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Article by DailyStocks_admin    (07-09-08 08:04 AM)

Filed with the SEC from June 26 to July 2:

Invitrogen (IVGN)
Money manager Steven A. Cohen reported owning 4,809,782 shares (5.2%) and said he supports the company's agreement to buy Applera's Applied Biosystems Group (ABI) for $6.7 billion, or $38 a share, in cash and stock. Both companies make tools used in the life sciences.

BUSINESS OVERVIEW

Company Overview



We are a leading developer, manufacturer and marketer of research tools in reagent, kit and high-throughput applications forms to customers engaged in life sciences research, drug discovery, diagnostics and the commercial manufacture of biological products. Additionally, we are a leading supplier of sera, cell and tissue culture media and reagents used in life sciences research, as well as in processes to grow cells in the laboratory and produce pharmaceuticals and other highly valued proteins.



Our research tools and reagents simplify and improve gene cloning, gene expression and gene analysis techniques. These techniques are used to study how a gene or cell is regulated by its genetic mechanisms, known as functional genomics, and to search for drugs that can treat diseases. In addition, we have a portfolio of products for proteomics applications, providing tools to help researchers understand the function of proteins, their roles in biological pathways, and importance in diseases such as cancer. Our leading products include gel-based separations technologies, antibodies, and transfection agents. Our goal is to provide tools, which allow researchers to perform this complex biological research more accurately, efficiently and with greater reproducibility compared to conventional research methods. Our scientific know-how is making biodiscovery research techniques more effective and efficient to pharmaceutical, biotechnology, agricultural, government and academic researchers with backgrounds in a wide range of scientific disciplines.

We offer many different products and services, and are continually developing and/or acquiring others. Some of our specific product categories include the following:




“High-throughput” gene cloning and expression technology, which allows customers to clone and expression-test genes on an industrial scale.


Pre-cast electrophoresis products, which improve the speed, reliability and convenience of separating nucleic acids and proteins.


Antibodies, which allow researchers to capture and label proteins, visualize their location through use of Molecular Probes dyes and discern their role in disease.


Magnetic beads, which are used in a variety of settings, such as attachment of molecular labels, nucleic acid purification, and organ and bone marrow tissue type testing.


Molecular Probes fluorescence-based technologies, which facilitate the labeling of molecules for biological research and drug discovery.


Transfection reagents, which are widely used to transfer genetic elements into living cells enabling the study of protein function and gene regulation.



Target Markets



We divide our target customer base into principally two categories:




Life science researchers; and


Commercial producers of biopharmaceutical and other high valued proteins.



While we do not believe that any single customer or small group of customers is material to our business as a whole or to either of our product segments (described below), approximately 20% of our customers in our target markets receive funding for their research, either directly or indirectly from grants from the federal government of the United States.



Life Sciences Research



The life sciences research market consists of laboratories generally associated with universities, medical research centers, government institutions such as the United States National Institutes of Health (NIH), and other research institutions as well as biotechnology, pharmaceutical, energy, agricultural and chemical companies. Our products and services provide the special biochemical research tools capable of performing precise functions in a given experimental procedure that life science researchers require. We serve two principal disciplines of this market: molecular biology and cellular analysis.



The cellular biochemistry research market involves the study of the genetic functioning and biochemical composition of cells as well as their proliferation, differentiation, growth and death. The understanding gained from such study has broad application in the field of developmental biology and is important in the search for drugs or other techniques to combat a wide variety of diseases, such as cancer and viral and bacterial disease, as well as to assist in vaccine design, bioproduction and agriculture. To grow the cells required for research, researchers use our cell or tissue culture media to simulate under laboratory conditions ( in-vitro ) the environment in which cells live naturally ( in-vivo ) and to provide the required nutrients.



Genomics involves the study of the genetic information systems of living organisms. The genetic material of living organisms consists of molecules of DNA (deoxyribonucleic acid). DNA contains the information required for the organism’s production of proteins. Proteins have many different functional properties and are a broad class of amino acid based molecules that include, among other things, antibodies, certain hormones and enzymes. Many researchers study the various steps of the organism’s production of proteins and their impact on cellular function. Other researchers are interested in manipulating DNA to modify the production of proteins. Through techniques that are commonly termed “genetic engineering” or “gene-splicing,” a researcher can modify an organism’s naturally occurring DNA to produce a desired protein not usually formed by the organism, or to produce a naturally formed protein at an increased rate.



Our products also serve customers who are engaged in drug discovery or the development of diagnostics for disease identification or for improving the efficacy of drugs to targeted patient groups. Traditional drug discovery using high throughput biochemical and cell-based assays allow pharmaceutical researchers to test targeted medicinal compounds against specific disease pathways to identify the potential compound to interrupt the disease process. By tagging compounds with various reporter technologies, scientists can measure the effectiveness of the compound at the cellular level, which assist the researcher in determination of drug candidates to advance to the next level. High valued protein targets such as kinases are attractive druggable candidates, and Invitrogen is one of the world’s largest suppliers of these products.



In addition, Invitrogen’s research tools are important in the development of diagnostics for disease determination as well as identification of patients for more targeted therapy. Our 2005 acquisition of Dynal, together with the purchase of Xcyte’s T-cell expansion technology in 2006, provides a broad platform for diagnostic solutions that diagnostic customers can source from Invitrogen.



Commercial Production



We serve industries that apply genetic engineering to the commercial production of useful but otherwise rare or difficult to obtain substances, such as proteins, interferons, interleukins, t-PA and monoclonal antibodies. The manufacturers of these materials require larger quantities of the same sera and other cell growth media that we provide in smaller quantities to researchers. Other industries involved in the commercial production of genetically engineered products include the pharmaceutical, food processing and agricultural industries.



Our Products



We divide our products and services into two broad segments that are closely aligned with our target markets, as follows:




BioDiscovery (BD). Our BioDiscovery segment includes molecular biology, cell biology and drug discovery product lines. Molecular biology encompasses products from the initial cloning and manipulation of DNA, to examining RNA levels and regulating gene expression in cells, to capturing, separating and analyzing proteins. These include the research tools used in reagent and kit form that simplify and improve gene acquisition, gene cloning, gene expression and gene analysis techniques. This segment also includes a full range of enzymes, nucleic acids, other biochemicals and reagents. These biologics are manufactured to the highest research standards and are matched in a gene specific, validated manner (gene, ORF, RNAi, protein, antibodies, etc.) to ensure researchers the highest purity and scientific relevance for their experimentation. We also offer software through this segment that enables more efficient, accelerated analysis and interpretation of genomic, proteomic and other biomolecular data for application in pharmaceutical, therapeutic and diagnostic development. The acquisitions of Zymed, Caltag, Dynal and Biosource have enhanced our ability to offer new technology and products, such as antibodies and proteins (Zymed, Caltag and BioSource) and magnetic beads used for biological separation (Dynal), which is the first step in almost every biologic investigative or diagnostic process.




Cell Systems (CS). Our CS segment includes all of our GIBCO cell culture products and services. Products include sera, cell and tissue culture media, reagents used in both life sciences research and in processes to grow cells in the laboratory and to produce biopharmaceuticals and other end products made through cultured cells. CS services include the creation of commercially viable stable cell lines and the optimization of production processes used for the production of therapeutic drugs.

The principal markets for our products include the life sciences research market and the biopharmaceutical production market. The life sciences research market consists of laboratories generally associated with universities, medical research centers, government institutions and other research institutions as well as biotechnology, pharmaceutical, energy, agricultural and chemical companies. Life sciences researchers use our reagents and informatics to perform a broad range of experiments in the laboratory.



The biopharmaceutical production market consists of biotechnology and pharmaceutical companies that use sera and media for the production of clinical and commercial quantities of biopharmaceuticals and vaccines. The selection of sera and media generally occurs early in the clinical process and continues through commercialization. Other industries consume sera and media for the commercial production of genetically engineered products including food processing and agricultural industries.



We plan to continue to introduce new research products and services, as we believe continued new product development and rapid product introduction is a critical competitive factor in the BioDiscovery and CS markets. We may continue to increase expenditures in sales and marketing, manufacturing and research and development to support increased levels of sales and to augment our long-term competitive position.



We principally purchase raw materials and components from third parties and use those ingredients to manufacture products for inventory. We typically ship those products shortly after the receipt of orders. Our oligonucleotide, genomic services, general services, RNAi (gene regulation), and some CS businesses, however, are all made to order, and certain of our products are made for us by third parties. Because we ship shortly after receipt of orders, make products to order or purchase from third parties, we do not have a significant backlog in either of our segments and do not anticipate we will develop a material backlog in the future. Most of our products and services are manufactured or provided from our facilities in Carlsbad and Camarillo, California; Eugene, Oregon; Frederick, Maryland; Grand Island, New York; Madison, Wisconsin; Auckland, New Zealand; Oslo, Norway; and Paisley, Scotland. We also have manufacturing facilities in Japan and Israel.



Research and Development



We believe that a strong research and product development effort is important to our future growth. We spent $115.8 million, $104.3 million, and $97.8 million on research and development activities in 2007, 2006 and, 2005, respectively. These research and development expenses were primarily directed toward developing innovative new products in areas where we have expertise and have identified substantial market needs, creating solutions for customers in the life sciences research and industrial bioprocessing areas and improving production processes.



We conduct research activities in the United States, the United Kingdom, Israel and New Zealand, using our own employees. At December 31, 2007, we had approximately 550 employees principally engaged in research and development. Our scientific staff is augmented by advisory and collaborative relationships with a number of scientists and customers.



Our research and development activity is aimed at maintaining a leadership position in providing research tools to the life sciences research market and enhancing our market position as a supplier of products and services used to manufacture genetically engineered pharmaceuticals and other materials.



Sales and Marketing



In 2007, our E-Business channel attributed 45% of total orders worldwide. We currently market our products directly or through distributors or agents in approximately 70 countries. These independent distributors may also market research products for other companies, including some products that are competitive with our offerings. As of December 31, 2007, we employed approximately 1350 people in our sales and marketing organization.

Our sales strategy has been to employ scientists to work as our sales representatives. We have two types of direct sales personnel: generalists and technical sales specialists. Generalists are typically responsible for total customer account management. They work closely with the technical specialists who have an extensive background in biology or other scientific fields of study and who focus on specific product offerings. A thorough knowledge of biological techniques and an understanding of the research process allow our sales representatives to become advisors, acting in a consultative role with our customers. Our use of technical sales representatives also enables us to identify market needs and new technologies that we can license and develop into new products.



Our marketing departments located in the North American, European and Asia-Pacific regions use a variety of media communication vehicles and methods to keep our customers informed of new products and services, as well as enhancements to existing products and services. Among these are internally produced print catalogs, newsletters, magazines, brochures, direct mailers, product inserts, tradeshow posters and sourcebooks as well as web-based newsletters, email, seminars and forums. Our main website includes pages detailing our products and services, along with purchasing, technical and directional information. The technical information includes interactive online tools enabling customers to link to public research databases, download scientific analyses and search for project-specific data. We also advertise in numerous print and web-based publications related to science and industry, and we exhibit and present information at scientific events worldwide.



Technology Licensing



Some of our existing products are manufactured or sold under the terms of license agreements that require us to pay royalties to the licensor based upon a percentage of the sales of products containing the licensed materials or technology. These licenses also typically impose obligations on us to market the licensed technology. Although we emphasize our own research and development, we believe our ability to in-license new technology from third parties is and will continue to be critical to our ability to offer competitive new products. Our ability to obtain these in-licenses depends in part on our ability to convince inventors that we will be successful in bringing new products incorporating their technology to market. Several significant licenses or exclusivity rights expire at various times during the next 15 years. There are certain risks associated with relying on third-party licensed technologies, including our ability to identify attractive technologies, license them on acceptable terms, meet our obligations under the licenses, renew those licenses should they expire before we retire the related product and the risk that the third party may lose patent protection. These risks are more fully described under the heading “Risk Related to the Development and Manufacture of Products” and “Risks Related to Our Intellectual Property” below.



Patents and Proprietary Technologies



We consider the protection of our proprietary technologies and products in both of our product segments to be important to the success of our business and rely on a combination of patents and exclusive licenses to protect these technologies and products. We currently own approximately 1,000 patents and have exclusive rights to another 150. Of this amount we control over 600 patents in the United States, and over 550 in other countries. We also have numerous pending patent applications both domestic and internationally. Our success depends, to a significant degree, upon our ability to develop proprietary products and technologies. It is important to our success that we protect the intellectual property associated with these products and technologies. We intend to continue to file patent applications as we develop new products and technologies. Patents provide some degree of, but not complete, protection for our intellectual property.



We also rely in part on trade secret, copyright and trademark protection of our intellectual property. We protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. It is our policy to require employees and consultants to sign agreements to assign to us their interests in intellectual property arising from their work for us. There are risks related to our reliance on patents, trade secret, copyright and trademark protection laws, which are described in more detail under the heading “Risks Related to Our Intellectual Property” below.

Competition



The markets for the products of both of our segments are competitive. There are numerous life science research and bioproduction product suppliers that compete with us which have significant financial, operational, sales and marketing resources, and experience in research and development, although many of these competitors only compete with us in a limited portion of our product line. These and other companies may have developed or could in the future develop new technologies that compete with our products or even render our products obsolete. Additionally, there are numerous scientists making materials themselves instead of using kits. We believe that a company’s competitive position in our markets is determined by product function, product quality, speed of delivery, technical support, price, breadth of product line, and timely product development. Our customers are diverse and may place varying degrees of importance on the competitive attributes listed above. While it is difficult to rank these attributes for all our customers in the aggregate, we believe we are well positioned to compete in each category.



Suppliers



We buy materials for our products from many suppliers. While there are some raw materials that we obtain from a single supplier, we are not dependent on any one supplier or group of suppliers for our business as a whole, or for either of our BioDiscovery and CS segments. Raw materials, other than raw fetal bovine serum (FBS), are generally available from a number of suppliers.



Two of our subsidiaries provide secure collection and processing capacity for raw Australian and U.S.-sourced FBS, and we have long-term supply contracts in place for additional U.S. and South American sourced FBS. However, they may not provide us with a large enough source of FBS to satisfy all of our FBS needs. As a result, we may still acquire raw FBS from various third party suppliers on short-term contracts. None of these suppliers, however, individually or collectively provides a majority of the total FBS we purchase from third parties. In addition, the supply of raw FBS is sometimes limited because serum collection tends to be seasonal. This causes the price of raw FBS to fluctuate. Although there is a well-established market for finished FBS, which is one of our major CS products, the profit margins we achieve on finished FBS have varied significantly in the past because of the fluctuations in the price of raw FBS.



Through a combination of the FBS we receive from our third party suppliers, we believe we maintain a quantity of FBS inventory adequate to address reasonable customer service levels while guarding against normal volatility in the supply of FBS available to us from third party suppliers. FBS inventory quantities can fluctuate significantly as we balance varying customer demand for FBS against fluctuating supplies of FBS available to us; however, we believe that we will be able to continue to acquire FBS in quantities sufficient to meet our customers’ current requirements.



Government Regulation



Certain of our products and services, as well as the manufacturing process of the products, are subject to regulation under various portions of the U.S. Federal Food, Drug and Cosmetic Act. In addition, a number of our manufacturing facilities are subject to periodic inspection by the U.S. Food and Drug Administration (FDA), other product-oriented federal agencies and various state and local authorities in the U.S. We believe such facilities are in compliance in all material aspects with the requirements of the FDA’s Quality System Regulation (formerly known as Good Manufacturing Practices), other federal, state and local regulations and other quality standards such as ISO 9001 or ISO 13485. Portions of our business subject to the Federal Food, Drug and Cosmetic Act include certain CS segment products (with respect to their testing, safety, efficacy, marketing, labeling and other matters).



Materials used in development and testing activities at several of our facilities are also subject to the Controlled Substances Act, administered by the Drug Enforcement Agency (DEA). Required procedures for control, use and inventory of these materials are in place at these facilities.

We also voluntarily employ Centers for Disease Control/National Institutes of Health, Guidelines for Research Involving Recombinant DNA Molecules, Biosafety in Microbiological and Biomedical Laboratories and the hazard classification system recommendations for handling bacterial and viral agents, with capabilities through biosafety level three.



In addition to the foregoing, we are subject to other federal, state and local laws and ordinances applicable to our business, including environmental protection and radiation protection laws and regulations, the Occupational Safety and Health Act; the Toxic Substances Control Act; national restrictions on technology transfer, import, export and customs regulations; statutes and regulations relating to government contracting; and similar laws and regulations in foreign countries. In particular, we are subject to various foreign regulations sometimes restricting the importation or the exportation of animal-derived products such as FBS.



Employees



As of January 31, 2008, we had approximately 4,300 employees, approximately 1,600 of whom were employed outside the United States. Our success will depend in large part upon our ability to attract and retain employees. In addition, we employ a number of temporary and contract employees. We face competition in this regard from other companies, research and academic institutions, government entities and other organizations.

CEO BACKGROUND

Gregory T. Lucier (age 43) has served as Chief Executive Officer of Invitrogen and member of its Board of Directors since May 2003. In April 2004 he was appointed Chairman of the Board of Directors. From June 2000 to May 2003, Mr. Lucier was the President and Chief Executive Officer of General Electric (GE) Medical Systems Information Technologies. Mr. Lucier was named a corporate officer of GE in 1999 by that company’s board of directors and served in a variety of leadership roles during his career at GE, including Vice President of Global Services, GE Medical Systems. Mr. Lucier is currently a board member of the Biotechnology Industry Organization (BIO) and serves on BIO policy subcommittees. He is also a board member of the Burnham Research Institute, a director of BIOCOM and is actively involved at San Diego State University as a distinguished lecturer. He received his B.S. in Engineering from Pennsylvania State University and an M.B.A. from Harvard Business School.



Claude D. Benchimol, Ph.D. (age 57) has served as Senior Vice President of Research and Development of Invitrogen since September 2003. Prior to Invitrogen, Dr. Benchimol held a variety of technology leadership roles during his more than 15 years at General Electric (GE) Corporation. He was Vice President and General Manager of global technology for GE Medical Systems Information Technologies, serving in that position from January 2002 to August 2003. Prior to GE Dr. Benchimol was employed by Thomson-CGR, a medical imaging company. He served as Manager of Advanced Research Laboratory from 1981 to 1988 and Research Engineer from 1979 to 1980. Dr. Benchimol received an equivalent of an M.S. in Engineering from École Nationale Supérieure des Télécommunications in France, as well as an M.S. and Ph.D. in Systems Science from the University of California, Los Angeles. Dr. Benchimol is also a member of the French Academy of Technology.



Nicolas M. Barthelemy (age 42) has served as Senior Vice President of Invitrogen’s Cell Systems Division since January 2006. Mr. Barthelemy served as Senior Vice President of Global Operations from March 2004 to January 2006. Prior to Invitrogen Mr. Barthelemy held several executive positions at Biogen Idec including Vice President of Manufacturing. Mr. Barthelemy is a recognized operations leader in large scale mammalian cell culture and purification. Mr. Barthelemy received his M.S. in Chemical Engineering from the University of California, Berkeley and the equivalent of an M.S. in Chemistry from École Supérieure de Physiques et Chimie Industrielles (Paris, France) and the equivalent of a B.S. in Mathematics, Physics and Chemistry from Ecole Sainte Geneviève (Versailles, France).



Bernd Brust (age 40) has served as Senior Vice President of Global Sales since November 2006. Mr. Brust joined Invitrogen in 2004 and previously served as General Manager and Vice President of European Operations. He has more than 15 years of sales, commercial operations and management experience. Prior to joining Invitrogen he served as General Manager of Sales & Marketing for GE Medical Systems Information Technologies, where he was awarded GE Medical Systems IT Commercial Leader of the Year. Brust holds a degree in Engineering from MTS in Amsterdam.



John A. Cottingham (age 53), has served as Senior Vice President, General Counsel and Secretary of Invitrogen since May 2004. He served as Vice President, General Counsel for Invitrogen from September 2000 until May 2004. Prior to the merger of Life Technologies with Invitrogen, Mr. Cottingham was the General Counsel and Assistant Secretary of Life Technologies from January 1996 to September 2000. From May 1988 through December 1995, he served as an international corporate attorney with the Washington, D.C. office of Fulbright and Jaworski L.L.P. Mr. Cottingham received his B.A. in Political Science from Furman University, his J.D. from the University of South Carolina, his LL.M. in Securities Regulation from Georgetown University and his M.S.E.L. from the University of San Diego.



Paul Grossman (age 47), serves as the Senior Vice President of Strategy and Corporate Development. Prior to Invitrogen, Dr. Grossman held a variety of leadership roles during his more than 20 years at Applied Biosystems (ABI). Dr. Grossman worked as a research scientist, patent attorney and as Vice President of Intellectual Property and Chief Group Counsel. Most recently, he served as ABI’s Vice President of Strategy and Business Development. Dr. Grossman received B.S. and Ph.D. degrees in Chemical Engineering from the University of California at Berkeley, a M.S. in Chemical Engineering from the University of Virginia, and a J.D. from Santa Clara University School of Law. He has authored numerous scientific publications, was the co-editor of the book Capillary Electrophoresis: Theory and Practice, and holds more than 70 U.S. and foreign patents.



David F. Hoffmeister (age 53), has served as Chief Financial Officer, Senior Vice President, Finance at Invitrogen since October 2004. Mr. Hoffmeister held various positions over the course of 20 years with McKinsey & Company, most recently from 1997 to 2004 as a Director serving clients in the healthcare, private equity and specialty chemicals industries. Prior to joining McKinsey, Mr. Hoffmeister held financial positions at GTE and W.R.Grace. Mr. Hoffmeister is currently a board member of Celanese Corporation. Mr. Hoffmeister received his B.S. in Business, from the University of Minnesota and an M.B.A. from the University of Chicago.



Peter M. Leddy (age 45), has served as Invitrogen’s Senior Vice President of Human Resources since July 2005. Prior to Invitrogen, Dr. Leddy held several senior management positions with Dell Incorporated from 2000 to 2005 and was most recently, Vice President, Human Resources for Americas Operations. Prior to joining Dell Incorporated, Dr. Leddy served as the Executive Vice President for Human Resources at Promus Hotel Corporation (Doubletree, Embassy Suites). Dr. Leddy also served in a variety of executive and human resource positions at PepsiCo. Dr. Leddy received his B.A. in Psychology from Creighton University and his M.S. and Ph.D. in Industrial/Organizational Psychology from the Illinois Institute of Technology.



John “Kip” Miller (age 49) serves as Invitrogen’s Senior Vice President of Biodiscovery. Mr. Miller has a strong background in general management, sales and marketing and extensive experience in Life Science, Research and Diagnostic markets. Prior to joining Invitrogen he was Vice President, General Manager Americas for BD Biosciences in San Diego with responsibility for US, Canada and Latin America. Prior to that he held positions as Vice President, General Manager for BD Biosciences Research Cell Analysis and BD Pharmingen, a division of BD Biosciences. Additionally, Mr. Miller has held a variety of leadership positions in the sales and service organizations for BD and for Leica Inc. Mr. Miller has a BS in Engineering from Michigan State University.

Kelli A. Richard (age 39) serves as Invitrogen’s Vice President, Finance and Chief Accounting Officer. Ms. Richard joined Invitrogen in August 2005 with more than 14 years of accounting and financial reporting experience, previously serving as Vice President, Accounting & Reporting. Prior to joining Invitrogen, Ms. Richard held the position of Principal Accounting Officer at Gateway, Inc. Ms. Richard is a certified public accountant with a Bachelor of Business Administration degree from the University of Iowa.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW



We are a leading developer, manufacturer and marketer of research tools in reagent, kit and high throughput application forms to customers engaged in life sciences research, drug discovery, diagnostics and the commercial manufacture of biological products. Additionally we are a leading supplier of sera, cell and tissue culture media and reagents used in life sciences research, as well as in processes to grow cells in the laboratory and produce pharmaceuticals and other high valued proteins.



We conduct our business through two principal segments:


Ø BioDiscovery. Our BioDiscovery segment includes molecular biology, cell biology and drug discovery product lines. Molecular biology encompasses products from the initial cloning and manipulation of DNA, to examining RNA levels and regulating gene expression in cells, to capturing, separating and analyzing proteins. These include the research tools used in reagent and kit form that simplify and improve gene acquisition, gene cloning, gene expression and gene analysis techniques. This segment also includes a full range of enzymes, nucleic acids, other biochemicals and reagents. These biologics are manufactured to the highest research standards and are matched in a gene specific, validated manner (gene, ORF, RNAi, protein, antibodies, etc.) to ensure researchers the highest purity and scientific relevance for their experimentation. We also offer software through this segment that enables more efficient, accelerated analysis and interpretation of genomic, proteomic and other biomolecular data for application in pharmaceutical, therapeutic and diagnostic development. The acquisitions of Zymed, Caltag, Dynal and Biosource have enhanced our ability to offer new technology and products, such as antibodies and proteins (Zymed, Caltag and BioSource) and magnetic beads used for biological separation (Dynal), which is the first step in almost every biologic investigative or diagnostic process.


Ø Cell Systems (CS). Our CS segment includes all of our GIBCO cell culture products and services. Products include sera, cell and tissue culture media, reagents used in both life sciences research and in processes to grow cells in the laboratory and to produce biopharmaceuticals and other end products made through cultured cells. CS services include the creation of commercially viable stable cell lines and the optimization of production processes used for the production of therapeutic drugs.



The principal markets for our products include the life sciences research market and the biopharmaceutical production market. The life sciences research market consists of laboratories generally associated with universities, medical research centers, government institutions and other research institutions as well as biotechnology, pharmaceutical, energy, agricultural and chemical companies. Life sciences researchers use our reagents and informatics to perform a broad range of experiments in the laboratory.



The biopharmaceutical production market consists of biotechnology and pharmaceutical companies that use sera and media for the production of clinical and commercial quantities of biopharmaceuticals. The selection of sera and media generally occurs early in the clinical process and continues through commercialization. Other industries consume sera and media for the commercial production of genetically engineered products including food processing and agricultural industries.



Our Strategy



Our objective is to provide essential life science technologies for disease research, drug discovery and commercial bio-production.

Our strategies to achieve this objective include:


Ø New Product Innovation and Development


Ø Developing innovative new products. We place a great emphasis on internally developing new technologies for the life sciences research and biopharmaceutical production markets. Additionally, we are looking to leverage the broad range of our technologies to create unique synergistic technology solutions across our internal and newly acquired research and development centers of excellence. A significant portion of our growth and current revenue base has been created by the application of technology to accelerate the drug discovery process of our customers. We expect to focus new product development on three critical technology areas:


Ø Protein and antibody production, purification and characterization;


Ø Biochemical and cell-based assays; and


Ø Labeling and detection,.


Ø In-licensing technologies. We actively and selectively in-license new technologies, which we modify to create high value kits, many of which address bottlenecks in the research or drug discovery laboratories. We have a dedicated group of individuals that is focused on in-licensing technologies from academic and government institutions, as well as biotechnology and pharmaceutical companies.


Ø Acquisitions. We actively and selectively seek to acquire and integrate companies with complementary products and technologies, trusted brand names, strong market positions and strong intellectual property positions. We have acquired numerous companies since we became a public company in 1999. On April 1, 2005, we acquired all of the outstanding shares of Dynal Biotech Holding AS, a privately held corporation based in Oslo, Norway for cash of $402.6 million. Dynal is the industry leader in magnetic bead technologies that are used in cell separation and purification, cell stimulation, protein research, nucleic acid research and microbiology. The results of operations of Dynal are included in the accompanying consolidated financial statements in the BioDiscovery segment from the date of acquisition. Additionally we have entered into other immaterial acquisitions which are further discussed in the notes to the consolidated financial statements.


Ø Divestitures. In April 2007, Invitrogen completed the sale of its BioReliance subsidiary to Avista Capital Partners and received net cash proceeds of approximately $209.0 million . No loss on the sale was recorded in 2007. The results of operations for BioReliance for the period from January through April 2007 and the results for all prior periods are reported as discontinued operations. The Company finalized the sale of BioSource Europe, S.A., a diagnostic business located in Belgium, in April of, 2007, to a private investor group in Belgium for proceeds of $5.5 million. Net proceeds from both acquisitions less cash spent as part of the disposal process were $209.9 million.


Ø Leverage Existing Sales, Distribution and Manufacturing Infrastructure


Ø Multi-national sales footprint. We have developed a sales and distribution network with sales in approximately 70 countries throughout the world. Our sales force is highly trained, with many of our sales people possessing degrees in molecular biology, biochemistry or related fields. We believe our sales force has a proven track record for selling and distributing our products and we expect to leverage this capacity to increase sales of our existing, newly developed and acquired products.


Ø High degree of customer satisfaction. Our sales, marketing, customer service and technical support staff work well together to provide our customers exceptional service for our products and we have been highly rated in customer satisfaction surveys. We use this strength to attract new customers and maintain existing customers.

Ø Rapid product delivery. We have the ability to ship typical orders on a same-day or next-day basis. We use this ability to provide convenient service to our customers to generate additional sales.



Our BioDiscovery and CS products are used for research purposes and their use by our customers generally is not regulated by the United States Food and Drug Administration, or FDA, or by any comparable international organization, with several limited exceptions. Some of our CS and antibody products and manufacturing sites are subject to FDA regulation and oversight and are required to comply with the Quality System Regulations described in 21 CFR part 820. Additionally, some of these same sites and products are intended to comply with certain voluntary quality programs such as ISO 9001 and ISO 13458.



We conduct research activities in the United States, the United Kingdom, Israel and New Zealand and business development activities around the world. As part of these activities we actively seek to license intellectual property from academic, government and commercial institutions.



We manufacture the majority of our products in our manufacturing facilities located in Carlsbad and Camarillo, California; Eugene, Oregon; Frederick, Maryland; Grand Island, New York; Madison, Wisconsin; Auckland, New Zealand; Oslo, Norway; and Paisley, Scotland. We also have manufacturing facilities in Japan and Israel. In addition, we purchase products from third-party manufacturers for resale.



Except for our oligonucleotide (custom primers), genomic services, biologics testing, specialized manufacturing and cell culture production businesses, which are make-to-order businesses, we principally manufacture products for inventory and ship products shortly after the receipt of orders and anticipate that we will continue to do so in the future. We do not currently have a significant backlog and do not anticipate we will develop a material backlog in the future. In addition, we rely on third-party manufacturers to supply many of our raw materials, product components and in some cases, entire products.



We conduct our operations through subsidiaries in the Americas, Europe and Asia-Pacific. Each subsidiary records its income and expenses using the functional currency of the country in which the subsidiary resides. To consolidate the income and expenses of all of our subsidiaries, we translate each subsidiary’s results into U.S. dollars using average exchange rates during the period. Changes in currency exchange rates have affected and will continue to affect our consolidated revenues, revenue growth rates, gross margins and net income. In addition, many of our subsidiaries conduct a portion of their business in currencies other than the subsidiary’s functional currency, which can result in foreign currency transaction gains or losses. Exchange gains and losses arising from transactions denominated in these currencies are recorded in the Consolidated Statements of Income using the actual exchange rate differences on the date of the transaction.



We anticipate that our results of operations may fluctuate on a quarterly and annual basis and will be difficult to predict. The timing and degree of fluctuation will depend upon several factors, including those discussed under “Risk Factors Related to Our Operations.”



RESULTS OF OPERATIONS



Comparison of Years Ended December 31, 2007 and 2006

Revenues



Revenues increased $130.5 million or 11% for 2007 compared to 2006. The increase was primarily a result of $59.7 million of increased volume and new product revenue, $40.6 million in foreign currency translation, and $29.8 million of price increases.



Changes in the value of certain currencies, including the Japanese yen, the British pound sterling, the euro and the Norwegian kroner, can significantly increase or decrease our reported revenue on sales made in these currencies and could result in a material positive or negative impact on our reported results. In addition to currency exchange rates, we expect that future revenues will be affected by, among other things, new product introductions, competitive conditions, customer research budgets, government research funding, the rate of expansion of our customer base, price increases, product discontinuations and acquisitions or dispositions of businesses or product lines.



BioDiscovery (BD). BioDiscovery revenues increased $87.5 million or 11% for 2007 compared to 2006. The increase was primarily driven by $29.4 million in increased volume and new product revenue, $28.6 million in increased prices and a favorable impact of $28.9 million in foreign currency translation.



Cell Systems (CS). CS revenues increased $43.0 million or 13% for 2007 compared to 2006. The increase was primarily a result of increased volume and new product revenue of $30.3 million along with favorable impact of $11.7 million in foreign currency translation.



Sales of cell culture products for large-scale production applications can vary significantly due to customer demand. In addition, cell culture revenues include sales of sera products whose price has historically been volatile. As a result, cell culture revenue growth rates can vary significantly.



Gross Profit



Gross profit increased $107.6 million or 18% for 2007 compared to 2006. Gross profit for 2007 and 2006 included approximately $0.5 million and $4.4 million, respectively, of costs associated with the write-up of acquired inventory to fair market value as a result of a business combination. In accordance with purchase accounting rules, this acquired inventory was written-up to fair market value and subsequently expensed as the inventory was sold. Amortization expense related to purchased intangible assets acquired in our business combinations was $98.7 million for 2007 compared to $110.7 million for 2006. The $12.0 million decrease was mainly due to intangible assets acquired in prior periods being fully amortized during the year. The primary drivers for the increase in gross margin is related to $47.5 million in pricing and volume increases, $22.1 million in productivity increases and $26.4 million in favorable foreign currency impacts.



We believe that gross margin for future periods will be affected by, among other things, the integration of acquired businesses in addition to sales volumes, competitive conditions, royalty payments on licensed technologies, the cost of raw materials, changes in average selling prices, our ability to make productivity improvements and foreign currency rates.



BioDiscovery (BD). BioDiscovery gross margin increased 2% to 70% for 2007 compared to 68% in 2006 primarily due to lower operating costs, improved pricing and increased sales volume.



Cell Systems (CS). CS gross margin decreased 2% to 50% for 2007 compared to 52% in 2006. Declines in gross margin were primarily the result of higher operating expenses and declines in sera pricing.

Sales and Marketing. For 2007, sales and marketing expenses increased $19.6 million or 8% compared to 2006. The increase resulted primarily from increased salaries and bonuses of $13.2 million, $4.5 million of additional purchased services expenses and $6.0 million of foreign currency translation impacts. This was partially offset by a decrease in travel expenses of $3.9 million as well as a decrease in supplies expenses of $1.4 million.



General and Administrative. For 2007, general and administrative expenses increased $14.0 million or 9% compared to 2006. The increase resulted primarily from increases salaries and bonuses of $23.1 million, additional depreciation expense of $4.7 million which was driven by increased capital expenditures, $1.6 million in increases of travel expenses and $2.1 million of foreign currency translation impacts. This was partially offset by a decrease of $7.0 in stock based compensation expense, $5.8 million in purchased services expenses, $1.4 million in bad debt expenses and $4.3 million in other expenses.



We continue to pursue programs and initiatives to improve our efficiency in the general and administrative area. These programs focus in the areas of process improvement and automation. We expect over time that these actions will result in a decline in our general and administrative expenses as a percent of sales.



Research and Development. Research and development expenses for 2007 increased $11.5 million or 11% compared to 2006. The increase resulted primarily from $5.4 million of salaries and bonus expenses, $1.4 million in increased purchase services expenses, $1.4 million in other expenses and $1.5 million in foreign currency translation expenses. The increases were partially offset by a decrease of $0.9 million in supplies expense. Overall, gross research and development expenses increased 11 percent year over year as a result of our continued efforts to drive growth through new product development projects. We expect research and development expenses to remain at this level as a percentage of sales as we continue efforts to drive growth through new product development.



Business Consolidation Costs. Business consolidation costs for 2007 were $5.6 million, compared to $12.5 million in 2006, and represent costs associated with our efforts to realign our business and consolidation of certain facilities. These costs consisted mainly of termination benefits of certain employees involuntarily terminated. We expect to continue to incur business consolidation costs in 2008 as we further consolidate operations and facilities.

Other Income (Expense)



Interest Income. Interest income was $28.0 million in 2007 compared to $26.7 million in 2006. The $1.3 million increase resulted primarily from an increase in the average yield of our investments in 2007, partially offset by the effect of lower investment balances due to the payoff of the 2006 2 1 / 4 % Convertible Notes and the share repurchase program.



Interest income in the future will be affected by changes in short-term interest rates and changes in cash balances, which may materially increase or decrease as a result of acquisitions, stock repurchase programs and other financing activities.



Interest Expense. Interest expense was $28.0 million for 2007 compared to $32.2 million for 2006. The primary reason for the $4.2 million reduction in interest expense was the maturity of the 2006 2 1 / 4 % Convertible Notes in the prior year which were not part of the 2007 expense.



Other Income (Expense), Net. Other income (expense), net, for 2007 and 2006 was comparable at $0.3 million and $0.5 million, respectively.



Provision for Income Taxes. The provision for income taxes as a percentage of our pre-tax income was 27.1% for 2007 compared with 27.2% of our pre-tax income for 2006. The decline in the effective tax rate was primarily attributable to an increase in income earned in jurisdictions having lower tax rates.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

OVERVIEW

Revenues for the three months ended March 31, 2008 were $350.2 million with income from continuing operations of $58.4 million and net income of $59.7 million.

Our Business and Operating Segments

We are a leading developer, manufacturer and marketer of research tools in reagent, kit and high throughput application forms to customers engaged in life sciences research, drug discovery, diagnostics and the commercial manufacture of biological products. Additionally, we are a leading supplier of sera, cell and tissue culture media and reagents used in life sciences research, as well as in processes to grow cells in the laboratory and produce pharmaceuticals and other high valued proteins.

We conduct our business through two principal segments:




BioDiscovery. Our BioDiscovery segment includes molecular biology, cell biology and drug discovery product lines. Molecular biology encompasses products from the initial cloning and manipulation of DNA, to examining RNA levels and regulating gene expression in cells, to capturing, separating and analyzing proteins. These include the research tools used in reagent and kit form that simplify and improve gene acquisition, gene cloning, gene expression and gene analysis techniques. This segment also includes a full range of enzymes, nucleic acids, other biochemicals and reagents. These biologics are manufactured to the highest research standards and are matched in a gene specific, validated manner (gene, ORF, RNAi, protein, antibodies, etc.) to ensure researchers the highest purity and scientific relevance for their experimentation. We also offer software through this segment that enables more efficient, accelerated analysis and interpretation of genomic, proteomic and other biomolecular data for application in pharmaceutical, therapeutic and diagnostic development. The acquisitions of Zymed, Caltag, Dynal and BioSource have enhanced our ability to offer new technology and products, such as antibodies and proteins (Zymed, Caltag and BioSource) and magnetic beads used for biological separation (Dynal), which is the first step in almost every biologic investigative or diagnostic process.




Cell Systems (CS). Our CS segment includes all of our GIBCO cell culture products and services. Products include sera, cell and tissue culture media, reagents used in both life sciences research and in processes to grow cells in the laboratory and to produce biopharmaceuticals and other end products made through cultured cells. CS services include the creation of commercially viable stable cell lines and the optimization of production processes used for the production of therapeutic drugs.

The principal markets for our products include the life sciences research market and the biopharmaceutical production market. The life sciences research market consists of laboratories generally associated with universities, medical research centers, government institutions and other research institutions as well as biotechnology, pharmaceutical, energy, agricultural and chemical companies. Life sciences researchers use our reagents and informatics to perform a broad range of experiments in the laboratory.

The biopharmaceutical production market consists of biotechnology and pharmaceutical companies that use sera and media for the production of clinical and commercial quantities of biopharmaceuticals and vaccines. The selection of sera and media generally occurs early in the clinical process and continues through commercialization. Other industries consume sera and media for the commercial production of genetically engineered products including food processing and agricultural industries.

CRITICAL ACCOUNTING POLICIES

There were no significant changes in critical accounting policies from those at December 31, 2007. The Company adopted SFAS 157, Fair Value Measurements , and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, in the current period without material impact to the financial statements. For additional information on the recent accounting pronouncements impacting our business, see Note 1 of the Notes to Consolidated Financial Statements.

Discontinued Operations

We have classified the consolidated financial statements for all periods presented to reflect BioReliance and BioSource Europe, S.A. as discontinued operations as these businesses meet the criteria as a component of an entity under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, any operating results of these businesses are presented in the Company’s Consolidated Statements of Operations as discontinued operations, net of income tax, and all prior periods have been reclassified.

RESULTS OF OPERATIONS

First Quarter of 2008 Compared to the First Quarter of 2007

Revenues

The Company’s revenues increased by $41.5 million or 13% for the first quarter of 2008 compared to the first quarter of 2007. The increase in revenue was driven by $18.7 million in volume and pricing, $17.7 million due to favorable currency impacts and $2.9 million due to acquisitions. For details on segment performance, refer to the “Segment Results” section below.

Gross Profit

Gross profit increased $47.4 million or 28% in the first quarter of 2008 compared to the first quarter of 2007. The increase in gross profit was driven primarily by $13.5 million due to favorable currency impacts, $12.5 million in increased volume and pricing, $7.4 million from production efficiencies, including benefits from inventory build out, and $2.3 million in royalty revenues. Amortization expense related to purchased intangible assets acquired in our business combinations was $16.9 million for the first quarter of 2008 compared to $27.6 million for the first quarter of 2007.

Operating Expenses

Sales and Marketing . For the first quarter of 2008, sales and marketing expenses increased $13.1 million or 23% compared to the first quarter of 2007. This increase was driven primarily by an increase of $3.5 million in compensation, bonus and benefits, $2.2 million in travel and meeting expenses, $2.2 million in unfavorable foreign currency impacts and $1.3 million in purchased services.

General and Administrative . For the first quarter of 2008, general and administrative expenses increased $2.9 million or 7% compared to the first quarter of 2007. This increase was driven by a $4.1 million increase in compensation, bonus and benefits and $0.9 million in travel and meeting expenses, partially offset by a $1.6 million decrease in recruitment and relocation expenses.

Research and Development . Research and development expenses for the first quarter of 2008 increased $3.2 million or 12% compared to the first quarter of 2007. This increase was mainly driven by a $1.3 million increase in compensation, bonus and benefits, $0.9 million in recruitment and relocation expenses, and $0.8 million in supplies expense.

Business Consolidation Costs . Business consolidation costs for the three months ended March 31, 2008 were $0.5 million compared to $1.8 million in the first quarter of 2007. These costs are associated with our efforts to acquire companies, realign our business and consolidation of certain facilities. We expect to continue to incur business consolidation costs in 2008.

Other Income (Expense)

Interest Income

Interest income was $8.9 million for the first quarter of 2008 compared to $4.0 million for the first quarter of 2007. The increase in interest income was due to increased cash balances year over year as well as a royalty settlement in which $1.9 million of the settlement was related to interest income.

Interest income in the future will be affected by changes in short-term interest rates and changes in cash balances, which may materially increase or decrease as a result of acquisitions and other financing activities.

Interest Expense

Interest expense was $6.9 million for the first quarter of 2008 compared to $7.2 million for the first quarter of 2007. The expense for the current quarter is comparable with the same period in the prior year.

Provision for Income Taxes

The provision for income taxes as a percentage of pre-tax income from continuing operations was 24.9% for the first quarter of 2008 and 26.9% for the first quarter of 2007. The decline in the effective tax rate was primarily attributable to the conclusion of the bilateral Advance Pricing Agreement between the United States and Japan partially offset by the loss of federal research and development tax credit, which expired at the end of 2007. The estimated annual income tax provision rate is 29.5%.

Segment Results for the First Quarter of 2008 Compared to the First Quarter of 2007

BioDiscovery Segment. BioDiscovery revenues for the first quarter of 2008 increased $27.2 million or 12% compared to the first quarter of 2007. The increase was mainly driven by $12.8 million in increased volume and pricing, $12.2 million in favorable currency translation and $2.1 million in royalty revenue increases. BioDiscovery gross margin increased by 1 percentage point to 73% mainly due to product pricing increases. BioDiscovery operating margin for the first quarter of 2008 increased to 31% from the first quarter of 2007 at 30% as a result of the increase in gross margin.

Cell Systems Segment. Cell Systems revenues for the first quarter of 2008 increased $14.3 million or 16% compared to the first quarter of 2007. The increase was primarily due to $5.9 million in increased pricing and volume, $5.5 million in favorable currency translation and $2.9 million related to acquisitions. Cell Systems gross margin for the first quarter of 2008 increased by 8 percentage points to 56% compared to the first quarter of 2007. The increase was driven primarily by increased sera gross margins, product price increases in cell culture research and other productivity measures. Cell Systems operating margin increased by 5 percentage points to 24% for the first quarter of 2008 compared to the first quarter of 2007 as a result of higher gross margin partially offset by higher operating expenses.

CONF CALL

Amanda Clardy - Vice President, Investor Relations

Thank you, Denis and good afternoon, everyone. Welcome to Invitrogen's first quarter 2008 earnings conference call. Joining me on the call today are; Greg Lucier, our Chairman and CEO; David Hoffmeister, our Chief Financial Officer; and Bernd Brust, Senior Vice President of Global Sales and Marketing. If you haven't received a copy of today's press release, you may obtain one from our website at invitrogen.com.

Before we begin, I want to remind our listeners that our discussion today will include forward-looking statements, including but not limited to statements about future expectations, plans and prospects for the Company. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. It is our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995.

Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of non-GAAP measures to GAAP can be found in today's press release or on our website.

For today's call, we will be referencing a presentation that you may view online. An instructions to access the webcast are on our website. Additionally, we will be posting the presentation to our website following the conference call. Greg will begin today's call with an overview of the significant progress we made in just the first three months of the year towards our 2008 strategic imperative. He will be followed by Bernd who will discuss our most recent accomplishments in sales and marketing. And then David will give a more detailed review of the company's first quarter operating results.

One more item of note before we begin is that we've made some reclassifications of costs that affect our reported 2007 non-GAAP segment P&L. The reclassifications was the result of the improved information, which is now available from our ERP system. We have better aligned our manufacturing costs with each business segment. This reclassification only affects the distribution of cost between segments and does not affect total company reported results.

You can find the file on our IR website under the GAAP reconciliation tab the detail how do we reclassification affects each reporting segment from last year. All comparisons made during the rest of this will be based on the reclassified '07 result.

I will now hand the call over to Greg Lucier.

Gregory T. Lucier - Chairman and Chief Executive Officer

Thanks, Amanda. I will start by saying that I'm pleased to see that the drivers of our success throughout 2007 have continued in the 2008. I will focus by remarks on the continued operational improvements we have made, as well as key investments we're making to fuel future growth. David will then follow with more specifics on the financial results.

In the first quarter we delivered 13.5% revenue growth of which 7% was organic. Operating margin improved by 190 basis points to an all time high of 28.7%. Net income increased by 38% and non-GAAP earnings per share increased 36% to $1.55. I hope that with this quarter's results we have alleviated any lingering investor worries that Invitrogen is still overcoming internal challenges or execution hurdles dating back to 2006. And although our company's infrastructure is now very solid, we will continue to make improvements in those areas that are most important to creating our future of success.

You'll hear from Bernd later about some of the recent successes we've had in our sales and marketing organization, but there are many others, all of which have contributed to the progress we've made towards achieving our 2008 strategic objective and financial guidance.

Being able to produce stable consistent results are not only testament to the company we've created, but also to the end-markets we participate in. We're continually asked by investors about the health of our end-markets, especially given these turbulence economic times. So to answer that question, our end-markets are largely stable. The large pharma end-market is experiencing some challenges at the moment, but this is not affected us.

More significantly, a great deal of development has been shifting to the smaller more efficient biotech sector. That sector is growing rapidly, and it's one in which we are a key supplier. So any contraction in the pharma market is far outweighed by the robust growth we are seeing in biotech. In addition, all our other end-markets are consistent and stable. At this time, there are no macro trends that would point to a weakening demand cycle for us. If the U.S were to experience a prolonged recession that would likely impact some of our business. But at this point, we have not been affected, nor do we expect to be so in the foreseeable future. Because our end-markets are stable, we're comfortable in our ability to continue to grow our business organically in the mid single-digits.

Now let me turn -- now let me turn back in time to how we made some significant accomplishments in the last few years, and laid the ground work for our success this year and beyond. Our product portfolio is night and days from where it was several years ago. There is no one product that is seriously lagging and the mix of our revenue is getting ever more exposure to the high growth areas.

The acquisitions we have made are working and we could not be better position in life science research space as a lead supplier of consumable reagents. We now have greater exposure to cell biology, cell therapy, stem cells research, and next generation sequencing reagents than ever before.

Next when it comes to the integration of these acquisitions this is where we made the most progress. We are complete with all the integration activities except that it relates to our most recent one CellzDirect in January this year. As it relates IT systems four years ago we had over 17 ERP systems with each new acquisitions having additive own unique and unusually custom ERP.

Now we have one that is deployed across 85% of our company. With 35,000 different SKUs [ph] this is dramatically increased the visibility we have in our daily operations from sales and gross margin, as well as the ability to accurately forecast demand. In addition to the ERP we have been deploying IT resources in capital towards enhancing our website. We've continually won awards for having the best website in life sciences, but we thought that wasn't good enough.

Especially if you look at those world-class websites outside of our industry. That's why we have launched the new website this month that dramatically improve the customer search and buying experience and you are going to hear a lot more about that from Bernd. In addition, Bernd's going to cover our improvements we have made in sales force efficiency. Our improvements in the sales infrastructure have been placed for over a year now and are showing great results.

Lastly as it relates to people, I think the significance of this element is not recognized often enough. Our turnover now is below historical levels and more importantly below industry norms. There is a lot to be said for having good people on the job for a significant amount of time where they can operate on experience, as well as facts. Our culture is certainly involved in the last few years and we now people with great business acumen combine with great entrepreneurial mind set. All-in-all I am very pleased with the increasing robustness of our daily business operations, and I feel that the results we have produced in the last six quarters are testament to the great progress the team has made.

Now let me turn to 2008, and the strategy we've laid out at the beginning of this year. Our intend is to optimize our core business. So really take what we do to a new level, and then invest in high growth areas that we believe offer great promise. Starting with our core business, we make great strive this past quarter. Perhaps the most visible and noticeable accomplishment in the quarter was the launch of that new website. We believe it offers a highly differentiated service and early feedback from customers has been incredibly positive.

In addition to the new website we reorganized our customer facing support teams all in one group including technical support, customer service, and the web team itself. By winding these groups under one leader with common goals and objectives, we can more effectively address each customers needs. For example, customers can now come to the web for answers to a lot of them were basic questions, freeing up our customer service and technical service representatives for more in depth interactions with them.

Another area where we made great progress this quarter is with our transaction profitability project. Many of you have heard me talk about this project in past which put simply is a tech book analysis to define where and how the company makes profits on each individual transaction. We have already begun implementing project to address the most unprofitable transactions, which differentiate service offerings and lower cost performance alternatives.

We expect to save several million dollars this year some of the project work. These savings will be achieved by freight savings, recovering freight costs, optimize customer support centers, and 1000s of other individual action. The important point is that we've gotten better and measuring what's drives our costs and addressing how to reduce them for sustainable margin improvement.

The last area of focus in the core business is maintaining our leading proprietary portfolio. We've added to our innovation pipelines quite significantly this quarter and we continued to acquire technologies through our in licensing program. In addition, we've recently made some organizational changes to place a greater focus on our role in the next generation sequencing market.

We are very teeny [ph] capturing a significant opportunities that next generation sequencing presents to company like our. And perhaps as most important we are excited to play key role and helping to accelerate the output of the platform being developed with world-class labeling reagents. We put a dedicated grip of R&D in marketing personnel in place to focus solely on the partnership and product opportunity related to this next generation sequencing area. Using the same model that prove to be extremely successful for us with stem cells. We planned to be a key player in this area in the coming years.

Some other savings into our additional revenue, we generate from the activities that I just covered will be used to fund investment into the higher growth areas of emerging markets specially cell system, cell biology, applied market, and instrumentation.

As Bernd will discuss our strategy in the emerging market, I'm going to focus on the other four areas. First specialty cell system. We are very pleased with the growth momentum of that segment as we continue to execute on our strategy to broaden the offerings. Good progress was made over the last few months with launch of a number of innovative products, including the first completely serum-free mesenchymal stem cell medium.

In addition, we acquired another major building block with the acquisition of CellzDirect for which the integration work is well on track. CellzDirect enables us to access -- access the hepatocytes market, both in terms of cells and services, which is a significant growth area in the specialty cell system space.

Now within cell biology, we continue to bolster our position as the number one cell biology company by focusing on external collaborations, new product introductions, and focused account strategies. This quarter we've broadened our agreement with Luminex enabling us to sell the Luminex instrumentation as a compliment to our current portfolio of world-class multiplex assay kits.

Additionally, we have seen accelerated adoption in sales of our novel Qdot labeled antibodies used in critical applications like flow cytometry and immunohistochemistry.In addition, we continue to capitalize on the integration of our acquisitions with our core product lines. Such as we've done with growth factors, which grew in solid double-digits this quarter.

The next area is a applied markets, which should middley [ph] is a very broad term. For us, we've forced on a few markets at this time. Water and food safety testing, bio-defense, diagnostics, and forensics. We continue to explore new partnerships and optimize our existing ones, such as a partnership we've formed with IDEX in the water testing markets, utilizing our molecular biology tools.

Lastly I'll spend a moment on instrumentation. Couple of years ago we anticipated the trend of coupling small instruments with reagents to optimize research workflows and experimental results. In 2006, we launched several instruments that did just that, and today we are yielding the payback from those innovations. In fact, we presented the slide in an investor conference in early 2006, which was only a short time before we launched the two instruments shown here, the iBlot and Qubit.

Now two years later, it turns out that our predictions of the demand for about the instruments and the associated reagent annuity were spot on. In the last 18 months or so, we've sold over 36,000 units of the iBlot, which generates approximately $1,000 per unit in reagent annuities, and over 3,200 Qubit platforms, which generate approximately $200 per unit in reagent annuities. We are not even close to market saturation for either of these instruments.

In addition, the sales of our iPrep machines priced at about $30,000 are ramping up and each of these machines generate over $25,000 per unit in reagent annuities. We will continue to get value from these instruments, not only because they optimize our reagents, but also because they are unique by simplifying and streamlining the important parts of the customer's workflow.

This year, we will be launching a digital instruments in the areas of protein analysis, RNA and DNA preparation. Given our success to-date, small instrument systems will continue to be a focused part of our growth strategy. Customers put a premium on solutions that can accelerate their work while providing them with world-class innovation and quality. And this is the Nexus where we excel.

We plan on winning in the growth areas with the two fold approach; organic innovations derived from our internal teams and collaborations, as well as acquisitions. Acquisitions will always be a part of our strategy due to the pace of the innovation in our business. At this time, we're focused on smaller tuck-in acquisitions that can be easily integrated into our existing portfolio and distribution channel. That's not to say we wouldn't consider the perfect large deal because as good students [ph] of the company and start job, you evaluate something of this nature, but clearly we are not insented [ph] nor interested in doing deals that are dilutive for the long term, nor is this an area where we've spend a lot of or energy.

In summary of the first quarter we have come out of the gates in 2008 exactly where we had hoped, once again firing on all cylinders, we're keeping our head down and focusing on priorities of optimizing our core business well at the same time freeing up money to invest in the future to grow faster in the future.

With that I will now hand the call over to Bernd. Bernd?

Bernd Brust - Senior Vice President, Global Sales and Marketing

Thanks, Greg. I am pleased to talk about our sales, marketing, and customer care efforts both here and U.S and internationally. We are progressing nicely and execution of the strategies we embarked on in late 2006, and the success we've seen is showing in our results. The sales and customer care teams around the world have stabilized and are now focused an areas that matter most for both our customers and in Invitrogen. The launch of our new website is showing positive early results and expansion in emerging market such as India and China is progressing very well.

Today I will provide some comments on these exciting initiatives to more expect as we reach our customers around the globe. First I would like to answer a question though that I consistently got asked when I am meeting with investors. That question is about our sales and marketing efficiency, and how the changes we made in late 2006 and 2007 are helping us today.

The key elements of these changes were as follows. On the marketing side as Greg has mentioned we've launched a new website and engaged a new activities focusing on customer buying behavior and bring value. In sales operations we have built an incredibly strong team increasing our efficiencies and price to mix optimization.

And finally on the sales side, we can reconfigured our customer segmentation in channel strategies for maximum coverage utilization and profitability. Really just to ensure we have the right resource has engaged with the right customers and the right parts of our portfolio. I am very, very pleased with the outcome of these initiatives.

Our goal for 2008 is to continue to provide our customers with access to the best trained people in electronic means, to help them become more efficient in their decision making and buying process. Ultimately we make ensure that every one of our customers will look at in Invitrogen as they prudent your partner for all scientific experiments by a production and services need.

We do not have a stable productive sales team with high morale that understands our product and our customers spread that never before as providing 2007 we saw twice as many sales professionals reach to annual target versus 2006, which was a record number, and our turnover dropped 20% year-over-year. The stabilization and the efficiency of our different sales teams has a lot me and others to focus our energy on getting ever close to the customer and addressing their unique needs in innovative ways.

Most of you have now have heard about and hopefully have visited our recently launched new website. The website we designed resulted from a significant amount of time spend observing our customers to understand how they research or products to buy, evaluate alternative options, and ultimately placing order for the product. It became clear to us that now we have consistent to be ranged and having a number one website in our industry there was a tremendous amount of room for improvement. In particular we've heard from our customers that they want a website that is organized around their research workflow not necessarily around how we are structured internally in Invitrogen.

The front page of our site now displays 10 application store front each designed specifically around how our researchers work. We want to make it easier for our clients to find what they need decide on the products and again they'll make a purchase. While it's too early to have a lot of facts and figures that's to how the new site is doing early indicator show that our strategies to success. For example, our customers are spending more time browsing the site, and looking up more products rather than going online to just search for one particular item. This metric is important because one of our goals is to create a retail experience, where our customers actually spend more time on the site looking at eventually buying multiple products during each visit. We are also seeing that they are having more items to their shopping cards which we believe will eventually translate into more products purchase.

One more interesting fact, we are seeing that a greater percentage of product lines that have not been ordered through web before are now being ordered through that channel. This indicates that customers now had better visibility to the entire breadth of our portfolio, and are now finding announced odd man product excuse that was buried or difficult to find on our website. Overall we are very pleased with the response we've received so far. The number of voters placed with us through the various e-commerce channels in the U.S. rose to an all-time high of 61% in the first quarter and over 45% globally. As you know orders received via e-commerce channels allows us to have a lower cost of transactions by approximately 15%. So we plan on continuing to make these channel especially our website a primary focus moving forward.

Finally, I'll spend a moment discussing our strategy in a much talked about emerging markets of China and India. While these two countries represent a small portion of our revenue today, they are growing at very fast at double-digit rates. In China, we've a substantial commercial footprint with almost a 100 people in sales and marketing roles. In addition, we are aggressively moving forward and building out our local product manufacturing capabilities and services portfolio, specifically for the Chinese markets. At the same time we are rapidly expanding in India. We'll soon break grounds on a new 100,000 square foot Invitrogen's campus in Bangalore demonstrating the significant commitment we are making to that market. We also expect to open satellite offices in two other Indian cities this year as well.

And just this month we opened our first distribution facility in India; this enables us to warehouse our products in the local market and substantially cut down on delivery turnaround times, providing better service to our customers. We are also expanding our sales, web and customers care capabilities in that country. Hiring local customers service reps and field personnel who will work with our partners to aggressively capture share in this rapidly expanding markets. I'm pleased with attraction we are getting in these two important areas and we planned to continue our investments in China and India to gain even bigger shares of these markets moving forward.

So, in summary our portfolio I believe is positioned very favorably in the current comparative environment. We'll continue to push our global sales and marketing teams full steam ahead to ensure we maintain our leadership position in our core markets; the Americas, Europe and Japan as well as position ourselves as a key player in the emerging markets. Stability in our core sales teams and efforts to strike the right balance between product volume, mix and price remained important priorities for us as well. At the same time as I mentioned earlier we will increase our investments in emerging markets as well as our website and another innovative marketing and branding initiatives.

With that, I'll now hand the call over to David. I'll be available at the end of this call to answer any follow-up questions you may have. David?

David F. Hoffmeister - Chief Financial Officer and Senior Vice President of Finance

Thank you Bernd and good afternoon everyone. I'll now take you through the financial details for the first quarter. This quarter we grew revenues 13.5%, including the impact from currency and acquisitions. Without these two items we grew 7% organically. BioDiscovery grew 12% year-over-year or 7% without currency to $247 million. BioDiscovery organic growth was driven by increased price, new product introductions and improved volumes most notably in Molecular biology, drug discovery services and labeling and detection. Adding to revenue we received a one time legal settlement. This settlement was recognized as 6 million of revenue and $2 million of interest income. We also had revenue from a legal settlement in the first quarter of 2007, of roughly the same amount. Thus the settlement this quarter did not impact the revenue growth rate.

So, systems had a quarter inline with our expectations with revenue of $103 million. That represents the growth a rate of 16% as reported, which includes currency and $3 million of revenue associated with the CellzDirect acquisition. Without currency and acquisitions, sales systems grew 7% organically. With Intel Systems cell culture research which represents the majority of the revenue of this division had revenue growth in the high single-digits driven by price as well as accelerating sales of stem cell and other specialty media, and our growth factors business. Growth rates for BioProduction was in low single-digits as we anticipated, due to the timing of customer orders. We expected BioProduction will grow in the high single to low double-digits for the full year.

Currency this quarter contributed 18 million of revenue, approximately 5.5 points of growth. Given the weakening dollar and the fact that the majority of our expenses are in the U.S., but almost half of our sales are outside the United States. Foreign exchange benefits have continued to be very positive this year. Currency increased earnings per share by approximately $0.17 in the quarter, including approximately 2 million recorded as other income.

Moving onto other line items, gross margin was 67.8%, an increase of 290 basis points from Q1 2007. The gross margin increase was a result of improved gross margins in both segments. BioDiscovery gross margins improved by a 130 basis points over last year due to improved price and product mix, including higher royalty revenue not related to settlements. Cell Systems gross margins improved by 730 basis points, primarily as a result of significantly improved sera gross margins as we began to sell lower cost product while maintaining prices. In addition, Cell Systems benefited from positive price and cell culture research as well as mix with BioProduction contributing a smaller percent of total segment revenue. As it relates to pricing, in all business units our new price our new list prices went into effect on January 1 in the U.S. and Europe. As this typical the benefits of list price increases are at their highest in the first few months after implementation. Those benefits began to recede somewhat throughout the year.

First quarter operating expenses were $137 million, an increase of $19 million over prior year, mainly as a result of higher employee related expenses including incentive compensation in all functions as well as cost attributable to special projects such as our transaction profitability effort that Greg mentioned earlier and additional funding for the Invitrogen Foundation. Currency also added cost year-over-year. Operating income was $100 million, an increase of 21% year-over-year, operating margin was 28.7% representing a 190 basis points of improvement over the prior year. This level of operating margin resulted from improvements in the business as well as our currency.

Interest income was $8.9 million, which includes $2 million from legal settlements. This compares with $8.3 million last quarter. The sequential decline as a result of our lower cash balance resulting from the CellzDirect acquisition, and the share repurchase program as well as lower average interest rates. Our average interest rate is now between 3% and 4%. Interest expense was $6.9 million; other income was $1.8 million, mainly as a result of currency gains.

For the quarter, we had a non-GAAP tax rate of 27.2%, which includes a onetime benefit of approximately $3 million related to the settlement of U.S. and Japan transfer pricing issues. This rate does not include the benefit of the R&D tax credit, which is not yet been extended beyond 2007. Our expected full year non-GAAP tax rate is 29.5%, assuming the R&D tax credit is not approved. If the R&D tax credit is extended, our tax rate could be 60 basis points lower.

Our diluted share count for the quarter was $48.9 million, which represents the sequential decrease of 6,000 shares as a result of our share repurchase program and less dilution from our convertible debt due to a lower average stock price. We repurchased approximately 1.2 million shares for $100 million over the first quarter. We have $265 million remaining on our share repurchase authorization at this point. Non-GAAP earnings per share which does not include stock option expense was $1.55, an increase of 36% over the last year. Stock option expense for Q1 was $8.8 million pre-tax; $6.1 million after tax and $0.12 per share. This compares to prior year levels of $8.9 million pre-tax; $6.5 million after tax and $0.13 per share. GAAP earnings per share were $1.19 as compared to $0.62 last year. As a reminder there is a full reconciliation between GAAP and non-GAAP measures in today's press release and in our website.

Turning to our balance sheet, let me point out a couple of items. First, our ending cash and short-term investments for $549 million, this compares to our December 31, 2007 balance of $671 million. The change in cash position was primarily a result of $100 million spend on repurchasing our shares; $57 million for our CellzDirect acquisition; $34 million related to the reclassification of Auction Rate Securities which help [Technical Difficulty].

Moving onto other balance sheet items, our inventory increased $34 million sequentially. This increase was a result of several items, the first being our CellzDirect acquisition. With CellzDirect we acquired $8 million of inventory at cost along with another $8 million of fair market value adjustments in accordance with purchase accounting requirements. The other items contributing to increased inventory where timing of sera collections, the build out of our biologics product portfolio, and currency translation increases. We believe we have an opportunity for continued working capital improvement, and we're focused on this, and expect to see improvements in all measures in the coming quarters.

I'll now move on to our outlook for 2008. We are updating our full year guidance to reflect the continued positive impact from currency and our CellzDirect acquisition. We now expect revenue to grow in the high single-digits, including currency in CellzDirect. We expect organic growth to be in the mid-single digits. We anticipate our operating margin will improve by 100 to 150 basis points, including the impact from currency, with approximately 50 basis points coming from organic improvements. Non-GAAP EPS is expected to increase 1.5 to 2 times the rate of revenue. Quarterly growth rates will vary due to a number of factors. Share count will also vary depending on our stock price and share repurchases. Given that, we cannot predict where our stock price will be we suggest that you use a share count between $49 million and 51 million.

As is our practice, I'll also give you a couple of items to take into consideration for the coming quarter. First, we have no legal settlements on the horizon, so gross margins will most certainly decline sequentially due to this factor. In addition to recall that we had a $5 million legal settlement in the second quarter of 2007, which is not going to repeat. Second, our second quarter employee related cost typically increased by several million dollars because merit increases go into effect in April.

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