Celsis profits up 15%; plans to buy US-based In Vitro for $35m
Celsis International plc (CEL.L), the rapid detection and analytical services company, said today it proposes to acquire In Vitro Technologies Inc (IVT) for up to $35m while it revealed its pretax profits grew by 15.4% last financial year.
Based in Maryland, Baltimore, IVT supplies products for examining chemical-biological interactions in vitro and in vitro testing services in connection with the drug discovery and development process. It employs 60 people and has a growing turnover that reached $11.6m last year.
The stock market responded to the news by marking the Celsis share price down 6% to 173.5p by midday. It now has a market capitalisation of £39m, so the IVT buy represents a big bite for the company. The purchase price will be funded by existing cash and $13.5m debt.
Celsis CEO Jay LeCoque (pictured) said the acquisition would transform Celsis through an "improved product and services portfolio and [by] creating clear cross-selling opportunities which we expect to deliver material growth in the coming years.
"Celsis is well positioned to continue its track record of strong growth both organically and by acquisition."
The company, based in the world renowned Cambridge Cluster of high tech firms, expects the deal to be earnings enhancing, excluding goodwill amortisation and exceptional costs, in the first full year of ownership.
Results
Celsis also reported record turnover and pre-tax profits for the year ended 31 March 2006. Revenue increased 8.9% to $33.1m, with both its Product and Laboratory Groups contributing to the growth.
Profit before tax was up 15.4% to $7.2m and margins remained stable. Operating cash flow was $9.0m, up from $7.6m the previous year.
Mr LeCoque said the Group has "delivered another year of double digit organic profit growth. Our Product Group continues to develop its business across our major market segments and we look forward to new nucleic acid based detection systems that are currently being developed by our R&D team. Our Laboratory Group had an extremely successful second half of strong orders from our growing pharmaceutical and biopharmaceutical customer base"
The Product Group benefited particularly from a 17% increase in North American revenues and the Laboratory Group delivered an 11% increase in revenues after a flat first half, driven by a strong performance from the New Jersey lab facility.
"We see healthy, sustainable business growth from the newly combined entity and we remain confident in the long-term prospects," Mr LeCoque said.
In Vitro Technologies
IVT has a 15 year track record of providing in vitro diagnostic products and laboratory services to the pharmaceutical and biotechnology industries. It specialises in the growing in vitro ADME-tox market (an acronym for Absorption, Distribution, Metabolism, and Excretion, and description of the effectiveness of a pharmaceutical compound within an organism). Around 50% of drug candidates fail in clinical trials due to unanticipated pharmacokinetic and toxicology problems. IVT’s products and services help improve the selection of candidate compounds at each stage of preclinical drug development.
Around 80% of its business is product based with the rest in laboratory services.
Mr LeCoque said IVT's business model was "an excellent fit with the strategy employed today by [Celsis'] Product and Laboratory Groups and offers immediate cross-selling opportunities to a similar customer base".
IVT founder and CEO Paul Silber will stay on and run IVT, reporting directly to the Mr LeCoque.
The upfront acquisition cost is $30m. In addition, there is a potential earn-out payment of up to $5m subject to the performance. The earn-out is based on 2006 turnover of over $13.1m, an implied 13% growth against 2005. In the four months to end April 2006 turnover was up 19%.
It made an operating profit of $1.2m in 2005 (2004: $0.7m) on a gross margin of 69%.
Outlook
Mr LeCoque said mergers and acquisitions would continue to play an important role in Celsis’ strategy as it seeks to lever customer relationships and distribution infrastructure.
"We anticipate continuing good organic growth from existing and next generation detection systems in the Product Group and we expect the Laboratory Group to benefit from increased pharmaceutical outsource spending and from the expansion of our facilities in New Jersey," he said.
The proposed takeover requires shareholder approval. An EGM has been called for 11th July.
14th June 2006
