Ebb & Flow

When Invitrogen bought BioReliance for $500 million in cash in early 2004, the rationale was clear: make a bioproduction powerhouse by coupling services with products. The deal combined IVGN's media, sera, reagents, packaging and cell lines with BioReliance's testing, development and manufacturing services for biologics.

But the products from IVGN and services from BioReliance didn't mesh as well as expected. As a result, any potential revenue synergies evaporated. Just over three years later, IVGN is closing the book on BioReliance, and last week announced plans to sell the unit to private equity firm Avista Capital Partners for about $210 million.

Initial hints that the BioReliance purchase wasn't producing the desired results surfaced in 2005. IVGN plunged 13% to $61.76 the week ended Oct. 31, 2005, after 3Q05 earnings showed soft performance for the company's bioproduction business, which included BioReliance.

"When we purchased this business in 2004, we believed there would be great synergy between Invitrogen's cell culture media business and the testing and development capabilities within BioReliance," said IVGN President and CEO Gregory Lucier on a conference call last week.

But clients had a different view, he said, as they "believed each offering had to stand on its own."

IVGN also had expected BioReliance's biosafety testing to be a rapidly growing market. However, said IVGN spokesperson Farnaz Khadem, that market did not see strong growth because "companies were tending to outsource this service less and less over the last several years."

The value of the BioReliance business clearly shrank. When IVGN announced the planned purchase in December 2003, BioReliance was on track to post 2003 revenues of about $100 million. A back-of-the-envelope calculation suggests IVGN paid five times BioReliance's imputed $100 million revenue figure for FY03.

Enter Avista, which thinks BioReliance will be better served operating as a standalone company. The private equity firm said it will appoint Tim Derrington as president and CEO of BioReliance, and Charles Harwood will serve as chairman. Derrington is the general manager of BioReliance, and Harwood is the former president and CEO of Focus Diagnostics.

Last week, IVGN said BioReliance's annual revenue contribution had been about $110 million. Thus, Avista is only paying two

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