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Biotech / Medical : Biosource International -- Ignore unavailable to you. Want to Upgrade?

To: milton who wrote (529)	7/18/1998 9:23:00 AM
From: Joe Dancy	Respond to of 696

Don't know if we will ever see 30x here if the revenues don't grow faster and if European sales/operations don't improve. A PE of 20 would be fair IMO, assuming they grow earnings or revenues in that vicinity. Here's the unedited write up on the conference call: ******* BIOSOURCE INTERNATIONAL (BIOI) BIOI announced second quarter results on July 16th, earning ten cents a share which was one cent short of analyst estimates. For the first six months the company has earned $0.19. In the last 14 months the company has repurchsed 1.1 million shares, 13(?) % of those outstanding, and has essentially completed its repurchase program. During the last quarter 450,000 shares were repurchased at an average price of $6.74, and during the first half 833,000 shares were repurchsed at an average price of $6.69. Currently their are 7.34 million shares outstanding. Revenues only increased 5% over last years levels, although the U.S. sales were up 15% from year earlier levels. Management expects double digit growth in sales for the rest of the year, and may look at hedging opportunities to reduce the impact of currency fluctuations (half the company sales are in Europe). Revenues in Europe were not helped by the strength of the dollar, and excess manufacturing capacity exists in the European operations which makes costs higher than ideal. The company introduced over 40 new products in the first half, and expects to introduce more in the second half. Two new products have significant potential in management's view - with a combined market of $13-16 million in which BIOI expects to be extremely competitive. BIOI's products are not unique technology wise but are packaged differently, and they offer a wide breadth of products at competitive prices and expect to gain market share. The company has looked at acquisitions but found none that would be acceptable on value or fit, but recognizes that such acquisitions are needed to grow shareholder values. Finanically the company retains strong cash flows and has a conservative balance sheet. With regard to Europe, the company looks to rationalize capacity between the U.S. and European facilities better utilizing the capacity, and is looking at cost reduction or efficiency measures. The company would not comment on a future buyback, and said that the full weight of the buyback will be felt in the 1999 fiscal year. Recently competitor Techne acquired Genzyme - so the company now faces one competitor in many areas where they faced two before. Management stated that Techne paid a significant price for what they got - most of what was bought the acquiring company already had - and what they did was buy market share. Techne is selling at a PE multiple of 26-28 and as earnings are diluted with the acquisition investor optimistim may fade for this business arrangement. (need to research what went on here - what the deal was, make sure I got the company names and divisions correct, and the terms). On the other hand, if BIOI's competitors are sporting a multiple of this magnitude while BIOI sports a PE of 15(?) the market may be indicating that BIOI is undervalued. **** Again, unedited and still in rough draft form Joe

To: milton who wrote (529)	7/19/1998 8:07:00 PM
From: Joe Dancy	Read Replies (1) \| Respond to of 696

Just a follow up on the Techne purchase of the Genzyme products (article below). BIOI management said that Techne fired all the Genzyme salespeople and the BIOI had talked to several. They noted that sales will go with salesmen in some cases, but made no comments on whether they would hire any of the laid off GENZ salesforce. Also note Techne paid 4 times revenues for the products they bought - on a valuation basis if they bought BIOI for four times sales we would be talking $10-11 a share - about where you note a 20 PE on 50 cents earnings gets us. BIOI management is not making any strategic changes due to this acquisition at this time, and does not expect any big changes other than now they will have one competitor where in the past they had two. *** Joe Copyright 1998 Star Tribune Star Tribune (Minneapolis, MN) June 24, 1998, Metro Edition HEADLINE: Techne to acquire research products unit from Genzyme; $ 65.5 million deal will expand customer base, improve manufacturing efficiency BYLINE: Melissa Levy; Staff Writer Minneapolis-based Techne Corp. said Tuesday it will buy the research products division of biotechnology firm Genzyme Corp. for roughly $ 65.5 million. The purchase price of the Genzyme unit includes $ 24.8 million in cash, $ 17 million in Techne common stock and an estimated $ 23.7 million in five years of royalties on Techne's biotechnology group sales. The deal, expected to close July 1, will expand Techne's customer base and add some new products to the line of proteins and antibodies the company makes and sells to research scientists. The products are used for biotechnology research, such as studying how cancer spreads in cells. Techne currently offers 1,900 products to about 8,000 customers. The Genzyme division, based in Cambridge, Mass., has more than 4,000 customers and 350 products. The acquisition will increase Techne's 35 percent share of the cytokine research market to 50 percent, controller Kathy Backes said. Techne is acquiring customer lists, inventory and some equipment from the Genzyme unit, but no production facilities. In a prepared statement, Techne Chairman and CEO Thomas Oland said that the deal will "improve our manufacturing efficiency and marketing and sales effectiveness." Techne posted sales of $ 63.5 million in 1997, with $ 52.4 million of that related to its biotechnology business. Genzyme's research products division had sales of $ 15 million last year. The purchase price, which could total more than four times the revenue of the Genzyme unit, is not unusual in the industry, said Douglas Eayrs, a health care analyst who follows Techne for John G. Kinnard & Co. in Minneapolis. "This removes one of Techne's primary competitors from the market," Eayrs said. Techne officials said the acquisition would cause the company to report fiscal 1999 earnings of 6 to 12 cents a share less than for fiscal 1998, which ends Tuesday. They attributed the decrease to the write-off of acquired inventories and the amortization of good will. Eayrs raised his fiscal 1999 revenue projection for Techne by $ 13.5 million, to $ 88 million, because of the planned acquisition. He also predicted that company earnings will rebound in fiscal 2000. "I think this is a good strategic move in the long term," Eayrs said. Techne made a similar acquisition in 1991, buying the research products business of Amgen Inc. in California. On Tuesday, Techne's stock closed at $ 17, down 62 cents. The company has 350 employees in Minneapolis and 45 in England and Germany.It hasn't determined whether it will bring on any of the 89 workers in the Genzyme unit, Backes said.