MDCC ( $19 mashed -50%) Molecular Devices Cools Off
A slew of companies provide machines and supplies to pharmaceutical and biotechnology researchers. They grew like mad during the last few years, as biotech company customers raised huge amounts in the capital markets and spent it on new infrastructure. One of the profitable suppliers, Molecular Devices, is the feeling the heat as the biotech spending boom cools off.
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Molecular Devices
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By Tom Jacobs (TMF Tom9)
April 10, 2001
Shares of life sciences and drug discovery tool company Molecular Devices (Nasdaq: MDCC) crashed through their 52-week low of $30.25 after hours yesterday and continued the plunge in trading this morning. The company announced Q1 EPS of $0.10, based on 3% year-over-year revenue growth, against $0.08 last year. Street estimates had been $0.20.
President and CEO Joseph D. Keegan said in a prepared statement released after market close yesterday that he expected Q2 EPS in the range of $0.16-$0.18. He projected full-year EPS of $0.70 to $0.80, based on a 9%-13% year-over-year revenue increase to $105-$110 million. He attributed the lower numbers to the economy, explaining that "We typically experience a large number of orders closing near the end of the quarter, and our order data late in the quarter suggests that a number of our pharmaceutical and biotechnology customers may have delayed or postponed purchasing decisions as a result of the current economic uncertainty."
The new numbers must have raised eyebrows at Merrill Lynch (NYSE: MER), whose analyst P. Kelly initiated coverage of the company last Tuesday with a year 2001 EPS projection of -- $1.21. Ooops!
One of several profitable suppliers to drug researchers
Molecular Devices is one of a bewildering array of companies that supply hardware and software to support drug research and development at pharmaceutical and biotechnology companies. The company's life science instrumentation and drug discovery products, each providing about half of the company's revenues, compete with those marketed by Aurora Biosciences (Nasdaq: ABSC), PerkinElmer (NYSE: PKI), Invitrogen (Nasdaq: IVGN), Applied Biosystems (NYSE: ABI), and Nycomed Amersham's (NYSE: NYE) AP Biotech, among others.
These companies depend on capital and research and development spending by big drug makers and newer biotechnology companies. At least one other company, Applied Biosystems, has found itself hit with the decline in biotech company buildup, following the 1999-2000 explosion in successful biotech IPOs and secondary offerings.
Company prospects
Until now, Molecular Devices has been a solid performer, growing earnings at a 20%-plus compound annual rate from 1997 until this year:
% increase
revenues over prior year
1997 $38.3 mil.
1998 $47.8 mil. 20%
1999 $71.9 mil. 34%
2000 $96.0 mil. 25%
2001 (est.) $105-$110 mil. 9%-13%
Molecular Devices latest annual report states that no single customer accounts for more than 5% of its sales. This and its $95 million in cash suggest it has some room to survive a downturn. Long term, it's hard to predict the company's future. On the drug discovery side, it competes with many companies that have nifty technology platforms, but the newer ones with less secure profits and cash may be the first to fail in a biotech shakeout. And it's anybody's guess how much of the actual guts of molecular biology lab work -- including big ticket life sciences machines such as Molecular Devices' -- will be replaced by growth in bioinformatics, though for now there's good money in selling the supplies that keep the installed product base going.
Companies like Molecular Devices may be experiencing a temporary downturn, but future success depends upon their ability to improve their installed product base and sell the products that serve it. Investors who lack industry-specific expertise may find it next to impossible to determine which companies have the advantages, and it may make sense for them to sit this sector out. |
