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Invitrogen, Flush from Acquisition Flurry, Flirts with Novel Ad Campaigns and Promises Rejuvenated R&D

NEW YORK, Dec. 3 – Invitrogen, poised to post supercharged revenue and profit for the current fiscal year, said it will investigate running advertising in non-traditional scientific markets, and intends to revive slumping research and development spending by 2003.  

Flush from a round of recent acquisitions, the San Diego-based company said it plans to post $628 million in revenues for the year, which is in line with analysts’ estimates and will surpass by 155 percent 2000 sales. Invitrogen is scheduled to hold a news conference tomorrow to discuss its fiscal 2001 results.

William Blair & Company estimates that Invitrogen’s revenues will grow by 16 percent in 2002 and by 19 percent in 2003 and 2004. In a recent report, the securities firm said that it expects Invitrogen’s gross profit to reach $345 million in 2001, a 144 percent jump over the same period last year, and that the company will absorb a $121 million increase in total operating expenses to $217 million.

Diluted earnings per share for 2001 are pegged at $1.73, up from $1.18 in the year-ago period, according to William Blair, which said the company can expect to achieve “nearly 20 percent EPS growth” for the near term and hit sustainable cash EPS growth of more than 20 percent in 2003. 

The surging revenue and expenses predicted by analysts reflect a flurry of acquisitions made by Invitrogen that began in March 1999 with the electrophoresis gel company Novex, followed in February 2000 with the genomic tools company Research Genetics, and capped seven months later with the molecular biology firm Life Technologies. 

These deals have helped Invitrogen claim a monstrous 25 percent stake in the $7 billion molecular-biology supply market that includes cDNA synthesis, PCR cloning and amplification, gene expression, and electrophoresis kits.

The Life Tech acquisition, however, makes Invitrogen a reagent supply behemoth. Winton Gibbons, the William Blair analyst and author of the financial report, said that the Life Tech acquisition will help Invitrogen generate $571 million in pro forma sales in 2000, a five-fold increase from his original estimate of Invitrogen alone.  

“The complementary nature of Life Technologies’ products is anchored by a market-leading position in cell-culture media … and molecular biology reagents,” Gibbons wrote in his report, released on Nov. 8.

In 1999, Life Tech pocketed $208 million from cell-culture media and $202 million from molecular-biology reagents, according to William Blair. Those same cell-culture media and molecular-biology products are expected to contribute $216 million and $412 million, respectively, to Invitrogen’s top line in 2001.

However, while the market for growth media remains large—it “represents a substantial cash cow” to Invitrogen, according to William Blair—its traditional expansion of between 4 and 6 percent lags behind the 25 percent growth of Invitrogen’s molecular biology products. Still, Invitrogen “now expects the cell culture media business to grow 10 percent year over year,” thanks in large part to the firm’s ability to package its reagents in kit form, Gibbons wrote.

Heard of me?  

The $4.2 billion annual market for biochemical kits, products, and services —where Invitrogen’s customers reside—is poised to grow 22 percent each year, according to William Blair. Although this is powerful growth in any industry, many analysts in the genomic sector are skeptical of their companies’ ability to keep pace. Ask them to explain why and most will grumble “message.”  

Not enough “civilians” know what these firms do or how they fit into the broader—and better known—biopharma segment, analysts say. And many of these civilians are investors.

Lyle Turner, Invitrogen’s CEO, agrees. In a recent interview with GenomeWeb, Turner said that Invitrogen “needs to increase our advertising” and find “new ways of communicating information about more products to more customers” and “more complex information to more people.” 

Turner said the company will earmark “several million dollars” in 2002 to research and perhaps produce advertising to non-traditional scientific markets like NOVA, Discover, and the Learning Channel, all cable television outlets in the US.

“We do have a fairly substantial budget for 2002 for doing a broader communications plan that supports the depth and breadth of the technology platform we have for genomics,” Turner said. “And that supports investor relations and it supports product sales, too.”

The budget for this kind of exercise was nonexistent in 2001. “We have a much broader customer base now and some of those customers are investors.” 

Members of Invitrogen’s marketing staff, which numbers approximately 80 people, will oversee the effort, according to Paul Goodson, the firm’s director of investor relations.

R&D Redux

While Invitrogen’s revenues have been accelerating at a steady clip, its research and development spending has been contracting since the third quarter 2000. According to Turner, R&D spending has traditionally hovered between 12 percent and 15 percent of total revenue. Since the start of 2000, Invitrogen has hit an R&D high—13.6 percent in the second quarter—but has posted steady drops every three months since then: 10.9 percent in the third quarter, 7.6 in the fourth, 6.3 percent in the first quarter 2001, 6.2 percent in the second, and 5.8 percent in the third. William Blair predicts R&D will inch back to 6.3 percent of total revenue in the fourth quarter, which ends on Dec. 31, but that still is about half of what the company is used to. 

“I expect our R&D group to have doubled by the end of 2003,” Turner said in the interview. “There’s a lot of work to be done to consolidate the manufacturing process from all the acquisitions that we’ve done. And I think that work will continue through 2002 into 2003, so I would expect us to see continued improvement in growth margins and continued expansion,” he added.

While Turner blames the R&D slip to acquisitions in general, Goodson points to Life Technologies in particular. “Life Tech had a very different philosophy about R&D spending,” Goodson said in an interview. “In addition to adding a much larger company that has much smaller expenditures, that sort of takes the total down.”

Goodson also put some of the blame on Invitrogen’s sale in March of its Rockville, Md., facility. Turner said that sale, made to Human Genome Sciences for $55 million in cash, will help Invitrogen consolidate and cut costs.

Invitrogen had acquired the 240,000 square foot facility when it bought Life Technologies. “Although this property transaction is part of our effort to sell surplus assets following our acquisition of Life Technologies, it also plays a more strategic role," Turner said in a statement in March. "Our objective with this property sale is to more effectively organize and integrate Invitrogen's functional groups with those that came to us from Life Technologies, and to further instill Invitrogen's culture into the combined organization."

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