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Proteomics to Play Key Role in Invitrogen s Growth Through Acquistions, R&D, Sales Tools

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Invitrogen plans to grow its business through the end of this year and into 2006 by increasing its R&D, tweaking the tools it currently sells, and continuing to invest in acquisitions — especially proteomics technologies and companies — according to Chief Financial Officer David Hoffmeister.

Speaking at the Piper Jaffray Healthcare Conference in New York last week, Hoffmeister said Invitrogen’s recent acquisition of antibody company Zymed fills a key gap in the company’s pipeline, and will play a role in its plan to accelerate revenue growth by 2 percent in 2006.

“One of the key target areas going forward is proteomics,” said Hoffmeister. “With Zymed, we have a large library of antibodies and the ability to produce them at a rapid rate.”

The acquisition of Zymed, which is expected to be completed by the end of February (see Jan. 10 story in ProteoMonitor’s sister publication, GenomeWeb News), introduces new products and technologies into the company that were lacking before, said Hoffmeister.

Zymed also has a pathology arm that brings Invitrogen into the diagnostics area, Hoffmeister added.

Adam Chazan, an analyst for Pacific Growth Equities, said with the acquisition of Zymed, Invitrogen has “put a toe in waters that are pretty big.” It will be interesting to see how the company takes their small slice and grows it, he said.

“Zymed can take them on a path to increased growth in the clinical area, which the company has been looking to get into,” said Chazan. “The question is do they have the expertise to do that.”

Chazan said that overall, Invitrogen is one of the premier companies in its space. How well the company continues to grow will depend on how well it integrates its newly acquired businesses into technologies and products that can further boost growth, he added.

“I’m encouraged by the tone of their presentations. They’ve been very bullish,” said Chazan. “Looking at ‘06, I think they are setting expectations that are realistic. Overall, they need to be careful of not taking their eye off the ball, and to make sure that the sum of the parts are greater than the whole.”

Hoffmeister projected that Invitrogen’s growth rate would be 6 to 8 percent in 2005 and 8 to 10 percent in 2006.

Chazan pointed out that Invitrogen’s biodiscovery business had had a mostly flat organic growth rate until Q3 of 2004, when growth accelerated to around 3 percent.

“They need to continue to rejuvenate growth in the molecular discovery business and to boost growth internally,” he said.

In 2004, acquisitions totaled $600 million, Hoffmeister said, and the company is expected to continue acquiring at that pace for the next couple of years. At any point in time, Invitrogen has about five acquisitions that it is looking at seriously, he added.

Aside from acquisitions, another element that will drive growth is increased research and development, said Hoffmeister. He noted that 80 new scientists were brought into the company last year, bringing the total number of PhD’s in the company to around 300.

“Spending had dropped on R&D in the past,” said Hoffmeister. “But we’re reinvesting and rehiring. In 2002, we spent 33 million, or 7 percent of sales in R&D. In 2005, we’ll spend 86 million or 8 percent of sales on R&D.”

Hoffmeister called Invitrogen a “cash flow machine” that had about $200 million in free cash flow in 2004, and is projected to have $230 million in free cash flow in 2005. He said the company exceeded $1 billion in sales for the first time in 2004, and that Invitrogen’s performance overall is a “story of growth.”

“We’re in an environment where we make big bets and new ventures,” said Hoffmeister. “We’re expecting to gain some share in the nucleic acid purification products market, we’ve formed a partnership with Illumina and we have a multi-year collaboration with the Mayo Clinic for biomarkers.”

In terms of sales by region, Asia Pacific — including China, India and Japan — currently have the largest growth rate, said Hoffmeister.

“Our acquisition of BioAsia in China [in 2004] doubles our size in that country and adds manufacturing,” said Hoffmeister. “The Chinese market requires different products and we intend to manufacture products for China in China.”

In the US, which represents the largest share of Invitrogen’s market, growth for 2005 is forecasted to be in the mid- to high-single digits, said Hoffmeister.

It was unclear by publication time what percentage of sales are from the proteomics sector.

Sales of products through the web in the early part of 2004 increased from 15 to 20 percent, Hoffmeister said, and was expected to increase to 30 percent by the end of 2004. In 2005, sales through the web were expected to increase to 50 percent.

“We’ve reorganized and reenergized the sales force from one that’s geographically organized to one that’s lined up with customers’ academic portfolios,” said Hoffmeister. “We’ve also increased our selling tools, including increased use of the web.”

When asked what the company needs to do to make itself run more efficiency, Hoffmeister said there is nothing critical that needs to be done now.

“Given our strong cash flow, there isn’t anything we absolutely need to do,” he said. “We’re in good shape. We’re looking forward to another good year in 2005 and a great 2006.”

Invitrogen has scheduled its fourth quarter and full year 2004 earnings release for Feb. 17. Following the release, the company will hold a conference call at 5 p.m. to discuss its financial results and business outlook. More information on the conference call is available here.

— TSL

 

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