smartmoney: Picks and Shovels
By Mark Glassman Published: April 3, 2006
NO ONE CAN BE sure which companies, universities or national laboratories are going to succeed in developing stem-cell therapies. Yet, one thing is certain: A lot are going to try.
That's why some companies are making a new push into stem-cell-related research products — stuff like lab chemicals, cell cultures and, yes, magnetic beads. While it's nearly impossible to predict who will be first to market a particular stem-cell therapy, it's a safe bet that everyone will need many of the same tools.
Invitrogen (IVGN: 67.41, +0.32, +0.5%), a midcap based in Carlsbad, Calif., is among a few publicly traded companies that are servicing the drive into stem-cell research. Already a major supplier to biotechs and academics around the world, the company has positioned itself to capitalize on the coming revolution in regenerative medicine.
In 2005, Invitrogen brought in $1.2 billion in sales, roughly $30 million of which came from stem-cell-research products. However, the company is betting on a growing market, as its stem-cell products receive a greater proportion of R&D money than the percentage of revenue that they bring in. The stem-cell product line "gets an unfair share because of the growth opportunities there," says Travis Chester, the company's vice president of investor relations. "We look to stem cells as one of our key growth drivers."
Other companies in the field include Beckman Coulter (BEC: 50.99, -0.51, -1.0%), General Electric (GE: 33.89, -0.57, -1.7%) and StemCell Technologies, a privately held company based in Vancouver, British Columbia.
Invitrogen now estimates the size of the stem-cell supplies business at about $300 million a year, about 90% of which is academic, but the space is expected to blossom over the next several years. Last year, the company's organic revenues grew by 6%, while sales of stem-cell-related products grew 10% to 20% (this number is murky because some products are used in both stem-cell and nonstem-cell labs).
As the market develops, one of Invitrogen's competitive advantages will be the strength of its brand. Molecular and cellular biologists around the world already rely on Invitrogen's other research products, which can be used to culture other types of cells. As many of those scientists inevitably transition into stem-cell-related work, they are more likely to order from catalogues already on their desks. "Invitrogen is a major player in the field," says Quintin Lai, an analyst at Robert W. Baird, an asset-management firm based in Milwaukee. "In the life-science research arena, which is filled with Ph.Ds and post-docs, they are Coca-Cola (KO: 41.26, +0.11, +0.3%)."
And they have nearly the same global reach. Invitrogen has sales teams in countries like China, Korea, India, Singapore, Brazil and Australia — all of which have aggressive stem-cell programs that haven't faced the same regulatory hurdles as those in the U.S. "I think our ability to be present in each of these continents and countries with a direct sales force is hugely useful because not only can we go to these places and sell them these products, but we can also learn what their needs are," says Joydeep Goswami, the company's vice president of stem cells and regenerative medicine.
The tag on Invitrogen has been its inconsistent earnings performance. The company's share price has plummeted on two earnings misses since July 2004. That year, investors bailed after a weaker-than-expected second quarter drove the share price down 23% to $51.16. Eventually, the stock recovered, trading as high as $88.27 in July 2005. However, another earnings miss in October related to a Food and Drug Administration decision sent shares tumbling again.
Since then, the company has recovered and "put up respectable guidance for 2006," says Richard Watson, an analyst with William Blair & Co. "But it's just not enough at this point to help propel the stock to its historical high valuation range," he says. Watson says that investors are "in a 'show-me' mode with regards to the company."
Chester, Invitrogen's vice president of investor relations, says the company has demonstrated consistent earnings performance year-over-year and downplays the quarterly dips.
Lai, of Robert W. Baird, says the company has done the right thing by boosting its R&D spending in the stem-cell space. "If you're not on the leading edge you're not going to grow faster on the market," he says. "Invitrogen has to have these types of investments — not for what's hot today, but for what's going to be hot in the future."
In that regard, investors might think of a portion of Invitrogen stock as a kind of ETF for stem-cell companies — one insulated against minor fluctuations in the space but designed to perform on the field's broader success. |
