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With Realignment Plan Set, Invitrogen Expects Acquisitions, IT Improvements to Drive Growth

Invitrogen officials last week pointed to heavy investments in acquisitions, improvements in the firm's information technology infrastructure, and its planned divisional and sales force realignment as key growth drivers for the company in 2006 and beyond.

During a guidance conference held in New York City, company executives forecast 2006 revenue growth of 12 percent to 14 percent to $1.33 billion-plus. The primary forces behind these predicted gains are the many acquisitions the firm made over the past two years — and expects to make in 2006 — and heavy investment in its IT infrastructure aimed at capturing economies of scale in the customer-ordering process.

"This business becomes much more like Amazon in the future," Greg Lucier, Invitrogen's chairman and CEO, said, comparing the firm to e-commerce retail giant "That's costing a lot of money to do it."

In 2004, 30 percent of the firm's orders worldwide came through the Internet, Lucier noted. In 2005, that number grew to 40 percent. He said Invitrogen expects Internet orders to surpass 50 percent of its total sales next year, and eventually such sales will reach the 80 percent range.

"We had four or five hundred salespeople trying to sell 20,000-plus products. It just doesn't work. Now, we have generalists trying to sell everything, and they can do so somewhat effectively. But they're more focused on relationships [and will be] supported by sales specialists."

Another key component of the firm's growth strategy is the realignment of its divisions and sales force, which is to take effect Jan. 1 (see BioCommerce Week 12/8/2005). The realignment plan, which Lucier said would be cost-neutral, calls for Invitrogen's BioDiscovery unit to have two divisions, Life Sciences and Enabling Technologies, while the BioProduction unit, though it will remain virtually unchanged, will include a division called Bio-Production Services and Systems.

But probably more important to Invitrogen's growth plans is the reorganization of its sales force, under which the firm will maintain a large staff of generalists, who will be supported by teams of specialists organized around technology workflow areas.

"We had four or five hundred salespeople trying to sell 20,000-plus products," Lucier said during the guidance conference. "It just doesn't work. Now, we have generalists trying to sell everything, and they can do so somewhat effectively. But they're more focused on relationships [and will be] supported by sales specialists, who only get paid on the products we want them to get paid on.

"We think this is really going to jumpstart the organic growth rate in the company, and is really the logical step."

2006 Growth Predictions

Lucier said Invitrogen would finish 2005 with an organic-growth rate of 6 percent, and he predicted a 2006 organic-growth rate of 6 percent to 8 percent. Total revenue growth, expected to be between 12 percent and 14 percent in 2006, excludes changes in currency rates and the contribution of future acquisitions.

He said biotech spending is expected to be strong, and despite what he characterized as "low" NIH funding, Lucier said the firm expects revenue from US academic and government customers to grow in the high single digits. Spending by big pharmaceutical companies has been a "mixed bag," Lucier said, and is highly variable from company to company, but he said the firm hopes to make those sales more consistent during the next year.

According to Lucier, Invitrogen has been able to ramp up R&D spending over the last few years without sacrificing margins. He said the firm will spend well over $100 million on R&D, equal to roughly 9 percent of sales, in 2006.

Invitrogen officials said they expect 2006 earnings per share of $3.90 to $4.10, which equates to14 percent to 20 percent growth over expected results in 2005. The EPS forecast includes integration costs for the businesses Invitrogen acquired over the past two years, but not potential future purchases — so, the figure is likely to be updated as 2006 progresses.

The firm's free cash flow is expected to rise 5 percent to 6 percent to a total of $225 million to $235 million. However, Lucier said Invitrogen expects to complete the improvements to its IT infrastructure, as well as a new nanotech center at its Molecular Probes facilities, in late 2006, clearing the way for its cash flow to increase dramatically in 2007 to more than $265 million.

Lucier acknowledged during the conference that Invitrogen may have made some mistakes in the integration of the BioReliance business, which was acquired in February 2004 for $500 million. A sweeping program to make the business perform more consistently led to some key employees leaving, he noted, adding that the firm learned lessons from that particular integration.

Invitrogen also replaced the management of BioReliance this year, and betting that the IT improvements will pay off, the firm expects the business to recover in the second half of 2006. Part of that prediction is based on the firm's view that the pharmaceutical industry will continue to move towards a cost-variable structure and outsource many activities, such as those provided by BioReliance.

"Long-term, our goal is to make this the most differentiated testing business around …assay development and things like that," Lucier said. "We thought we could bring a lot of science to the testing business. In 2006, we have a few good programs to do just those types of things," he said, though he didn't specify what those programs would be.

Acquire, Integrate, Repeat

During the conference, CFO David Hoffmeister said Invitrogen's spending would be consistent with historical results. He noted that the firm had spent around $500 million each of the last two years on acquisitions and probably would spend around that amount again in 2006, though it would probably be spent on buying fewer companies.

Invitrogen purchased eight businesses during 2005 with an eye clearly on applications closer to the patient, primarily molecular diagnostics (see BioCommerce Week 12/8/2005). Lucier said that although the firm added many new pieces this past year, the strategy was very focused. He said the plan for 2005 was to build the cell biology and proteomics businesses — areas where the firm sees science moving toward — and it did just that through the acquisitions of firms such as Dynal, Quantum Dot, and BioSource.

Lucier said the firm would likely add more reagents to its portfolio throughout 2006 and continue to focus on near-patient applications. Asked by one analyst during the conference if imaging agents was an area the firm might get involved in, Lucier said, "It's something that's being looked at and studied inside this company," but he cautioned, "it's a little further out."

If Invitrogen does move into that field, it would be taking on some mammoth well-established competitors, such as GE Healthcare and Siemens, which are working on pairing their imaging capabilities with molecular diagnostics.

Also on Invitrogen's radar is expanding its capabilities for fulfilling US Food and Drug Administration marketing requirements. "We have a very nascent FDA capability, and a very nascent marketing approach in this area" of near-patient applications, Lucier said. "There's a whole different way we would have to retool this company, and I think you'd have to think about it becoming another big division in the company ultimately."

Lucier reiterated that Invitrogen plans to acquire businesses to add to the BioProduction unit, but said adding a testing lab is not of interest to the firm.

— Edward Winnick ([email protected])

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