Millipore this week announced it plans to acquire Hayward, Calif.-based Guava Technologies, a producer of benchtop cellular analysis systems, for $22.6 million.
Alan Weiss, director of strategy and business development for Millipore’s bioscience division, said that the purchase, expected to close in the next several weeks, will provide its customers with a powerful cell biology/protein expression-analysis tool for the benchtop.
Guava has developed a microcapillary flow cytometry system that enables scientists to perform cellular analysis on a benchtop instrument. The company generated approximately $22 million in sales in 2008.
“Although the [Guava] instrument is a flow cytometer, we do not look at this as playing in the flow cytometry market,” Weiss told CBAN this week.
“We look at this as a cell biology/protein expression research market opportunity,” where flow cytometry offers the end user significantly more and better quality information than current methods, such as Western blotting and immunohistochemistry, he said.
Although Millipore plays in both of those markets, “As we took a step back and looked at what questions our customers were trying to answer, we felt that flow cytometry would really be a much more powerful tool,” because researchers get answers one cell at a time, and can look at multiple endpoints per cell, Weiss said.
He added that Millipore and Guava wanted to make this tool accessible on the benchtop.
“So the value-added for us is not only doing that, but also integrating the assay solutions,” meaning the antibodies and other analytical reagents, and the software, so that when the customer has a question and a sample, they can stay within Millipore and get an answer, Weiss said.
The acquisition follows a distribution and co-development deal that the two companies announced last March (see CBA News, 3/7/08).
The terms of that agreement gave Millipore exclusive rights to distribute Guava products to academic and government accounts in North America and Europe, and to all accounts in other territories.
Millipore also gained exclusive worldwide rights to perform service on Guava instruments for all customers in all markets. In addition, the companies would develop reagent kits designed specifically for Guava’s flow cytometers.
The fourth part of the agreement was a co-development agreement for a next-generation flow cytometer.
“As it turns out, during the first year of the partnership, Millipore did very well, said Weiss. “In fact, we exceeded our forecast for unit sales.”
The fact that it was an integrated solution for which Millipore provided not only the instrument, but also technical and in-field service, “sent a message [to Millipore customers] that read very well,” Weiss said.
“I think that both Guava and Millipore saw an opportunity for [Millipore] to assume worldwide responsibility for all products in all markets,” said Weiss. "That led to discussions for an acquisition.”
Millipore continues to increase its footprint in the cellular-analysis market because “cells are the basic building blocks of life,” Weiss said. “We feel that most questions that are being asked today in research are answered most effectively in the context of cells.
“When you lyse millions of cells and get an average answer from millions of cells, you are in fact obscuring the data, and making it difficult to interpret,” he added.
When investigators analyze one cell at a time, whether they use flow cytometry or other methodologies, they start to obtain “fundamental, mechanistic biological information,” said Weiss.
“We think that is what our customers are going to be doing across all of the market segments in which Millipore is present,” Weiss said.
Weiss also explained that Millipore is not looking at this acquisition in terms of the flow cytometry market. “We are thinking of [the deal in terms of] the cell biology and protein chemistry markets," he said.
The advantage of the Guava technology over other flow cytometry platforms, he said, "is a right-sizing of this technology so that it is deployable at the bench.”
The analogy that Weiss used is the transformation of a mainframe computer to the laptop. Each machine has the same technology and the same guts, “but you could not put many mainframes in people’s homes or on people’s desks."
He noted, however, that just as laptops require effective software applications to be useful, the reagent kits that Millipore intends to develop for Guava’s instrument will add value to the benchtop cytometer, with assay solutions such as reagents for stem cell biology, signaling pathways, epigenetics, cell health, cancer biology, and programmed cell death.
Weiss added that researchers can use the system to analyze thousands of cells, one cell at a time, for multiple markers per cell, so they can look at, for example, changes in a cell’s protein makeup when it differentiates from an embryonic stem cell to an adult stem cell, or look at what happens when that cell is exposed to a therapeutic agent, or what proteins are up-regulated or down-regulated following exposure to a compound of interest.
The way those questions are answered now is by Western blotting, which gives scientists an average of millions of cells, and one answer per experiment. “So we see flow cytometry as really revolutionizing the way people do cell biology,” said Weiss.
The Competitive Landscape
Life science leviathans such as GE Healthcare and PerkinElmer have also been taking steps in the past several years to increase their footprint in the cellular research market. However, this does not appear to faze Millipore.
“I think that the investments that PerkinElmer has made are pretty impressive, and some of the stuff that they have brought to market is extremely cool. However, it is really addressing a totally different market segment,” said Weiss.
While PerkinElmer and GE Healthcare offer solutions for high-throughput analysis, "we see [Millipore’s instrument] as a research tool, not as a high-throughput compound screening platform,” Weiss said.
For example, Weiss said, “I do not look at Becton Dickinson, a juggernaut in flow cytometry, as a competitor. They are using a variation of the same technology, but they are addressing a very different market.”
BD’s instrumentation is geared towards a different application segment. It is also geared toward a different set of questions that scientists would ask. “We do not see the Guava platform, for example, as doing blood banking work, as BD systems do, or satisfying other application needs that the BD systems are extremely well set up to do, including cell sorting.”
“[The acquisition] helps us stay competitive, because it enables us to bring an integrated analytical solution to customers who are already doing this type of research, but we believe are doing their research less effectively than they could be,” said Weiss.
The next-generation cellular analysis instrument is still in development, and should be on the market by this summer, Weiss said.
In terms of Millipore’s plans for the integration of the two companies, “The Guava facility in Hayward, Calif., will persist. That is the center of excellence,” said Weiss. He added that Guava is responsible for all of the innovation on the instrument side, and technology development on the instrumentation, fluidics, and software side.
Personnel changes will occur, but Weiss said he was not certain “of all the details on that yet. I think that will come later, after the integration is complete.”
Since the two firms "had an opportunity during the partnership to get to know each other pretty well … it will become pretty clear how the new management team will be structured,” he said. Those details are still forthcoming, however.
The transaction is expected to be slightly accretive to Millipore’s non-GAAP earnings per share in 2009, Weiss said. He declined to comment further on the financial details of the agreement.
Analysts appear to feel that in Guava, Millipore got a relative bargain. Peter Lawson, an analyst at Thomas Weisel Partners, said in a research note that the $22.6 million purchase price — just above Guava's 2008 sales — is a "substantial discount" to the 3-fold to 5-fold multiples typically seen in the life science and diagnostics space.
As an example, Lawson cited Gen-Probe’s Jan. 30 announcement that it was acquiring UK-based Tepnel Life Sciences for $132 million — approximately 3.5 times Tepnel’s estimated 2008 revenues.
Isaac Ro of Leerink Swann echoed Lawson’s sentiments. “At just 1x sales, we believe this acquisition is an inexpensive way for Millipore to gain full control of a key instrumentation technology, and thus drive increased sales of consumables,” he said in a research note.
Ro added that he believed Guava as a standalone “faced stiff competition from other venture-backed flow cytometry companies whose price points are equivalent or better.” Acquisition by Millipore was likely the best option for Guava in the current economic environment, he said.
Millipore reported this week that its fourth-quarter revenues declined 2 percent, with a 4 percent negative affect from currency translation.
The company brought in revenues of $396.8 million for the three-month period ended Dec. 31, compared to revenues of $405.2 million for the fourth quarter of 2007.
Millipore's Bioscience division had revenues of $183.3 million, up 3 percent from $178.4 million for Q4 2007. Sales for the Bioscience division were up 7 percent.
"Our Bioscience division delivered a strong fourth quarter, continuing the pattern of consistent, profitable growth it has exhibited over the past four years,” said Millipore Chairman and CEO Martin Madaus in a statement. "This performance enabled us to offset the revenue decline we experienced in our Bioprocess division, and generate solid earnings growth and outstanding cash flow performance in 2008."
Millipore posted a profit of $33.3 million, or $.60 per share, for the quarter, compared to a profit of $45.1 million, or $.81 per share, for the fourth quarter of 2007. The firm's R&D expenses for the period declined 4 percent to $26 million from $27.1 million.
For full-year 2008, Millipore reported revenues of $1.6 million, up 5 percent from $1.53 in 2007. Sales for the Bioscience division rose 10 percent to $721.3 million from $653.1 million.
Millipore's profit for the year increased 7 percent to $145.8 million, or $2.62 per share, from $136.5 million, or $2.48 per share.
Millipore finished the year with $115.5 million in cash and cash equivalents.