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Agilent Expects to Close Stratagene Deal Next Month; Posts Strong Bio-Analytical Revenues

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Executives of Agilent Technologies said this week that the firm’s $246 million acquisition of Stratagene will close in mid-June, a month earlier than previously predicted, and they are confident they can resolve Stratagene’s outstanding legal disputes.
 
Company officials said during Agilent’s second-quarter conference call this week that they expect to leverage Stratagene’s strength in reagents and in the academic markets to broaden its portfolio and expand its reach. The firm also posted 10 percent revenue growth for its Bio-Analytical Measurement segment, led by strong sales to pharma, biotech, and somewhat surprisingly, academic markets.
 
During the call, Agilent officials said they expect to close the Stratagene acquisition, announced in April, by mid-June, well in advance of earlier forecasts that it would close by the end of July (see BioCommerce Week 4/11/2007). The comments followed last week’s clearance of the deal by the US Federal Trade Commission.
 
Agilent’s core life science competencies are in liquid chromatography, mass spectrometry, microarrays, lab-on-a-chip applications, and bioinformatics. The addition of Stratagene will broaden its portfolio to include complementary consumables; kits for DNA, RNA, and protein analysis; thermal cycling instruments and reagents; and software.
 
“If you look at our core business, it’s been a very box-driven, instrument-driven business, and we continue to make investments to expand into the total workflow of scientists and researchers,” Bill Sullivan, Agilent’s president and CEO, said during the conference call this week. “In the very simplest sense, we believe the capability of Stratagene being part of the company, particularly [with its] strength in genomics, [that] we will be able to broaden our product offering to our customers,” he said.
 
He specifically pointed to Stratagene’s portfolio of reagents as key complementary technologies for Agilent’s instruments.
 
“Clearly, I think we have some opportunities to accelerate our growth in our [commercial] channels, and likewise, they also have a very strong position in the academic area,” said Sullivan.
 
“We see the academic research market at $7 billion,” he said. “There’s an enormous amount of money that’s been going into universities and government institutions around the world, and I believe Stratagene will really help us leverage [our products] into this market where we have relatively low market share as compared to pharma and biotech commercial companies.”
 
One issue that will be hanging over Agilent once the acquisition is completed is Stratagene’s outstanding legal disputes and fairly poor record over the past couple of years in the courts. The firm recently agreed to pay Third Wave Technologies $10.75 million to settle a patent case, which had earlier been decided in Third Wave’s favor by a Wisconsin court (see BioCommerce Week 1/31/2007).
 
Stratagene also was ordered by a Texas court to pay Invitrogen $16.2 million for infringing an Invitrogen patent covering a process for developing competent cell products (see BioCommerce Week 11/1/2006). The firm has since appealed the case.
 
However, the US Patent and Trademark Office recently notified Stratagene that its patent covering polymerase blends will be reinstated with retroactive effect. The patent is at the center of a suit Stratagene filed against Invitrogen and could provide some leverage in negotiating a possible settlement with Invitrogen of this litigation and the other case decided in Invitrogen’s favor.
 
Stratagene also recently served Bio-Rad with a patent infringement suit.
 
Sullivan said during the second-quarter call that Agilent would not comment on any of Stratagene’s legal issues. “We are obviously confident to get these issues resolved and move forward,” he said.
 
The Stratagene acquisition comes a little more than a year after Agilent sold off its semiconductor business and its share in a lighting joint venture with Royal Philips Electronics in an effort to increase its profitability and focus on its core life science and electronic measurement units (see BioCommerce Week 8/18/2005).
 
Though it was expected that Agilent would apply some of the nearly $3.7 billion in proceeds from those sales to acquisitions in the life sciences market, the Stratagene deal is the first major move by Agilent to broadly expand its offerings in that area.  
 
Agilent officials said they would update the firm’s financial guidance, if necessary, following the close of the deal.
 
Q2 Revenues Rise on Strong Pharma, Biotech Sales
 
Agilent said this week that revenues for its Bio-Analytical Measurement segment grew 10 percent in the second quarter to $428 million. Within that segment, life sciences revenues were up 20 percent year over year to $194 million, while chemical analysis revenues rose 11 percent to $234 million, Agilent said.
 
“As in the first quarter, we saw notable strength across our Bio-Analytical Measurement portfolio, and significant weakness in wireless handset test,” Sullivan noted in a company statement.
 
“We saw double-digit growth in all major geographies, led by China, India, and Eastern and Central Europe,” said Sullivan.
 
In the Americas revenue growth was roughly 8 percent, in Europe it was up 13 percent, and in Asia-Pacific revenues grew just 1 percent due to weakness in the handset testing market, he said.
 
“Applications for mass spec and diagnostics and array platforms continue to grow,” said Sullivan. “We now have a market-leading position in CGH microarray applications. We also continue to see strong demand for our 1200 LC rapid-resolution system, high-end LC/MS, multi-pack arrays, and HPLC columns.”
 

“There’s an enormous amount of money that’s been going into universities and government institutions around the world, and I believe Stratagene will really help us leverage [our products] into this market where we have relatively low market share as compared to pharma and biotech commercial companies.”

Sales to pharma and biotech customers were up 20 percent year over year, said Agilent CFO Adrian Dillon, “with continued strength in the 1200 Series rapid-resolution system, our HPLC columns, and our LC/MS portfolio.
 
“We also saw increased R&D spending by pharma companies and our contract research organizations for new applications and for enabling technologies to speed time to market for new drugs,” he said. “We’re also seeing more pharma collaborations with both university and federal research labs.”
 
He said that funding remains strong for academic and government markets, a claim not made by other life science tools competitors during their recent quarterly conference calls.
 
According to Sullivan, the firm’s microarray business grew over 40 percent during its fiscal 2007 first quarter and over 50 percent in Q2. “That is the single biggest change we’ve had in this group … [and] I believe, in our microarray business, and we have potentially negated the past losses,” said Sullivan.
 
Revenue from forensics applications was up 30 percent year over year, according to Dillon. This is a trend mentioned by Thermo Fisher and ABI officials during their recent conference calls as well.
 
Agilent officials also said sales to the environmental markets grew 13 percent for the quarter, driven by evolving regulatory standards for drinking water, solid waste, and air monitoring, particularly in China and India.
 
Sullivan noted that Agilent’s focus would remain on making investments, including acquisitions, in its Bio-Analytical segment.
 
Overall, Agilent posted revenues of $1.32 billion for the quarter, a 7 percent increase over the comparable quarter a year ago. But the strength in its Bio-Analytical segment was tempered by continued weak sales for its handset test products, which are part of Agilent’s Electronic Measurement segment.
 
The firm reported revenues of $892 million for the Electronic Measurement segment, up 3 percent from the comparable period a year ago.
 
Agilent posted net income of $123 million, or $.30 per share, compared with net income of $115 million, or $.26 per share, in last year’s second quarter. This year’s results include $40 million in share-based compensation expense, and were in line with analysts’ expectations.
 
The firm’s R&D spending grew 1 percent to $173 million for the quarter. Agilent finished the quarter with roughly $2 billion in cash and cash equivalents.
 
Agilent also said this week that it had entered into a five-year, $300 million credit facility with undisclosed lenders. “We have not had one for several years and we just put one in place,” said Dillon. “We have no intentions of borrowing against it, but having a back-up facility is something that the rating agencies like, and you never say never, so it’s nice to have that just in case.”

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