Biotech companies typically struggle for years, but Life Technologies piles up profits by being the supplier, not an inventor.


April 08, 1991|By Timothy J. Mullaney

There are things that happen in this world, and things that don't. Gas prices only go up. Bo Jackson dominates in two sports. And biotechnology companies are long on promise and short on profits.

But gas prices are falling, and Bo is on crutches. And Life Technologies Inc. of Gaithersburg, which has been profitable for years, ruined the picture completely by paying a $52 million special dividend to the biotech firm's shareholders in March. Is it time to check up on death and taxes?

Life Technologies has quietly been making its mark as Maryland's most successful biotechnology company since it was formed by a merger of two companies in 1983. Sounds like a sexy story. But it isn't. Even though his choice of words isn't so blunt, J. Stark Thompson, company president and CEO, admits that Life Tech's secret is in being boring.

The biotech industry is dominated by companies that are trying to develop breakthrough drugs and pioneering diagnostic tests and devices. But Life Tech's business is completely different. Instead of researching blockbuster drugs, Life Tech sells products needed to invent drugs: enzymes that researchers can use to cut strands of DNA, fetal bovine serum (unborn baby cow's blood in which researchers can grow cell samples) and similar items.

"We think of ourselves as the hardware store in the gold-mining town," said Dr. Thompson. "In the truest sense of the word, we're not a biotech company. We're a supplier for life science research. . . . It doesn't mean we're against hitting home runs, but we're not going to go into therapeutics. If they hit a home run, we do pretty well ourselves."

In an industry where nearly everyone else is trying to hit home runs, Life Tech is, in Dr. Thompson's words, "a company of

singles and doubles," where the average invoice is measured in hundreds of dollars and a blockbuster product sells $1 million a year.

In an industry full of companies that have their eggs in one basket, pinning their hopes on developing a handful of products, Life Tech has 2,000 products it sells to 20,000 customers. It introduced 400 products last year alone. Its biggest customer, the National Institutes of Health, accounts for only 2 percent to 3 percent of its business.

In an industry where few publicly traded companies make money yet, mostly because they are still trying to develop these marvelous new drugs, Life Tech's biggest problem earlier this year was that it had $56 million in its pocket that it couldn't use, money that was skewing the company's return on equity, because cash in the bank earns so much less than the core business.

Two decisions in the past year -- the company's decision to get out of its diagnostic test-making business and the decision to turn most of its $56 million acquisitions war chest into the special dividend and begin paying regular quarterly dividends -- effectively mark the end of the beginning for Life Tech.

No longer will it be a classic growth company, as most biotech firms are, putting all of its money into developing the company's future at the expense of its shareholders' present. Instead, it is beginning to act like what George Shipp, a stock analyst who follows Life Tech for Scott & Stringfellow of Richmond, Va., called it in a recent report -- a "small capitalization blue chip."

In years to come, Life Tech won't grow as fast as some biotech companies that invent new drugs, but don't knock it. The company still says it will triple its annual sales to $500 million by 1997, and is investing heavily in research to make that happen. And it is trying to achieve that growth in a business that requires less capital and demands less risk than virtually any other facet of biotech.

Remember, a great singles hitter like Wade Boggs has a million-dollar contract just like Jose Canseco. And he strikes out a lot less.

"I think it's a little jewel," said Frederick Adler, a New York lawyer and venture capitalist who is chairman of Life Tech's executive committee. "In fact, it's not so little anymore."

All of this is a far cry from 1982, when Life Tech was two unrelated companies. One was GIBCO Corp., a subsidiary of Connecticut-based Dexter Corp. The other was then-struggling Bethesda Research Laboratories in Montgomery County.

Mr. Adler was brought in to be chairman in 1983, and M. James Barrett (now head of Genetic Therapy Inc. of Gaithersburg) became president and chief operating officer. In 1983, BRL merged with GIBCO, and GIBCO parent Dexter took more than a 60 percent stake in the newly created Life Technologies Inc.

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