San Francisco — Invitrogen began 2005 much like it ended 2004 — with another acquisition.
The company on Monday announced an agreement to pay $60 million in cash to acquire South San Francisco, Calif.-based Zymed Laboratories, an early-stage immunoassay reagent company that is projected to bring in revenues of $15 million in 2005, and another $22 million in 2006.
News of the impending acquisition coincided with Invitrogen’s presentation to investors at the JPMorgan Healthcare Conference, held here this week. Speaking to an estimated crowd of 500 people in one of the largest meeting rooms of the St. Francis Westin Hotel on the first day of the conference, Invitrogen CEO Greg Lucier said that the acquisition, which is expected to close in February, “fits into the company’s functional genomics” strategy.
Zymed “gets us entry into pathology, which is a great reagent business,” Lucier said. “We can provide diagnostic tools, assays, and reagents without being a heavy-metal equipment provider, which is something we don’t necessarily want to do in the diagnostics business.”
Privately held Zymed, with 88 employees, offers a catalog of 2,000 antibodies, as well as reagents, proprietary chromogenic in situ hybridization technology (CISH), and tissue and protein arrays. Zymed’s manufacturing facility will become the primary site for Invitrogen’s antibody production and distribution, Invitrogen said.
In the razors-and-blades world of molecular biology tools providers, Invitrogen provides the reagents and consumables, but not the instruments, and this deal does nothing to change that model.
Invitrogen will offer Zymed’s antibodies as diagnostic kits, seeking FDA approval “as necessary,” said Lucier.
He declined to elaborate further on Invitrogen’s diagnostics strategy.
“We have an effort underway to take a more expansive view of the word ‘reagents,’ and tools,” Lucier said. “You can see our first step in that with our entry into in pathology with Zymed, which has a great reagents business in it. We have the same approach with diagnostics to see if there can be a business created around tools, assays, and reagents, but we will leave our diagnostics approach for another day, when it’s ready for prime time,” he said, giving a time frame of the first half of 2005 for that.
Norrie Russell, who became vice president of functional genomics for Invitrogen in November (see BCW 11/18/2004), told BioCommerce Week that while Zymed has an antibody array, that particular product, which is complementary to Invitrogen’s recently launched human protein microarray products, was not the driver for the acquisition.
“That’s a benefit, but not the principal reason,” he said. “We had a gap in our portfolio, and this fills it, and opens up the pathology market.”
Zymed’s diagnostics business sells a line of slide-based cellular and molecular reagent systems, including antibody tumor markers, DNA probes, detection systems, and assay kits for both manual and automated staining using biopsy specimens.
Russell said he didn’t have a size for the pathology market, but “it’s big business.”
The Zymed acquisition “gives Invitrogen a solid platform,” said Tycho Peterson, an analyst with JP Morgan. “It gives them a bigger presence in antibodies, but this doesn’t change our projections for the company; it’s early.”
A Zymed official said the CISH technology is preferred to FISH (fluorescence in situ hybridization) by oncologists and pathologists outside the US. In the US, Zymed is preparing the technology for FDA review, the official said.
The deal was completed within a space of a couple of months, Invitrogen CFO David Hoffmeister told BioCommerce Week.
“We have been looking at the antibody space for about a year,” Hoffmeister said. “We went through a very thorough process of looking at all the candidates. Zymed was on our list, and given that previous work, when we initiated contact with them, it went very quickly.”
The next step, as has been the case for the previous nine acquisitions that Invitrogen has done in the last two years, is integration, which, Hoffmeister said, is always challenging.
“Historically, we have done okay at [integration] but not captured all of the opportunities, or captured them as quickly as we could,” he said. “There is still opportunity for improvement.”
Invitrogen has a due-diligence team composed of workers from its corporate development, finance, operations, and members from business units, Hoffmeister said.
“That team does not only the due diligence, but puts in place a detailed implementation plan,” he said. “We have a template for both the due diligence and the implementation, so that once the deal is consummated, we are ready to go. We have identified the people that are going to run it, where it’s going to fit in our organization, what we believe the synergies are, how we are going to capture them. It is something that is critical to our success and we have to get better and better at it. We are constantly working on it.”
Invitrogen evaluates a potential acquisition’s technology, revenue growth, and the targeted firm’s ability to maintain or improve margins, Hoffmeister said.
What Invitrogen can apply to an acquisition is its sales force, he said.
“We have a larger, [more] specialized, technical sales force than practically anybody out there,” he said. “Products that are just being commercialized, we can roll them out much faster. It would take them a long time, if ever, to build the kind of sales force we have. We bring scale immediately and can really blow them out.”
An Invitrogen sales professional can make a minimum income of six figures a year, Hoffmeister said. “A really good sales person can make double that.”
Growth expectations for the sales team vary from region to region, and section to section. Minimum improvements for sales staff are expected to match the company’s target of 8 percent to 10 percent organic growth, he said.
“What we need to provide them is a continual flow of newer and better products,” he said.
“We are going [to] spend $85 million on internal R&D this year,” he said. “Overall, we are spending in acquisitions and R&D, something like $175 million — 17 percent of our sales is invested in filling out our product lines and giving our sales force that next generation of products.”
Hoffmeister said one internal measure of performance is a product vitality calculation, based on the percentage of sales from new products each year.
“A business like [the Zymed business] can do mid to high single digits,” Taich said. “We are still doing a huge percentage of our business from sales from products that existed pre-1996.
“People [will] keep buying earlier generation products, if they are working,” he said. “The products don’t die.”
— Mo Krochmal ([email protected])