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Invitrogen to Offload Struggling BioReliance Business as Q4 Revenues Beat Expectations

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Invitrogen announced this week that it had reached an agreement to sell its long-struggling BioReliance unit to private equity firm Avista Capital Partners for approximately $210 million.
 
The sale will mark the end of a rocky three years under Invitrogen’s management, but it also will result in an overall decline in Invitrogen’s revenues in 2007, company officials said during a conference call this week. Meanwhile, the firm reported fourth-quarter revenue of $330 million, which was higher than expected and was partially due to a rebound in its BioProduction Media business.
 
The sale of BioReliance, which Invitrogen acquired in early 2004 for roughly $500 million, comes at the end of a portfolio review launched last summer that was expected to result in some divestitures of either business units or product lines (see BioCommerce Week 8/9/2006). The unit never met expectations and became a drag on earnings over the past couple of years.
 
“When we purchased this business in 2004, we believed there would be great synergy between Invitrogen’s cell culture media business and the testing and development capabilities within BioReliance,” said Invitrogen Chairman and CEO Greg Lucier during the conference call. “Quite frankly, the strategic fit never materialized, as clients believed each offering had to stand on its own. I would also say we owned this business at a particularly bad period for biologics and their movement through the pipeline.”
 
Invitrogen expects to complete the BioReliance sale within the next 60 days, said Lucier, and will list the business on its balance sheet as discontinued operations as of Jan. 1. The business unit is part of Invitrogen’s Cell Culture Systems segment, which also comprises the firm’s cell culture research business, biomanufacturing business, and sera business.
 
“We remain committed to the bioproduction space as a partner for advanced cell culture products and our PD-Direct services that help companies achieve process scale-up,” said Lucier.
 
Q4 Revenues Rise Slightly
 
For the fourth quarter of fiscal 2006, Invitrogen reported revenue of $329.8 million, a 1.4 percent increase over revenue of $325.3 million in the comparable period a year ago. Though it wasn’t much of a jump, the results beat Wall Street expectations of $310 million to $320 million for the quarter.
 
“The quarter was stronger than we originally expected, due to a combination of favorable market factors, including a reversal of trends we experienced in late Q3, currency, and strong performance in our BioProduction media segment,” said Lucier during the call.
 
The firm’s BioDiscovery segment brought in fourth-quarter revenue of $213 million, up 3 percent year over year. With products from BioSource and Molecular Probes, two of the segment’s businesses, generating double-digit growth, according to Lucier.
 
The Cell Culture Systems segment reported fourth-quarter revenue of $117 million, down 1 percent year over year. The Sera business unit had an 11 percent decline in fourth-quarter revenue.
 
Invitrogen posted a net loss of $100.2 million, or $2.08 per share, for the quarter, with results negatively affected by a $148.9 million charge for purchased intangibles amortization. The firm had reported net income of $50 million, or $.87 per share, in the fourth quarter of 2005, which included a $30 million charge for the same line item on the balance sheet.
 
Invitrogen’s R&D spending for the quarter declined 7.7 percent to $25.3 million. R&D spending was 7.4 percent of revenues in the quarter, and company officials said during the call that they believe 7 percent to 8 percent of sales is an appropriate level of R&D spending for the next few quarters.
 
Lucier said that the firm will continue to invest in collaborations, but in reviewing in-house R&D projects, “we really culled them back and really got very focused on where we’re going to get the biggest payback.”
 
5 Percent Revenue Growth in Difficult Year
 
For full-year 2006, the firm reported revenue of $1.26 billion, up 5 percent from revenue of $1.2 billion in 2005.
 
The BioDiscovery segment had 12 percent revenue growth to $821.9 million for the year, while the Cell Culture Systems segment declined 4 percent to $441.6 million.
 
Lucier noted that the firm’s Sera business was down 40 percent in the first half of 2006, which led to a review of that business. “Based on this study, we developed an approach that allowed us to more effectively manage the collections and cash generation of the business,” he said. “We’re confident that this plan, which is now being executed, will allow us to minimize the wild swings we saw in 2006 and future years.”
 
However, company officials said during the call that they expect revenues from the Sera business to decline roughly 10 percent in 2007.
 

“The quarter was stronger than we originally expected, due to a combination of favorable market factors, including a reversal of trends we experienced in late Q3, currency, and strong performance in our BioProduction media segment.”

Invitrogen’s BioProduction Media business also struggled in the first half of the year, but Lucier said that the business had rebounded in the second half of the year and is now “very healthy”, and “some of [the] lumpiness and problems we saw in ’06 are not going to be repeated in 2007.”
 
Invitrogen also swung to a $191 million, or $3.72 per share, net loss in 2006 from a profit last year of $132 million, or $2.33 per share. The 2006 results include a charge of $387.7 million for purchased intangibles amortization, compared with a charge of $115.3 million last year for the same line item.
 
Company officials said the portfolio has been completed and the firm does not anticipate taking any further write-offs related to that process.
 
The firm’s R&D spending rose 8.4 percent to $107.6 million for the year.
 
Invitrogen finished the year with $380 million in cash and short-term investments, and $1.2 billion in debt.
 
Integration issues, the result of acquiring 15 businesses over the course of 2004 and 2005, took their toll on Invitrogen and forced the firm to “confront and fix some fundamental issues in our sales organization and back office operations,” said Lucier.
 
Some of those efforts included overhauling its IT infrastructure, consolidating facilities, and adjusting its sales strategy. Lucier said the sales strategy “got a little complicated” in 2006 as the firm’s product offerings almost doubled year over year due to the acquisition binge. “The leadership team struggled in 2006,” he said, and now the firm is implementing a strategy in the Americas that follows what it believes is a successful strategy in Europe.
 
Invitrogen also recently sold a small Belgium-based diagnostics subsidiary of BioSource and is now selling BioReliance, which together brought in 2006 revenue of approximately $117 million.
 
Invitrogen’s guidance for 2007 excludes the revenue from those two businesses, which provides a base of $1.15 billion for comparison. Company officials said the firm expects to report low- to mid-single digit revenue growth and earnings per share of $3.09. Including BioReliance’s contribution in 2006, Invitrogen’s revenues are expected to decline year over year.
 
Despite this forecast, investors reacted favorably to the fourth-quarter results and the news that the BioReliance business would be sold. In mid-day trade on Wednesday, the first day of trading after the results were released, Invitrogen’s shares were up roughly 8 percent at $65.30.

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