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Bio-Rad Says MJ Research Will Push Overall Double-Digit Sales Growth in Fourth Quarter

The addition of MJ Research and new product launches should propel Bio-Rad Laboratories — or at least its life sciences unit — to double-digit sales growth in the fourth quarter, Bio-Rad said last week.

“The joining of forces with MJ Research is a move that really expands our offering in the DNA-amplification market,” Norman Schwartz, CEO of Bio-Rad, told investors and analysts in a conference call to discuss its results for the quarter ending Sept. 30. “This is exciting for us; it’s a large growing market with lots of areas to participate in.”

Bio-Rad acquired MJ GeneWorks, the parent company of MJ Research of Waltham, Mass., in August for $31 million in cash and the assumption of certain liabilities, in a deal originally announced in June.

MJ Research, which develops and sells thermal cyclers and DNA amplification reagents, has moved into Bio-Rad’s Life Science business unit. The Hercules-Calif.-based Bio-Rad also operates a Clinical Diagnostics business unit. David Schwartz and his wife, Alice Schwartz, a chemist, founded Bio-Rad in 1957 and the family closely holds some 80 percent of Bio-Rad’s stock. Son Norman took corporate leadership in 2003.

For the third quarter, Bio-Rad sales grew by 7 percent to $259 million, compared to $242 million in the year-ago quarter.

Bio-Rad’s Life Sciences unit reported 7.6 percent growth on sales of $121 million for the quarter, up from $118 million reported in the same period last year. Profit for the life science segment was down however, at $9 million for the quarter, excluding an in-process R&D charge, compared to $14.6 million for the year-ago quarter.

“The decrease in profit was the direct result of planned spending for new IT systems and facilities as well as costs associated with the consolidation of MJ Research,” CFO Christine Tsingos said.

Bio-Rad said its life sciences division’s growth was boosted by strong year-over-year growth in sales of its multiplex array technology, its nucleic acid amplification reagents, and electrophoresis products.

“These were partially offset by a decline in our [bovine spongiform encephalopathy] business and continued softness in the Japanese market,” said Tsingos.

Bio-Rad is the leading supplier of BSE tests and revenue from these tests provided some 11 percent of the life science unit’s revenues in 2003.

Tsingos singled out the company’s protein expression products as well as the amplification and electrophoresis products, as well as a “good contribution” from MJ Research.

Approximately $5 million in sales will likely register in the fourth quarter, the company said. These were unable to be processed in the third quarter due to technical hiccups in a new enterprise-level information technology system being installed in the company’s life sciences division.

“What happened is not atypical of a new systems implementation,” said Tsingos. “We went live in early September and had a few weeks until the end of the quarter to make sure that all of the distribution, the warehouse management — the various systems that take us from order-entry to invoicing — were working seamlessly,” she said. “As is typical with a new implementation, there were bugs to work out and, unfortunately for us, the implementation being so close to the quarter end, some of those affected the numbers.”

“The third-quarter numbers were somewhat moderated by a number of events,” Schwartz said in the conference call. “These activities and the expenses we are incurring are well in hand, and I want to emphasize that they are good investments in our future.”

For the quarter, Bio-Rad took a $13.7 million charge to cover in-process research and development and put aside $50 million for litigation costs relating to MJ Research.

“We hope to settle legal issues before the end of the quarter,” said Schwartz.

Along with MJ’s product portfolio, Bio-Rad also acquired the company’s litigation liability. Earlier this year, a jury in a US District Court decided in Applera’s favor in patent-infringement charges related to thermal cyclers brought by Applera and Roche Molecular Systems against MJ Research. The jury awarded damages between $17.8 million and $19.8 million — the exact amount to be determined later in the multi-phase lawsuit.

Additionally, MJ Research, which declared bankruptcy prior to being acquired by Bio-Rad, is mulling a change in its business model, said Tsingos.

“Their consolidated margins are not as attractive as ours, said Tsingos. “They are working hard to change their business model to be more like ours.”

Tsingos said the life sciences unit expects the Experion gel electrophoresis product line, when fully launched, to be “a big contributor.”

The product will begin shipping shortly, though not in significant numbers for the quarter.

During the conference call last week, one investor asked why sell-side analyst interest in the company was not greater.

“We would love to have more sell-side analysts following the Bio-Rad story,” Tsingos said. “We have had several meetings and a lot of interest has been shown lately,” said. “It’s just a matter of them being busy and following many companies.”

One investor, who claimed he owned 14,000 shares of Bio-Rad, asked Schwartz why he had not responded to letters the investor had written in September and in October.

“Some of the things, we were not sure how to respond to you,” Schwartz said. “There have been a number of things we have been working on. The letter is here on my desk, but we have to take these things in priority order.”

He said he would reply.

— Mo Krochmal ([email protected])

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