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After a Stagnant Phase, Invitrogen Seeks Growth By Converging Products

Invitrogen is making a systems move in the molecular biology tools space. But the company’s systems approach is not a convergence of the “omics” technologies, as it is in some organizations, but rather a drive to link its separate biodiscovery and bioproduction product lines to create what it calls the Invitrogen Operating System.

“Invitrogen is really trying to create the first end-to-end solution for clients, starting at the early discovery phase and genomics, all the way to back-end bioproduction,” said Greg Lucier, chairman and chief executive officer of the Carlsbad, Calif.-based diversified molecular biology tools company, on Monday at the UBS Global Life Sciences Conference in New York.

“We have been one of the very few companies who have been able to piece together all the elements to make this a reality,” he said.

The pitch is not new, it’s been Invitrogen’s standard way of describing its products, said Adam Chazan, a senior analyst with Pacific Growth Equities.

“The end game is to figure out what is going on and being a part of the whole drug discovery process, where the big money is,” he said.

Though Lucier’s description sounded much like a pharmaceutical company - albeit without the upside of drug revenues, or the downside of the costs of developing them - he told the investors and analysts at this annual event that the company is focused on helping its clients accelerate discovery and serve a fast-growing biologics business, and “We intend to really deliver strong double-digit growth in earnings per share,” he said.

He didn’t provide a target date, but said the company will seed that growth through investment in research and development, and by the cuts made in its cost structure over the past 12 months. Additionally, with almost $200 million in free cash flow this year, and an expectation of more than that available next year, the company can aggressively seek acquisitions, or make stock buy-backs.

New Management Team’s Progress

Lucier landed at Invitrogen in May 2003, leaving the post of president and CEO of General Electric’s Medical Systems Information Technologies unit. On Monday, he referred with some contrition to Invitrogen’s acquisition in 2000 of Life Technologies of Rockville, Md., and the decision to centralize all of its R&D facilities in Carlsbad in 2002.

He called progress Invitrogen has made since then a “good news” story about “how this company has recovered from a decision that probably shouldn’t have been made a few years ago,” he said. Many of the East Coast employees didn’t opt for the move to Carlsbad, he said, and the company went into a “stagnant phase” replicating and rebuilding what was on the East Coast in its new West Coast R&D operation during 2001-2003.

R&D was rebuilding during that time, he said, instead of building the company’s pipeline for the future, but that trend is showing signs of reversing. The company has reported R&D expenditures of $33.7 million in the first two quarters of 2004 after spending $54.6 million in the 2003 fiscal year, $33.7 million in 2002, and $38.1 million in 2001.

“Basically, we developed little new technology over the last few years because of having to continuously focus inside the company,” he said. The “self-inflicted wounds” produced “flattish” growth, he said. “It’s going to take some time to dig through that,” he said.

In the second quarter of 2004, revenues increased 32 percent to $254 million, as compared to $192.4 million reported for the second quarter of 2003. The company pegged a 19 percent increase in its BioDiscovery unit in the quarter, principally to its acquisition of Molecular Probes.

Pointing to Proteomics

Lucier pointed to its acquisition of Protometrix in April as its launch into the protein microarray market, and he painted a picture of growth for a technology that is in its infancy.

“We think proteomics will become high-throughput, high-volume, and it’s going to really reduce to a chip set . . . similar to the DNA chip set business, [with] great growth over the next couple of years,” he said.

In addition to its purchase of Protometrix, a Branford, Conn., firm with an ambitious commercialization program for protein microarray technology developed by Mike Snyder at Yale, the company in May bought Xeotron of Houston, Texas, which is developing a mirror-based microarray manufacturing technology similar to that of NimbleGen Systems, which has a distribution agreement with DNA microarray industry leader Affymetrix.

Earlier in the year, Invitrogen went back into the Maryland market to purchase contract service organization, BioReliance.

The Invitrogen that Lucier described to investors is one with a presence in labs throughout the world, even to the point of automating and stocking self-serve inventory in refrigerators in many large facilities, and providing next-day delivery to customers on the East Coast from a reclaimed empty corporate warehouse in Maryland.

The company, while broad in its sale channels, plans on getting “intimate” with its top 100 customers, with company executives taking a leading role in the sales process with these customers, Lucier said.

Internally, Invitrogen has changed its cost structure and has restructured its debt to generate enough cash to pay off a $500 million convertible note due at the end of 2006, and fund aggressive acquisitions, he said.

— Mo Krochmal ([email protected])

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