Siemens to Broaden Its Diagnostic Reach

In late April, Siemens AG (Erlangen, Germany) agreed to the $1.86 billion purchase of Diagnostic Products Corp. (DPC; Los Angeles), thereby launching its medical unit, Siemens Medical Solutions (Malvern, PA), into the in vitro diagnostics market. The purchase will significantly broaden the Siemens product portfolio through the addition of DPC's diagnostic tests, which aid in the detection and management of diseases including adrenal and pituitary dysfunction, allergies, anemia, bone metabolism disturbances, cancer, cardiovascular disease, diabetes, and reproductive and thyroid disorders.

“Our vision and strategy is to improve quality of care, and we think to achieve this we need to integrate diagnostic solutions across the whole healthcare continuum. That's why IVDs are of strategic relevance to us as a company,” says Mohammad Naraghi, MD, PhD, senior vice president of business development for Siemens. “We are interested in being the company that for the first time in the industry brings together in vitro diagnostics, in vivo diagnostics, and healthcare IT. We think that bringing together in vitro, in vivo, and IT is absolutely key for putting us in the lead ahead of the competition in the healthcare space that we see in the near future.

“In vitro genomic-based companies need significant in vivo and immunoassay expertise to come up with new imaging solutions,” he adds. “So from that perspective, we think there's going to be a tremendous need for bringing together in vitro and in vivo under one roof, and intelligently linking them with new IT solutions.”

According to the agreement, Siemens will pay $58.50 for each share of DPC, which represented a 21% premium over the company's stock price at the time of the offer. Following the offer, the company's stock price surged to and has remained above $57 per share. The deal's closing is subject to DPC shareholder approval, regulatory approvals, and other customary closing conditions. The boards of both companies have approved the transaction.

The Siemens agreement to acquire the company comes despite a host of governmental issues that have plagued DPC in recent years. Last year, DPC and its wholly owned Chinese subsidiary, DPC (Tianjin) Co. Ltd. (DePu), reached agreements with the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) to settle issues related to compliance with the Foreign Corrupt Practices Act. According to the settlement, DPC agreed to make total payments of approximately $4.8 million.

The amount included a DoJ-recommended fine of $2 million and payments to the SEC consisting of disgorgement of $2.04 million plus approximately $750,000 in prejudgment interest. DePu also agreed to enter a guilty plea for violating the FCPA.

In 2004, FDA placed DPC on the agency's “application integrity” list after an inspection related to one of its 510(k) submissions raised serious questions about the integrity of the data and information contained in the filing. In response, DPC developed and implemented a corrective action plan. FDA lifted its restrictions related to the application integrity concerns in September 2005.

Founded in 1971, DPC is a global leader in immunodiagnostics with a presence in more than 100 countries. “We believe that this merger with Siemens will be a very positive development for the future of our employees, customers, and the company as a whole,” said Michael Ziering, CEO of DPC. “This merger will allow us to continue on our current rapid course of development while also providing DPC access to the resources and support of a recognized leader in the delivery of integrated healthcare solutions. Siemens Medical Solutions is a perfect match for DPC in terms of corporate philosophy, business practice and future direction.”

“The potential is huge to drive groundbreaking innovations by combining DPC's in vitro diagnostics leadership with Siemens' leading position in medical imaging and healthcare information technology solutions,” said Erich R. Reinhardt, president and CEO of Siemens Medical Solutions. “Together, both companies will be empowered to continue to revolutionize the prevention, diagnosis, treatment, and management of disease.”

DPC reported net income of $67.2 million on sales of $481.1 million in 2005, compared to net income of $61.7 million on sales of $446.8 million in 2004. At the end of April, DPC reported first quarter sales of $129.6 million, a 14% increase over the first quarter of 2005. Quarterly earnings were $18 million, an increase of 12% over the year-ago period.

About 90% of DPC's sales are derived from its Immulite series of immunoassay systems. DPC's full product portfolio includes more than 75 immunoassays and more than 375 specific allergens and allergy panels. The company also designs and manufactures automated laboratory instrumentation and automation solutions.

© 2006 Canon Communications LLC

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