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Harvard Bioscience Still Rocking From Genomic Solutions Crash

A year ago, Harvard Bioscience was on the fast track to growth. The company was growing revenues and expanding its reach through a series of acquisitions that created a diverse portfolio of companies providing tools to basic research, the clinical market, and drug discovery.

The stock price of the Holliston, Mass.-based laboratory equipment company grew to a high of $10.73 on Feb. 18, 2004, from a low of $3.00 on April 10, 2003.

But on May 7, the day after HBIO's Q1 2004 financials were released, shares in the company plummeted by nearly half, to $4.70 from $8.55 at market close on May 6, erasing some $84 million from the company's market capitalization. The decline also cost the personal portfolios of CEO Chane Graziano and President David Green some $15 million for the 18-percent chunk of the company they hold. In that one day, some 18 months of growth was erased.

Over the last six months, the company's stock has not recovered. As tracked on the BioCommerce Week Index over the last six months, HBIO shares have fallen 4 percent, going from $4.71 on Sept. 8, when the index debuted, to closing at $4.43 last Tuesday. By comparison, shares of the 15 multi-platform molecular biology tools companies tracked in the index have grown nearly 14 percent during the period, leaving Harvard Bioscience shares among the poorest performers.

"2004 was a disappointing year for Harvard Bioscience; We fell well short of the expectations we had at the beginning of the year," Graziano told analysts in last week's conference call after the release of the company's Q4 earnings.

As if that wasn't enough, the company apologized for postponing the release of its financial from March 3 until March 8, a period of time it said it needed to finalize its income-tax calculations.

Harvard Bio reported total revenue growth of 2 percent on fourth-quarter sales of $24.7 million, compared to $24.2 million a year ago. Overall, the company reported 6-percent total revenue growth in 2004 on sales of $92.5 million, compared to $87.1 million in 2003. However, net income for the quarter fell 36 percent to $1.2 million, from $1.8 million in the year-ago period, and 45 percent for the year on a net of $2.3 million, compared to $4.3 million in 2003.

Company executives pointed to an $8.4-million revenue shortfall from its Genomic Solutions subsidiary as the primary cause of a year-long earnings decline, starting with the May 6 first-quarter report listing a net loss of $51,000 on earnings of $22.2 million.

Harvard Bioscience bought Genomic Solutions, which is primarily known as a producer of microarray-spotting equipment, for $26 million in 2002 and now uses the company as a distribution umbrella to sell its genomics, proteomic, and high-throughput screening products as well as products from its portfolio of other acquisitions, including GeneMachines (acquired for $8.1 million in March 12, 2003) and BioRobotics (acquired for $3.2 million on Sept. 19, 2003).

After the May 6 earnings report, Harvard Bio restructured Genomic Solutions, closing one of three factories, and laying off 36 employees — 24 percent of the subsidiary's staff.

Genomics Solutions returned to profitability in the fourth quarter, said Green, and the company has now hired new sales and marketing workers to focus on growing profits.

"We will be investing in new products and bringing the technology of microarrays into automated drug discovery," he said.

While the company has survived the storm, can it return to the acquisitive strategy that was at the root of its growth?

One of the keys to that is market capitalization, which is critical to HBIO's acquisitions' strategy, Green told BioCommerce Week (see BCW 11/11/2004).

The company has cash and cash equivalents of $13.9 million on hand, likely enough to fund a 13th acquisition since 1998.

Harvard Bio's last foray into the acquisition market was its $6.5 million purchase of KD Scientific on March 3, 2004. Previous to that was the $5.3 million purchase of the Hoefer line of electrophoresis products acquired from Amersham Biosciences in November 2003. That acquisition brought with it a three-year distribution agreement from Amersham, which is now owned by General Electric.

"Acquisitions were clearly a major part of our strategy in the past, and we have looked at several [more]," Graziano said. But, the Genomic Solutions issue delayed consideration of any new purchases, he said.

He said the company would now look again at making acquisitions, which it could plug into its centralized support and management infrastructures.

Where Are the New Products?

Harvard Bioscience has a product portfolio that extends from molecular and cell biology tools, to products for tissue studies, systems for keeping organs and tissues alive outside of the body, microscopes, and radiation protection products.

The brands under the Harvard Bioscience umbrella include Harvard Apparatus, BTX, AniKa, Clark Electromedical, Hugo Sachs Elektronik, International Market Supply, Medical Systems Research Products, Harvard NaviCyte, Warner Instruments, Biochrom, ASYS Hitech, Hoefer, Scie-Plas, Walden Precision Apparatus, Genomics Solutions, GeneMachines, and Union Biometrica.

"We have a strong base business of specialized products used in a wide range of drug-discovery applications," the company says on its website under the "business model" rubric. "Our aim is to add to this strong base business, break-through new technologies that have the potential to change the nature of drug discovery."

But, where are they?

Many of the subsidiary company websites refer viewers to Harvard Bio for news of product releases, but the Harvard Bio archive of releases consists mainly of information on executive appearances at financial conferences, or other financial news. The most recent company news on a new product release is a nearly a year old announcement of an automated cell culture system from Maia Scientific, formerly Union Biometrica (Netherlands).

The company clearly conducts research and development — it claimed fourth-quarter R&D expenses of $1.9 million, up from $1.5 million in the year-ago period; and said it spent a total of $7.1 million for the year, up from $6.3 million in 2003.

David Green, the president of Harvard Bio, told BioCommerce Week, that the company has many product announcements that are disseminated broadly through wire services, and by e-mail to existing customers, but does not typically include them in its website.

While some of its brands are very well-known within their niche industries, the Harvard Bioscience brand, a nom de business that exists under an almost a century-old letter of license issued by Harvard University, is languishing.

For 2004, the company spent $16.8 million on sales and marketing — 18 percent of its '04 revenues, up over $15.4 million in 2003 — but the only message reaching the markets is that of the Genomic Solutions fiasco.

Perhaps the next acquisition the company makes should be a new image.

— Mo Krochmal ([email protected])

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