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Millipore’s Q3 Revenues Rise 38 Percent, Though Serologicals Integration Delays Product Releases

Millipore reported a 38-percent spike in third-quarter revenue last week, driven mostly by the addition of Serologicals’ sales, though company officials said that problems consolidating Serologicals caused “near-term disruptions” in shipping products to customers during the quarter.
 
Millipore’s executives said during a conference call last week that they are fixing the problems, which were apparent in the third quarter. The officials said the primary issues are related to inaccurate product and customer data files that caused delays in releasing products.
 
They also said they are taking steps to win back eroded market share for the firm’s kinase screening business, including restructuring its management team and increasing sales efforts.
 
During the conference call, Millipore Chairman and CEO Martin Madaus said the sales operations of Millipore and Serologicals would be completely combined during the first quarter of 2007. Millipore acquired the firm for $1.4 billion earlier this year, greatly expanding its Bioscience Division’s portfolio and customer base (see BioCommerce Week 4/26/2006).
 
Madaus said that activities from Serologicals’ multiple locations were consolidated into Millipore’s Temecula, Calif., facility this summer. “There are problems with this consolidation that became only apparent during the summer,” he said. “As a result, some product development commercial activities in Temecula were adversely affected in Q3. These are problems that can be fixed but are causing near-term disruptions. Improvement initiatives are being implemented right now, and we're already seeing better performance in Q4.”
 
Beating Back Rivals
 
But integration problems are not the only concern for Millipore, as Madaus pointed to competitive pressure on the firm’s drug discovery business unit. “We disclosed in September that we saw competitors aggressively targeting the kinase screening segment of our overall drug discovery business,” he said. “The increased competitive pressure in this segment and lack of effective response to these pressures by previous managements led to lower-than-expected drug discovery revenues in Q3.”
 
However, Madaus said the problems are short-term and fixable, and the overall market remains strong. “Our increased focus and the portfolio that we have will help us to strengthen already strong relationships with customers,” said Madaus.
 
He said the firm had taken steps “to get the kinase screening business unit back on track.” The first was restructuring the management team under the leadership of Rick Ryan, former president of reagents maker Linco, which Serologicals acquired earlier this year for $74.8 million (see BioCommerce Week 3/29/2006).
 
“We [also] have developed new tools for our sales force and increased our sales efforts with key accounts,” Madaus said. “Finally, we have realigned the product segments for better focus, and we're developing new offerings that will be introduced to the market very soon. We've already seen some early success from this effort as two of our largest customers increased their level of business with Millipore after a recent visit.”
 
Madaus said he is confident Millipore could regain market share because of its “broader product offering … and a stronger sales organization,” since the Serologicals acquisition.
 
“Our strategy is not necessarily to be a low-cost leader,” he said. “We are developing a strategy that's based on product differentiation. Some new products will be launched, we're adding some capabilities, and we're training our sales force to sell the value of that proposition.”
 
Serologicals Adds to Big Revenue Gains
 
Millipore’s third-quarter revenues increased 38 percent to $330.1 million from $239.6 million year over year. Excluding sales from Serologicals, Millipore had revenue growth of 10 percent, which was slightly below the firm’s expectations, Madaus said.
 
Serologicals contributed $63 million in revenue for the quarter, though Madaus pointed out during the call that the acquisition was completed July 14 — so two weeks of revenue during the quarter are not included in the total. He said Serologicals would have contributed $74 million if a full quarter of revenue was included.
 
Madaus would not provide expected sales for Serologicals in the fourth quarter, but said that the quarter is usually stronger than the third, and the firm is “counting on that.”
 
Compared with the third quarter of 2005, sales for the company’s Bioprocess Division were up 34 percent to $195 million, while its Bioscience Division gained 44 percent with sales of $135 million. Excluding Serologicals’ contribution, the Bioprocess Division improved 13 percent for the quarter, while the Bioscience Division grew 6 percent.
 
Excluding Serologicals, Millipore’s sales in the Americas grew 11 percent in the quarter, while Asia Pacific sales grew 18 percent, and European sales grew 6 percent.
 
Millipore’s R&D spending in the quarter increased to $24.6 million from $18.9 million year over year.
 

“Some product development commercial activities … were adversely affected in Q3. These are problems that can be fixed but are causing near-term disruptions.”

During the quarter, the firm opened a new $50 million R&D center for its Bioprocess Division in Bedford, Mass. Madaus said the new facility should help Millipore “attract top technical talent and have a positive impact on our overall R&D productivity.”
 
The company’s profits declined to $14.8 million, or $.27 per share, from $22.9 million, or $.44 per share, in the year-ago period, due mostly to several items related to the Serologicals acquisition. Among those items are $13.3 million for amortization of Serologicals inventory, $2.2 million related to amortization of intangibles, and $6.1 million in integration expenses.
 
Also on the firm’s balance sheet for the quarter is $19.1 million in assets held for sale. Madaus said that those assets are Serologicals’ buildings, which are not being used, in Kansas and Lake Placid, NY.
 
Millipore finished the quarter with roughly $91.4 million in cash and cash equivalents.
 
Madaus said that excluding Serologicals’ contribution and currency rate changes, Millipore expects 2006 revenue to grow between 10 percent and 12 percent, with organic growth of 8 percent to 10 percent.
 
Madaus also said Millipore expects to finish integrating Serologicals’ sales team in the first quarter of 2007.
 
“Cross-training has already occurred in Bioscience,” he said. “The planning for the fully integrated sales force in Bioscience, which is mainly in North America, [and] some in Europe, is in full swing. We will review this and approve this plan during this month and roll it out in Q1 2007.
 
Madaus noted that the firm has a similar process in place for the Bioprocess Division. “We will have a combined organization in Q1 of '07,” he said. “Internationally, we are working with the various distributors right now and defining our go-to-market plan for the Serologicals products in those markets. So that the main area to focus on is clearly North America and Europe, and that's well underway.”
 

Madaus recently told investors at the UBS Global Life Sciences Conference in New York that the acquisition of Serologicals would help double the value of Millipore by 2009 (see BioCommerce Week 10/4/2006).

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