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Insight & Intelligence : May 21, 2012
Bio-Rad Squashes Idea That the Company Is Up for Grabs
CEO says whoever started the rumors was misinformed.!--h2>
A rumor recently flapping around Wall Street has it that Bio-Rad Laboratories may be the object of an acquisition. Valued at about 7.4 times earnings, the company remains the “least expensive of any life science equipment maker in America” with a market value of at least $1 billion, according to data compiled by Bloomberg.
And analysts envision the company’s business as a “bolt on” for several large companies. Thermo Fisher Scientific could be interested in adding Bio-Rad to its diagnostics business, said Les Funtlayder, a portfolio manager at Miller Tabak. The $20 billion firm acquired Sweden’s Phadia last year for $3.5 billion to expand in testing for allergies and autoimmune diseases. CEO Marc Casper told Bloomberg just this February that Thermo will continue to pursue acquisitions.
Bio-Rad, founded by David Schwartz and his wife Alice Schwartz in 1952, became a publicly traded company in 1966. The company has increased its revenue every year since 1994 and analysts project record profits next year. While company founder David Schwartz passed away this April, the company remains firmly in family control and is currently run by Schwartz’ son Norman Schwartz. The family controls about one-third of the company’s shares as well as 65–70% of voting control.
The Rumor Mill
Speculation on the likelihood of a takeover increased on the death of the company’s founder, as some investors believed that Schwartz was opposed to selling the company, explained Junaid Husain, an analyst at Dougherty & Co., to Bloomberg. “The prevailing wisdom is that the day David Schwartz passes away is the day this company is in play.”
In a May 2 research report, Dougherty & Company downgraded Bio-Rad to Neutral. The decision was predicated on slower than expected sales at the beginning of the year, margin pressure, and Dougherty’s belief that Bio-Rad was fully valued at its current trading, given the pending headwinds.
Bio-Rad CEO Norman Schwartz debunked the acquisition myth roundly in the company’s last earnings calls on May 1, Leerink Swann director and analyst Dan Leonard told GEN. “The CEO said on the conference call that whoever started those rumors was misinformed.”
Business as Usual
Bio-Rad continues to turn in a steady performance. In 2011, Bio-Rad registered net income of $178.2 million on sales of $2.037 billion. The company reported Q1 2012 EPS of $1.09, $0.02 lower than analyst estimates. According to I/B/E/S Estimates, analysts are expecting the company to report revenue of $2.138 billion for fiscal 2012, Reuters reported. “While we are off to a little bit of a slow start for the year, our outlook remains positive,” Schwartz commented.
Bio-Rad can capitalize on the growing demand for using mature technologies for new applications. For example, it has seen increased sales of its protein-expression analysis products as researchers need tools to validate gene-expression data.
Bio-Rad is hardly acting like a company that isn’t pursuing its own independent future. The company borrowed about $200 million in 2010 intended, it said, for acquisitions, working capital, and general purposes.
In October 2011, Bio-Rad purchased QuantaLife, developer of the Droplet Digital™ PCR (ddPCR) technology, for $162 million in cash plus potential future milestone payments. With the QuantaLife acquisition, Bio-Rad moved into the dPCR world, making it one of a few companies that offer the advanced technology.
On April 2, RainDance Technologies unveiled its RainDrop™ Digital PCR System, and Fluidigm is the original marketer of a dPCR system in 2006. On May 7, Fluidigm said that it would offer unrestricted sales of its digital PCR and other advanced technology as a result of the termination of the collaboration with Novartis Vaccines & Diagnostics.
Leonard told GEN that the QuantaLife acquisition makes sense, since it complements Bio-Rad’s existing PCR technology. “The sales channels will be very similar,” he said, also noting that dPCR is the coming trend. “While it is still in its early days, people think it could be a growth driver in the PCR universe. RainDance has just launched an instrument, and Fluidigm has had theirs back since Novartis declined its option.”
Like conventional PCR, dPCR is used to directly quantify and clonally amplify nucleic acids. Also like conventional PCR, dPCR carries out one reaction per single sample. But in dPCR, a sample is partitioned so that individual nucleic acid molecules within the sample are localized and concentrated within multiple separate regions. As a result, each part will contain “0” or “1” molecule, or a negative or positive reaction, respectively. After PCR amplification, nucleic acids may be quantified by counting the regions that contain PCR end-product, or positive reactions.
The method has been successfully used for studying variations in gene sequences such as copy number variants, point mutations, and is also routinely used for clonal sample amplification of samples for next-gen sequencing.
Bio-Rad’s dPCR System
As for Bio-Rad’s hopes for its digital PCR system, the technology appears to be a winner. It snagged a Laboratory Equipment Readers’ Choice Award in the Biotech category this year.
Bio-Rad describes its platform as third-generation PCR. In initial PCR applications, the company noted, PCR users obtain qualitative results by end-point analysis using gel electrophoresis. Second generation PCR, real-time PCR, enabled relative quantification by monitoring amplification using fluorescence chemistry added to the reaction. Quantification requires the use of a standard curve or reference gene when performing gene-expression analysis. Typically, only two-fold differences in starting concentration can be observed, according to Bio-Rad.
Droplet Digital PCR, a third-generation PCR, enables precise measurements of DNA concentration to provide absolute quantitation of DNA and RNA molecules as a digital readout, the company added. The QX100 ddPCR system partitions the sample into about 20,000 individual droplets wherein PCR is carried out. These droplets are streamed in single file past a detector to count the negative and positive reactions. This digitization of PCR reactions allows a more reliable and sensitive measurement of nucleic acid amounts.
“We understood that ddPCR in its current manifestation has applications to a number of areas, but the technology has tremendous potential beyond its current scope,” Brad Crutchfield, vp of Bio-Rad’s Life Sciences Group, told GEN. “We created a digital biology center at QuantaLife to focus on development of a broader scope of potential applications, not just in research but in clinical diagnostics as well. We are now building and expanding our capability in R&D at the former QuantaLife site and using our strengths at Bio-Rad to commercialize present and future systems, market them, and support them.”
Bio-Rad clearly sees the future potential of its technology. “Although the main product we are selling and shipping today is a droplet digital PCR product, we believe that sample partitioning technology has applications to a variety of challenges,” Crutchfield noted. “For example, it gets us into single-cell analysis since we look at direct measurement instead of average measurement.”
Two current examples of analyses that are particularly enabled by ddPCR, he said, are copy number detection and quantitation as well as rare events detection. “Conventional methods don’t offer the resolution required for rare event detection. Massively parallel sequencing doesn’t solve the problem because then you have huge amounts of data generated at huge cost. For example, if you are looking for an event that occurs with a frequency of 1 in 20,000 it would be hard to find it in a given sample. But, with ddPCR, one sample is partitioned into 20,000 so you have a much greater chance of finding the event.”
Crutchfield also explained that copy number can’t easily be analyzed with conventional qPCR unless “you have large variations in copy number. There’s no way in a standard qPCR curve that you could get any relevance when copy number varies by less than 20%. The advantage with ddPCR is that it uses a conventional workflow but you don’t need a standard curve or a housekeeping gene, enabling you to measure something very specific and very directly.”
Bio-Rad shares jumped 15% in early April as market players chased a run-up fueled by takeover rumors. The company, however, has its eye on its future and is continuing to build on its strengths and grow its franchise with post-next-gen sequencing technology to potentially produce a sustainably profitable future on its own.
Patricia F. Dimond, Ph.D. ([email protected]), is a principal at BioInsight Consulting.
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