abhishreshthaa
Abhijeet S
Invitrogen (NYSE:IVGN) sells biotechnology products and services to academic and governmental institutions as well as professional drug-discovery and pharmaceutical companies. The company divides its business into two main segments: BioDiscovery focuses on genetic and protein assays and markers and Cell Culture Systems manufactures products in cell growth media and serum.[1]
The company has focused on growing through acquisition rather than organic efforts. It spent only 9% of its 2006 sales on research and development, well below its competitive peers such as Gilead Sciences (15%), Applera (12%), and Affymetrix (AFFX) (25%). From 2001 to 2006, Invitrogen acquired several firms to expand its product base (e.g., DNA synthesis and distribution) as well as bolster its existing product offerings. [2].
Many of Invitrogen's customers receive research funding from the federal National Institute of Health (NIH). And while NIH's overall grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3% per annum—continued growth at that rate could limit the size of Invitrogen's market and lead to price wars as competitors fight for market share. On the other hand, the company would benefit if the U.S. government prioritized funding for research of the defense against biological and chemical weapons.
Business Financials
Contents
1 Business Financials
1.1 Growth through acquisitions
2 Key Trends and Forces
3 Competition
4 Market Share
5 Notes
Invitrogen is a biotechnology company that provides products and services to researchers at academic and governmental institutions as well as professional drug-discovery and pharmaceutical companies. The company divides its business into two main segments, BioDiscovery, which focuses on research and development of genetic and protein assays and markers, and Cell Culture Systems, which manufactures products in cell growth media and serum [3].
As seen in the revenue breakdown below, a large chunk of FY 2006 revenue came from its Gibco division, which makes cell media and serum products. In this past fiscal year, the company produced a negative net income due to its various acquisitions and mergers (see below). Aside from the internal operating costs incurred by the acquisitions, Invitrogen has seen a steady increase of revenue from 2004 to 2006, by 23%.
[4]
FY 2006 Revenue Breakdown by Product
[5]
Growth through acquisitions
Invitrogen has made several biotechnology acquisition since 2001 to expand the breadth of its product lines and gain market share. Some of these acquisitions include:
Biosource International specializes in protein and primary antibody products, which are major research tools for Invitrogen's clients
Zymed Laboratories has protein and antibody products that complement Invitrogen's products.
Gibco is large manufacturer of cell media and serum products, adding to Invitrogen's Cell Culture sector.
Key Trends and Forces
Reliance on Research Funding: Fluctuations in the research budgets of Invitrogen's customers affect the company's revenue significantly. These fluctuations may occur due to general economic changes, spending priorities, and advent of new technologies. Notably, a large portion of Invitrogen's client base consists of researchers funded by grants from the National Institute of Health (NIH), and a decrease in federal funding of research would negatively impact Invitrogen's performance [6]. Although the NIH grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3%, which could become a significant limiting factor in Invitrogen's revenue growth [7].
Government Prioritization of the Biodefense Initiative : Invitrogen's biodefense sector would be negatively impacted if the U.S. government reset its priorities not to include research in the area of defense against biological and chemical weapons [8].
Fluctuations in Fetal Bovine Serum (FBS) Pricing: A large portion of revenue comes from sera/cell culture product lines, so increases in the prices of raw fetal bovine serum (FBS) due to limited supply would drive up prices of Invitrogen's serum-related products, possibly resulting in the loss of market share [9].
International Sales Affected by Exchange Rates : Invitrogen products are currently marketed in more than 70 countries in the world, and international revenus make up more than half of the company's total revenues. Therefore, fluctuations in foreign currency exchange, trade regulations, and less adequate intellectual property rights protection mechanisms in foreign countries are all factors that could affect the company's bottom line [10].
Acquiring Innovation: Due to the fast-evolving nature of the biotechnology field, Invitrogen must continually come out with innovative products and techniques to keep up with its competitors. Invitrogen has made a significant push to acquire smaller biotechnology firms that specialize in major product lines in order to make its own array products more comprehensive and to absorb the innovations these smaller firms have made. [11]. Placing bets on acquiring biotechnology is risky and may not accrete to the bottom line for years, if at all (in 2006, the company produced negative net income due to a spate of acquired companies).
Competition
The biotechnology market has relatively non-existent barriers to entry, allowing small start-ups to gain significant market share in their specialties. The industry relies heavily on innovation rather than institutional maturity.
Invitrogen faces stiff competition from both smaller and larger firms going after a piece of the biotechnology market for research tools. Its primary competitors in this space include Affymetrix (AFFX) , Applera-Applied Biosystems (ABI) , Illumina (ILMN) , Gilead Sciences (GILD), and BD Biosciences (privately held). It does not compete directly with biotech companies specializing in the development of pharmaceutical products aimed for human therapeutic purposes, such as Amgen (AMGN) , Genzyme (GENZ), and Merck (MRK); these companies are often customers of Invitrogen and its competitors.
Invitrogen's 2006 profitability to that of its peers is displayed in the following chart, which also compares the total sales and research expenses of the different companies. Compared to its competition, Invitrogen spent the fewest dollars on R&D relative to its revenue in 2006. The company pursued a strategy to acquire companies to bolster its product pipeline.
Comparison of Invitrogen and Competitors
Company 2006 Sales Revenue 2006 R&D Expenses %Total Revenue Spent on R&D
Gilead Sciences (GILD) $2588.2 M $383.9 M 14.8% [12]
Applera (ABI) $2,132.5 M $254.0 M 11.9% [13]
Invitrogen (IVGN) $1,263.5 M $107.6 M 8.52% [14]
Affymetrix (AFFX) $303.0 M $77.4 M 25.5% [15]
BD Biosciences* N/A N/A N/A
Illumina (ILMN) $155.8 M $33.4 M 21.4% [16]
Note: BD Biosciences is privately owned and information is not available.
Market Share
Due to the relatively slow growing NIH budget, market size for Invitrogen and its peers will most likely remain fixed in the short-term. Assuming a fixed market size, competitors may gear towards price competition to increase market share.
Market share in the areas of cell culture products (such as cell growth media and sera) for 2006:
[17]
Comparison of Invitrogen and Competitors
Company Cell Media Market Share Company Serum Market Share
Invitrogen 8% Invitrogen 18%
Hyclone 19% Hyclone 10%
Sigma-Aldrich (SIAL) 11% Sigma-Aldrich (SIAL) 5%
BD Sciences 5% Roche Pharmaceuticals (RHHBY) 11%
JRH 8% Serological Corp 8%
Cambrex (CBM) 9% Cambrex (CBM) 5%
Others 40% Others
The company has focused on growing through acquisition rather than organic efforts. It spent only 9% of its 2006 sales on research and development, well below its competitive peers such as Gilead Sciences (15%), Applera (12%), and Affymetrix (AFFX) (25%). From 2001 to 2006, Invitrogen acquired several firms to expand its product base (e.g., DNA synthesis and distribution) as well as bolster its existing product offerings. [2].
Many of Invitrogen's customers receive research funding from the federal National Institute of Health (NIH). And while NIH's overall grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3% per annum—continued growth at that rate could limit the size of Invitrogen's market and lead to price wars as competitors fight for market share. On the other hand, the company would benefit if the U.S. government prioritized funding for research of the defense against biological and chemical weapons.
Business Financials
Contents
1 Business Financials
1.1 Growth through acquisitions
2 Key Trends and Forces
3 Competition
4 Market Share
5 Notes
Invitrogen is a biotechnology company that provides products and services to researchers at academic and governmental institutions as well as professional drug-discovery and pharmaceutical companies. The company divides its business into two main segments, BioDiscovery, which focuses on research and development of genetic and protein assays and markers, and Cell Culture Systems, which manufactures products in cell growth media and serum [3].
As seen in the revenue breakdown below, a large chunk of FY 2006 revenue came from its Gibco division, which makes cell media and serum products. In this past fiscal year, the company produced a negative net income due to its various acquisitions and mergers (see below). Aside from the internal operating costs incurred by the acquisitions, Invitrogen has seen a steady increase of revenue from 2004 to 2006, by 23%.
[4]
FY 2006 Revenue Breakdown by Product
[5]
Growth through acquisitions
Invitrogen has made several biotechnology acquisition since 2001 to expand the breadth of its product lines and gain market share. Some of these acquisitions include:
Biosource International specializes in protein and primary antibody products, which are major research tools for Invitrogen's clients
Zymed Laboratories has protein and antibody products that complement Invitrogen's products.
Gibco is large manufacturer of cell media and serum products, adding to Invitrogen's Cell Culture sector.
Key Trends and Forces
Reliance on Research Funding: Fluctuations in the research budgets of Invitrogen's customers affect the company's revenue significantly. These fluctuations may occur due to general economic changes, spending priorities, and advent of new technologies. Notably, a large portion of Invitrogen's client base consists of researchers funded by grants from the National Institute of Health (NIH), and a decrease in federal funding of research would negatively impact Invitrogen's performance [6]. Although the NIH grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3%, which could become a significant limiting factor in Invitrogen's revenue growth [7].
Government Prioritization of the Biodefense Initiative : Invitrogen's biodefense sector would be negatively impacted if the U.S. government reset its priorities not to include research in the area of defense against biological and chemical weapons [8].
Fluctuations in Fetal Bovine Serum (FBS) Pricing: A large portion of revenue comes from sera/cell culture product lines, so increases in the prices of raw fetal bovine serum (FBS) due to limited supply would drive up prices of Invitrogen's serum-related products, possibly resulting in the loss of market share [9].
International Sales Affected by Exchange Rates : Invitrogen products are currently marketed in more than 70 countries in the world, and international revenus make up more than half of the company's total revenues. Therefore, fluctuations in foreign currency exchange, trade regulations, and less adequate intellectual property rights protection mechanisms in foreign countries are all factors that could affect the company's bottom line [10].
Acquiring Innovation: Due to the fast-evolving nature of the biotechnology field, Invitrogen must continually come out with innovative products and techniques to keep up with its competitors. Invitrogen has made a significant push to acquire smaller biotechnology firms that specialize in major product lines in order to make its own array products more comprehensive and to absorb the innovations these smaller firms have made. [11]. Placing bets on acquiring biotechnology is risky and may not accrete to the bottom line for years, if at all (in 2006, the company produced negative net income due to a spate of acquired companies).
Competition
The biotechnology market has relatively non-existent barriers to entry, allowing small start-ups to gain significant market share in their specialties. The industry relies heavily on innovation rather than institutional maturity.
Invitrogen faces stiff competition from both smaller and larger firms going after a piece of the biotechnology market for research tools. Its primary competitors in this space include Affymetrix (AFFX) , Applera-Applied Biosystems (ABI) , Illumina (ILMN) , Gilead Sciences (GILD), and BD Biosciences (privately held). It does not compete directly with biotech companies specializing in the development of pharmaceutical products aimed for human therapeutic purposes, such as Amgen (AMGN) , Genzyme (GENZ), and Merck (MRK); these companies are often customers of Invitrogen and its competitors.
Invitrogen's 2006 profitability to that of its peers is displayed in the following chart, which also compares the total sales and research expenses of the different companies. Compared to its competition, Invitrogen spent the fewest dollars on R&D relative to its revenue in 2006. The company pursued a strategy to acquire companies to bolster its product pipeline.
Comparison of Invitrogen and Competitors
Company 2006 Sales Revenue 2006 R&D Expenses %Total Revenue Spent on R&D
Gilead Sciences (GILD) $2588.2 M $383.9 M 14.8% [12]
Applera (ABI) $2,132.5 M $254.0 M 11.9% [13]
Invitrogen (IVGN) $1,263.5 M $107.6 M 8.52% [14]
Affymetrix (AFFX) $303.0 M $77.4 M 25.5% [15]
BD Biosciences* N/A N/A N/A
Illumina (ILMN) $155.8 M $33.4 M 21.4% [16]
Note: BD Biosciences is privately owned and information is not available.
Market Share
Due to the relatively slow growing NIH budget, market size for Invitrogen and its peers will most likely remain fixed in the short-term. Assuming a fixed market size, competitors may gear towards price competition to increase market share.
Market share in the areas of cell culture products (such as cell growth media and sera) for 2006:
[17]
Comparison of Invitrogen and Competitors
Company Cell Media Market Share Company Serum Market Share
Invitrogen 8% Invitrogen 18%
Hyclone 19% Hyclone 10%
Sigma-Aldrich (SIAL) 11% Sigma-Aldrich (SIAL) 5%
BD Sciences 5% Roche Pharmaceuticals (RHHBY) 11%
JRH 8% Serological Corp 8%
Cambrex (CBM) 9% Cambrex (CBM) 5%
Others 40% Others