賽默飛世爾科技 (TMO) 2003 Q1 法說會逐字稿

Good afternoon. My name is Rebecca and I will be your conference facilitator today. At this time I'd like to welcome everyone to the Invitrogen Corporation first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

Mr. Goodson, you may begin.

Good afternoon, I'm Paul Goodson, Invitrogen's Director of Investor Relations. With me on the call today is Jim Glynn, President and CEO, Eric Winzer, Chief Financial Operator, Vic Nole, President of Cell Culture and John Carrino, Vice President of Research and Development. After Jim discusses the condition of the first quarter, and Eric discusses the balance sheet and financial outlook, we'll answer questions.

Before we begin, I want to caution all our listeners our discussion will include forward-looking statements subject to risk and uncertainties that will cause actual results to differ materially from the forward-looking statements. It is our intent that those statements be protected under the Safe Harbor protected by the Private Securities Litigation Reform Act of 1995, and we refer you to the risk factors listed in today's press release and in our SEC filings, including our 10-Q and 10-Q.

On today's call as we have in the mast, we will discuss the pro forma earnings performance, both for the first quarter as well as our outlook for the remainder of the year which are non-GAAP financial measures under Reg G. In addition, we use these measures internally to evaluate the performance of our businesses.

In today's discussion, we will be consistent with the definition for pro forma that we have used previously. Under the definition, pro forma earnings are calculated by adding back merger-related amortization and business integration costs, net of income tax effects, to reported earnings. On the investor relations page of our website at www.invitrogen.com, we present the most directly comparable GAAP financial measures and a reconciliation of GAAP results to pro forma results for all quarters in the years 2001 and 2002 as well as for the first quarter of 2003. New federal securities regulations under Reg G require us to reconcile all pro forma presentations to amounts prepared using general accepted accounting principles.

Today's earnings press release and prepared conference calls presentation will contain pro forma information, and we have included directly comp comparable GAAP numbers and reconciliations in the press release and on our website. However, we recognize questions may be asked in the Q&A session that call on us to provide additional pro forma information not anticipated in our prepared materials. In most cases, we will answer such questions, if we can also provide you with a reconciliation to the corresponding GAAP figures, but where we cannot provide this reconciliation, we ask for your understanding if we decline to answer.

And now I'd like to turn the call to Jim Glynn who will discuss the first quarter.

Good afternoon. I'm pleased to report the if the revenues for the first quarter were $180.6m, and our pro forma EPS was .52. Looking at our business segment performance, demand for cell culture products remain strong in research and bioproduction. Growth aided by price increase, currency benefits and volume growth in bioproduction.

Results of biology products were not as strong as recently experienced. The delay in the 2000 budget and the uncertainty surrounding the subject increase contributed to slower growth among Government, academic and non-profit customers in the United States during the quarter. The approval of the budget late in February should help improve the per format performance of this segment in the rest of 2003.

Among commercial customers, we believe several trends are causing weak sales in the United States. These include mergers, layoffs and a shift in R&D spending in favor of late stage research and clinical trials. The weak equity market is contributing to the reduction in spending among small drug discovery companies.

Our business was flat with last year's first quarter, which was consistent with our expectations for this business. Volume increases have been offset by price decline. In the service area, we saw a negative comparison with the first quarter last year, but the revenues were level with the average in the last three quarters of two. We continue to expect growth in the business going forward.

Turning to InforMax, I'd like to give you an update, since we have now completed the first full quarter with the acquisition as part of our business. Revenues from InforMax were $2.8m in the quarter, very close to our expectations when we set first quarter guidance. Expenses at InforMax are also in line with our expectations. During the quarter, we took several steps to reduce InforMax expenses including the relocation of InforMax headquarters from Bethesda to our existing facility in Frederick and a consolidation of the workforce.

One of the highlights of the first quarter was the March 28th completion of the acquisition of product lines and technology rights from PanVera. Early in the process, we formed teams focusing in R&D, accounting, and other areas. We expect synergies from the leverage that the sales force will bring to PanVera product line, and we are confident about the growth of potential acquisitions.

Before I ask Eric to review the financial results for the first quarter, I'd like to give you an update on our CEO search. We have interviewed a number of highly-qualified candidates. We are moving forward as planned and expect to make an announcement by mid year.

With that, I'd like to ask Eric Winzer to review our financial results and our financial expectations for 2003.

Thank you, Jim, and good afternoon. Our first quarter '03 revenues were $180.6m, an increase of 13% over the first quarter of 2002. Favorable currency comparisons represented 7% of the 13% increase. Cell culture revenues increased 23% including a 7% benefit from currency. Molecular biology revenues increased 8% including a 6% from currency.

Consolidated gross margins 60.4% in the first quarter, an improvement of almost 3% over Q1 '02. Molecular biology gross margins increased from 65% to 62% and benefited from price increases, cost efficiencies and favorable changes in currency rates. Cell culture gross margins were 52% up from 48% in '02 principally due to higher margins on serum products.

Pro forma operating income delivered at 24% of revenues. We previously announced our goal of managing expenses to improve pro forma operating income to 23% to 24% of revenues in '03. Amortization of purchased intangibles increased approximately $600,000 in the year-over-year comparison of first quarter results. The increase is principally attributable to amortization of InforMax purchased intangibles which are being amortized over three years.

Interest expense increased due to imputed interest on leases covering excess properties acquired in the InforMax acquisition. Accounting rules require us to attribute a portion of the lease payment for these properties to interest expense. We are working diligently to sublet or buy out leases on such property acquired in the InforMax acquisition. We expect to exit almost one-half of the excess leases very soon which will result in a substantial reduction of the imputed interest expense going forward As the remaining lease obligations are eliminated or reduced, the imputed interest expense will continue to fall.

We regularly review our EPS performance on a GAAP and pro forma basis. For both of these calculations, the number of shares outstanding in the first quarter '03 was lower than in the first quarter of '02, principally due to the 3.3m shares we have repurchased.

Our earnings under GAAP were 34 cents per share, an increase of 26% over the amount we reported in the first quarter of 2002. Our pro forma earnings per share were 52 cents in the first quarter of '03, an increase of 13% over the comparable quarter in '02.

Now, I'd like to turn to our balance sheet and cash flows. We acquired the PanVera assets at the end of March using approximately $102m in cash. This was a significant factor in both the decrease in our cash and investments during the quarter, and the increase in intangible assets. Our operating activities generated $23m in cash during the first quarter and included our normal first-quarter capital billed.

Days sales outstanding were 57 at the end of Q1, which amount included the equivalent of one day for the $2.4m in receivables acquired in the PanVera acquisition in late March. Inventories increased $10.4m from December 31st, 2002, including $7.1m of inventory acquired in the PanVera acquisition. At the end of March, our total cash and investments were just below $1b.

Now that I've discussed our financial performance for the quarter, I'd like to review our outlook for the rest of the year, including the effect of the PanVera acquisition. In the aggregate, our first quarter results exceeded our expectations. On the positive side, our cell culture business did well and we benefited from a weak U.S. dollar. As with many others in the industry, our molecular biology business was softer than originally expected. As we look to the remainder of the year, we expect first quarter trends will likely continue. The expectation for the U.S. dollar is that it will remain near current levels and we will experience favorable currency comparisons throughout the remainder of the year.

When considering all factors, we believe that our original projections of $728m in revenues and $2.05 in pro forma EPS are still good estimates for the full year '03 before considering the impact of the PanVera acquisition. As I have mentioned our pro forma EPS expectations for '03, it is important that I also provide our EPS expectations on a GAAP basis in accordance with Reg G.

On the website presentation in December which reconciled the pro forma EPS estimate of $2.05 with the GAAP of $1.32. The GAAP amounts included $64m of acquisition related intangible amortization and $1m of expected business I wanted gracious expenses. These expenses were reduced by $25m of related tax benefits such that the GAAP net income was projected to be $40m less than the pro forma net income.

We have increased our estimates of 2003 intangible amortizations by about $2m based on the final valuation for InforMax intangibles. Net of tax benefits, we believe this additional amortization will decrease the GAAP EPS projection for 2003 to $1.29 from $1.32 before considering the PanVera acquisition.

Now, I'd like to give you our current expectations for the recently acquired PanVera business. We remain very excited about this business and believe it will be an important part of our growth strategy in 2003 and beyond. Now that we have completed the due diligence and much of the integration planning, we believe that this business will contribute approximately $18m to 2003 revenues, and be slightly accretive to our 2003 pro forma EPS, while being dilutive to our GAAP EPS.

Our estimates of the contribution to EPS is net of lost interest income. We believe the performance of this business will accelerate throughout the year as the business becomes more fully integrated.

Now let me try to summarize our financial outlook as simply as I can while still providing GAAP and pro forma numbers and a reconciliation of the two. Our revenue projection is straightforward. We are now projecting revenues of $746m for 2003, which includes $18m for the PanVera business. The PanVera business is expected to impact our EPS as follows: We expect amortization of acquired PanVera intangibles would could be $12m in 2003. This would reduce our 2003 gap EPS by 14 cents per share net of taxes, but not impact pro forma EPS.

We further expect PanVera inventory write up costs and business integration costs to be approximately $6m in 2003. This would be a reduction to 2003 GAAP EPS of 7 cents per share, but also would not impact pro forma EPS.

Including the items above, we expect the PanVera business to reduce GAAP EPS in 2003 by 19 cents a share. Because pro forma EPS calculation excludes the 21 cents for the two items just preponderance of the mentioned, we expect the PanVera business will increase pro forma EPS by about 2 cents per share in 2003.

In summary, we see 2003 pro forma EPS at $2.07, and GAAP EPS at $1.10. As we mentioned, new federal regulations require we provided a adequate discussion of GAAP results and a full reconciliation to pro forma amounts. Whenever we discuss pro forma results or expectations. We hope you found this additional required discussion useful.

Before we open the call to questions, I'd like to update you on our capital spending expectations. We came into 2003 expecting to spend approximately $50m for property plant equipment for the year. Because our business projections and local currency terms have come down somewhat, we are reducing our expected capital spend. We are now expecting capital spending of $35m to $45m for 2003. Our Q1 capital spending of $6m positions us well to be in this range. That concludes my comments.

Operator, would you please explain the procedure for our audience to ask questions?

Yes, sir. At this time, I'd like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q and A roster.

+++ q-and-a.

Your first question comes from, Sanjay Patel.

Could you give me more clarity on the inventory side? And refresh my memory on the R&D spending target, where your I deal, you know, target is as a percent of total sales. Thank you.

Okay. When you say the inventories and 100% coming from PanVera.

What I meant was the increase.

The increase was just over $10m, and 70% of it came from PanVera. It was just over $7m.

Okay.

And as far as the R&D targets, for this year, we're talking about, overall in the 6% to 7% range, but we're working up to molecular biology target over time of as high as 10%.

And you think you'll reach that, when, next year?

Sometime late next year.

Okay. Thank you.

Your next question comes from David Witzke.

I wonder if we could get a breakout of molecular biology growth?

Yeah, we have to be careful about the numbers we give you. They're currency adjusted, and so forth, related to these Reg G requirements. We mentioned the business in the quarter was essentially flat year on year. It was up a little bit with benefits to currency actually down to maybe slightly after-currency adjustment. The rest of the business, the growth rates have come down from where they have been in the past. I'm hesitant to put exact numbers on it because I don't have the numbers, absent primers and services right in front of me.

Remember, Dave, that the services was a negative growth for the quarter compared to first quarter last year.

Okay. But if we take out the InforMax contribution, we're really looking at down 1% for the year for molecular biology adjusting for currencies, and can we assume from that that the cloning and expression business is flat.

We'd say it's just above that.

So low, single-digit type?

Yes.

And do you think that's a broader to slow down with academic spending or is there any change of share.

No, it's a slowdown in spending. We've seen a pickup in March so it's the first two months of the year.

The cell culture which continues to be strong, I believe in the guidance call in December, you mentioned that a loss of pricing power may be on the research side. You know, the bioproduction is doing well. What's the outlook for the research cell culture market?

Well, I think, on the pricing side, we've actually done fairly well there on the research side as we've shifted from, sort of classical media focus to specialty media. And I'd say that our outlook for the rest of the year continues to be fairly good on that side. The research growth rates were double digit in the first quarter. In that neighborhood. We'd like to see them staying in double digits, maybe a little bit below that, high single.

Okay. And on the guidance, I guess, in general, looking at when you gave guidance in early December, obviously the dollar that is weakened considerably, yet you've maintained the same guidance ex PanVera. Is that because of the slower microbiology, or is there any cushion there?

There could be cushion. We're kind of anticipating the currency will fade somewhat similar, but we don't know what it's' going to be in the later part of the year, we may lose some of that benefit.

On PanVera on headcount, any reduction there or cost synergies on that?

We're going to maintain almost all of the PanVera employees.

Good. Thank you.

Your next question comes from Lakshmi R. Bhojraj from Salomon Smith Barney.

What was the currency impact on EPS in the quarter?

We didn't quantify that, Lachime.

And what would the molecular biology and cell culture ex currency from continuing ops numbers? I know you've provided that in the past. Do you happen to have those available?

The cell culture and molecular biology.

The ex currency from continuing operations numbers?

We don't do continuing operations any more because we're not going to discontinue any more products, and we're on a comparable basis.

Okay. So do you have just the ex currency numbers then?

Well the cell culture was 23 reported, and 7 was from currency. That gets us about 16, when you take out the currency piece. And on a molecular biology side, it was 8% growth, 6% from currency. And there was a slight impact on discontinued products, might have been 1%.

Okay.

We had some discontinued products that we were still selling at the beginning of 2003. I'm sorry, 2002. But the discontinued products really are down to a very small level now.

Okay. And, so, when you look at kind of the things that impacted the molecular biology business, you mentioned the budget was a little wore than you expected in terms of impact. But how much of this do you think is just cautious spending patterns versus delayed disbursement of funds? You know, I'm just trying to figure out what we should expect going forward now that the funds should be filtering through.

Well, I understand that these funds are just now beginning to be released, so we thing that will have a positive impact on the research market.

Okay. And then in the cell culture business, what was growth, if you would be willing to provide that, in the serum's business?

The serum growth was comparable to overall growth.

Mid teens.

That's right.

Okay great.

Next question from Cheri L. Walker.

Good afternoon.

Hi.

Going back to the cell culture question, I know you did a small acquisition in December. How much of the growth was organic versus the contribution of that acquisition?

Yeah, Cheri, that was sort of a vertical integration we brought back into a supplier, so I didn't have any impact in the top line.

That was pure growth?

That's correct.

And you did a nice job on the cost structure this quarter. What should we expect for G&A and sort of sales marketing targets for the year?

I think they will be pretty consistent with the first quarter, Cheri. However, we have to evaluate what we're doing at InforMax and at pan PanVera.

Terrific. Thank you.

Your next question comes from Aaron Geist.

Good afternoon. Could you give us the segment breakdown for the cell culture area? You talked about the research market and the bioproduction market in terms of growth rates?

Aaron, I am thinking in terms of the currency adjusted growth rates.

Okay.

And I'm being advised that, unless I give you the GAAP number, which I'm looking for at the moment, I can't give you the currency adjusted growth rate because it's a non-GAAP number, and I will have to give a reconciliation of it. So this is one of these questions that Paul mentioned I was going to struggle with.

Could you speak qualitatively with the differences in growth rates between the two segments.

Bioproduction is the highest growth rate of the product line.

Yeah. We could say that the bioproduction growth rate was about twice as high as the research growth rate.

That's helpful. Second question is, you've seen a pickup from FBS pricing business or serum pricing business. Can you talk about the current environment for FBS and whether or not prices have started to come down or normalize?

Vic, do you want to handle it?

Sure. Hello, Aaron.

Hi.

The whole supply-and-demand dynamic has stabilized quite nicely for us. We're very happy with the situation right now versus what we planned for coming into the year.

Can you talk a little bit about the growth segmenting it between serum and specialty media?

Well, specialty media is growing quite nicely, actually, a little bit better than we had anticipated. And serum is growing in line with our expectation for this year.

Okay. Second question -- or third question, whatever -- moving to molecular biology, can you talk a little bit about growth rates for core products in the area? Can you talk about the ORF products and some of the areas you saw may maybe accelerating growth in a weak market.

Well, to give any information on the ultimate ORF collection, it would be from such a small base that the growth rates would be very, very high. To try to give you some color around things going on in the molecular biology business, I'd say that the products that are focused more on proteins or Proteomics have been growing fairly nicely recently, and some of the more class colonel genomics-type products have not been growing as fast. .

How would you characterize the response from the end market to the more modest price increase this year, given delays in the funding of the NIH, and some end market weakness.

It was much more favorable this year than last year.

Okay. That's very positive. You didn't buy back any stock in the current quarter. Was there a specific reason for not repurchasing stock, and is there a plan to reinitiate or initiate the repurchase on a going-forward basis for this year?

Yes. As we announced eight months ago or so when we first announced the program, it's 300m over three years. We are still committed to that. We don't get into specifics of timing. And you're correct, we did not purchase any in the first quarter. But it is still a program we're committed to.

When you acquired PanVera, you gave a guidance range of revenues you thought were real estate I can realistic for '03. The guidance you gave is a little bit softer than that. Can you talk a little bit about the change .

You can recall from the conference call, we didn't give guidance. We expected 20 to 22 based on the timing of the transaction, and that we would give guidance in this quarter.

Did the acquisition close later than anticipated or earlier than anticipated?

I think it was a little bit later, Aaron, and it's impacted a little bit by the integration.

Okay. Thank you very much for answering my questions.

Your next question comes from Derik DeBruin.

You mentioned the OLGA volume was up. What is that market doing and the dynamics.

I would say that the OLGA market is a market that was groping very quickly a few years ago when the human genome practice was blasting along. There are some specific projects, but not the growth area. I'm speaking the entire market, you know, not just our parts participation. I would say there's still pricing pressure. That's another dynamic of the market, although that seems like. Maybe a little less severe than it had been, but there's still pricing pressure in that market.

Okay. And in terms of looking at some of the weakness, the slowdown of spend income the microbiology business, was that across the board of based on the commodity products rather than the proprietary products?

I would say, no -- I'm saying it's across the board. There were some customers who were rationalizing whole programs, some biotechs where the funding is pretty tight. So they really cut back across the board.

Okay. And looking to InforMax. So the December conference analyst meeting, you were still looking at about $12m in contributions from InforMax, I guess $4m being target for the quarter. Would some of that difference between what we thought and what came in, was that in relation to, once again, the slowdown in how people were going to spend money, or are you changing your expectations without going forward?

I don't think our expectations have changed at all in that. We have -- our sales force, now, is generating leads for the InforMax salesmen, and that has just begun in the last month or so. And we anticipate a pickup throughout the year. And in the software business, the fourth quarter is usually the biggest quarter.

Okay. Looking at the cell culture, is the increase in there, is it gains in market share or just simply higher volumes (inaudible)?

Vic, do you want to handle that.

We believe we are taking market share especially on the bioproduction side of the business, sot so much on research by bioproduction definitely.

One final question. Could you give us some color on what the geographic breakouts were in terms of how things were going? Other companies said Europe was strong while North America was weak. Can you give us a little bit of color.

Yes, Europe and Asia were very strong. The weakness was solely in the United States.

Okay. Then Japan, it was very strong?

Yes. That's right.

Okay. Thank you very much.

Your next question comes from David Cohen.

Congratulations on good quarter.

Thank you.

Could you talk about -margin expansion was excellent in the quarter. Could you give a little insight into that? Is that the end of the cost saves or part of integration? Where are you on that? Plus an update on the gateway office; how that's going?

Well, David, the margins were based on cost efficiencies price, and we had great margins in cell culture, and I think that was boosted from the serum pricing. We may see a reduction in future quarters if the serum pricing changes much, but not significantly.

The serum prices are at a high end of the expectations. We sort of see that as a 50% business. On the molecular biology side, margin have rise risen nicely up to 65. There might be little more opportunity there, but we're sort of reaching the benefits. We're getting the high end of the cost efficiencies, and we also got a little bit of currency benefit in there as well, David.

Got it.

An open reading program, if you remember, it's directed toward both human and mouse open reading frames. So we, in the quarter, added several thousand clones to the collection in each, several thousand human clones to bring the total to about 3500, and several thousand mouse clones as well. And again this is an evolving program where we'll add significant numbers throughout the course of this year and we're on track with where our plans are for that.

And how's the response been on it and the update of the response.

I think the response, initially, has been very good. The numbers, again, increased significantly over the last quarter, and we've seen some significant interest pick up as the numbers increase, and we're looking at ways to present these collections to our customers so that they can sort through and take a look at the clones that are available as the numbers begin to increase and make the right kind of buying decisions for their activities. So we have a lot of confidence moving forward in that program.

On an accounting basis, the PanVera, that could be rolled into the molecular biology line?

Yes.

And then, lastly, on the repurchase, an encouragement, maybe, a comment more than a question, whatever, it seems as though the $300m is just covering the cash flow that has been generated by the business so that there might have might even be room to change the existing capital structure as well. So an encouragement to renew the repurchase program.

Okay, David, we'll take that add advice.

Thank you very much. Well done.

Next question comes from Karen Brenner.

I missed the operating cash flow number that you gave for the quarter.

The $23m.

And it looks like the restricted cash section open your balance sheet went up slightly.

That's right. And that was related to some money we put into escrow for the -- for the PanVera purchase, and actually we've already accounted that as part of the $102m we paid for that business.

Okay, great. The guidance for 2003, that is without the benefit of any additional stock repurchase?

That's correct.

And then can you give a little more guidance on the progress you're making in cost reductions at InforMax?

We are making significant cost reductions. We had moved them out of their facilities in Bethesda and moved them into existing facilities in Frederick. And we had a reduction in workforce of about 50 people. And we're continuing to look at the level of expenditures.

Okay. Can you quantify that any further so we can get an idea on how much more the baseline SG&A is moving?

I can't quantify, I don't know. Can you?

No, I wouldn't want to shoot off the hip on the InforMax SG&A item by itself.

Okay. Thank you.

The next question comes from Bob Larson.

Hi. This is Bob Larson. Can you hear me?

Yes. Hi.

My question actually is I want to just ask the question again about the share buy back. In the conference call, the investor meetings, you have been talking about the shares in the group. And now actually I think it is lower at the time to have conference. And I'm wondering why not be more aggressive buying back more shares?

Well, Bob, we've got a plan to execute over the three-year period. We are considering whether we should accelerate that from the original plans. And I hear your suggestion, your implicit suggestion that we should do that and I will take that under advisement.

The plan as David suggested earlier is basically you're using cash generated from operations to buy back shares. You're not going to touch -- haven't touched the balance sheets yet. And that leaves it to the second question. It's really when I look at the balance sheet. You have about -- things have $670m debt? Have you thought about buying back some of the convert con convertibles?

Bob, we've considered a number of different options on the balance sheet side. I think we've talked in the past over the last year or so that most of our focus has been on looking for acquisitions, looking at different opportunities to put some acquired assets to work. And that's where the balance sheet has come out -- from those observations.

Because I remember -- that's great if a company is burning cash, you know, like early companies. But the company generates a lot of cash each year. That doesn't seem to me with so much cash in hand, and especially considering some companies -- which is done in bonds to buy back stock, and that just really is striking to me.

Well, Bob, over the last six months we bought 1 $100m of stock back and we're optimistic we'll make purchases this year as well. But we understand your suggestions.

All right. Thanks a lot.

Your next question comes from Tyko Peterson.

Could you give us an idea of what margins could be like in the PanVera business?

They'd be very similar to the molecular biology rates.

And you're currently showing the products now, or is there a training period .

They're being sold by the PanVera sales force, and we will be training our sales force shortly.

Okay. Thank you.

Your next question comes from Derek Winger.

The capital expenditure level you're anticipating for the Year?

Between $35m and $45m.

Thank you.

Your next question comes from Doug Fischer.

Congrats on the quarter. You don't have the particular line items for InforMax, but can you give us an idea of how much that business lost in the first quarter?

Yeah, Doug. Let's see, on a GAAP basis, that business lost 4 to 5 cents. On a pro forma basis it was, I think, 3 cents. And let me reconcile this, too. As you know, the difference will be merger-related amortization, and the business integration costs, which you can get business integration right off the face of our income statement. So that ties the 2 cents difference, roughly.

Okay. Could you just talk a little bit about the acquisition environment and, when which think about 2003, how optimistic are you that you had be able to close another transaction, you know, in the ballpark of the size of, say, PanVera or larger.

Doug, the overall market for acquisitions is better today than it has been in a long, long time, and we're fairly optimistic that we could probably close one more transaction this year.

Okay. And can you just talk about some of the product lines, the gels, say, super script, maybe just give us a feel for how those products are doing?

I think those, again, are in line with what Eric said in terms of the overall growth rate for all of the molecular biology products.

Okay. Even the Lux primers, I thought we would be seeing an acceleration coming off a small base there?

You're right about that, we are.

Okay. And the issue of the funding for the biotechs has come up on this call, and I just wondered if you could refresh me what percentage roughly of your revenues are derived from those companies which would seem to be, you know, in the toughest straits.

It's approximately 10%.

Okay.

Worldwide basis.

Okay. And just lastly, you mentioned that you saw a pickup in March versus January, February. I wonder if you can add any color to that and talk about whether that has been sustained into April so far?

I don't know if it will be sustained in April, yet, Doug. And I'm only speculating that it's due to the actual release of some of the funding at the NIH.

Understood. I was trying to get some sense for how significant an upturn there was in March.

Well, Doug, the rebound in March was pretty nice. It's very difficult to tell during the month because of the comparisons of days in the week versus previous year. It's better to wait until the end of the months till we say how April is going to do.

Okay. Thanks.

You have a follow-up question from Aaron Geist .

You gave guidance for '03 and you mentioned you thought operating expenses would be largely in line for the first quarter. If you model out that expense structure and the revenue guidance that you've given, you come in with EPS that's somewhat higher than the number that you've given. Would you say that you believe that some of those operating expenses will shift and change throughout the course of 2003, or you have set --

Aaron, we are being a little conservative here, but we are expecting some increase cost relating to the new CEO coming on board, and we also see additional costs relating to the new regulations that we have we have to abide by.

There's also a little bit of room in there to expand our investment in R&D as well.

Thank you very much.

Your next question comes from Viba Kahana (ph).

On the InforMax dilution, do you expect it to persist during the year or is there an action you'll take to make it more neutral to earning?

We expect the dilution to decrease during the year. We're still expecting that business to be break-even by the end of the year.

Okay. And how do you get that? Is that revenue or costs?

It's largely revenue.

So you're expecting a pickup in the revenue line, then?

That's right.

And then on PanVera, can you just help us understand how many salespeople you're getting from PanVera and whether there's any opportunity for your salespeople or is it going to be pretty independent?

No, PanVera has approximately 6 salesmen, and all our salesmen will be trained to sell those products some time in May.

Okay. So, then, they will help, I guess, the top line a little bit.

Yes.

And one final on acquisition criteria. I was just wondering, what is the kind of criteria used for some of these acquisitions? Is it earnings conclusion accretion, or is it some return on capital? Just wondering what your criteria is.

Well, we do a return on capital. We only do accretive acquisitions. And the criteria would depend on the market share and the technology that we're acquiring.

Okay. Thank you very much.

Your next question comes from Kevin Gale.

Hi. Nice job on the quarter. I want to get an idea, if you could, of your historic and what you see going forward level exposure to the NIH budget and relate to that what the effect of the budget not growing as much as it had in the past couple of years going forward. And then, also, with InforMax, I wanted to know if you could address some of the plans you have for making the software more complimentary compliment complementary to existing products and so forth?

Well, the NIH, as you know , 60% of our business is government and academic laboratories, so it has an impact. We don't feel the decrease that is coming next year is going to impact the reagent piece of the funding very much. I think the reduction is going to be a reduction in facilities. And the second question?

The second question had to do with the InforMax complementing the software for the existing products. What are your plans there.

We were just going through synergistic products with Invitrogen's product line Invitrogen Corporation's products and InforMax.

But we have identified clear opportunities on what we talked about as the brig together of the labs. So there are opportunities to do that and we're moving forward on those.

Great, thanks a lot.

Your next question comes from John Sullivan.

Hey, guys. First of all, can I just do a quick follow-up on the last answer I heard? Can you detail your comment that you think that the lower level of NIH spending growth in the near future might more affect a reduction in the number of facilities as opposed to abating the spending in reagents? What do you mean by smaller number of facilities? Government facilities or fewer labs funded, or what do you mean?

John, I don't have the number right in front of me, but of the 15% that was spent over the last five years of NIH, a big portion of that was spent on facility expansion.

Okay. Just building for labs and that sort of thing?

Yes.

Separately, what I wanted to ask is can you talk about something that I've thought of as a traditional strength of Invitrogen such as making roads into academia to secure IP and turning that IP into Invitrogen products? With what I perceive as some work ahead of you regarding turning some of the PanVera reagents into kits. Do you still have capacity to do that -- to make those aggressive inroads into ac temp I can licensing? Is that still a fruitful path to you?

Yes to all the questions. It's a primary focus and important to our business. We have 11 people that license technologies in, and I think we do about 100 a year. And we will kit-up PanVera technology.

And you think you have capacity to satisfy both?

Yes, we've been ramping up R&D, and marketing here in Carlsbad.

Thanks very much.

You have a follow-up question from Doug Fischer.

Yeah. I just wondered, is it possible to talk about the percentage of revenues for the custom services in the Olgo business, particularly the percentage of microbiology or total?

I think if you combine go both of those segments it it's about 10% of our business.

Okay. And is it reasonable to expect the custom services business to get to the point where no longer showing year-over-year comparisons by the second or third quarter of this year?

Yes.

Doug as Jim mentioned, if we do in the second quarter what we do in the first quarter, we'll already be at that level. We're against equal comparisons going forward.

Okay. And are we still reasonably on the mikes that optimistic that that business is going to continue to, you know, show sequential improvement as the year progresses.

Yes.

Okay. And I think, if I heard you right, you said that the trends in the international markets were a lot more favorable than the U.S. Can you take to, either for the business as a whole or for molecular biology, the international growth rate you saw in the period?

It was across all product lines.

But, I mean, can you just give us some feel for what the rate of growth was?

Yes. Doug, I think, on the molecular biology side, reported, you know, not on a currency comparable basis, is about 15%, and currency us with giving us five or six points. So you're looking at sort of double-digit, 10%, something like that.

Uh-huh. Okay. That's helpful. Thank you.

At this time, there are no further questions.

Okay. I'd like to thank everyone for participating in our call today. And the replay of the call will be available for 30 days. Thank you very much.

This concludes today's conference call. You may now disconnect.