賽默飛世爾科技 (TMO) 2002 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to Invitrogen Corporation second quarter earnings conference call. At this time, all lines have been placed in the listen-only mode and the floor will be opened for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host Mr. Lyle Turner, the CEO of Invitrogen. Sir, you may begin.

Good morning everyone. This is Lyle Turner, Chairman and CEO. With me on the call today are Eric Winzer, our Chief Financial Officer, James Glynn, Executive Vice President, Victor Nole, President of Cell Culture, and Paul Goodson, the Vice President of Investor Relations. We will all be available to answer your questions after our prepared remarks. Before we begin, I want to caution all of our listeners that our discussion today will include forward-looking statement with the subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. It is our intent that such statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. We will refer you to the risk factors listed in today's press release and in our filings with the SEC including our most recent 10-K.

I am very pleased to report that we exceeded our second quarter guidance both for revenues as well as earnings. Our revenues are very much in line with our expectations and received an added boost from the translation of foreign currencies into a weakening dollar. Our earnings exceeded our expectation with the higher revenues and higher cell culture gross margins, which Eric will discuss later. One area of strength contributed during the second quarter within our continuing molecular biology products excluding Molecular nucleotides and service. These products include amplification, cloning expression and separation and analysis. These molecular biology products, which grew by 16 percent in the first quarter accelerated their growth to 19 percent in the second quarter, when viewed on a currency comparable basis. This performance reaffirmed our confidence in the strength of the markets we operate in.

Our cell culture segment also returned in another strong performance, holding foreign currency exchange rates constant, these revenues grew by 12 percent in the quarter. In our first quarter call, we described enumerous steps we have taken for our oligonucleotides and genomic services businesses back on track and I am happy to report progress with those efforts. In our oligo business we saw a slight but nevertheless real sequential increase in oligo sales in the second quarter compared to the first quarter of this year. More importantly we expect a continuation of this trend because of the initiatives I reported previously.

As I cautioned before these programs will take time to show results. In genomic services business, Q2 showed a declined in first quarter of this year, which we expected, due to the closing of the Huntsville operation. We will remain optimistic about this business due to the changes we have made in the strength of the market opportunity. We just launched the ORFeome BioCharter program, which includes high value added services but should not only be strong in

in its own right but help us establish our GATEWAY system, the market leading means for multiple cloning and the related sell-through benefits for the rest of our product line.

We are also excited about the plan release in the near future of the ORFeome BioCharter firms of human sequence validated open reading frame collection. We will be offering these

and set according to functionality on a GATEWAY compatible format. These steps will be a lasting resource for our customer, may create a gold standard reference for the industry. May be these many of our customers will find our GATEWAY useful in customizing and modifying these standards for their experiments.

Some time for the Genomic services business to return to acceptable growth. We view new product introductions as an important growth driver for Invitrogen. It is our source of new revenues at generally high margins. We also see these as important, but innovative products in the hands of our customers allowing them to advance their research more quickly and cost effectively. I would like to take a few minutes, to update you on some of our new product releases. We launched a total of 48 new products during the second quarter but this has defied the number of SKUs, not counting the BioCharter program. This is up from 38 last quarter and up from 28 in the second quarter of 2001. Significant new product categories introduced during the quarter include the ZOOM 2D gel electrophoresis system for protein analysis and the FreeStyle 293 Expression System. The ZOOM system enables researchers to study proteins much faster and much easier by performing two-dimensional gel electrophoresis in a mini gel format in only three hours.

This product is an important tool in the study of protein. The protein study market is just beginning to show very strong growth, which should continue with molecular biology research shifts towards protein. The FreeStyle 293 product, which is a cell culture medium of the proprietary cell line and the transfection agent optimized to work together. This is the first new product, we have developed that spans the cell culture and molecular biology and is a good illustration of the synergies between these two business units. I should mention that our Advanced Granulation Technology, which was first offered in 2001 only as a customer service, for which we received a patent in the second quarter.

This new format has been very well received since production last year and we believe that can be broadly applied to mainly cell culture products in the future quarters, thereby continuing to strengthen our cell culture market leadership. Before I ask Eric to review the second quarter financials, I want to share with you some of our accomplishments during the second quarter. In the April fall, we announced plans to move our Genomic services business from Huntsville to Carlsbad. The June 30 operational targets for this plan were met and our faster implementing these important changes were in line with our expectations. The consolidation of the Huntsville operation in the move of many other

activities to Carlsbad will provide significant cost saving in addition to helping us to be more efficient at product development and manufacturing.

In January, we announced our launch of our research finance program and in May we approved funding for the first program under this innovative new approach. This program allows us to designate specific research targets at various universities and other organizations and gives us the right to license promising technologies arising out of that research. We view this program as a low-risk way of extending our reach and increasing the efficiency of our R&D activity. During the second quarter, we also completed the sale of the

business. Fine chemicals repackaging operations, we acquired in 1999 with the Novex acquisition. With the sale in the

business, we have completed the disposition of all the significant low-margin, low-growth businesses and product lines that we identified at our analysts meeting back in December of 2000. And with that now, I would like Eric Winzer to review our second quarter performance and guidance for the rest of the year. Eric.

Reported revenues were $164.3m for the second quarter versus $159.3 million in last year's second quarter an increase of 3 percent. The second quarter of 2001 included 10.9 million of revenues from low margin, low growth products that we have discontinued. Revenues from discontinued products declined to only 1 million in the second quarter of 2002 as almost all the targeted products have now been discontinued. For the first time in quite a while currency comparisons benefited our revenue growth rate in the second quarter of 2002 adding just under 1 percent. So adjusting revenue growth to eliminate discontinued products and currency affects our continuing businesses grew 9 percent, very much in line with our expectations for the quarter. Lyle has already discussed how some of our various business segments have performed.

As you know we measure our performance in these businesses excluding discontinued products and currency affects to give a better picture of how the underlying business is doing. We are very encouraged with the 19 percent growth in our continuing Molecular Biology business excluding oligonucleotides and services. Our primers and services business are performing generally as expected but reported a 30 percent decline from the second quarter of 2001, when these businesses reached the highest quarterly totals we have ever reported. Finally our Cell Culture Business showed growth of 12 percent on a currently comparable basis. Continuing our quarterly trend our gross margins include significantly in the second quarter rising to 58.9 percent.

The increase of our gross margins of 54.7 percent in the second quarter of last is due to price increases, cost reduction, and product mix changes in both molecular biology and cell culture product line. The sequential improvement of 2 percentage points from the first quarter of this year is largely due to higher cell culture margins. Cell culture margins are benefited from higher prices especially for FBN, a favorable mix change between research and production channels and a favorable mix change towards especially media. Our R&D expenses were down from last year's second quarter for the reasons we discussed on our last earnings call. Specifically we have been working diligently to build our scientific staff in California as we have closed our research operations in Maryland and Huntsville. We believe we are on track to increase our R&D spending throughout the remainder of this year.

We took a restructuring charge of 13.8 million or 16 cents per share, related to the closure of our Huntsville operation. This charge was at the low end of our expectations and included 4.3 million of severance and other costs that will be paid in cash as well as 9.5 million of noncash write downs of property, plant, and equipment. We expect that any remaining business integration charges for closing our Huntsville or Maryland operations would be approximately 500,000 dollars and will be recorded in the third quarter. We hope to sell the Huntsville facility by the end of the year and would adjust the restructuring up or down based on the final net proceeds of those sales.

Additional impairment test of the carrying value of goodwill on our books as is required by Financial Accounting Standard number 142. Our announces determined that no adjustments was warranted, so we do not have a goodwill impairment charge as a result of this test. We will make regular impairment test in the future as required by Financial Accounting Standard number 142. Our earnings per share under generally accepted accounting principles were 15 cents per share this quarter, compared to a loss of 67 cents per share in last year's second quarter. The principle reason for this swing for a loss per share through a positive earnings number was the accounting change under, which goodwill is no longer amortized.

We discussed this at length in the first quarter call and we had presented tables in our press release that explained the effect of this accounting change. Our pro forma earnings per share, which excludes business integration and merger related amortization were 49 cents in the second quarter. Turning to our balance sheet, our cash and investments were just over 1.1 billion at the end of June, up 24 million from the end of the first quarter. Day sales outstanding decreased to 56 from 58 in the first quarter. The June figure is more in line with our expectation although we believe we can improve on that by several days in the short term. Inventories represented 3.9 months of sales at the end of Q2, up from 3.5 months at the end of the first quarter. This increase is principally related to FBS cost and unit increase.

Now I would like to review our financial expectations for the rest of the year. With the exception of currency rate, our expectations for the remaining quarters of 2002 are essentially unchanged from our previous guidance. Before we talk about currency, let's look at our previous assumption. We believe that sales are a continuing molecular biology product excluding oligonucletides and services, will grow in the 15 to 20 percent range for the remainder of 2002. Our oligonucleotides and services businesses should improve throughout this year, but we expect that quarterly year-over-year growth maybe flat or negative until year-end. Cell culture revenues are expected to grow just under 10 percent for the remainder of the year, which will result in an 11 to 12 percent growth rate for full year. Since, our last outlook, the US dollar has weakened significantly against several of the major currencies in which we have substantial sales, specifically the Euro and the Yen. We believe the resultant benefit will increase our revenues and earnings for the remainder of the year.

Accordingly, we are raising our revenue expectations to 163 to 166 million for each of the remaining quarters of 2002 and raising our quarterly pro forma EPS guidance to 46 to 48 cents per share. Please remember that pro forma EPS, excludes business immigration and merger related amortization costs consistent with the approach we have used in the past when reporting pro forma EPS. I should also caution that our new expectations are heavily dependent on currency rate. The currency markets have been very volatile recently and rates could quite possibly move in either way. Needless, to say continued weakening of the dollar could increase our dollar result while a significant strengthening of the dollar would make our new guidance more difficult to attain. We plan to continue to supplement our regular reporting with currency-adjusted results, so it is easier to see our underlying performance without the effect of currency. That concludes my comments. Lyle

I would like to make a few comments and observations before we open up the call for questions. Overall, our business is strong. We are increasing our end licensing and our e-activity at the same time that we are improving the efficiency of those investments and we are increasing our marketing investments. We are seeing results from the plans we have put in place to address the oligos and services business and we believe our progress is on track. Our businesses are providing strong operating profit from cash flow.

We certainly have put in place key elements for continuing our growth and further improving our profitability. In addition to this organic growth, we have financial resources to make the right acquisition to strengthen our market leadership and help accelerate our growth. So this is why all of us in Invitrogen are very enthusiastic about our future and belief. We as a company is best positioned to benefit from the growth and profitability potential in our industry. Now I would like to open up the call for questions. Operator.

Thank you sir. The floor is now open for questions. If you do have a question or comment please press the number 1 followed by 4 on your touchtone telephone. We do ask if you are on the speakerphone to please utilize your handset to provide optimum sound quality. Once again to ask a question please press the numbers 1 followed by 4 on your touchtone telephone. Please. Our first question is coming from Larry Neighbour from Robert Baird.

Thank you, could you review please why the cell culture growth rate fell off in the second quarter versus the first quarter, and as part of the answer could you include the separate growth rates for research, cell culture products versus production cell culture? Thank you.

Sure, in the first quarter our currency adjusted cell culture growth rates were 19 percent and 12 percent this time, our first quarter results were really bolstered by a very large growth rate in our production business, which grew almost 40 percent in the first quarter. In the second quarter, their growth rate had moderated somewhat, as you know that is a somewhat lumpy business and it was in the mid-single digit growth rate in the second quarter. Our research business grew at about 13 percent in the first quarter and 15 percent in the second quarter. The main reason for the large decline was the slower growth in the production business.

And, what are the factors that influenced the growth in that production business?

Actually if you look at the revenues in bio production first quarter to second quarter, they really did not decline. The growth rate did decline quarter on quarter, part of that due to a

. We had unusually low revenue in the first quarter of 2001. So if you look at the trend quarter-to-quarter in bio production it is possible.

Nice pricing. And one further question please. I want to make sure this is accurate that your molecular biology business, ex-oligos and customer services were up 19 percent for the quarter, correct?

That's correct.

Ok, fine thank you.

Your next question is coming from

Collen from Crush Capital

. Please pose your question.

Yeah, good afternoon quick question, you guys have I believe 500 million of net cash about that, and accordingly to your projections you should earn about a $1.80 or $1.90, so even net of cash you are trading at a very low multiple. Any sense to what you would do with that cash?

We put that cash in the bank to give ourselves the option should the opportunity arise of acquiring key technologies that would help enhance the value of Invitrogen and that strategy has not changed.

But what about buying back stock, you know usually home cooking is supposed to be the best, any thoughts about doing that?

Well, we continue to bring that into our calculation about the best use of funds is, yeah, I cannot say too much more about in as it is.

All right, well I think it would be good if, for shareholders it would be a positive statement if you decide to do that because you are asking us to you know, we have an option of buying the stock or buying another stock and if you guys show the confidence then your company like you are saying in, your projection, I think that would certainly probably help your stock price.

Thank you for that comment.

The next question comes from Carissa Marino from Goldman Sachs & Co. Please pose your question.

Thanks so much. Could you please provide some color on geographic growth for Molecular Biology and Cell Culture?

Sure. The core molecular biology products were growing in the mid teens in the US. Internationally they were in the mid 20 percent growth rate in the second quarter. And that covers the molecular biology side, which really reflects, you know, the same growth rates of our cell culture business as well.

What would be the reason for the lower growth in the US?

Historically, we had, since we have found it in the US, where US companies have better market penetration in the United States and in the last few years, the quality of our distribution system outside the United States has caused or has allowed us to have a higher growth rate outside the US. It is just a question of what level of market penetration we have in the different markets.

Okay and for molecular biology, would you provide some color on demand by customer segment?

Yeah sure. In the US, the academic marketplace had high teens growth and the US commercial market was in the low double-digit growth.

What about rest of the world then?

Well, the rest of the world that we cannot break out commercial from academic quite respectively as we can in the United States. The only number that I can give you in total is international. In the Japanese market, so much of the academic research is supported by commercial industries. It is almost, that there is no breakout and in Europe we haven't, don't have the systems to break that out, for it is a smaller number that hasn't really been not really relevant.

Okay and then in commercial, any difference between Pharma and Biotech?

Well, in Q2, the growth rate in Pharma and Biotech together seemed to be a little bit lower than it was in Q1, but the dollars are still up and I didn't see a big difference or any changes in those.

Okay. Thanks so much.

The next question is coming from Cheri L.Walker of Deutsche Banc, please post your question.

Good afternoon.

Hi Cheri.

A quick question for Eric on the interest expense add back, is that something we should be modeling going forward?

Yes you should, interest expense add back is something that we will see, you are talking about our pro forma?

Correct.

Yes, as long as our 500 million of convertibles is outstanding you should be adding that back.

Okay and then just CAPEX in the quarter?

31 for the year-to-date Cheri.

Okay.

I have forgotten exactly precisely what it was in the first quarter.

All right and then in terms of giving come color on the oligonucleotide business, you said that revenue was slightly up, can you talk a little bit about the pricing environment that you are seeing, does that mean that units were actually up, even more driven, you know the difficult pricing and I have heard out there that you have actually instituted some increases in pricing?

The increases in pricing are old news. We have tried to focus our product differentiation on quality as opposed to pricing and so I don't think that there is an erosion in our pricing that's relevant to these numbers.

Okay. Thanks.

Thank you, your next question is coming from Christine

from Jeth Haven

, please post your question.

Well, I just have a couple of questions, I was late something on the call for, may be, you already covered this, but it looks like gross profit margin is up very nicely and I wondered if there was anything in cost to sales that might be unusual or is that a pretty good gross profit margin to model in going forward?

Well, I think, I won't use the term unusual but we had high gross margins driven by our cell culture business. We went through several things that were in there, I am not sure all of those will stay at that level going into the next few quarters, we had some price increases in particular on FBS and those prices may stay up but the way our pipe inventory works is buy higher cost, let me back up and say happening in the FBS market. Costs are increasing and therefore selling prices are increasing as well. We have increased the selling prices now and reflected that on the income statement. The cost increases because we spike our inventory or in inventory and they will be for a quarter before they catch up with the price increases. At that point, the FBS margins will return to what's a normal level. We also had some favorable mix changes. Our production business was strong but our research business was very strong near higher margins on our research business and one other thing that we mentioned, there was a shift within our offering, our customers seemed to be taking more especially media and we can command higher prices on that, but a good

was driven by cell cultures, some of that should stay with us, some of it, I don't think cell culture gross margins are going to stay as high as 53 percent throughout the rest of the year.

Thanks.

......half an estimate for the full year?

It is depreciation.....

Yeah, I think DNA is in chemicals.

All right.

Depreciation 9.3 million, amortization of most of our intangibles. You can get write-off of the income statement and there is about another 100 thousand of them. Actually, you should be able to find all of this in our press release, I think under our presentation of earnings before interest taxes and depreciation.

I am sorry. I will check that up. Thanks.

Thank you. Your next question is coming from Paul Waite of Thomas Weisel Partners. Please post your question.

Hi. Aren't your targeted R&D level with the percentage of revenue as the year goes on and in '03?

Let me see, I think for the remainder of the year the R&D levels are approximately the....in terms of actual dollars are approximately the same as they were in the second quarters. Is that right Eric?

Well, going forward, we think we are building on the 7 million dollars. As the percentage of sales, we were down under 5 but you know, that of a percentage of sales by the end of the year will be between 5 and 6.

Okay, is that helpful? And then we haven't given any guidance on going forward but we think we have enough personnel......we have enough personnel in place in San Diego but we expect R&D cost to or R&D expenditures to continue to rise through 2003.

Okay. Thank you.

Our next question comes from Thomas Flatin from RBC Capital Markets.

Good afternoon just a couple of quick questions for Eric. If you look back at the entire cell culture business, do you have any volume price break down, that's from the 12 percent increase?

No, Vic, if you can help us with that.

Yeah, its, I would say about 40 percent of the increase is due to

about 40 percent is due to a make shift from the more commodity like products to the more specialty products and the remaining 20 percent upon.

Great. One more question if I could. For the second quarter what percentage of your cell culture revenues were bio production?

30 percent.

30 percent. And finally Eric, the discontinue operations for the remainder of the year, will there be any in the third and fourth quarters?

There will be very little in the third quarter. We have some expenses to relocate some equipment from Huntsville, it could be a couple of hundred thousand there and there's just a few people remaining in... I am sorry discontinued products or operations?

Products.

Oh I am sorry. Discontinued products were down to what I would say that very very small level, its a hundred thousand or so quarter and, you know, that could fall off to almost zero by the third quarter but probably won't tail off to zero until the fourth quarter.

Okay, and last time we had a call, you talked about being up to 60 percent of the capacity hope to in the Allegro business, you have an updated a number on that?

Approximately the same, is that... you want more detail as live.... I mean, as far I know the small incremental increase that we had over Q1 continues to utilize about 60 percent of the capacity that we have. So it's approximately the same.

Okay and that will change the function of the number of customers you bring in or you trying to rationalize the capacity.

No, there were some more rationalization of capacity with the close down of some capacity that we had down in Huntsville, so there might be slight changes in that but most of the Huntsville is focused on the custom Allegro and we are going to continue to ramp up our promotional activities in that area to price fill up that capacity, we think that about 80 percent is the - 80 to 85 percent is where we can provide that 95 percent on time delivery, I mean in the quality level that we have achieved and gets the best utilization in capacity.

Great thank you.

Question is coming from Jason Williams of

. Please press your question.

Yes, I was wondering if I could just get the cash flow from operations in the quarter and if you could give us and update if you have one on where you might see cash flow from operations coming out for the full year and what do you think CAPEX will come out for the full year, as well? Thank you.

Okay, cash flow for the quarter from operations was about 35 million dollars. We see that being for the year, probably just North of a hundred million. And CAPEX for the first 6 months of the year were 31 million and that will range probably in the mid 40's for the year.

Okay. Great. Thank you.

Thank you. Your next question is coming Caren

Summer of

Investments

Hi, Nice quarter. I was; just had some questions on that cell culture. Do you expect sequentially those revenues to decrease? It looks like you had a nice bump up this quarter.

We don't really expect that the revenues will decrease. We expect to maintain the current level. However, the growth percentage is probably, will decrease due to challenging cons, looking at 2001.

Thank you.

Thank you. Your next question coming from Thomas Hancock of Piper Jaffrey

Yes, yes. Briefly. On the gross margin, gross margin on the cell culture they are fairly pretty strong, as could you expect that to carry forward through the remainder of the year and then next?

I expect that they, in total probably not. As

pointed out, it is probably difficult for us to maintain gross margin from the 53 percent range currently, we wouldn't expect that the situation would feel

in gross margin will maintain itself, will offset that maybe a little bit by continuing to ship people out of the commodity product into the specialty products. That is part of our strategy going forward. I think last time, we were on call talked about cell culture gross margin being 48, 49 percent range in that period

to the year.

All right, thank you.

....Jefferies & Company please proceed with your question.

Yes, the long-term investments held a maturity, I am assuming those are government bonds, but can you just give me the nature of the maturities of those?

They do not go out any longer than 2 years. So, these are not very extremely long to mature long-held maturity.

Do you have the duration of that portfolio?

Not at the top of my head. I think it

five hundred and some days but..

Is it 120 million are less than 2 years?

Yeah.

Okay. Thank you very much.

Thank you. We have a followup question coming from Larry Neighbor of Robert Baird.

Thank you. I think I must have missed this earlier, but could you give us your unit volume for your Oligo business and your price differential versus the second quarter a year ago?

We did not give that. Prices are down somewhat, not dramatically though; so a large bit of the decrease is attributable to unit decreases.

Okay and what are your expected volume trends through the second half?

We expect continued small dollar increases from current levels and from Q1 levels. We expect that will be a negative growth from last year will continue through Q3 and it will be much lower because the dollars in Q3 and Q4 of last year were much lower than Q1 and Q2. Is that helpful?

Yes. Good.

Growth rates will be less negative than they were in Q1 and Q2 and there will be small incremental dollar increases in Q3 and Q4.

So you are under a period of usual comparisons?

Yes.

Relatively every year?

comparisons and we expect to have incremental growth over Q1 and Q2.

What percent of your Molecular Biology sales were Oligos and custom services this quarter?

Well, might be less than 5 percent. Well, Primers and Services each represent about 5 percent of the overall sales. So they are more like 8 percent or so of the total, 8 percent each of the total.

I would like to go back to a question asked earlier. Someone asked about the growth rate for Cell Culture in the US and international and I think your response was mid-teens in the US and mid twenties international because of the, same as the Molecular Biology at Oligos.

Yeah the....

Is that the real number because you showed 12 percent sales growth so?

Yeah I think I answered that question, and rather than, I think I would like to give you a color on that and you can do a more accurate job than I did.

Thank you.

The year-to-date growth rate in America is around 20 percent. We have got the same growth rate in Asia Pacific. Europe is low in single digits. A lot of that is the result of the production business being a little bit weaker and 2 reasons for that. One is that it is highly dependent on serum products and we have made a casual decision to just finally allow that material into more profitable account and then secondly, a lot of the discontinuation that we did in the year 2001 prospected European production accounts and so that they are feeling a little bit backlash of our discontinuation policy.

Thank you.

Thank you. Your next question is coming from Janet

capital.

I am sorry. His line dropped off the conference. We do have a followup coming from David Cohen of Fairland Capital.

Thank you. Good afternoon. Couple of questions. One is, could you give us some numbers on the gateway product and if course rates on any revenue. And secondly, I wonder if you could comment on NIH budget and

into the new budget, and then lastly if you could also comment on applied buyers introduction of the gene expression product? Whether they are significant or not?

This question's answer is we don't comment on individual product lines for competitive reasons. The second question is NIH budget, for right now NIH represents about 30 percent of our total revenues continuing on their track of 15 percent annual growth through 2003 at least that is the expectation right now we have no visibility on what NIH would be doing after 2003 and the third question was..., what's the third question?

Applied buyers introduction of a gene expression product?

I believe that product looked around here

anybody else's information. I believe that I focused on expression analysis the process of most of our line, which is protein expression from those genes, and so as far as my knowledge there is there is no overlap or competitive issue there.

Thank you very much.

Thank you.

...of RBC Capital Market.

Eric, just a question for you on the Cell Culture guidance, you indicated or someone indicated that the dollar revenues would be approximately similar to what they were in the second quarter, 55 million, where your guidance indicated less than 10 percent. I can't get that to work?

Yes Thomas. We have just actually those just slightly on a dollar basis. You are right, I think if you use 10 percent and I was using somewhat on a growth rates under 10 percent, so high single digit. You will have to come down from the very high level we had in the second quarter of 55 million. I think it will be a little bit below 55 million for the last two quarters of the year.

So, we should use 89 percent growth rather than the 55 percent.

Yeah.

Okay, thanks.

Thank you, your next question is coming from Michael Bunyaner of Trisum Capital Management.

Good afternoon. Two questions. One, as you discussed the use of cash on the balance sheet and off course you have done quite an unbelievable job with acquisition of life technologies. What are your priorities and how do you think about return on capital? Just going back to the earlier question in regard to the excess cash, which, I believe with 53 million shares outstanding, it is nearly 10 dollars per share. How do you think about return on capital and over what period of time do you plan to put that capital to work?

Well, right now we, as

has described, we have a fairly sizeable

available for acquiring companies and technologies. We do realize that in the short term that penalizes - keeping it in cash penalizes our return on capital. We expects for the immediate term that we will still sort of keep our powder

on that and may be suffer a little bit from the lower returns on capital. Longer term, if we don't find good places to put that money to work right away, we will have to see other ways to return that money for the share holders and you know, we are thinking about all our options there, but right now, for the immediate time frame, our plan is to continue to keep our power

as I said.

What I am trying to get it is, anyway you look at it from a financial point of view, your cash &

yield, but buying the stock in the open market today, it is so significant that, it is hard for me to believe that you have lots of opportunities where you can get 10 percent loss after tax on any acquisition. If that is not the case maybe, you can give us the sense of, what type of things that you would get excited about in terms of incremental growth?

I think you answered your own question there. Didn't you? Our stock is a good use of capital and if you can comment on other options that are out there, much we can say.

Okay. So, we should walk away with an assumption that you are comparing other acquisitions and opportunities, these are the, your stock price today.

Absolutely.

Okay thank you so much.

Thank you we have a followup question coming from Aaron

of Crush Capital

.

Yeah, just to followup to my first question and a followup to the last question. What kind of, if you made an acquisition versus buying back your stock, how much extra return do you need to justify the risk, I think that's why we were all trying to get out?

I think that, I don't think there is any obvious answer for that.

I guess it is hard to see as an investor though, I mean, you vain giving us back, giving shareholders back the money or else giving somebody else the money and as shareholders, we want to understand when you make a transaction how is you are, sort of, thinking through that process, and you know, not to have a good answer makes people uncomfortable especially in a day when acquisition intensive companies are being penalized, then I think that's we were all trying to get out to understand how you are thinking about little more carefully?

Okay, we put this money in the banks that we have the debt option that if an opportunity came along we would be prepared for it, and in hand side I would say that was a pretty wise thing to do because it is not clear that any company in our business or any other business could

attend on a billion dollars in cash right now. But we don't want our investors to be concerned that that money is burning as a whole in our pocket, either to buy our own stock or to somebody else's. In this equity market, we think that a little bit of

is a good thing because cash has been

100 times in the last couple of weeks and this money wasn't burning a whole in our pocket. We are not going to do anything. It is risky with it in terms of acquisitions, but we think that there are tremendous opportunities that are going to arise out of this market conditions and although our stock would be highly accretive right now, it is not clear that, I mean that is not the only use of that cash and there may be some very significant strategic alternatives and that cash be used for so. I don't, of your two concerns, if not burning a whole in our pocket but we think there may be some very important strategic options that will come out of this market place.

Thanks.

Thank you. We have a followup question coming from Michael Bunyaner of Trisun Capital Management.

Thank you for your answer. Just to clarify something which is what I was attempting to get it. As you think about the end markets and your customers, and you think about the molecular biology of the reagents or some of the end market opportunities whether it's

or anything else that you focused on. Your senses that the opportunities that are available to you in terms of growing the company are such that you can grow the top line as well as incremental gross margin and operating margin of the company. Could you be any more specific in terms of what you are thinking about or what would make sense for you as you look at the opportunities in front of you?

Yes. The Invitrogen had a superb market position in the molecular biology functional Genomix that has been a very high growth market place for the last few years. In the long term, next 5 to 10 years, we see dollars moving out of molecular biology

mix and you know protien-related research. We think that there is continued mid-teens growth in the molecular biology area but we think we have a responsibility to our shareholders to be positioning ourselves to leverage up that position in molecular biology into

which means we have needs to continue to accelerate our R&D investment in both short-term molecular biology products but to position ourselves to be a major player

mix. That's what I mean by strategic implications or strategic applications of both resources. We can do all of the R&D that we need out of current cash flow. You are right, we have some upside on our margins. They want to continue to improve forever but we can some improvement to make sure that we have plenty of our R&D dollars to support our short-term molecular biology research need but we think it's up to us to use these resources to position ourselves for emerging market also.

And because the Capital markets are shut for most of the players, you feel that you will be able to take advantage over the cash and the books over the next year or to, to enhance your market position?

That is an option or an opportunity that we can't ignore.

Well, one last question, we will stop. If 2 years from now, we have not seen you put the cash to work, would you be disappointed?

Yes.

If 2 years from now, we haven't put the cash to work, well as Eric said, we will be......the time will have past when we should have found some way of

distributing that to the shareholders.

Yeah, exactly.

Okay, so you will address it significantly earlier than that?

Yeah.

Thank you.

Thank you. Your next question is coming from Bob Eye of Merlin Biomed.

Hi Lyle. This is Bob Eye. I kind of feel like I have been a horse here talking about buying back shares. I feel you can do both. You can use some of the cash to buyback stocks and make sure you have enough cash there if you want to buy some products or buy another company. And also as a shareholder, we don't want to feel like you are pressured to do a deal, that's going to be that dilutive, I just want to hear a comment?

I think that your point has been made Bob and so I don't disagree with you at all.

Okay. Thanks.

Thank you. Your next question is coming from Paul Brown of

Hi. Are the Oligo business and the custom services business possible in this depressed state that they are in?

It will be profitable?

Yeah.

Yes they are.

This states to maybe their EBITDA margins would be below the average for the microbio group?

Yes. That will be the safest option.

Thanks very much.

Thank you and once again if you do have a comment or question, please press the numbers 1 followed by 4 on your touchtone telephone.

. We do appear to have no further questions, are there any closing comments?

Yes. I want to thank everyone for participating in today's call. If you missed any portions of the call today, a replay will be available until July 31st. Details for accessing the replay were presented in our earnings release today which is available on our website. Thank you again for joining us today.

Thank you all for your participation that thus concludes your teleconference. You may disconnect your lines at this time. Thank you. Have a great night.