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Molecular Devices to Enlarge Sales, Service Operations in Asia, South America This Year

Molecular Devices is planning to open new offices in China and India and intends to expand its South American operations this year, CEO Joe Keegan told BioCommerce Week.

Keegan also said the company will continue to follow its past strategy of making one small acquisition per year, and cautioned that as Molecular Devices itself matures into an attractive acquisition target, the company would not come cheap.

In addition, he said during an interview this past week that Molecular Devices plans to return consumables sales to 20 percent of total revenue — they represented 16 percent in 2005 — though even at that level it would still be below the 25 percent the company had enjoyed in past years.

The firm, which currently has an office in Shanghai, is planning to open new offices in Beijing and Bangalore soon, with Brazil to follow after, Keegan said. The primary focus of the expansion will be in its sales and service operations, which currently employ about 200 of the firm's roughly 550 staffers globally. However, Keegan did not disclose how many employees the firm intends to add during the global expansion.

While Molecular Devices may consider acquiring another company this year, the firm is an attractive acquisition target itself. But the CEO cautions, "We would be expensive. We like running the company and the board has no intent to sell" the firm.

Many of the firms in the BCW Index, including Agilent, GE Healthcare, Thermo Electron, Fisher Scientific, Beckman Coulter, Invitrogen, and Qiagen, have greatly expanded their operations over the past couple of years in China and India, opening sales and service offices and demonstration centers. Most recently, Waters said that it would cut 70 employees from its staff as part of a restructuring and resource reallocation plan begun last month that will help support the firm's growth in Asia (see BioCommerce Week 3/8/2006).

While some other firms in the Index have said that they will shift resources from other parts of their businesses to Asia, or have restructured their businesses while expanding in that region, Keegan said Molecular Devices would not have to do either of these things. The cost of labor in China and India is cheaper than in the US and Europe, and sales in those countries would more than offset the costs incurred from expanding there, he said.

Acquisition Strategy Unchanged

Also unlike several of its competitors, Molecular Devices has a modest acquisition strategy. The firm has traditionally done one acquisition per year, and it usually is a relatively small purchase, Keegan said — and he doesn't expect that to change in 2006.

Molecular Devices' acquisition of Axon Instruments in July 2004 for $140 million in cash and stock was fairly large by the company's standards. The purchase brought Molecular Devices the ImageXpress cell-imaging products line, the PatchXpress system for ion channel analysis, and scanners for DNA and protein arrays. Perhaps most importantly, Molecular Devices gained a direct sales channel for its products, which it had previously lacked.

That acquisition, along with the earlier purchase of Universal Imaging and its MetaMorph image-analysis software, began the rapid expansion of Molecular Devices' cell imaging products line. Over the past year and a half, Molecular Devices has launched the ImageXpress Micro, and most recently the ImageXpress Ultra, taking aim at BCW Index rivals GE, Fisher, Thermo, and PerkinElmer (see BioCommerce Week 2/1/2006).

Keegan declined to say during the interview this past week what types of products the firm may be looking to add to its portfolio through an acquisition. He said that although Molecular Devices had concentrated on building up its cell imaging business this year, the firm still considers its fluorometric imaging plate readers a key part of the business. Molecular Devices does not break out revenues for specific product lines, but the firm said that its FLIPR imaging plate reader system produced record revenue for the fourth quarter of 2005.

While Molecular Devices may consider acquiring another company this year, the firm is an attractive acquisition target itself, Keegan acknowledged. With a variety of large medical equipment manufacturers or other diversified tool providers looking to snatch up narrowly focused, yet profitable, tool providers, Molecular Devices would appear to be the kind of company seriously considered for a takeover.

But Keegan said, "We would be expensive. We like running the company and the board has no intent to sell" the firm.

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For the year ended Dec. 31, 2005, Molecular Devices posted revenue of $181.2 million and net income of $15.9 million. The firm currently has a market capitalization of $535 million, and its shares have risen rapidly from $20.32 six months ago to $32.45 at Tuesday's close — a rise of 60 percent (see chart). In comparison, the BCW Index rose 8.1 percent during the same period.

Growing Consumables

Capital equipment vendors such as Molecular Devices rely on the sale of consumables to mitigate the cyclical ups and downs of big-ticket sales to pharmaceutical and academic customers. Keegan said that although the firm has not experienced the difficulties other vendors have reported in selling to big pharmaceutical companies, Molecular Devices is hoping to raise its consumables sales to 20 percent of total revenue. Those sales represented 16 percent of total revenue in 2005 and a 19-percent increase over 2004.

During the firm's recent fourth-quarter conference call, CFO Tim Harkness said the goal of consumables sales reaching 20 percent of total revenue was somewhat set back by the Axon acquisition, because it brought mostly hardware to the firm's portfolio. He said that in previous years, the firm's consumables represented roughly 25 percent of total revenue.

Keegan said he expects sales of the firm's IMAP assays for screening kinases, phosphatases, and phosphodiesterases to help grow consumable sales this year. The firm also sells a variety of assays for GPCR, ADME, and ion-channel screening.

— Edward Winnick ([email protected])

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