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Invitrogen Recasts 2003 EPS To Reflect Accounting Change

Invitrogen last week issued its fourth-quarter and full-year financial report for 2004, and restated its 2003 earnings calculations to comply with new accounting standards for public companies to report the potentially dilutitive effect of contingently convertible debt on earnings.

"It's a what-if analysis, showing what could happen," Steven Huddart, an accounting professor at Pennsylvania State University, told BioCommerce Week.

"It's a relatively minor point," Invitrogen CFO David Hoffmeister told BioCommerce Week. "Normally when companies restate, it is because an accounting error has been found. The only reason we are restating is because of the accounting change implemented this year by the accounting standards boards that requires everyone with convertible debt with certain features to include the potential shares. And, if you do that, any comparisons will have to be put on a comparable basis, and that is what we have done."

The new mandatory reporting standards went into effect on Dec. 15 and Invitrogen, and a number of other companies holding such debt, recast financial data to reflect the change. Invitrogen said in its profit and loss statement that it restated its 2003 diluted weighted average shares and earnings per share to reflect the recommendations of the Emerging Issues Task Force of the Financial Accounting Standards Board.

Using a fully diluted share count of 60 million shares outstanding, reflecting more than 8 million potential additional shares from contingently convertible 1.5-percent convertible senior notes due in 2024, and its 2 percent notes due in 2023, the company reported diluted earnings per share of $0.55 for the fourth quarter of 2004. Before the change, earnings per share would have been $0.60 a share. For the year, diluted earnings were $1.63 a share, compared to $1.72 undiluted.

In 2003, the company's diluted EPS was $0.24 a share for the same quarter, $0.25 undiluted, and diluted earnings were $1.17 for the year, compared to $1.19 undiluted.

Invitrogen's total revenues for Q4 '04 were $262.2 million, up 26 percent over $207.8 million in the same period last year. The company had revenues of $1.1 billion for the full year, up 32 percent over $778 million for 2003.

The company projects total revenues ranging from $1.164 billion to $1.184 billion for 2005.

Gross margins for the year were 62 percent, compared to 51 percent for 2003, but the company has likely hit the ceiling for margin expansion, David Hoffmeister, Invitrogen's CFO, told analysts during a conference call.

"We believe margins will be flat going forward," he said. "We are going to drive improvements in productivity and make investments in manufacturing to bring on stream the products we are developing."

The company's BioDiscovery business unit recorded $149 million, or 56 percent of Invitrogen's total Q4 revenues, compared to $106 million and 51 percent of revenues in the year-ago period. The growth was attributed to a portfolio of "higher-value, proprietary product offerings."

The segment improved its gross margins slightly to 70 percent for the period, compared to 69 percent in the year-ago period.

The year over year growth of 7 percent for the BioDiscovery unit was boosted 4 percent by currency-exchange benefits. The unit had 2 percent growth, excluding currency and acquisitions, the company said.

The company will initiate its marketing and distribution alliance with oligo-maker Illumina in April (see BCW 12/23/2004), but revenues from this deal will likely not have a material impact on the company's results until 2006, Lucier said.

The company's BioProduction business unit had fourth-quarter revenues of $113.2 million, compared to $56 million for the same quarter last year. The company said that quarterly revenues for the unit were aided by the performance of BioReliance, a Rockville, Md.-based contract service organization that was acquired for $403 million in an all-cash deal last February, in addition to demand for its cell culture products. The unit had a foreign exchange benefit of 4 percent for the quarter. The company did not disclose further details of BioReliance's performance other than to say it was the group's strongest quarter ever, with record revenue and margin expansion.

Overall, the company's SG&A expenses grew 17 percent year-over-year to $75 million, or 29 percent of sales, compared to $65 million and 31 percent of total revenues in the year-ago period.

"We have created a sales force that is now more adaptable for change," said Lucier. "We have made it clear that this is the most adaptable sales force in life sciences."

It well should be, as Invitrogen has been on a spree of almost an acquisition a month. The company on Feb. 8 announced its plan to acquire Dynal Biotech. In January, the company said it would acquire Zymed Laboratories, a deal that closed Feb. 14. In December, Invitrogen announced it would buy BioAsia.

Lucier said that in the last 90 days, the company's 600-person sales force had created a new catalog for DNA Research Innovations, which was acquired for $35 million in cash and another $30 million in contingency payments in October, and had completed training on selling DRI's ChargeSwitch technology for DNA/RNA purification and other new products.

"We are constantly adjusting how we sell for how our customers buy," Lucier said. "We formulate specialized teams for new products, and we dismantle them as quickly as we can move to our broad sales force."

Fourth-quarter R&D funding grew to $20 million from $16 million, but dipped slightly as a percent of sales year over year, to 7.6 percent of sales in 2004 compared to 7.7 percent of sales in 2003.

The company reported cash and investments of $983 million as of Dec. 31.

Asia Marketplace

With the recently announced intent to acquire Dynal, Invitrogen will consolidate is BioAsia operations into Dynal's facilities in Beijing, said Lucier. The company will have manufacturing in Bejing and in Shanghai.

"We will have very substantial operations in China with Dynal," Lucier said.

— Mo Krochmal ([email protected])


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