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Bio-Rad Still Mulling Acquisition Opportunities; Q2 Revenues Rise 9 Percent on Strong Dx Sales

Bio-Rad Laboratories is still considering potential acquisition opportunities but is maintaining what its calls a “disciplined approach” in spending its cash holdings of $246 million, company officials said last week.
The firm has not been as aggressive as some of its chief competitors — namely Qiagen and Invitrogen — in the M&A market over the past couple of years, but each quarter analysts quiz company officials about the firm’s acquisition plans.
For example, a couple of analysts on the firm’s second-quarter conference call last week asked management when they would start spending the cash on hand — meaning when was the firm going to get more active in the M&A market.
“We have a few [acquisition targets] actually in the hopper now,” said Norman Schwartz, president and CEO, echoing statements he made a few months ago.” I think we have the kind of same struggle [of spending cash holdings] because we did raise this money a couple of years ago with the idea that we could deploy it faster, but I think that we've tried to be very disciplined in our approach here and not let it burn a hole in our pocket.
“But we do have a couple of things that have queued up and hopefully we'll see something in the near future to deploy some of that,” he said.
Schwartz’s statement echoed comments he made during the firm’s first-quarter conference call three months ago (see BioCommerce Week 5/10/2006). At the time, he said the firm was evaluating acquisition targets in the $20 million to $50 million range.
"We actually have some interesting prospects" in both the life sciences and diagnostics markets, he said, [but] "it is a pretty competitive environment.”
Earlier this year, the firm acquired ProteOptics, an Israeli-based firm that developed an instrument for studying protein-protein interactions (see BioCommerce Week 3/1/2006). That acquisition, for an undisclosed amount, targets a relatively small $80-million market — and it was the company’s first since its purchase of MJ Research in August 2004 for $32 million in cash and the assumption of certain liabilities related to patent-infringement litigation with Applied Biosystems and Roche.
Q2 Revenues Rise 9 Percent, But BSE Takes
A Bite Out of Life Science Segment Sales
Bio-Rad reported that its second-quarter revenue grew 9.1 percent as its net income jumped more than 75 percent, driven by strong sales from its Clinical Diagnostics segment and a one-time settlement payment of $11.7 million from bioMérieux.
Receipts for the three months ended June 30 increased to $317.7 million from $291.3 million year over year. On a currency-neutral basis, total revenues increased 9.7 percent year over year and 5.6 percent when not factoring in the effect of the settlement.

“We have a few [acquisition targets] actually in the hopper now. I think we have the kind of same struggle [of spending cash holdings] because we did raise this money a couple of years ago with the idea that we could deploy it faster, but I think that we've tried to be very disciplined in our approach here and not let it burn a hole in our pocket.”

The firm’s Clinical Diagnostics segment reported revenue growth of 16 percent. Sales in the Life Science segment grew 1 percent in the quarter to $134.4 million from $133.1 million year over year.
Christine Tsingos, Bio-Rad’s CFO, said during the call that there was a double-digit decline during the quarter in the firm’s BSE testing business. Excluding the BSE business, sales for the Life Science segment grew 6.5 percent in the quarter, she said.
Life Science sales also were affected by increased competition in the real-time instrument market, according to company officials.
“The real-time market in instrumentation as well as reagents is very competitive,” said Brad Crutchfield, vice president of the life science group, during the call. “It really was largely a market that Bio-Rad and Applied Biosystems participated in. But there's been multiple competitors that have come on the market, some licensed, some not. And really we're kind of in a position seeing a bit of a shake out as companies sort of establish pricing discipline and strategies in building market share.
“We continue to invest very strongly in and focus on building market share,” he added. “I don't see this as a significant issue other than the normal occurrence within a life science market where you will see prices come down and stabilize. And I think we're kind of at that point or thereabouts. I don't see this as a long term issue.”
Bio-Rad’s R&D costs increased 39 percent to $31 million from $28.5 million in the comparable quarter a year ago.
The company reported that its net income increased 75.5 percent to $32.3 million, or $1.20 per share, from $18.4 million, or $.69 per share, during the comparable period last year.
“Overall Life Science segment profit was $4.3 million this past quarter, a 64 percent increase compared to last year,” according to Tsingos. “On a sequential basis, profitability decreased due to the lower sales number as well as the one-time charge to terminate a facility lease.”
Tsingos noted that Bio-Rad would receive an ongoing royalty stream from bioMérieux, but it’s “a very small amount … certainly not comparable to the one-time historical amount,” and less than $1 million per quarter. She did not provide any further specifics.

“At the beginning of the year, we talked about sales growth being in the low single digits on a currency neutral basis for the full year,” said Tsingos. “Given the first-half performance, it seems more likely that we will see revenue growth increase to the mid single digits and perhaps a little higher on a currency neutral basis.”

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