Diagnostic Hybrids CEO says recent sale will be good for company

When the news broke that a publicly traded corporation had bought out one of Athens County's biggest and highest-paying employers, naturally some county residents got a little nervous about what this might mean for the local economy.

Not to worry, says David R. Scholl, CEO and president of the Athens-based Diagnostic Hybrids, Inc. (DHI), a bio-engineering firm that specializes in medical test kits using cutting-edge cellular and molecular technology.

Scholl said Wednesday that the acquisition of DHI by Quidel, a California-based corporation traded on NASDAQ, will leave DHI's Athens operations and current staff in place, and will open the possibility of expansion in the future.

The deal, Scholl said, will give Quidel research-and-development capacities it didn't have, while giving DHI a chance to penetrate deeper into worldwide markets, in areas it hadn't specialized in previously.

"I think it's an opportunity for significant growth," Scholl predicted.

Quidel is acquiring DHI for about $130 million, some of which will come from cash on hand and some from borrowing, according to Quidel Chief Financial Officer John M. Radak.

DHI will remain intact and in Athens, as a wholly owned subsidiary of Quidel, and Scholl will stay on as its president/CEO, while also taking a job as a senior vice president with the parent company.

Currently, DHI has more than 200 employees, and its 2008 revenues were in the neighborhood of $38 million (our story in the print edition mistakenly reported this amount as $3.8 million. Ed.). The company, founded in 1983, has commercialized biotechnology breakthroughs coming out of Ohio University. It develops and manufactures sophisticated cellular and molecular diagnostic kits for such ailments as respiratory diseases, herpes infections, and thyroid problems.

As Scholl explained it, DHI's tests are designed to give fairly quick results, but are also of a reliability level that means they're mainly used in hospitals and laboratories. "Ours is a more definitive yes/no (result)," Scholl explained.

Quidel, on the other hand "“ whose first product, launched in 1984, was a "dipstick" pregnancy test "“ has focused more on quicker "point-of-care" tests such as might be used in a doctor's office or sold over-the-counter.

The joining of the two companies will allow the new entity to more effectively cover the "continuum" of medical testing, from quick-and-easy to "gold-standard" confirmation testing, Scholl confirmed.

It will also provide for opportunities to combine the two product lines, offering health-care professionals a one-two punch "“ a quick initial test to check for the likely presence of a particular illness, and a more sophisticated test to confirm it, offered as a package by the same company.

Quidel also plans to use DHI as an R&D arm, an area where it has lacked the kinds of resources and facilities DHI provides. In a conference call discussing the acquisition, Quidel President/CEO Douglas C. Bryant spoke of the "rich pipeline of new and diverse products" that the parent company believes DHI can develop and help bring to market as a subsidiary.

Quidel's sales force, meanwhile, which already has good penetration in many international markets, will help bring DHI-developed products to more customers in more countries.

"We're much stronger together than separate," Bryant declared.

Scholl said that while DHI already sells in many countries around the world, Quidel's market range is both wider and deeper, and the acquisition should mean that DHI-developed products are sold to more customers in more countries.

"The (market) footprint will expand tremendously," he predicted.

Currently, Scholl said, DHI has a "highly specialized, technically oriented" eight-person sales team, which has developed strong relationships with the technically knowledgeable customers in the market for DHI products.

However, he said, this means that DHI salespeople may currently "walk past opportunities" to make sales lower on the medical-testing spectrum, in the area where Quidel is strongest.

By joining Quidel, Scholl explained, DHI will get its foot in the door to the large point-of-care testing market, from which it has largely been excluded till now, because that market was already crowded with patented products. In return, DHI's research capabilities can help develop new products for this market.

"Our R&D people... are now going forward in ways that will allow us to move into those market areas," he said. "Where we have not been, we would like to migrate."

He noted that DHI's current facility has room to expand "“ about 135,000 square feet "“ and that it would make no sense for Quidel to relocate a facility that's bringing it new research, manufacturing and packaging capabilities.

"All of the R&D to manufacturing, they're not capable of doing that right now, and we are," he noted. "It would just not make good business sense to move that."

TODD SHELTON, DIRECTOR OF THE Athens County Economic Development Council, admitted Wednesday that when he learned Quidel was acquiring DHI, he was initially concerned about the fallout to the local economy. Since learning the details of the deal, however, he said, "we're really excited about this at the Economic Development Council... It's great news, and we want to build off that."

Shelton suggested that with the presence of what is now a large, publicly traded biotech company in Athens, the EDC may be able to "use that to our advantage, to attract more companies in the industry here."

According to Quidel's quarterly report to the Securities and Exchange Commission for the third quarter of 2009, the company had about $150 million in total assets, and had posted revenues of more than $56 million for that quarter. Its stock as of Wednesday was trading in the $14-$15 range.