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Article by DailyStocks_admin    (08-06-08 06:42 AM)

Filed with the SEC from July 24 to July 30:

Invitrogen (IVGN)
Money manager Steven A. Cohen raised his stake in the life-sciences company to about 6.17 million shares (6.9%), from the 4.8 million (5.2%) reported on July 1.

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.

CEO BACKGROUND

Balakrishnan S. Iyer

(age 51)
Presiding Director between April 21, 2004 and April 2006. Director since July 2001. Mr. Iyer is currently a director of Conexant Systems, Inc., Skyworks Solutions, Inc., Power Integrations, Inc., IHS Inc., and Qlogic Corporation. From October 1998 to June 2003, he was Senior Vice President and Chief Financial Officer of Conexant Systems, Inc. Mr. Iyer previously served as Senior Vice President and Chief Financial Officer of VLSI Technology Inc., where he was responsible for all worldwide financial functions, information technology and strategic planning. During his career, he has held a variety of other key management positions, including Finance Director and Group Controller for a $1 billion business at Advanced Micro Devices. Mr. Iyer received his B.S. in Mechanical Engineering from the Indian Institute of Technology, Madras and his M.S. in Industrial Engineering from the University of California, Berkeley. Mr. Iyer also received an M.B.A. in Finance from the Wharton School.

Ronald A. Matricaria

(age 65)
Director since July 2004. Mr. Matricaria is the former Chairman and Chief Executive Officer of St. Jude Medical, Inc. Mr. Matricaria spent 23 years with Eli Lilly and Company, Inc., serving in several leadership roles. His last position was Executive Vice President of the Pharmaceutical Division of Eli Lilly and Company and President of its North American operations. He also served as President of Eli Lilly International Corporation. In 2002, he was recognized by the medical device industry with a lifetime achievement award. In addition, Mr. Matricaria is a member of the board of directors of Hospira, Inc. and Volcano Therapeutics, Inc., and is Trustee Emeritus of the University of Minnesota Foundation. Mr. Matricaria holds a bachelors degree from the Massachusetts College of Pharmacy and was awarded an honorary doctorate degree in Pharmacy in recognition of his contributions to the practice of pharmacy.

W. Ann Reynolds,

Ph.D.

(age 70)
Director since February 2005. Dr. Reynolds is the former President of the University of Alabama at Birmingham. She retired as Director, Center for Community Outreach and Development, The University of Alabama at Birmingham in 2003. Prior to joining The University of Alabama at Birmingham as President in 1997, Dr. Reynolds served as Chancellor of the City University of New York, where she was responsible for the 21 colleges and professional schools that comprised that system. Prior to that, Dr. Reynolds was the Chancellor of the California State University system, chief academic officer of Ohio State University and associate vice chancellor for research and dean of the graduate college of the University of Illinois Medical Center. Earlier in her career, she held appointments as professor of anatomy, research professor of obstetrics and gynecology, and acting associate dean for academic affairs at the University of Illinois College of Medicine. A native of Kansas, Dr. Reynolds holds a masters degree and a Ph.D. in Zoology from the University of Iowa, as well as a bachelor’s degree in Biology from Emporia State University, Kansas. She was a National Science Foundation Predoctoral Fellow and an honorary Woodrow Wilson Fellow. Dr. Reynolds is a director of Abbott Laboratories, Humana Inc., Owens Corning and the Champaign-Urbana News Gazette.

Gregory T. Lucier

(age 43)
Chairman of the Board of Directors since April 2004, Chief Executive Officer of Invitrogen Corporation, Director since May 2003. 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 Director of BIOCOM and BIO, 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.

Donald W. Grimm

(age 66)
Director since June 1998. Mr. Grimm has been a director of Hamilton BioVentures, LLC, since August 2001. Since June 1995 he has served as Chairman and President of Strategic Design LLC, a strategic planning and consulting company. Mr. Grimm retired from Eli Lilly & Company, a research-based pharmaceutical company, in December 1993 after 23 years of service. Mr. Grimm held positions at Eli Lilly as Director of Worldwide Pharmaceutical Pricing, Director of Pharmaceutical Market Research, and Director of Sales. Following these assignments, Mr. Grimm was President and CEO of Hybritech, Inc., a wholly owned subsidiary of Lilly. In addition, he is currently a director of several private companies. Mr. Grimm received his B.S. in Pharmacy and his M.B.A. from the University of Pittsburgh.

Per A. Peterson, Ph.D.

(age 63)
Director since March 2007. Dr. Peterson recently retired as Chairman, Research & Development, Pharmaceuticals at Johnson & Johnson. He joined Johnson & Johnson in 1994 as Vice President, Drug Discovery, of the R.W. Johnson Pharmaceutical Research Institute. Dr. Peterson was named Group Vice President of the Pharmaceutical Research Institute in April 1998 and its president in November 1998. In 2000, he was named Chairman, Research & Development, Pharmaceuticals Group and became a member of the Executive Committee in 2001. Prior to joining Johnson & Johnson, Dr. Peterson spent eight years at Scripps Research Institute in La Jolla, CA, where he headed the Division of Molecular Immunogenics before being appointed Chairman of the Department of Immunology in 1987. He had earlier served as Director of the Wallenberg Laboratory, as well as professor of cell biology at the university of Uppsala, Sweden. Born in Kalmar, Sweden, Dr. Peterson received his B.M. in Medicine and his Ph.D. in Medicinal Biochemistry from the University of Uppsala, Sweden.

Bradley G. Lorimier

(age 62)
Director since November 1998. Mr. Lorimier served as Senior Vice President, Business Development and Director of Human Genome Sciences, Inc., a biotechnology company, from March 1994 to June 1997. He was a director of Matrix Pharmaceutical, Inc., from December 1997 to March 2002, and is a Director and Chairman of the Board of Avalon Pharmaceuticals, Inc. He is also a Director for several private companies. Mr. Lorimier received his B.S. in Biology from the University of Illinois.

Raymond V. Dittamore

(age 64)
Director since July 2001. Mr. Dittamore also serves as a director of Gen-Probe Incorporated, Digirad Corporation, and QUALCOMM Incorporated. In June 2001, Mr. Dittamore retired as a partner of Ernst & Young after thirty-five years of service. He brings over three decades of public accounting experience to the Board of Directors, primarily serving companies in the life sciences industry. Mr. Dittamore received his B.S. from San Diego State University.

David C. U’Prichard, Ph.D.

(age 59)
Director since April 2004. Dr. U’Prichard currently serves as a venture partner with the private equity firm Red Abbey Venture Partners LP (Baltimore, MD), and President of Druid Consulting LLC, a consulting firm specializing in the pharmaceutical and biotechnology industries. From September 1999 to April 2003 he served as CEO of 3-Dimensional Pharmaceuticals, Inc. Dr. U’Prichard served as Chairman of Research and Development at SmithKline Beecham from July 1997 to March 1999. He served in senior R&D management positions at ICI/Zeneca from July 1986 to June 1997. Dr. U’Prichard has served as an Associate Professor of Pharmacology and Neurobiology at Northwestern University Medical School and has held academic appointments at The John Hopkins University, and the Universities of Maryland and Pennsylvania. He is an honorary professor at the University of Glasgow. Dr. U’Prichard serves as Chairman of the Board of Oxagen Limited (Oxford, UK) and Cyclacel Pharmaceuticals Inc. (Berkeley Heights, NJ) and is a Director of Alpharma Inc. (Bridgewater, NJ), and Silence Therapeutics Ltd (London, UK). Dr. U’Prichard received his B.S. in Pharmacology from the University of Glasgow and a Ph.D. in Pharmacology from the University of Kansas.

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

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.

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.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $545.4 million at March 31, 2008, a decrease of $60.7 million from December 31, 2007 primarily due to cash used in financing activities of $87.7 million and cash used in investing activities of $48.1 million. The use of cash was partially offset by cash provided by operating activities of $67.4 million and cash provided through foreign currency exchange of $7.6 million. Cash flow from discontinued operations is included in the Consolidated Statement of Cash Flows.

Operating activities provided net cash of $67.4 million through the first quarter of 2008 primarily from our net income of $59.7 million and net non cash charges of $51.9 million, partially offset by a decrease in cash from operating assets and liabilities by $44.2 million. The decrease in cash within operating assets and liabilities was mainly due to a $24.3 million decrease in accrued expenses due to the payment of accrued bonuses, a $14.0 million increase in inventories and a $4.1 million increase in accounts receivable.

As a result of working capital improvement programs, we expect to utilize our working capital more efficiently in the future resulting in higher inventory turnover and lower days sales outstanding. Our working capital factors, such as inventory turnover and days sales outstanding are seasonal, and on an interim basis during the year, may require an influx of short-term working capital.

On January 9, 2006, we entered into a syndicated $250.0 million senior secured credit facility (the Credit Facility) with Bank of America, N.A. Interest rates on outstanding borrowings are determined by reference to LIBOR or to an alternate base rate, with margins determined based on changes in our leverage ratio. Under the terms of the Credit Facility, we may request that the aggregate amount available be increased by $100.0 million of additional financing, subject to certain conditions having been met, including the availability of additional lender commitments. The Credit Facility contains various representations, warranties, affirmative, negative and financial covenants, and conditions of default customary for financings of this type. We currently anticipate using the proceeds of the Credit Facility for the purpose of general working capital and capital expenditures, and the Credit Facility will terminate and all amounts outstanding under it will be due and payable in full on January 6, 2011. As of March 31, 2008, the available credit was $243.3 million as the Company has issued $6.7 million in letters of credit through the facility. See Note 7 of the Notes to Consolidated Financial Statements.

As of March 31, 2008, CellzDirect had a $3.0 million line of credit bearing interest at a prime rate. The credit facility is to meet working capital requirements. As of March 31, 2008, the available credit was $2.7 million as $0.3 million was outstanding in letters of credit under this facility.

As of March 31, 2008, several of the Company’s foreign subsidiaries had available bank lines of credit denominated in local currency to meet short-term working capital requirements. The U.S. dollar equivalent of these facilities totaled $20.0 million, of which $0.3 million was outstanding at March 31, 2008.

At March 31, 2008 the Company holds $34.1 million in AAA rated auction rate securities which are valued using Level 3 criteria under SFAS 157. Auction rate securities are collateralized long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined intervals, typically every 7 to 35 days. Beginning in February of 2008, auctions failed for the Company’s holdings because sell orders exceeded buy orders. The funds associated with these failed auctions will not be accessible until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process, or the security matures. The underlying assets of the auction rate securities we hold, including the securities for which auctions have failed, are student loans which are guaranteed by the U.S. government under the Federal Education Loan Program. The valuation of these securities is based on Level 3 unobservable inputs which consist of recommended fair values provided by our broker combined with internal analysis of interest rate spreads and credit quality. The Company does not believe the carrying values of these municipal auction rate securities are permanently impaired and believe the positions will be liquidated without any significant loss.

We believe our current cash and cash equivalents, investments, cash provided by operations and interest income earned thereon will satisfy our working capital requirements for the foreseeable future. Our future capital requirements and the adequacy of our available funds will depend on many factors, including future business acquisitions, future stock or note repayment or repurchases, scientific progress in our research and development programs and the magnitude of those programs, our ability to establish collaborative and licensing arrangements, the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and competing technological and market developments.

We intend to continue our strategic investment activities in new product development, in-licensing technologies and acquisitions that support our BioDiscovery and Cell Systems platforms. In the event additional funding needs arise, we may obtain cash through new debt or stock issuance, or a combination of sources.

CONF CALL

Amanda Clardy - Vice President, Investor Relations

Thank you, Sylvania and good morning, everyone. Welcome to Invitrogen's second quarter 2008 earnings conference call. Joining me on the call today are Greg Lucier, our Chairman and CEO, and David Hoffmeister, our Chief Financial Officer. 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, as well as future expectations relating to the planned merger with Applied Biosystems.

We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. It's our intent that the 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 the 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. Instructions to access the webcast are also on our website. Additionally, we will be posting the presentation to our website following the conference call.

Greg will begin today's call with the highlights of our second quarter results, and additional comments about the Invitrogen and Applied Biosystems combination. He will be followed by David, who will give a more detailed review of the Company's second quarter operating results.

I will now hand the call over to Greg Lucier.

Gregory T. Lucier - Chairman and Chief Executive Officer

Thanks, Amanda. We are pleased to have once more delivered a quarter of solid organic growth and operating margin improvement. Our business is operating on all cylinders as we continue to focus on organic growth coupled with productivity and efficiency gains to drive that margin expansion. We have experienced people working with stable processes and systems which lead to a solid business that runs predictably and efficiently.

In the second quarter, total revenue growth was 14.3% of which 6.2% was organic growth. Operating margin improved by 370 basis points to 27.7%. Net income increased by 30% and non-GAAP earnings per share increased 28% to $0.73. These results are a testament to the kind of business we now run, one that is consistent and sustainable even in tough funding environments. We get asked many questions about the health of our end markets and our response is the same as it has been the entire year, the markets are stable and consistent with very little change.

Having said that, we are encouraged by the positive signs on the horizon. With respect to NIH funding, while it has been flat for six years in nominal dollars, the good news is that promising signs point to a sizable funding increases on the horizon. For example, a modest $150 million increase was just added to this year's NIH budget. And the blueprint that Congressional committees have put together for the next year shows increases of greater than $1 billion. With respect to other end markets, demand in large pharma is generally good, but our results varied by company by company. It is largely dependent on the strength of individual product lines, the particular research focus at that company, the level of spending or mergers.

Biotech, small and large are still a very good customer segment for us, although this is as much a result of our revised coverage model as it is from the end market funding. We are servicing more of the small and medium sized biotech companies today than ever before because of a new sales model that we put in place last year that includes an inside sales force calling upon smaller accounts. This is an example of how we are continually adjusting our business model to ensure revenue growth remains consistent despite changing market dynamics. All other end markets remain the same, with Europe still having good macro funding, Japan stable and emerging geographies experiencing double-digit growth.

Moving back to our results for the first half of this year and more specifically this quarter. There are a number of things that we are pleased with. Clearly, the merger we announced on June 12th with Applied Biosystems is top of mind for us and our investors. But before I get to that, I'll spend some time discussing the Invitrogen business. As in previous quarters, there were many improvements that led to our financial results this quarter and more importantly, that will continue to yield results into the future. I'd like to mention just a few.

Many of you heard me talk about our transaction profitability project in the past. This project officially kicked off earlier this year and is focused on improving the margin on each and every transaction. The project has already yielded several million dollars in savings this year alone and we are on track to deliver at least that much in the next couple of quarters. The launch of our new website was just another major accomplishment that we can talk about this quarter. The new search and find features on our website has significantly increased the number of visitors who actually make a purchase as well as our average order value.

In addition with new features such as the ability to track and order online, we are for the first time seeing the productivity gains we can get in the back office from moving these types of inquiries to a self service model. In addition, we're seeing an added benefit to organic growth from sales of product in the long end of the tail, those products that are purchased less often, being viewed and purchased much more than before due to the new website coming into being.

We now have a single ERP system implemented for 85% of our business globally, but we continue to make modifications of our underlying systems to enhance the customer and employee experiences. One example of this improvement we made into the web ordering process for oligos in the quarter. We significantly streamlined the back-end systems and provided new options for customers on their shipping method of choice. This project alone added almost $0.5 million of total revenue in nine months which should also be indicative of the future run rate.

What is more interesting is that almost half of the revenue is from customers who chose to upgrade to premium shipping terms. These types of differentiated service offerings that give customers choice and flexibility enable us to improve customer satisfaction while at the same time generating revenue and margin growth.

As important as differential service levels are is… are the new products we develop. This quarter we brought to market a new kit for next generation Sample Prep, a complete sample enrichment and normalization solution for next generation sequencing technology. In June, we released the only automated chip-based system for HLA antibody detection and identification.

We continue to provide new and innovative products for stem cell research launching the first fully defined and completely animal-origin free substrate in the marketplace for embryonic and other types of stem cells. And just two weeks ago we announced that we received FDA pre-market approval for our HER2 CISH Kit, a diagnostic kit that assesses a patient's likely response to Herceptin treatment which we'll be distributing through a third party. Beyond this diagnostic kit, we are also looking at the use of CISH on companion diagnostics for other types of cancer.

In terms of other business highlights, we won Life Science Industry awards, six of them, the most by any company, from the Best Sell Biology Kits and Reagents to The Most Useful Website. This is the fourth year in a row we were recognized in such categories. We are honored that our customers have voted for us and we will continue to meet their expectations, both in the near term and the long term.

This quarter we announced the formation of a new cell therapy business unit focused on the development of new products and services for our cell therapy customers and specific R&D projects that will help customers accelerate the availability of safe and effective cell therapies.

I will end my comments on the current quarter accomplishment simply by saying that the solid organic revenue growth, margin improvement, free cash flow we generated yet again, are the result of our continued focus on the basics and our ability to make small improvements each quarter that pay continuous dividends into the future.

It is with these types of actions that we're able to make a lasting impact to our run rate business. Our business is characterized by small run rate orders with customers that respond to consumer like marketing, such as modest promotions and giveaways. In this type of business which is almost similar to half of ABI's business, enough can't be said about basic sales management.

We now have a high performing sales team that consistently delivers and provides customer feedback that is so critical to our success. The global sales organization has transformed this business cadence. Specifically, there is a well understood and defined methodology for analyzing our run rate business, incorporating the impact from seasonality and one-time event as well as a good line of sight to bigger deals.

This methodology coupled with daily reporting around the globe from each sales team, ensures accountability for every sales leader. This rigorous forecasting process and accountability system gives us increased confidence in our short-term demand projections. In addition to changing the fundamental way we monitor the health of our business we have made investments in our sales teams that continue to pay dividends.

One such area is the sales operation team. Price realization continues to be very favorable, with far less leakage occurring over the course of the year. Sales operations team has been a major contributor to this by assisting the sales force in structuring contracts and in managing discount. This team also monitors daily sales performance and helps build tools, provides training and develop customer's presentations that help the sales force optimize results. We are only beginning to see the benefits we can get from these types of efforts.

Another area that has dramatically improved is goal setting, alignment and training. We've discussed before our process of having quarterly focused areas, in which just a few product groups are highlighted each quarter. The sales force is given specific goals for those product groups, trained on target products that maybe offered… and then maybe special incentives to focus on those particular products. The marketing organization is aligned with the effort so that its actions, whether it be advertising or promotions also target those products.

We started this practice in early 2007, and continue to follow it today, as we have seen tangible changes in run rate demand that remained several quarters down the line. Our philosophy to win with the basics is now deeply embedded into our operating psyche. We have great morale in our selling organization, and our turnover is the lowest yet, which allows us to recruit great people.

If you want to sell science and earn your commission, Invitrogen is the place to work. With the ABI transaction, we'll be able to implement some of our best practices in sales management to capture synergies. The basic philosophy on rigorous management will not change and will apply to all product areas, reagents, and instruments alike. This is why I feel confident that we can limit disruptions during the integration process and deliver upon the promise this combination has to offer.

I'd now like to spend a few moments on the ABI transaction, the transformative nature of this deal, and the future of our combined Company.

In many conversations with customers and employees, as well as investors, I've got strong support for the strategic rationale behind combining our two companies. We have highly complementary product offerings that will now enable us to provide unique workflow solutions for our customers. In addition, together we'll have the broadest, most extensive scientifically-oriented commercial network in the industry, and each company has a presence in several compelling high growth markets.

On top of these compelling strategic reasons, there is a significant financial value to be had from this combination. In deciding whether or not we should enter into this transaction, we performed extensive due diligence over a period of many weeks. The due diligence effort was led by Paul Grossman, our Senior Vice President of Strategy and Corporate Development, who joined Invitrogen last year, having spent over 20 years at ABI in various positions within R&D, legal, licensing and corporate development.

We hired the consulting firm L.E.K. to perform customer interviews and go deep into ABI's qPCR and sequencing business, including both the CE and the next generation sequencing segments. In addition, we formed several internal teams to review the different business lines of ABI, including our own technical teams that evaluated SOLiD versus the other platforms in the market. All of this led us to feel very comfortable with ABI's businesses and their future potential.

We also did extensive due diligence on how we could achieve cost synergies. We did our own internal review, and we also hired Deloitte to validate our findings and compare our estimates of cost synergies against their extensive database and experience with similar transactions.

It's because of this rigorous review process that we feel confident in our ability to deliver upon the synergies we've communicated. $60 million of total synergies in the first year after close, and $175 million in total synergies by the third year after close.

In order to ensure these synergies are achieved, we've already begun our integration process. As we announced several weeks ago, we've named an integration leader and have now formed all the cross-organizational teams that will lead the integration efforts. We have a very clear model for our integration process. We are starting to work to harmonize our cultures and connect our employee bases, as it will be up to the collective, talented teams to deliver upon the strategic vision and capture the synergies.

We will have retention programs in place to ensure we keep all mission-critical personnel, but we believe there is upside for all employees, as we deliver upon the true potential of our new Company.

Before I hand the call over to David, I'd like to discuss one more area of keen interest to our shareholders, customers and employees. With our strong organic results, as well as the currency benefits we're currently experiencing, we've been able to invest in some projects that will set the Company up for success in the years to come. One of those areas is next generation genomic analysis.

As we mentioned on last quarter's call, we've been committed, even before the ABI transaction, to playing a significant role in the next generation sequencing market. Invitrogen has some unique enabling reagents for sequencing, and now, with ABI, those reagents plus SOLiD will make us a leader in the current generation of genomic analysis systems.

Beyond this current generation, we have every intention of being a leader in commercializing a third generation sequencing product that will sequence a genome at the lowest possible cost in the shortest amount of time. We have a terrific internal program dedicated to this work, and we'll continue to make investments in engaging collaborations to enhance that capability, such as the deal with Active Motif announced earlier this week.

At this time, this is the most detail we'll be providing on this program until we are closer to having a commercially viable product. This is consistent with how we treat other R&D programs insofar as we don't disclose investment dollars or milestones until we have a product ready to launch.

With that, I'll now hand the call over to David. David?

David F. Hoffmeister - Chief Financial Officer, Senior Vice President

Thank you, Greg, and good morning, everyone. I will now take you through the financial details for the second quarter results. This quarter, we grew revenue 14.3%, including the impact from currency and acquisitions, 6.2% organically. As many of you know, we had a $5 million legal settlement reported in our revenue last year, which makes for a challenging comparison year-over-year. This negative comp was partially offset by the positive benefit from the timing of the Easter holiday, which fell in Q2 last year and in Q1 this year. So the normalized organic growth for the Company was approximately 7% in the quarter.

BioDiscovery grew 14% year-over-year or 6.5% without currency to $253 million. The legal settlement, I just mentioned was recognized in BioDiscovery, so excluding that settlement and the positive impact from the timing of the Easter holiday, the normalized growth rate for BioDiscovery was 8%. This growth was driven by increased price, new product introductions, and improved volumes.

Volume grew in most product areas, with molecular biology products having their strongest quarter in many years. Next generation sequencing is generating demand for a number of our core molecular biology products. In addition, our cell biology business continues to produce double digit growth, driven by our labeling and detection business.

And finally, we are seeing traction from several products that were launched a few years ago, such as our protein array business, which is showing momentum within the biomarker discovery markets with both pharma and academic customers.

Cell Systems had a quarter in line with our expectations, with revenue of $115 million. This represents a growth rate of 16% as reported, including currency and acquisition-related revenue. Without these two items, Cell Systems grew 5.6% organically. This growth was mostly attributable to cell culture research, which had another quarter of significant growth, driven by increased price and volume for basic and specialty media, including stem cell and animal origin-free media. The growth rate for BioProduction was in the mid-single digits, as anticipated.

All regions had solid organic growth, with the US growing in the mid-single digits; Europe in the low double digits; Asia-Pacific, excluding Japan, at approximately 20%; and Japan, in the low-single digits. Currency this quarter contributed $22 million of revenue, approximately 7 points of growth. Currency benefits added $0.09 to earnings per share.

Moving on to other line items, non-GAAP gross margin was at 66.3%, and the increase of 260 basis points from Q2, 2007. The gross margin increase was a result of improved gross margins in both segments, as well as currency benefits. BioDiscovery gross margins improved by 250 basis points over last year, due to increased price and improved productivity. Cell Systems gross margins improved by 310 basis points as a result of improved productivity, currency benefits, and the increased price in cell culture research.

One factor that's been negatively impacting our gross margins is the cost of freight, with oil now two times higher than a year ago. We've made modifications and improvements in our distribution processes to reduce costs, but it's not been enough to offset these extraordinary increases. Therefore, beginning in August, we'll be instituting a fuel surcharge that will be tied to the FedEx Air Charge Index, which is a fuel index that many other industries use. We hope that oil prices don't remain this high, which will allow us to eliminate the fuel surcharge in the future.

Second quarter operating expenses were $142 million, an increase of $14 million over prior-year levels, mainly as a result of higher employee-related expenses in sales, marketing and R&D, as well as additional operating expenses from acquired companies. G&A expenses declined year-over-year due to the elimination of legal expenses associated with the settlement last year. Currency also added approximately $3 million of expenses year-over-year.

Operating income was at a record high of $102 million, an increase of 32% year-over-year. The operating margin was 27.7% representing 370 basis points of improvement over prior year. Operating margin expansion resulted from gross margin improvements, operating cost leverage as well as currency benefits. Interest income was $5.3 million, interest expense was $6.9 million and other expense was $400,000. In the quarter, our non-GAAP tax rate was 28.7%, a result of a higher percentage of income and lower tax jurisdictions and approximately $1 million in one time tax benefits resulting from completion of audits from prior periods.

Our diluted share count for the quarter was 97.1 million which represents a sequential decrease of 700,000 shares as a result of a full quarter impact of our share repurchases completed in the first quarter. Non-GAAP earnings per share which does not include stock option expense was $0.73, an increase of 28% over last year.

Stock option expense for Q2 was $7.6 million pretax, $5.3 million after tax and $0.05 per share which represents a 29% decline from last year's level. The decline year-over-year was a result of adjustments for historical forfeiture rates. Future stock option expense is expected to be $0.06 to $0.07 per quarter. GAAP earnings per share were $0.55 as compared to $0.31 last year. As a reminder, there is a full reconciliation between GAAP and non-GAAP measures in today's press release and on our website.

Moving on to the balance sheet and cash flow, our ending cash and short-term investments were $646 million. This compares to the last quarter's balance of $549 million. Cash from operating activities were $82 million. Capital expenditures were $17 million and free cash flow was $65 million. Our debt remained the same at $1.15 billion.

I'll now move on to our outlook for full year 2008. At this time, all guidance we give for Invitrogen is as a standalone entity and does not include any potential benefit from the Applied Biosystems merger closing before year end. We expect organic revenue growth in the mid-single digits. This is consistent with the full year guidance we provided last quarter for organic growth. In addition to last quarter, we provided full year guidance of high-single digits including currency. Instead of attempting to predict currency rates, we will be providing our expectations for the business without currency effects; but we will provide assumptions for how currency movements impact our P&L.

As for operating margin, we now expect operating margin will improve by 50 to 75 basis points organically. This is an increase to the 50 basis point improvement we provided last quarter. Non-GAAP EPS is expected to increase at 1.5 to 2 times the rate of revenue. Quarterly growth rates will vary due to a variety of factors.

As it relates to currency, the year-to-date benefit has been 5 to 7 points of revenue growth. Gross margin percentage from currency is slightly higher than the total Company gross margin percentage, approximately 75% to 80% depending on the mix of revenue by country. Base costs attributable to currency have been approximately $3 million to $4 million a quarter.

I want to caution our investors and analysts not to be overly optimistic in their expectations of our future quarterly financial results. We give annual guidance because our growth rates and OM improvement will fluctuate quarterly due to seasonal ordering patterns and the timing of operating expenses as well as other items. Therefore as is our practice, I will give you a few items to take into consideration for the coming quarters.

First, Q3 is typically our lightest revenue quarter due to seasonal buying patterns. This means lower revenue which also has an impact on margins due to lower volume. In Q4, volume typically goes up, although a portion of that is lower margin OEM business. In addition to this there are two other factors that will impact margins in the coming quarters.

First, in the second half of the year our BioProduction business will be a greater percent of the mix and given that this business has lower margins, we expect this will have an impact on gross margins within Cell Systems. Second, as we have said before, net price trends down modestly throughout the year and this year is no exception.

Moving on to operating expenses, we expect they will go up slightly on a sequential basis as we fund additional programs in our cell therapy and stem cell businesses. Our expected full year non-GAAP tax rate is 29.5%, with the second half tax rate expected to be 30.5%. This rate does not include the benefit of the R&D tax credit, which has not yet been extended beyond 2007. If the R&D tax credit is extended our tax rate could be 60 basis points lower.

FAS 123R expense will be in the range of $0.06 to $0.07 per quarter depending on stock option expensing. Share count will vary depending on our stock price. Given that we cannot predict where our stock price will be, we suggest you use a share count between 97 million and 99 million. At a stock price of $40, our ending share count would be approximately 97 million; at $45 it would be 99 million.

Free cash flow for the second half is expected to be in line with the first half free cash flow with Q4 being higher than Q3 due to the timing of tax payments, capital expenditures and working capital changes. Capital expenditures are still expected to be in the range of $70 million, $80 million per year.

Before I close, let me give an update on two items related to the ABI merger. Regarding financing, we've met with the rating agencies and our bank debt has been… has received investment grade ratings from both Standard & Poor's and Moody's. We are currently in the process of meeting with banks to syndicate the amounts each of our three main banks have fully underwritten. At this time we see no issues with getting the financing in place.

The second item I mentioned is the closing timeline. We have filed with the FTC and the review period for that filing is up on July 28. We will be engaging with the EMCR for similar review process shortly and we expect to file the formal notification in mid-August. We plan on filing the preliminary S-4 by the end of July.

Given these filing dates, we anticipate that the deal will close sometime in late October to early November. We will provide an update to investors if anything occurs to change this estimate.

And with that, I will now hand the call back over to Amanda to open up the lines for questions.

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