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Lackluster Q2 Revenue at Invitrogen Prompts CEO to Hint at Changes, Including in Proteomics

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Will Invitrogen’s review of its business portfolio affect its proteomics play?
 
Last week, in the midst of reporting second-quarter results that fell short of analyst expectations, Invitrogen Chairman and CEO Greg Lucier, said company-wide changes could be forthcoming in the next few months.
 
But as Invitrogen goes about deciding what changes, if any, need to be made to its business segments, its proteomics unit could be safe from any wholesale revisions.
 
Supporting this was an analyst research report this week noting the strength of the company’s proteomic business, saying it “should contribute to long-term growth” of the company.
 
Included in its suite of proteomics products are 2D gel electrophoresis, proteins and reagents, and protein chips.
 
For the three months ended June 30, Invitrogen’s revenues rose 2.3 percent to $313.6 million from $306.4 million a year ago, short of analyst expectations of $320 million. Net income rose 32 percent to $19.7 million from $14.9 million a year ago.
 
During its second quarter earnings conference call last week, Lucier and other company officials laid much of the blame for the company’s lackluster results on poor sales in its BioProduction division and its sera products — but added that no part of its business portfolio would be safe from scrutiny.
 
Lucier said the during the first half of the year, the company had been investing heavily in R&D and technical sales specialists while operating generally on “a presumption on revenue being higher than it actually turned out.”
 
After moving into new business segments and having “greatly expanded its footprint the last couple of years,” he said the company now needs to step back and reassess its different business segments.
 
Lucier singled out Invitrogen’s sera business as one segment that will be especially scrutinized but added Invitrogen will “conduct a strategic review on each and every one of the businesses in which we operate.
 
He said the company “intend[s] to do this over the next several months and if actions are needed, actions will be taken in order to make our portfolio one where we can…produce high margins in a very stable, consistent way.”
 
How Proteomics Fits In
 
Invitrogen officials could not be reached to elaborate on what that may mean for the firm’s proteomics business. But according to a research note issued this week by Frank Pinkerton, an analyst at the Banc of America, proteomics remains a healthy segment of Invitrogen’s business and “substantial opportunities in the proteomics market for the company” remain.
 
Invitrogen has made several significant moves during the past two years to further lengthen its reach in that market.
 
Among the deals it has completed: In early 2005, it purchased antibody company Zymed, providing Invitrogen a large library of antibodies and the ability to produce them at a rapid rate [see PM 02/03/05]. Later that year, in separate acquisitions, it purchased BioSource in a deal that expanded Invitrogen’s protein and antibody offerings [see PM 07/29/05] and Caltag, a manufacturer of immunological reagents [see BCW 05/19/05].
 
More recently, this past June, an Invitrogen official acknowledged that the company plans to roll out the fourth version of its ProtoArray protein chip later this year [see PM 06/22/05].
 
The company is also working with the Human Proteome Organization to co-develop two sets of experimental protein standards, or mixes of proteins, for protein platforms with the intention of eventually commercializing those standards. [see PM 07/20/06].
 

“…if actions are needed, actions will be taken in order to make our portfolio one where we can…produce high margins in a very stable, consistent way.”

According to Pinkerton of Banc of America, the integration of BioSource, Dynal, Caltag, and Zymed has not gone as well as hoped, but the acquisition of such companies has given Invitrogen a sizeable economy of scale.
 
“Invitrogen should be positioned to benefit from its Protometrix protein chip offerings. Its Zymed and Caltag acquisitions provide a significant product portfolio, and in conjunction with an alliance between Invitrogen and Applied Biosystems, these platforms should contribute to long-term growth,” he said. 
 
Blame it on Sera
 
During the conference call, Invitrogen officials put much of the blame for the company’s weaker than-expected revenues on its BioProduction division, particularly weak sales of its sera products which account for 12 percent of the company’s total sales.  
 
While revenue in Invitrogen’s BioDiscovery division, which contains most of its proteomics platform, rose 3 percent, BioProduction sales dropped 8 percent with company executives saying a decline in sera revenue offset growth in cell culture media.  They declined to disclose how much sera sales dropped.
 
The company also cited uncertainty about sales of its sera products as it lowered its full-year 2006 revenue projection to $1.26 billion to $1.3 from an earlier projection of $1.3 billion to $1.35 billion.
 
“The unknown for us is how sera will perform,” said David Hoffmeister, Invitrogen’s CFO. “This is a hard product to predict as we have several customers who are evaluating how much of animal origin sera to take in the second half versus waiting until 2007, or beginning conversion to animal origin-free sooner than expected.”
 
Hoffmeister also cited problems related to its implementation of the new ERP system in Europe that resulted in $2 million in lost revenue for the quarter due to missed orders and shipments. The company said further that acquisitions that that failed to generate revenues as expected also negatively impacted revenues for the quarter.
 
Among growth segments, sales to academic and biotech customers “continued to be solid across the globe with the exception of Japan which continued to be a soft market,” Hoffmeister said. Sales to emerging markets such as India, China and Korea experienced high double-digit growth.
 
Real-time PCR, RNAi, drug-discovery services, and labeling and detection also continued to be areas of strength.
 
Invitrogen reported $733.2 million in cash and investments as of June 30. The company also announced a $500 million share repurchase program.

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