Becoming Life Technologies

INVITROGEN and Applied Biosystems (AB) tied the knot last November and became Life Technologies, a power couple in laboratory supply. Despite the stormy economy, the new company's honeymoon period has been relatively sunny.

Invitrogen, a life sciences reagents provider, bought AB, an instrument and reagents company with particular strength in genetics, molecular biology, and mass spectrometry, in a cash and stock transaction valued at $6.7 billion. The deal created a firm that offers a wide range of consumables and instruments for the life sciences market.

The new company generates more than 70% of its sales from consumables, ranging from immunoassay reagents to cell-culture media. That reliance on consumables may stand the company in good stead during these tumultuous times. Even with the tough economic climate, Life Technologies' revenues grew by 1% in the first quarter of this year compared with the same period in 2008 (calculated as if the two companies had been one for the whole year).

The financial results show "how essential our products are to the everyday work of our customers," said Gregory T. Lucier, chairman and chief executive officer, speaking in a conference call with industry analysts late last month. "Our products are just about the last thing to be cut because of the criticality of them in our customers' ever-important work."

Life Technologies is organized into four technology-based divisions. Its revenues for 2008, again calculated as if the two firms had been one, were $3.14 billion. The original company names will survive as platform brands.

Mark Smedley, the executive heading up the integration effort, says the combined company can offer scientific researchers more than 50,000 products. "Now you have an organization that has an unmatched breadth of reagents and instruments that you can use those reagents on," he says.

The benefits from the merger flow both ways, Smedley argues. "On the AB side, they have access to a portfolio of 30,000 reagents they didn't have. We can do a lot of work on extending those matched reagent-instrument pairs," he points out. Invitrogen, in turn, will benefit from AB's expertise in genetics and molecular biology.

The two companies used slightly different business models, Smedley says. Invitrogen's model was "very transactional," with average order sizes around $500. AB, in contrast, was selling high-priced instruments such as mass spectrometers, which are often considered capital equipment.

These differences meant that the respective sales forces targeted different parts of each customer's hierarchy. "Invitrogen was really around the bench scientist, and AB had really good relationships with management and funding decisionmakers," Smedley says. "Put the two companies together, and now you have complete account coverage."

The combined Life Technologies currently has five sales forces, focusing on mass spectrometry, sequencing, reagents, other instruments, and service. "Over time, we will reduce the number of sales forces, but not necessarily the number of salespeople, so that we're more streamlined in front of the customer into essentially what will be a reagents sales force and an instruments sales force," Smedley says.

MUCH OF the company's integration effort has focused on combining the two research programs into a single portfolio. R&D managers have selected the best projects and jettisoned ones that don't fit the company's vision of its joint future.

Now that Life Technologies has made those initial decisions, it is starting to explore new areas, such as personalized and regenerative medicine. In the short term, that means focusing on DNA sequencing. The company expects to spend more than $100 million on sequencing-related R&D this year, Smedley says. "That's an area that we think is going to transform how science is done and in which we believe we have what we need to be a world leader."

Life Technologies has brought its research team together for workshops to talk about trends in science and industry and to evaluate where each of the legacy companies was in its respective research program. The goal is to determine which areas have the most scientific and business potential. "The great thing," Smedley says, "is that we have far more ideas than we can fund."

THE COMBINATION of the two firms won't endanger what was AB's long-standing mass spectrometry joint venture with partner MDS Analytical Technologies, Smedley insists. "That's a good business," he says. "It's one that we're going to continue to run for success." In fact, the joint venture announced a major product launch, a new time-of-flight mass spectrometer, just last month.

The combination of Invitrogen and AB echoes the 2006 merger of Thermo Electron and Fisher Scientific into Thermo Fisher Scientific in that it joined a firm focused on instruments with one focused on lab consumables. Yet observers point to important differences.

"Invitrogen and AB took the area that Thermo Fisher is probably the least exposed to," says Quintin Lai, an industry analyst at Robert W. Baird, referring to the genetics and molecular biology markets. "They can coexist without butting heads against each other too often. That's what made this combination like the Thermo Fisher deal and yet not directly in competition with Thermo Fisher. It's very rare that you get these kinds of megamergers and there's not a whole lot of overlap between the two big giants."

The results Life Technologies reported last month were for its first full quarter as a combined company. The 1% growth in total revenue brought $785 million to the combined company. The firm's operating margin increased 1.9% to 26.2%, primarily as a result of synergy realization.

"Our business remains good despite the economy," Lucier said in the conference call. "Our industry in general and our company in particular tends to be relatively resilient in tough economic times."

Life Technologies says it is well on its way to capturing $80 million in planned cost synergies during 2009. It claims to have achieved $50 million of it already, largely in the areas of corporate overhead, distribution, and procurement.

The company also expects to generate substantial revenue synergies, although time will tell whether it succeeds. It plans to use Invitrogen's aggressive price optimization strategy on AB's product lines.

"Because Invitrogen had a very transactional business and a large portfolio with a large number of customers, we've developed a sophisticated group that is focused on how you price effectively," Smedley says. "We find that our customers are relatively price insensitive." Hence, the company has successfully raised prices each year.

The company also plans to focus on increasing the number of customers who use Invitrogen or AB reagents with AB instruments. "Razors and razor blades—that's a business model we like," Smedley says. "If your mission is scientific output, whether it's commercial research or general research, you have to use a reagent."