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Bio-Rad Slowly Re-enters Thermal Cycler Market, But Residual Legal Costs Expected to Impact Q1

Bio-Rad officials said last week that even though the firm has recently settled its thermal cycler litigation with Applied Biosystems and Roche Molecular Systems, they expect to incur residual legal costs in the first quarter and experience a slow ramp-up in returning to that market.

The dispute has already cost Bio-Rad at least $50 million in judgments, lost revenue, and settlement costs, and its effects will continue to be felt into the first quarter, Bio-Rad CFO Christine Tsingos said during the firm's fourth-quarter conference call. "While we are pleased to be back on the market in amplification and real-time PCR, our experience in Europe and Japan has taught us that it just takes time to ramp back up after being shut out of the market," said Tsingos.

She said the residual legal expenses in the first quarter "would be probably smaller than what we had in the fourth quarter. We didn't reach a final resolution until early February, so there's some [costs], but not to the extent we've been seeing," said Tsingos.

Bio-Rad settled the dispute with ABI and Roche a few weeks ago, enabling its MJ unit to resume selling thermal cycler products in the US (see BioCommerce Week 2/15/2006). As part of the settlement, Bio-Rad also agreed to license certain Applera and Roche RT-PCR patents in Europe and Japan, even though patent offices for those jurisdictions had invalidated Applera's RT-PCR patents.

"Our experience in Europe and Japan has taught us that it just takes time to ramp back up after being shut out of the market."

Litigation, Injunction Hit Q4 Bottom and Top Line

Bio-Rad posted fourth-quarter sales of $307.3 million, virtually flat with revenue of $307.9 in the year-ago fourth quarter. Adjusting for currency effects, the firm's net sales rose 2.9 percent year over year, according to the company.

The firm's Life Science segment reported a 5.3-percent drop in net sales, which fell to $140.7 million from $148.6 million in the fourth quarter of 2004. On a currency-neutral basis, revenue for the segment fell 1.8 percent, according to Bio-Rad. The company attributed the decline to the injunction prohibiting it from selling and manufacturing its MJ Research thermal cyclers (see BioCommerce Week 9/8/2005).

Bio-Rad's Clinical Diagnostics segment reported fourth-quarter sales of $162.9 million, a 4-percent gain year over year. The firm said sales were up 6.7 percent excluding currency effects, driven by blood virus, diabetes monitoring, and quality control product lines.

Bio-Rad took a one-time, non-cash charge of $19.8 million in the fourth quarter to write down intangible assets associated with the acquisition of MJ. "Many of the assets acquired with MJ were significantly impaired by the injunction, as we were forced to stop manufacturing, selling, and servicing products in the US, requiring us to relocate manufacturing and redeploy a good portion of the workforce," Tsingos said.

However, this charge was partially offset by gains of $11 million associated with the sale of the firm's equity stakes in Instrumentation Laboratory and BioSource International, which was acquired by Bio-Rad rival Invitrogen for $130 million after BioSource had rejected overtures from Bio-Rad (see BioCommerce Week 7/28/2005).

Bio-Rad's fourth-quarter net income decreased 21 percent to $13.5 million from $17.1 million in the comparable period in 2004. Its R&D expenses were nearly unchanged at $31.9 million for the quarter, versus $31.1 million in the year-ago period.

Despite Legal, Financial Setbacks, Bio-Rad
CEO Still Considers MJ a 'Good Acquisition'

Bio-Rad acquired bankrupt MJ Research in August 2004 for $32 million in cash "and the assumption of certain liabilities of those companies. These liabilities included certain patent-infringement litigation to which MJ Research is a party, plus a cash earn-out based on the outcome of such litigation," according to a company statement released at the time. Bio-Rad also set aside $50 million in a contingency fund for the suit.

Since ABI and Roche sued Bio-Rad for patent infringement in November 2004 (see BioCommerce Week 11/18/2004), Bio-Rad has spent at least $50 million in legal and other costs, including "several million dollars of injunction-related expenses, such as inventory and warranty charges, manufacturing shutdown, and severance costs," said CFO Christine Tsingos.

Asked during the conference call if MJ has been a disappointment to Bio-Rad, President and CEO Norman Schwartz said, "When we acquired MJ we were certainly aware of the legal problems that they had and took that into account. Overall, I still think it was a good acquisition. It helped to broaden our product line and give us some geographic reach, and there [are] some very good people there that have been a real addition to the team."

For full-year 2005, Bio-Rad's sales grew 8.3 percent to $1.2 billion from $1.1 billion a year earlier. Adjusting for currency effects, its sales rose 7.3 percent.

The Life Sciences segment posted revenue of $549.9 million for 2005, a 9-percent increase over 2005. The Clinical Diagnostics business generated sales of $618.4 million, a 7.3-percent increase over 2004. Overall, R&D spending for the year rose 6.3 percent to $115.1 million.

Bio-Rad officials said they expect 2006 sales to grow in the low single digits.

"We are facing some rather significant top-line challenges in the current environment," said Tsingos. "With more than 55 percent of our sales outside of the US and the dollar strengthening, we expect currency to have a negative impact for the foreseeable future."

She also said that Bio-Rad expects "another sizable decline" in its bovine spongiform encephalopathy testing business. "As contracts come up for renewal, [they] are expected to renew at both lower prices per test and numbers of tests."

Unlike many of its rivals in the BCW Index, Bio-Rad has been very quiet on the acquisition front. It failed in its bid to purchase BioSource and finished the year without making a single acquisition.

"On the acquisition front, while we came up dry in 2005, we have a number of interesting opportunities that we are currently evaluating, and hope for the best in 2006," Schwartz said. "I think that we're seeing some opportunities now that I would say are potentially much better priced."

Five days after those comments, Bio-Rad announced the acquisition of ProteOptics, an Israel-based developer of surface plasmon resonance technology for proteomic research (see related feature).

— Edward Winnick ([email protected])

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