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Invitrogen CEO Remains Bullish on Proteomics Business Even as Lackluster Q3 Sours Analysts

Change may be coming for Invitrogen, but probably not in its proteomics business.
Last week, in the midst of announcing disappointing third-quarter results, Invitrogen CEO Greg Lucier said that the company’s proteomics business would be spared any large-scale changes.
Lucier made his remarks as he continued to hint that the company will likely undergo significant changes soon in an attempt to turn around its lackluster finances. He first hinted that changes were afoot in August when Invitrogen posted weak second-quarter results.
This week, Wall Street expressed deep skepticism about the company’s strategy and questioned management’s ability to lift Invitrogen out of its doldrums. Shares in Invitrogen have lost around 13 percent of their value since the firm released its third-quarter results Oct. 26.
Invitrogen this week announced a $129.8 million loss for the three months ended Sept. 30, compared to a profit of $23.9 million a year ago. Revenue rose 7 percent on the quarter to $311 million from $290 million a year ago but fell short of consensus Wall Street expectations of $337.8 million.
Revenue in the company’s BioDiscovery business, which contains many of Invitrogen’s proteomics consumables, rose 10 percent year over year to $201 million but fell short of both company and analyst expectations.
During a conference call with analysts accompanying the release of the quarterly results, company officials said that ongoing efforts to integrate recent acquisitions, including several designed to increase Invitrogen’s reach in the proteomics market, cut into revenue flow for the quarter.
Those acquisitions include Zymed [See PM 02/04/05], Biosource [See PM 07/29/05], and Caltag [see GWDN 05/16/05].
In fact, in August and October Invitrogen laid off 94 staffers from what is believed to be its Zymed and Caltag businesses, according to ProteoMonitor sister publication BioCommerce Week [see BCW 10/11/2006].
“We have been very aggressive on integrating our acquisitions, and perhaps for a company of our size, maybe too aggressive,” Lucier said during the call this week. “But the bottom line is we didn’t want to have [an] endless number of facilities, excess cost, and so we made some very tough decisions to shut down a number of facilities.”
Speaking specifically about the proteomics-related acquisitions, he added that in the long term the company still “remains bullish” on those acquisitions “and [we] believe once all of that consolidation is done, which will happen at the end of the year, that it’s a very robust business.”
The assessment echoes an analyst’s evaluation of the company three months ago when in light of a disappointing second quarter, Lucier said there would be company-wide changes to turn around its finances. At the time, Lucier said all of Invitrogen’s businesses would be scrutinized.
One analyst, Frank Pinkerton of Banc of America, wrote in a research note that Invitrogen’s proteomics business would probably be spared any wide-scale changes as “substantial opportunities in the proteomics market” for Invitrogen remain. Despite the problems associated with integrating the acquisitions, they give Invitrogen a sizeable economy of scale, Pinkerton wrote [See PM 8/10/06].
Responding to an analyst’s question last week, Lucier said “there could be some slight changes in BioDiscovery, but again I would give you the early sign that there’s not going to be a very lot of change” in that business.

Analysts “are skeptical of current management’s ability to identify, isolate, and fix the problems.”

The same may not be true of some of Invitrogen’s other businesses. Lucier said that with a strategic review of the company’s operations nearly completed, major changes, including the sale of some of its segments, may be on the horizon. The company has not decided yet which business may be sold, however.
Lack of Confidence
Meanwhile, during the conference call and immediately afterward, Wall Street reacted negatively to Invitrogen’s results despite efforts by Lucier to calm concerns about the direction of the company.
“As you can see this management team delivered strong results three years running starting in 2003,” he said. “2006 has been a tremendous disappointment for us, and we humbly think it’s not representative of our potential or the assets we have assembled. We simply must, and will, do better.”
But analysts were not as confident that Lucier and his team could turn things around.
“It has been a number of quarters that we have just continued to see this trickle of issues,” said Derik de Bruin, an analyst at UBS, during the conference call. “And I know the quality of the portfolio is there but I just have a really hard time [believing in] your ability to execute. What gives you the confidence you can do it?”
In a report afterward de Bruin wrote that he is “skeptical of current management’s ability to identify, isolate, and fix the problems.”
In a research note, Elise Wang of Citigroup said Invitrogen’s management “did not provide sufficient clarity on the potential steps it may take to improve next year’s outlook given recent operating margin pressures.”
And Ross Muken of Deutsche Bank said in a research note that “at this point, we have no confidence, no visibility, of when the pain may end for shareholders and are now taking a far more conservative view of Invitrogen shares.”

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