Invitrogen's acquisition of Research Genetics in a stock transaction valued at $158 mil. will allow the company's expanded sales force to offer products and services in four key areas of the genomic discovery cycle.

As described by Invitrogen, the discovery cycle consists of five frequently used molecular biology techniques - DNA sequencing, gene identification, gene cloning, gene expression and gene analysis.

Prior to the acquisition, Invitrogen already held the number-one market position in gene cloning and gene expression, according to company officials. Adding Research Genetics gives Invitrogen a strong presence in gene identification.

Through a $50 mil. August merger with pre-cast electrophoresis gel-maker Novex, Invitrogen gained a significant foothold in the gene analysis market (¹ Also see "Invitrogen/Novex" - Medtech Insight, 21 June, 1999.). The research and tool kit company now sells Novex' market-leading line of pre-cast electrophoresis gels, which are the "most common method for characterizing the protein products of both gene expression and gene analysis," according to Invitrogen.

While the company has been aggressive in pursuing acquisitions in four of the five segments of the discovery cycle, Invitrogen's business plan does not include expanding into the gene sequencing market.

Invitrogen estimates that $1.4 bil. was spent on molecular biology products and supplies in 1998. Nearly 60% percent of that was by universities and governmental agencies. A large commercial market that includes pharmaceutical, biotechnology and agriculture companies, accounts for the balance, according to Invitrogen.

Invitrogen markets gene cloning, expression and analysis kits and services along with the pre-cast electrophoresis gels to serve the growing cloning, expression and analysis markets. The company estimates that the kit market will grow 21% in 1999, 50% faster than the overall molecular biology market. Services currently account for roughly 6% of the company's annual revenues. Conversely, one-third of Research Genetics' business is in services.

The company announced the newest addition to its product family of high-throughput cloning kits on Dec. 6 when it unveiled the Echo cloning system. "Echo cloning makes obsolete the need for traditional subcloning, a troublesome, time-consuming step in gene expression and analysis," Invitrogen Chairman and CEO Lyle Turner explained.

The letter of intent agreement to acquire Research Genetics for 3.2 mil. shares of Invitrogen stock was announced on Dec. 8. At current market levels, the deal has a value of about $158 mil. The transaction is expected to close in January.

The purchase price is almost seven times Research Genetics' annual revenues, which were $23 mil. the fiscal year ended June 30. The company's history of turning a profit in each of its 12 years of existence may have contributed to the signficant premium. In fiscal 1999, Research Genetics reported net income of $1.6 mil. Invitrogen generated revenues of $54 mil. in calendar 1998, and net income of $3.1 mil.

Invitrogen justified what may be viewed as a steep price by pointing out the product and marketing synergies that are readily available. Some in the investment community also concur. "Research Genetics' products fit upstream of the Invitrogen traditional product line and help to identify the genes that are intended to be cloned, expressed and analyzed in Invitrogen kits," Hambrecht and Quist analyst Rob Olan said.

Research Genetics' gene filters make it a leader in the area of DNA microarrays and custom software for microarray analysis. That market is growing at 100-200% annually, according to Invitrogen.

Research Genetics' product line also consists of PCR primers, large-scale genomic and cDNA libraries, and custom-made DNA.

Marketing compatibilities also exist between the two companies. While both rely on advertising, Research Genetics has no direct sales force. Invitrogen says its 36 direct reps stand ready to promote the new products worldwide. An additional 10-15 reps will be added over the next 12-18 months.

The Invitrogen sales force also should be able to grow sales of Research Genetics products outside the U.S., where Research Genetics currently generates less than 10% of its corporate revenue.

Invitrogen Entering Gene Analysis Market Via Research Genetics

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