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Worst Now Behind It, Harvard Bio Ready for Turnaround At Restructured Genomic Solutions

Two years after its $26-million purchase of Genomic Solutions, Harvard Bioscience said last week that it can align the unit profitably with its operations.

“We believe we have taken the necessary steps to return Genomic Solutions to profitability on its current run rate of revenues,” Chane Graziano, the Holliston, Mass.-based company’s CEO, said in a conference call with analysts last week. “The worst is behind us.”

He did not say when he thought the struggling unit would become profitable. Harvard Bio expects that its efforts will “fully impact” first-quarter 2005 results.

The struggle to turn Genomic Solutions around has occupied Harvard Bio officials for most of 2004, and has clearly affected the firm’s market capitalization.

Though Harvard Bio’s stock was trading up at $4.22 early Wednesday afternoon (see BCW Index, page 8), the shares have in recent weeks hovered near their 52-week low of $3.51, on a downturn that started on May 6 after the company’s first-quarter earnings highlighted financial underperformance at Genomic Solutions.

For the quarter ended Sept. 30, Genomic Solutions contributed $23.2 million, or 25 percent, to Harvard Bio’s total revenue, up from $21.1 million for the same quarter in 2003. The company had net income of $957,000 for the quarter, down from $986,000 for the year-ago period.

Genomic Solutions’ revenue projections, Graziano said, “continue to track lower than expected.”

The unit posted a 29-percent decline in revenue compared to the year-ago quarter, but its gross margins have improved sequentially to 50.5 percent for the third quarter from 47 percent in the second quarter, and 43.6 percent in the first quarter.

Graziano said he was optimistic about Harvard Bio’s future despite a “disappointing” year so far, because he sees growth and strength in the life-sciences market, and because of the retooling of Genomic Solutions.

To turn Genomic Solutions around, Harvard Bio in the second quarter slashed costs by $3.6 million a year, shuttered one of the unit’s three factories, closed its sales office in Japan, laid off 36 employees, and restructured the unit into two groups.

“We believe that this unit structure is a necessary precondition for returning Genomic Solutions to growth,” David Green, the company’s president, told analysts.

Going forward, the unit will focus on growth areas in emerging markets, said Green.

The firm has split its marketing, focusing on two groups of end-users: the academic research market and the pharmaceutical industry.

Genomic Solutions manages instruments, software, and consumables, including the Cartesian Dispensing high-throughput screening products, Gene Machines and BioRobotics microarray technologies, and Investigator proteomics technology. It distributes products for DNA, RNA, and protein analysis through GE Healthcare, PerkinElmer, and Fisher Scientific International.

Finding Solutions

Genomic Solutions is an organization built around enabling the “home-brew” microarray market, selling technology platforms that would allow researchers to manufacture their own chips, according to the company.

Today, this market is believed to be in decline as mass-manufactured arrays are displacing these systems.

“We have started to focus our marketing efforts on what we think are the higher-growth application segments such as protein arrays, rather than what we think are the more mature applications, such as DNA microarrays,” Green said.

“I think the problem at Genomic Solutions is that you had sales people who were specialists in one of those product lines being asked to sell a very different and broad line of products across many different applications,” Green said.

With the reorganization, Harvard Bio began hiring sales and marketing staff in the third quarter, he said.

“We are probably short three or four people from where we would like to be to get on track,” Graziano said in the conference call.

Overall, Harvard Bio ended the quarter with $11.6 million in cash and cash equivalents.

The company spent $11.8 million for product sales, compared to $10.7 million for the year-ago quarter, while marketing and selling remained flat at $3.8 million. Harvard Bio also spent $3.4 million on general and administrative expenses, compared to $2.6 million in the same quarter in 2003.

Some $218,000 of the cost of product sales were related to fair value adjustments to inventory for the acquisitions of BioRobotics, Hoefer, and KD Scientific, and another $127,000 related to fair-value adjustments to inventory and backlog for products shipped in the quarter from the acquisitions of Genomic Solutions, BTX, GeneMachines, and BioRobotics, the company said.

Research and development expenses were $1.8 million, compared to $1.6 million in the year-ago period.

Additionally, Harvard Bio, which has acquired some 20 companies in the seven years since Graziano and Green took over leadership at the firm, created a new C-level position, shifting chief financial officer Susan Luscinski to the new position of chief operating officer, and hiring Bryce Chicoyne as CFO.

“One of the reasons we changed the [HBIO] organizational structure was to provide a higher level of scrutiny on acquisitions,” said Green.

Acquisitions will always be part of the company’s growth strategy, he added.

“Essentially, we will continue to pursue acquisitions,” he said. “We have learned some lessons along the way and we are proceeding more carefully and more thoroughly than in the past.”

— Mo Krochmal ([email protected])

 

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