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Acquisitions, Pharma Resurgence on the Radar of BCW Companies for Rest of 05

LAS VEGAS — Executives of several of the firms tracked by BioCommerce Week gathered here May 17-19 to make their pitches to investors at the Banc of America Securities Health Care Conference, and many of them said they expected to build market share and revenue through acquisitions in 2005.

Some also suggested that a recovery in the pharma spending market could help drive revenues, particularly for capital equipment manufacturers, over the remainder of the year.

The molecular biology tools space has been no stranger to acquisitions over the past couple of years, and the pace is not likely to subside this year as representatives from both big and small firms said that adding new businesses and/or technologies will be keys to revenue growth.

Invitrogen, which has been particularly acquisitive, is still shopping — even though CEO Greg Lucier said in a conference call earlier this month that he believes Invitrogen has what it needs at the moment, and that any additional acquisitions would be "opportunistic" rather than strategic (see BioCommerce Week 5/5/2005). In the weeks since those comments, Invitrogen announced that it would pay $20 million to acquire Caltag Laboratories, a California manufacturer of immunological reagents (see BioCommerce Week 5/19/2005).

Lucier told conference attendees that Invitrogen would acquire more companies before the end of the year. He declined to elaborate.

Beckman Coulter CEO Scott Garrett also said his firm was eyeing the acquisition of new technologies and expansion into new markets — or perhaps a tuck-in acquisition, in which Beckman would purchase a company with the purpose of merging it into a Beckman division.

Beckman recently made a move to expand its product line with an agreement to buy Agencourt Bioscience, a DNA sequencing services firm that also is developing a new sequencing technology and the Solid Phase Reversible Immobilization (SPRI) technology for isolating and purifying DNA and RNA (see BioCommerce Week 5/5/2005).

Garrett said the firm had "wrung out" all of the possible cost-savings options following its 1997 acquisition of Coulter and was looking to boost top-line growth. He said the firm is aiming to achieve organic annual sales growth in excess of 10 percent starting two years from now.

Stratagene, one of the smaller players in the multi-platform genomics tools space, also is looking to buy. Chairman and CEO Joe Sorge said during a question-and-answer session following his presentation that the firm was looking at acquisitions "in the neighborhood of $10 million" to fill capacity that emerged at its facilities in California and Texas, following its purchase of Hycor Biomedical last year.

Stratagene grew significantly over the past year through its acquisition of the diagnostics firm, and Sorge said the company could double its revenues over the next three years. Stratagene is targeting the molecular diagnostics market with its FullVelocity QPCR reagent and is aiming to take market share from Roche's PCR technology and ABI's TaqMan (see BioCommecre Week 3/17/2005).

PerkinElmer CEO Greg Summe said that his firm was shifting its portfolio to higher-growth applications. He said this shift would include emphasizing products, such as reagents, services, and software, as well as selective technology acquisitions and partnerships.

BD hopes to find a buyer for Clontech by late this quarter, but cautioned that it may take the rest of the year before the business is sold.

Officials from Fisher Scientific, which is currently not covered by BioCommerce Week, said that the firm expects $400 million cash flow in 2005. Vice Chair Paul Meister said that would provide flexibility for possible acquisitions, which could focus on higher-growth consumables in the molecular biology tools field. Fisher bought RNAi firm Dharmacon last year for $80 million in cash.

Harvard Bioscience, which did not present at the conference in Las Vegas, also recently stated that it was eyeing a new acquisition, though it did not identify potential acquisition candidates.

Two firms that sounded less sure they would be buyers this year were Bio-Rad and Sigma-Aldrich. Bio-Rad President and CEO Norman Schwartz told conference attendees that after taking down $200 million in debt, the firm has the cash "if the right acquisition comes along." He noted that Bio-Rad has traditionally been a "conservative, value buyer," and that is not likely to change.

Sigma-Aldrich officials remained non-committal when asked about the firm's acquisition plans for 2005. CFO Michael Hogan noted that the firm had been "very active" in the last year. In February, Sigma-Aldrich bought siRNA firm Proligo for undisclosed consideration.

Becton Dickinson and Waters seemed the most unlikely buyers of the bunch at the conference. BD is still trying to unload its Clontech unit (see BioCommerce Week 10/7/2004) and made no mention of potential acquisitions this year. William Tozzi, the firm's controller, said BD hopes to find a buyer for Clontech by late this quarter, but cautioned that it may take the rest of the year before the business is sold.

Waters CFO John Ornell suggested that the firm would look to a recovering pharma-spending market to grow its revenues. He echoed earlier statements from the firm's management that a change in strategy — such as making a bigger push into downstream technologies — is probably not necessary. He said Waters was already starting to see improved sales of its instruments in Europe and India, though he expects the European market will remain a challenge this year.

An Improving Market?

Although Ornell rang the cautionary note about selling in Europe for the rest of the year, he did say many large pharma firms were releasing their capital budgets, and the firm remained optimistic for the year. This news must have come as a relief for investors in Waters, which sent a shockwave through the molecular biology instrument market in early April when it cut its projections for first-quarter growth to three to four percent from a previous projection of 13 percent (see BioCommerce Week 4/7/2005).

At the time, Waters cautioned that if pharma firms did not increase spending on capital equipment, the firm's growth would be fairly anemic for the rest of the year. But at the conference, Ornell said the firm is now projecting 2005 sales growth of 9 percent, with a two-percent currency-related benefit.

While Waters' Q1 struggles had many questioning whether other genomics instrument manufacturers would report similar difficulties, some firms presenting at the conference seemed to think the market was recovering, and others said they didn't think the market was any different today than it has been for years.

Sigma-Aldrich's Hogan said there appeared to be a strong resurgence in pharma spending. He said that although Europe has likely bottomed out, spending there has not quite began a resurgence — noting that Europe generally lags six to nine months behind the US in market spending patterns.

PerkinElmer's Summe, on the other hand, said that from his firm's perspective pharma spending trends have been consistent since 2002, and budgets have been tight. He also said PerkinElmer didn't experience the same problems others in the industry had, referring to Waters, and that the biotech market has been a "little more robust."

— Edward Winnick ([email protected])

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