In another move toward consolidating the bioinformatics software sector with other life sciences technology enterprises, Invitrogen announced its plans to snatch up InforMax in an all-cash transaction worth around $42 million last week.
“The essence of this acquisition,” according to Invitrogen CEO Lyle Turner, “is that both Invitrogen and InforMax can drive the sales of each other’s product lines.” Turner’s vision will favor InforMax in the short term: As a wholly owned subsidiary of Invitrogen, it will certainly benefit from the larger company’s worldwide sales force and distribution system. The advantages for Invitrogen are less clear, however. While the purchase is a steal, with a final price estimated to be just $10 million over the cash value of InforMax, the acquisition is expected to dilute the company’s earnings per share by two to four percent in 2003. Break-even is not expected until 2004. Furthermore, Invitrogen has no experience in the informatics market, and its sales and marketing force — formidable as it may be at well over 500 — will have to overcome numerous challenges that smaller, but more experienced, bioinformatics firms have been wrestling with for years now.
But there is a plan. Eventually, Invitrogen hopes to boost sales of its reagents, kits, and other wet-lab consumables via an e-commerce platform that will be integrated with InforMax’s software.
“In the future,” InforMax software can direct scientists to the best Invitrogen wet-lab tool for their experiments, Turner explained during a conference call held to discuss the acquisition. “Our ultimate objective is to integrate our web-based catalog and order entry system with the output of the Vector family of products, so that our customers can seamlessly order Invitrogen products at any and every step of their experiments.”
A Desktop-Based Commercial?
The trick will be pulling off this direct-to-researcher sales push in a manner that doesn’t offend InforMax customers, particularly academic users — a market segment historically sensitive to barefaced promotional tactics. “If they allow for turning off those types of features, then I don’t really care if they’re there or not, but I think most researchers would get annoyed,” an InforMax customer at a large East Coast university told BioInform. Other current users expressed a similar level of ambivalence. The ability to link to Invitrogen’s catalog via the desktop might be useful, “but isn’t something researchers are requesting,” noted one user. Another called the planned feature “silly.”
Warding off visions of flashing Invitrogen pop-up-windows and other nightmarish scenarios, Andrew Whiteley, chairman and CEO of InforMax, was quick to point out that the companies are “very sensitive to this issue.”
“This is not an application that’s just a vehicle for advertising,” Whiteley noted. “However, there are some critical workflows that we’ve talked about that do result in a purchase and we just want to make sure that that process can be undertaken by users in a very simple way.”
An example of such a workflow would be in the case of primer design, in which a researcher can construct the primer using Vector NTI and then order it directly from Invitrogen with the click of a button. Other molecular biology products, such as amplification enzymes, cloning reagents, expression vectors, or electrophoresis separation gels could be purchased in a similar manner, according to the companies.
This model does have one unlikely proponent: Redasoft, a Toronto-based competitor to InforMax, sees the deal as a win for both companies. “What’s exciting about this kind of opportunity,” said Evan Carmichael, Redasoft COO, “is being able to promote [Invitrogen’s] products through a new distribution mechanism, through a new channel, which is the software.”
Redasoft, which is currently in discussions to link its software with the online catalogs of six different suppliers, was in talks with Invitrogen for a similar deal prior to the company’s acquisition of InforMax. Redasoft is seeking OEM agreements, rather than an acquisition partner, Carmichael noted.
“That’s where the industry is going: Promoting chemicals and supplies through desktop software,” said Carmichael. Catalog-based businesses have a difficult time differentiating themselves in the lab, he noted, which would give those suppliers with a strong desktop presence a significant advantage.
“The main problem with [bioinformatics] software companies right now is [inadequate] distribution,” he said. The obvious advantage for InforMax and other bioinformatics firms who link up with suppliers such as Invitrogen will be exposure to the 300,000 or so molecular biologists that these firms already claim as catalog customers. Carmichael noted that Redasoft had seen “a steady increase in interest” from the suppliers it is courting as potential partners, but upon word of the InforMax deal, “the phone calls wouldn’t stop coming in. Everybody’s been waiting to see who’s going to be the first mover.”
This is not the first distribution-oriented merger that the sector has seen recently. In July, laboratory equipment maker Harvard Biosciences moved to acquire Genomic Solutions, a provider of genomic and proteomic instrumentation, software, and other technology, for $26 million, citing the opportunity to sell the company’s instruments through its catalog distribution channels. In addition, Agilent Technologies, Amersham Biosciences, PerkinElmer, and Applied Biosystems have all launched informatics software themselves or expanded distribution partnerships with software providers.
A Work in Progress
But it will take some time to determine whether Invitrogen can make a successful go at the bioinformatics business. Its e-commerce platform is still being developed, according to Paul Goodson, vice president of investor relations. Integrating the platform with InforMax’s software will be one of several “evolutionary incarnations” that remain on the horizon, he noted.
William Needles, Invitrogen’s CIO, leads the development of the e-commerce platform and also oversees a team responsible for several software products that came from the company’s Huntsville, Ala., facility that was relocated to Carlsbad, Calif., in April. Beyond that, the company has had very little reach into the informatics sphere to date.
Following an initial review period of 45-60 days, in which “integration teams” comprised of InforMax and Invitrogen staffers will firm up plans for the merger process, the “lion’s share” of the integration is expected to take place within a year, according to Turner. Consequently, very little is known about the future structure of the combined entity.
Whiteley is the only InforMax employee guaranteed a job under Invitrogen, where he will hold the position of president of the InforMax subsidiary. It is estimated that “substantial” reductions in sales, general, and administrative costs will be made, although how this will impact staffing is not yet known.
Also not known is whether InforMax will remain in Bethesda, Md., or be forced to relocate.
InforMax CFO John Green noted that the acquisition process would not disrupt InforMax’s foreseeable product development plans, and that Invitrogen is “very supportive” of the ramped-up product release schedule InforMax set for itself in July.
Although the companies have not yet worked out most of the important details of their post-merger life, both were enthusiastic about their chances for success. For InforMax, which was facing a Nasdaq delisting and had approached a number of potential — but undisclosed — acquirers, Invitrogen “ended up providing the best value for our shareholders,” Green said.
For Invitrogen officials, who spent most of last week’s conference call convincing bewildered analysts why buying a tiny, money-losing software company was a good strategic move, it was clear the potential rewards outweighed any obvious risks. “The standalone [bioinformatics] companies have had a difficult time selling software products that are not linked to anything else,” said Goodson. “The fact that we’re going to be able to use the same sales force to sell this new product, and the fact that this new product will be closely tied as a tool for pointing people in the right direction to our wet lab products, we think that will be an important difference.”