Millipore, The Enabler

JUST ABOUT ANY SCIENTIST who has worked in a Western chemistry or pharmaceutical lab over the past 50 years knows Millipore. The firm's filtration devices were, and still are, ubiquitous.

So it may come as a surprise to some scientists to hear Martin D. Madaus, the firm's chairman, president, and chief executive officer, declare, "We are not a filtration company anymore." Four acquisitions in two years have transformed Millipore into a broad supplier of products and services that enable drug research and biopharmaceutical manufacturing.

"Filtration is our heritage," Madaus explains. "It is still important, but we've diversified into many other things such as disposable manufacturing, antibodies, stem cell research products, and a range of products that have given us a much bigger opportunity to grow in the future."

Just as several of its lab-supply competitors???including Thermo Fisher Scientific, Invitrogen, GE Healthcare, and Sigma-Aldrich???had done, the firm determined years back that the life sciences field was where the growth was for the lab devices and filtration businesses it knew best.

As the life sciences have boomed in recent years, suppliers of tools and services have benefited, explains Charles F. Wagner Jr., vice president for strategy and corporate development. "The parallel people often use is the California gold rush," he says. "People got rich selling picks and shovels."

In 2002, Millipore spun off its microelectronic gas and liquids purification business, which at one time made up a quarter of its sales. Then, when Madaus arrived in January 2005, the firm undertook an acquisition program to take it beyond filtration and separations. By the third quarter of that year, Millipore had acquired two companies: NovAseptic, for $96.3 million, and MicroSafe, for $9.1 million.

NovAseptic, a maker of mixers, valves, and aseptic processing devices, expanded Millipore's reach in high-performance components and process-monitoring tools used by pharmaceutical and biotech firms. MicroSafe brought Millipore a business that develops assays and provides testing services for the same customer base.

In early 2006, Millipore acquired Newport Bio Systems for $8.6 million. That business added process containers, tubing manifolds, and assembly systems for collecting, storing, and transferring process fluids to Millipore's product portfolio. It also enlarged the firm's range of disposable bioprocessing components.

Dwarfing these acquisitions was the July 2006 purchase of Serologicals for $1.5 billion. The transformational deal strengthened the firm's portfolio in drug discovery, research reagents, cell-signaling research, and stem cell research. It also added a family of cell culture products for sale to biomanufacturing customers.

This series of acquisitions took Millipore's revenues from $883 million in 2004—just before Madaus arrived—to $1.3 billion in 2006. The acquisitions also added about 2,000 employees, bringing the total number to 6,100.

More important for Millipore, "We moved up in our customer's value chain and could therefore participate in a bigger part overall of the research business," Madaus points out.

Madaus, 47, has considerable insight into the research business. Prior to joining Millipore, he was CEO of Roche Diagnostics, a maker of gene sequencers and blood analysis equipment, with responsibility for North American operations. A native of Germany, he holds degrees in veterinary medicine, including a Ph.D. from the School of Veterinary Medicine in Hannover, Germany.

As Madaus sees it, the Serologicals acquisition was transformational for Millipore. "Serologicals makes us a major player in drug discovery and antibody research," he explains. "It also gives us a focus on cell biology and protein research. It changed our footprint dramatically in the market."

Serologicals allows Millipore to be more intimately involved in new drug development and particularly in the most challenging work of matching a potential drug target with a pharmaceutical compound, Madaus says. "Our goal is to make this process more efficient for our customers."

Wagner says Millipore was easily able to finance the three smaller acquisitions from its cash flow. But the much larger Serological deal forced the firm to obtain outside financing. Wagner, who is slated to become the firm's chief financial officer in August, asserts that Millipore's cash flow can more than handle its long-term debt, which now stands at $1.3 billion.

Richard C. Eastman, an analyst with the Milwaukee-based brokerage firm Robert W. Baird & Co., says the debt incurred in the Serologicals purchase restricts Millipore's ability to carry out any more large acquisitions for now. Still, he figures that the purchases of Serologicals in 2006 and the three smaller businesses before it were the right moves. "Broadening their product line, given consolidation trends in their customer base, makes sense," he says.

Dan Leonard, an analyst with the Chicago-based investment firm First Analysis Securities, agrees that Serologicals complemented and broadened Millipore's existing business. "They still have the ability to do more acquisitions, but they need to finish integrating Serologicals," he says. "I expect them to be back in the market after they finish 'digesting' Serologicals."

OF COURSE, Millipore itself could be a takeover target. Asked about the possibility, Madaus says, "Oh yes. It is always a possibility in this market. But it is not in our plans. Smaller firms can buy much larger businesses too," he adds with a twinkle in his eye. "But if you stand still, you are more likely to be a target."

Madaus says he is in no particular rush to make new acquisitions, especially not another big one like the Serologicals purchase. He will, however, continue to shop for smaller purchases and partnerships. "So many new technologies are being invented. We would never be able to invent them all inside of a larger company," he says.

Millipore keeps in touch with academic experts and small technology companies that may develop useful new tools but don't have the resources or market reach to scale up and sell them, Madaus says.

Academic partners include Sir Philip Cohen, a cell-signaling specialist at the University of Dundee, in Scotland. Speaking at the Biotechnology Industry Organization's BIO 2007 event in Boston last month, Wagner said Cohen's work led Millipore to develop a wide range of kinases, proteins, and vectors.

Under a consulting agreement, Millipore holds rights to commercialize findings coming out of the scientist's labs. For example, Millipore took over the kinase profiling that Cohen conducted for industry when the business grew too large for him to handle.

Millipore also worked with Stem Cell Sciences of Edinburgh, Scotland, which collaborates with the University of Edinburgh, to create an embryonic stem cell culture medium without animal-based products. Known as HEScGRO, Millipore says the new medium eliminates concerns about contaminating proteins, viruses, and other biomaterials that can diminish the therapeutic potential of stem cells.

Millipore also has R&D collaborations with industrial partners. One with Gen-Probe, in place since 2005, develops fast and accurate tests for bacteria, viruses, mycoplasma, and other contaminants found in biopharmaceuticals. Another, with Luminex, develops assays for antibodies and immunodetection that work on an instrument that Luminex makes. Millipore sells the assay kits and distributes Luminex' instrument.

Millipore hasn't neglected its own research efforts. It spent $86.6 million on R&D in 2006, and Madaus says the number will be higher this year. In October, the firm opened a $50 million R&D center in Bedford, Mass., on the site of its old headquarters building.

With substantially larger operations and growing relationships with outside partners, Millipore's sales grew 27% in 2006 compared with 2005. Excluding the effect of acquisitions, the firm grew by 9%. "We are shooting for an organic growth rate of 8-10% going forward," Madaus says.

The company distributes its products globally, with North and South America accounting for 45% of its sales and Eastern and Western Europe for 39%. Only 16% of its sales are in the Asia-Pacific region. "We grow with our customers," says Madaus, who points out that sales in Asia will exceed last year's 16% growth rate.

As the life sciences industry grows and changes, Madaus says, he expects his company will be working in Asia and the rest of the world with a broader suite of research tools and a wider range of customers.

"Customers know Millipore for its reputation in filtration," Madaus says. "But they will also come to know the company," he predicts, "for its growing expertise in cell culture, protein research, and a whole new range of drug discovery and biomanufacturing tools and services."