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PerkinElmer Plans Acquisitions in 06; Will Increase Focus on Proteomics Dx Play

PerkinElmer is targeting acquisitions and additional alliances in 2006 as it places greater emphasis on its health sciences operations and looks to expand its growth platforms, company officials recently said in a conference call.

Specifically, company officials said the firm will expand its drug-discovery tool portfolio "to include next-generation proteomics diagnostics," including reagents for biomarker discovery.

PerkinElmer recently sold its aerospace unit and is in the midst of selling its semiconductor and fluid-testing unit. The divestitures are part of the firm's plan to concentrate primarily on its health sciences operations, which include its genetic-screening business, medical-imaging technologies, and molecular-biology tools (see BioCommerce Week 10/13/2005). Following the disposal of those non-core assets, health sciences sales will account for 82 percent, or $1.23 billion, of the estimated $1.5 billion in revenue PerkinElmer expects to report for 2005.

The remaining 18 percent of the firm's revenue, or $270 million, will come from sales of sensors and specialty lighting products to the photonics market — the other portion of the business it is retaining.

In a recent conference call setting 2006 guidance, company officials said the firm is targeting organic revenue growth of 5 percent to 7 percent in 2006. For 2005, the firm had forecast organic revenue growth between 4 percent and 6 percent, and CFO Rob Friel said during the call that the firm now expects that figure to come in at the low end of the range.

"We're looking more to extend the range of our product lines on our growth platforms … we secondarily look at some consolidation plays, but I would say those have significantly lower priority than those that extend the range of technology or geographic region or service capability in our growth platforms."

The company also predicted 2006 earnings-per-share growth between 25 percent and 30 percent to $1.20-$1.25.

Greg Summe, PerkinElmer's chairman and CEO, said, "We feel very good about our progress in 2005 and believe we're well positioned for a very good 2006. We're anticipating continued very strong cash flow" in 2006.

Friel said during the call, "Look for us to continue to invest in our proteomics reagents capabilities for advanced applications in biomarker discovery and new proteomics-based diagnostics. This would further complement and expand the BioXpression platform introduced in 2005.

"Our strategy here is to expand our technologies in drug discovery tools to include next-generation proteomics diagnostics," he added.

He said the firm also plans to expand its CellLux and LumiLux cellular imaging instruments into preclinical and development applications. "This is becoming an important area as pharma and biotech focus on safety and efficacy concerns."

Friel said the firm will further invest in automation and liquid handling systems, including the introduction of a next-generation Janus platform to do simultaneous dispensing and sample prep from two independently operating dispensing heads, allowing more complex applications to be automated.

PerkinElmer recently completed the sale of its aerospace unit to Eaton Corp. for roughly $333 million — $326 million in cash and $7 million of assumed obligations under capital leases. The firm expects net cash proceeds of $240 million from the sale of that unit, which would have brought in revenue of $155 million to $160 million this year.

Summe said the firm expects to close the sale of its semiconductor and fluid-testing unit in January for roughly $77 million, an amount nearly equal to the revenue those two businesses were expected to bring in this year.

As planned, PerkinElmer used proceeds from the sale of the aerospace unit to pay down its outstanding debt, which stood at $270 million at the time the sale was announced. Friel said these actions would result in the firm taking a fourth-quarter gain of $1.25 per share on the sale of the aerospace business and $.30 per-share gain on the reduction of debt.

According to the executives, PerkinElmer closed 2005 with net cash of over $250 million. Summe said that the priorities for that cash "revolve around growth either through capital expenditures internally, R&D, or of course on the acquisitions or licensing front. We did complete some 12 licensing agreements in 2005, [and] we are going to continue to keep a good pace up on those fronts, and be more aggressive on the acquisition side."

He said the firm may also initiate some selected share buybacks.

Asked what kinds of acquisition targets PerkinElmer may be considering, Summe replied, "Our threshold for acquisition targets is first and foremost around the strategic fit. We're looking more to extend the range of our product lines on our growth platforms … we secondarily look at some consolidation plays, but I would say those have significantly lower priority than those that extend the range of technology or geographic region or service capability in our growth platforms."

Following the guidance call, investment bank Needham & Co. downgraded PerkinElmer's shares to 'buy' from 'strong buy.' In trading this week, shares in the firm hit a 52-week high of $24.12.

— Edward Winnick ([email protected])

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