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With Proposed Sale of Clontech, BD Set To Focus Solely on Cellular Analysis

Becton Dickinson on Monday said it plans to sell its Clontech business unit, putting on the sales block one of the most recognized brand assets in the molecular biology tools market.

The Franklin Lakes, NJ-based BD said it has retained Goldman Sachs to manage the deal and plans to take a $125 million pre-tax charge contingent upon completion of any sale of Clontech, a company acquired for $201 million in 1999. Clontech has 220 employees.

“The competitive dynamics in the molecular biology marketplace make it tough to become a leader,” Gene Vivino, vice president of strategic planning and portfolio management for BD’s Bioscience business unit, told BioCommerce Week on Tuesday. “The real differentiation is that in our other businesses, we are either 1 or 2; but in the molecular tools market, we are not, we are probably 4 or 5. We choose to focus on the businesses where we have strong leadership or can establish that leadership.”

Vivino said a sale of Clontech is not necessarily assured, but if one is negotiated, the company is hoping to have the deal close by the end of company’s second quarter of FY ‘05 in March. BD will release its Q4 results on Nov. 4.

“We are at the very beginning of this, we haven’t determined a buyer, or who is interested — all of that will take place during the current quarter,” Vivino said. “We may not even sell it.”

The plans to divest Clontech come three months after BD’s acquisition of Atto Bioscience, a privately held Maryland-based cellular imaging company, in a cash transaction valued at approximately $25 million. Atto reported sales of $3 million for calendar year 2003 and BD expects it to double its sales for calendar year 2004, BD said in a statement announcing the purchase.

“From purely a market perspective, we are focused on cell analysis, cell sorting, and now with the Atto acquisition, cell imaging,” Vivino said. “The molecular biology space just doesn’t quite tie into [cellular analysis] like we would have liked it to. It’s not the business we are focusing on.”

BD has built a $4-billion-a-year business on the foundation of cellular analysis, starting with the introduction in 1973 of the FACS product line, the first commercially available fluorescence-activated cell sorter. Since then, the company has become a leader in flow cytometry instruments and reagents for both research and clinical markets. Included in the company’s product line are flow cytometers and cell sorters, as well as applications and data management software, and a suite of reagents that allow users to analyze, isolate, and characterize immune cells from blood and tissue.

The proposed sale apparently will take BD out of the genomics, proteomics, and gene-silencing businesses at a time when the former is reaching market maturity, with a resulting slowdown in growth rates, while the latter two are just entering periods of accelerated growth.

“That is, in fact, where Clontech is focused,” said Vivino.

Clontech includes RNAi, qPCR, arrays, “some proteomics as they are involved in labeling and amplification technologies,” said Vivino.

“So, I think the short answer is that it won’t be the focus of our business,” he said.” My only caveat, and that is a small one, is that this is assuming that we sell of the company the way that it is. [And], that’s the plan, basically.”

Who Will Buy It?

Clontech’s value is the main question that the Goldman Sachs investment bankers, and the agents for potential buyers, will be analyzing.

The process of fixing a valuation is the first step in a sales negotiation and that step begins by looking at similar companies. However, in a fragmented marketplace like the molecular tools market, one full of niche players, determining a truly comparable set of companies is a complicated and non-quantitative process.

“That is more art than science,” said Ken Goldman, a former Lehman Brothers analyst and now chief investment officer of Stockton Partners, a New York private-equity firm.

Both Goldman and Vivino listed BD competitors Invitrogen and Affymetrix, as well as reagents companies Qiagen, and Stratagene as possible comparable companies. Companies that could be in the potential buyer mix could include Harvard Biosciences and Fisher Scientific, two active acquirers in the molecular tools space.

The pricing determination will be made by calculating financial performance comparisons from the comparative set, as well as determining the value of patents and strategic collaborations.

Clontech enables its product sales from a combination of patents, and has collaborations with Abbott Laboratories, the Fred Hutchinson Cancer Center of Seattle, Pangenix, and GE Healthcare.

The Product Line

BD Biosciences Clontech provides research reagents and assay kits with applications for genomics, functional genomics, proteomics, and drug discovery. Major product brands include BD Atlas, BD Living Colors, BD Creator, BD Clontech, and BD Matchmaker.

BD closed the acquisition of Clontech on Aug. 26, 1999, for $201 million in a move that Deborah Neff, then president of BD Biosciences, said added a complementary piece to the company’s portfolio of immunology and cell biology products. The acquisition came in the midst of nearly a dozen acquisitions in 1999 for which BD spent some $381 million and issued some 357,522 shares.

Since then, Neff left BD, to become president and CEO of Predicant Biosciences in August 2003. She was replaced as president of BD Biosciences, one of three operating units of parent BD, by Vincent Forlenza, a 24-year veteran of the company who previously was senior vice president of technology, strategy, and development.

Since 1999, Clontech has provided parent BD with some $263 million in revenues in the life of the acquisition, but at a shrinking rate of returns as the company seeks to convince Wall Street that it can produce double-digit growth.

The Clontech acquisition contributed $80 million in revenues for BD in 2001 and a contribution of $73 million in revenue helped BD pass $1 billion in revenues for the first time by April 2002. But, in 2003, Clontech revenues dropped to $64 million, and for the first nine months of FY ‘04, the business segment has contributed $46 million. in revenues.

Clontech was founded in 1984 in Palo Alto, Calif., by former NIH molecular biologist Ken Fong and his wife Pam. The company recorded $50,000 in sales in 1984, its first year; $200,000 in its second; and in its third year, earned $1 million on sales on the strength of sales of cDNA pools and DNA libraries.

—Mo Krochmal ([email protected])

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