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Invitrogen Officials Say Acquisition Strategy, BioReliance Recovery Remain on Track

Invitrogen's plan to spend half a billion dollars on acquisitions in 2006 remains on track, Chairman and CEO Greg Lucier said during a conference call last week, despite what he views as higher premiums being paid for acquisition targets.

Lucier also said during the call, which followed the release of Invitrogen's first-quarter results, that the firm believes the BioReliance business, which has struggled over the last year, will recover and return to positive sales growth this year.

Among BCW Index companies, Invitrogen has been one of the most acquisitive over the past couple of years. Last year alone, the firm spent nearly $650 million to acquire eight companies. And while the M&A market in the research tools sector appears to be heating up — with Millipore inking a deal last week to acquire Serologicals for $1.4 billion and Siemens planning to buy Diagnostic Products Corp. for nearly $2 billion — Invitrogen has yet to pull the trigger on an acquisition this year.

Asked whether the firm's acquisition strategy for the year remained on track, Lucier said, "I think it all remains to be seen. We do deals to add to our strategy, and so, if it can create shareholder value then we'll pay the price to acquire a company, and if we can't, we won't," he said.

But for now, the firm is sticking with its expectation that it will spend roughly $500 million on M&A activity this year, said Lucier. And with $715 million in cash and investments as of March 31, as well as a $250-million revolving line of credit, Invitrogen has plenty of money to pay for it.

"I'm glad that we've done a lot of our industry consolidation in the years past, because we were able to do it at a far more economical rate than what others are having to do at this moment."

"In terms of DPC and Serologicals, those two properties have been available for some time and we thought about it … so, we're not surprised to see them sold," Lucier said. "I'm glad that we've done a lot of our industry consolidation in the years past, because we were able to do it at a far more economical rate than what others are having to do at this moment."

Millipore agreed to pay $1.4 billion in cash to acquire Serologicals. The $31.55 for each common share of Serologicals stock represents a 35.3-percent premium over the stock's closing price the day before the deal was announced (see BioCommerce Week 4/26/2006). Meanwhile, Siemens last week agreed to buy DPC for nearly $1.9 billion, a 21-percent premium over DPC's closing price the day before the announcement.

Invitrogen frequently acquires privately held companies, which makes comparisons with the Millipore and Siemens deals difficult. However, the firm paid $130 million, or $12.50 per share, last July to acquire BioSource International — which was a nearly 10-percent premium to BioSource's closing stock price of $11.40 the day before the deal was announced (see BioCommerce Week 7/28/2005). And Invitrogen did not pay a premium for its largest purchase, the $500-million acquisition of BioReliance in February 2004.

According to Lucier, Invitrogen's 2005 acquisitions are "about 90 percent integrated." He said Dynal Biotech (see BioCommerce Week 2/10/2005), which the firm purchased early last year for roughly $386 million, has been fully integrated into Invitrogen and "will become an ever more important part of our strategy" for the cell therapy and molecular diagnostics market. "In particular, around cell therapy we see a lot of growth happening over the next decade," said Lucier.

He said BioSource is being merged into the company's drug discovery business, and that integration is expected to be completed within the next 60 days. Quantum Dot, which Invitrogen purchased in October (see BioCommerce Week 10/13/2005), should be fully integrated in about 90 days, Lucier noted.

Lucier also said during the call that company officials expect to provide a timeframe this year on Invitrogen's path to market for diagnostic products. He noted, in particular, that the goal of the collaboration with the Mayo Clinic, inked in December 2004, was to see how Invitrogen's tools could be applied to molecular diagnostics (see BioCommerce Week 12/9/2004).

"We had very low expectations that we could actually develop something that would turn into a marketable product," said Lucier. "At this stage, we've been very fortunate to have been able to develop a cutting-edge test. We're moving into trials internally of that with Mayo, and if that's all positive our goal then would be to try and … turn it into an FDA-certified test."

The firm has not yet disclosed what indication that test targets.

Q1 Sales Rise, But BioProduction Unit Struggles

Last week, Invitrogen reported that first-quarter revenue grew 12 percent year over year to $309 million from $277 million. However, only 2 percent of that growth was organic as recent acquisitions helped growth by 13 percent and currency effects hurt results by 3 percent.

Invitrogen said its BioDiscovery unit posted 25-percent sales growth, of which 7 percent was organic. The unit brought in total first-quarter revenue of $203 million.

"In particular, around cell therapy we see a lot of growth happening over the next decade."

"The 25-percent [growth] overall reflects our continued acquisition strategy, and the 7-percent organic growth is really important, because we've spent a lot of time focusing on turning that into a much higher-growth, higher-margin business," said Lucier during the call.

Sales to the US National Institutes of Health were up 7 percent for the BioDiscovery unit, despite a flat funding environment, Lucier noted. Sales in Europe were up 8 percent for the quarter, while sales in Japan were flat.

Total sales of the firm's BioProduction unit, meantime, fell 8 percent to $106 million, while organic sales declined 5 percent. "This is mainly attributable to timing in our BioProduction business — that is, the media or biologics introductions."

Two weeks ago, Invitrogen cautioned that its first-quarter revenues would fail to meet expectations due to slower-than-anticipated sales in the company's US BioProduction and Japan businesses (see BioCommerce Week 4/19/2006). At the time, a company spokesperson stressed that the firm's biomanufacturing business was the cause of the shortfall in first-quarter BioProduction sales, not the GIBCO cell culture business or the BioReliance business, which has struggled over the past year.

"While we're disappointed with our revenue performance in US BioProduction and Japan, we are confident that specific actions are in place to impact the growth trajectory for these areas," Lucier said in a statement last week.

During the conference call, he said there were positive signs for the BioReliance business. He said orders for that business exceeded sales for the first time in several quarters. The firm does not break out sales numbers for individual businesses within its core BioDiscovery and BioProduction units.

"I think this is a good bellwether for what the future holds," said Lucier. "In fact, we see that business coming back nicely per our plan, and will have positive growth in the second quarter, and we see increasing growth in the balance of the year. We are investing heavily in that business."

Lucier said some of BioReliance's manufacturing is being consolidated at the firm's new campus in Scotland. The firm is centralizing its bioservices businesses at the new campus in Inchinnan, near Glasgow, which also will become Invitrogen's new European headquarters (see Briefs).

Last week, the firm announced that it divested BioReliance's German operations in a management buyout (see Briefs). "This is part of our pre-announced strategy to not be a contract manufacturer," said Lucier. "This was the last plant BioReliance had in Germany. We divested one before in the United States." He noted that the German business brought in about $8 million annually.

Invitrogen's profit for the quarter slumped to $19.2 million, or $.35 per basic share, from $47 million, or $.82 per share, year over year. Invitrogen said the results were in part due to $0.21 per share in Q1 2005 income related to currency gains associated with its acquisition of Dynal and stock sale gains that did not occur in Q1 2006. Similarly, first-quarter 2006 earnings included $30 million, or $0.23 per share, of higher costs associated with acquisition-related amortization, business integration, and other factors.

Invitrogen's R&D spending surged in the quarter to $28.9 million from $21.2 million in the year-ago period.

Company officials have predicted fiscal year 2006 revenue of $1.3 billion to $1.355 billion, and pro forma earnings per share of $3.90 to $4.10.

— Edward Winnick ([email protected])

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