to sell the test, and there were signs recently that BioVeris executives thought Roche was violating that agreement. In January, BioVeris said in a filing with the Securities and Exchange Commission that it was appointing an independent auditor to examine Roche's sales and accounting records relating to the ECL technology.

If the deal is approved, the squabbles will end and Roche will own all the rights to the test. "We finally own the patents," Roche spokesman Baschi Duerr said. "We can fully exploit the technology from a sales perspective."

Duerr said Roche had been limited to selling the technology in the human diagnostics market, producing about $1 billion in revenue. Now Roche can expand into life science research, veterinary testing, drug discovery and human clinical trials. The additional markets represent several hundred million dollars in revenue potential, Duerr said.

BioVeris executives declined an interview request. In a statement, Wohlstadter said: "Given the history between the parties and the scope of Roche's existing diagnostics business, Roche is the natural buyer for BioVeris."

It is not clear what the deal means for BioVeris's 200 employees in Gaithersburg. Duerr said Roche was examining the situation and "considering various options."

One possibility is that some employees could join two new companies Wohlstadter is starting relating to BioVeris's recent efforts to develop vaccines.