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Life Tech Mass Spec Revenues Rise 2 Percent in Q3; Firm Prepares to Transfer Arm to Danaher

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This story originally ran on Oct. 28.

By Tony Fong

Life Technologies this week reported a 2 percent rise in its mass spectrometry business during its third quarter as it awaits transfer of the unit to Danaher.

Revenues from mass spec sales during the three months ended Sept. 30 climbed to $111 million from $109.2 million a year ago, before the merger between Applied Biosystems and Invitrogen creating Life Tech had been completed.

Excluding the impact of currency effects, revenues for the business increased 3 percent compared to Q3 2008.

In early September, Life Tech announced it would sell to Danaher its half of a mass spec joint venture with MDS as part of $1.1 billion deal that would also give Danaher MDS’ share of the JV, as well as MDS' Analytical Technologies business [See PM 09/10/2009].

The results released this week is the last full quarter in which Life Tech will report any mass-spec revenues, and company officials said that the mass spec divestiture remains on track to be completed before the end of the year, likely in November.

"It is critical that we have a strong research funnel and development pipeline and that we support these technologies with the most robust commercialization effort," Life Tech CEO Greg Lucier said in his opening remarks during the firm’s third-quarter conference call. "And … by focusing on our core, it means we periodically pause and ask if we're in the right businesses."

For mass specs the answer eventually became no. Now, two months after announcing the planned divestiture, Life Tech’s transition teams "have worked diligently … to ensure a smooth transfer of the business to Danaher and limit disruptions to our customers," Lucier said. He added that Mark Smedley, who is in charge of Life Tech's integration, will direct the transition of the mass spec business to Danaher.

Last week, its partner on the JV, MDS, completed another step in the planned divestiture when it announced that 99 percent of its shareholders had approved the sale of its half of the JV and MDS Analytical Technologies to Danaher.

Life Tech's mass spec growth in the quarter was fueled by improved results in all geographies outside of North America, Chief Financial Officer David Hoffmeister said this week. Sales in the applied markets continued to be strong, and the company began to see "some pick up" in pharma sales where the growth trend returned to positive. Sales to that sector were particularly strong in China and Europe, Hoffmeister said.

Including the mass spec division, which contributed $6 million in other income, three of the four divisions that make up Life Tech posted an increase in year-over-year revenues for the third quarter.

Molecular Biology Systems saw revenues increase 5 percent, 8 percent organically, to $394 million. Genetic Systems revenue rose 5 percent, 7 percent organically, to $216 million. Cell Systems was the only division whose revenues shrunk in the quarter, down 3 percent, flat organically, to $189 million.

Mass spec revenues for the first nine months of the year were down 4 percent organically, in line with expectations of flat to 10 percent decline for the full year.

Company-wide, Life Tech's receipts grew 3 percent for the quarter to $805 million from $784 million in the year-ago period. The latter figure assumes ABI and Invitrogen operated as one company a year ago.

Excluding the mass spec results, organic growth was strongest in Asia-Pacific where revenues ballooned 21 percent. Europe was up 8 percent, Japan 7 percent, and the Americas 1 percent.

NIH stimulus funding contributed "a couple of million dollars" to Life Tech's total Q3 revenues, mostly from instrumentation, Hoffmeister said. Funding from the American Recovery and Reinvestment Act of 2009 is expected to have a more meaningful impact in the fourth quarter, when the company anticipates $5 million to $10 million in revenues from stimulus spending.

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Treating ABI and Invitrogen as one firm in Q3 2008, operating income rose 15 percent to $219.7 million in Q3 2009, compared to $191.2 million a year ago.

On a GAAP basis, net income was $41.1 million, more than double the $18.8 million in net income from a year ago. Earnings per share rose to $0.23 from $0.20 in Q3 2008.

R&D costs increased 2 percent to $81.9 million from $80 million a year ago, assuming ABI and Invitrogen were one firm then, while SG&A costs shrank 6 percent to $237.6 million from $252.4 million.

As of Sept. 30, Life Tech had $580.5 million in cash and short-term investments, it said.

Fourth-quarter organic revenues are forecast to grow in the high single digits, Hoffmeister said. Contributions from the mass spec division are expected to be minimal, particularly since more than half of mass spec sales during the fourth quarter typically come in the last month of the quarter, when it is expected that the business will have been transferred to Danaher, he added.

Mass Trek

Even before reaching the deal with Danaher, Life Tech had been telegraphing its consideration to divest its mass-spec business almost from the day Invitrogen and ABI announced their merger plans last June. At the time Lucier, then CEO of Invitrogen, said that 90 percent of ABI would be a "perfect fit" with his firm. Describing a business model that called for a sales flow from instrument to consumables, ABI's mass-spec arm, which contributed about one-quarter of ABI's total revenues at the time, would, nonetheless, not fit the bill since mass specs aren't consumables-dependent [See PM 06/19/08].

Despite these and other hints, Life Tech officials had insisted to the very end that there were no plans to sell the mass spec business.

Last week, during Danaher's third-quarter earnings release, Chief Financial Officer Daniel Comas also said the sale of the business was near-completion: the company is awaiting regulatory approval for the whole mass spec deal, which it said, should come "shortly."

In a conference call, Danaher CEO Lawrence Culp said that the acquisitions are expected to add $650 million in revenues to the company.

With the completion of the deal imminent the question is: How will Danaher leverage its new mass spec assets? Culp may have provided a clue when he said that in a typical year, the company makes between 12 and 15 acquisitions ranging from "a couple of big deals" to smaller bolt-ons. In the third quarter alone, Danalher closed six purchases of companies with aggregate revenues of $130 million.

And in addition to the pending purchases of the ABI/MDS mass spec JV and MDS Analytical Technologies, Danaher announced in the third quarter an agreement to buy Palodex, a dental X-ray and imaging technology firm.

Culp added that other deals are gestating: "There certainly are some larger situations still very much percolating in the M&A process that we're optimistic about."

Danaher is paying Life Tech $450 million for its half of the JV. Life Tech will use the proceeds from the deal, estimated to be $290 million, to pay down its debt, which as of Sept. 30 was $3.2 billion.

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