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BioSource Performance Fails To Curb Decline in Shares

BioSource Performance Fails To Curb Decline in Shares By SHELLY GARCIA Senior Reporter In a market still skittish from years of losses, continuing accounting scandals and bear fever, close just isn’t good enough. So the executives of BioSource International Inc. learned when they released their second quarter financials showing a noteworthy 14 percent increase in net sales compared to the same period last year. Despite the better-than-expected showing in revenues, BioSource missed consensus estimates on earnings for the period by two cents per share. The deviation was enough to send the company’s share price falling, in spite of what analysts considered otherwise solid results. “They did surprise on revenue, but the markets want more revenue surprise and more earnings surprise,” said Paul Knight, life science analyst for Thomas Weisel Partners, an investment firm in New York. “The rebound in biotechnology spending and pharmaceutical spending is occurring a little slower than people might have expected.” (Weisel does not hold a position in BioSource.) For the three months ended June 30, BioSource reported net income of $325,000 or $0.03 per diluted share, on sales of $11.7 million. That compares with net income of $449,000 or $0.04 per share on revenues of $10.3 million for the second quarter of 2002. For the six-month period, BioSource reported net income of $427,000 or $0.04 per diluted share compared to a net loss of $2 million in the first half of 2002. Sales for the current six-month period were up nearly 13 percent to $22.6 million, from $20.1 million in the comparable period last year. The release of its most recent financial results sent BioSource shares spinning downward. The stock price opened at $7.31 per share on July 22, the day of the announcement, and by the next day it had fallen to $6.70 per share. On Thursday, July 31, shares in the company closed at $6.75. The Camarillo-based biotech company attributed its earnings results to increased research and development expenses that officials said have been integral to a strategy put into place a little more than a year ago. “As we build our R & D; efforts, EBITDA was impacted,” said Len Hendrickson, president and CEO of BioSource. “There was some erosion during 2002, but we’re pleased to report it is rebounding.” R & D; spending for the most recent three-month period increased by $351,000 to just under $1.9 million, mostly attributed to personnel and materials in the two largest BioSource research areas Cykotine and Signal Transduction. The spending has paid off handsomely in new product introductions for the company. BioSource in the second quarter of the year introduced 56 new products, many of them proprietary. “Two years ago it may have been possible to criticize BioSource for not having enough novel products,” said Hendrickson. “I don’t think you can say that now.” BioSource last February shifted its product development efforts from products that support gene sequencing efforts to products that are used to study internal cellular processes and signaling, essentially how cells communicate. The transition has meant not only that BioSource now provides a group of proprietary products, but that those products are in line with the broader trends in the life sciences market. In the second quarter of the year, sales of the company’s Signal Transduction products increased 33 percent to $2.4 million and sales in Cytokine products rose 16 percent to $5.4 million. “They have increased the focus of the firm and the general proprietary nature of their products is higher,” Knight said, ” so they have a higher quality portfolio of products. The next step is translating that into improved operating margins.” While the market reacted negatively to the news, Knight, which has a market perform rating on the stock, said he was less concerned about the company’s financial news because the added R & D; spending is likely to pay off next year, when expense run-up is also likely to subside. In addition to R & D; expenses, sales and marketing costs for the company increased by $475,000 to $2.5 million in the second quarter of the year, compared to the same period last year. But officials said that the investment in added personnel and research this year is likely to stabilize in 2004, allowing BioSource to realize a greater portion of its added revenues in profits.

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