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Despite Continued Losses from its Genomic Solutions Purchase, Harvard Bio Still Shopping

Harvard Biosciences bought Genomic Solutions in 2002, one of some 20 acquisitions the company has completed in the seven years its management team has been on board.

Now almost two years later, Harvard Bio is still trying to digest the $27 million purchase of the small molecular biology tools vendor.

Harvard Bio, a Holliston, Mass.-based company, traditionally a catalog seller of laboratory equipment, has pursued a growth strategy by aggressively acquiring smaller firms, a tactic that seems to be a growing trend among molecular biology tool vendors as target-company valuations have dropped.

Recently some of the very largest tool vendors have rattled over a billion dollars in funds available for acquisitions (see BCW, 9/16/2004).

But revenue spikes don’t necessarily follow successful acquisitions, as Harvard Bio’s results have shown in the first two quarters of the year.

David Green, the president of Harvard Bio, told investors at the UBS Global Life Sciences Conference in New York on Monday pointed to disappointing financial results from the first quarter of its fiscal year as partially due to the inherited deficiencies of Genomic Solutions.

Still, acquisitions remain a key part of the company’s growth strategy.

“Acquisition is core for us,” Green said. “We do it in conjunction with innovation, as both can be substantial drivers of earnings per share. There are lots of opportunities to acquire nice product lines, nice franchises, and put them into an existing manufacturing or sales and marketing infrastructure.”

Solving Genomic Solutions Issues

The problem with Genomic Solutions, which manufactures and markets products for proteomics, high-throughput screening, and DNA microarray systems, was in sales, Green told investors.

“There was a lack of product line focus,” he said.

In its annual report for 2003, the company blamed the problem on the higher costs for a direct sales force, as compared to Harvard Bio’s traditional spending rate for sales through a catalog or through distributors.

Harvard Bio spent $15.3 million on sales and marketing in 2003, up from $8.4 million in 2002, while research and development rose to $6.2 million from $4 million in the same period, or about 7.2 percent of revenues in both years.

Harvard Bio, which operates 21 wholly owned subsidiaries, carved Genomic Solutions into two product-focused business units, closed one of Genomic Solutions’ three factories, and laid off 24 percent of the company’s employees, Green said

Today, Harvard Bio has hired new sales agents, and is adding marketers to further support the product line.

The reduction in costs at Genomic Solutions have spurred Harvard Bio’s management team to increase earnings guidance to upwards of $.11 a share for the fourth quarter, Green said.

With a diversified set of molecular biology tools offerings, Green said the company is insulated, compared to competitors.

“We have a broad product offering, which is very much in contrast to most of the other small public tools companies,” he said. “Most of them have a single technology focus, which we think is very risky.”

Harvard Bio sells a variety of products that cost from $1,000 to $500,000, and distributes these through three sales channels.

Through its catalog and website, it sells a number of lower cost and relatively mature technologies and consumables. It also sells a little more pricy instrumentation under its Biochrom brand through partnerships with PerkinElmer and GE Healthcare.

The company sells its more expensive instrumentation technologies, priced from $25,000 to $500,000, under the Genomic Solutions or Union Biometrica brands. It requires a high degree of scientific or technical content to consumate the sale of these types of instruments, Green said.

The company is focusing its products on the drug discovery process.

“We want to profitably accelerate drug discovery,” he said. “We say this because so many tools companies have done this unprofitably. But that is not part of our business model.”

Green listed Affymetrix, Molecular Devices, and Bruker as small and profitable comrades in arms in the tools trade and said his company is a bargain compared to them.

“We trade at a substantial discount to these comparable companies,” he said.

For the future, Harvard Bio will continue to invent new products, but in its own way, Green said.

“We believe very much in inventing new products and we typically do this in conjunction with pharmaceutical companies,” he said. “We typically do not invent major new products on our own, but in paid relations with major pharma companies.”

One focus for the company’s product development efforts is sample preparation. “In high-throughput screening, there are plate readers that are incredibly quick and are advertised to run 500,000 samples a day. I never met someone who does that, and one of the reasons is that the upstream steps are very bottlenecked,” Green said. “Taking a compound library, and creating daughter plates, adding the assay reagents, the target reagents, takes far longer than running the plate readers. The analytical cycle time is largely dependant on the sample preparation steps.”

Green said that management of the company owns some 20 percent of the shares in the company and is “very sensitive to dilution, and focused on growing earnings-per-share.”

Harvard Bio was spun out of Harvard Medical School in 1901 and licenses the name, from the university.

— Mo Krochmal (mok @genomeweb.com)

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