Life Technologies Stays Neutral

We have reaffirmed our Neutral recommendation on Life Technologies (LIFE) with a target price of $52.00.

The company’s third quarter adjusted earnings of 92 cents per share surpassed the Zacks Consensus Estimate of 89 cents but missed the year-ago quarter’s 94 cents. Revenues increased 1.4% at CER to $911 million, ahead of the Zacks Consensus Estimate of $908 million.

We are encouraged by Life Technologies’ adoption of several initiatives to develop its diagnostics franchise. The company recently entered into a Master Development Agreement with Bristol-Myers Squibb (BMY) for companion diagnostic projects, to work together in oncology and other therapeutic areas. The collaboration with Bristol-Myers is in line with the company’s strategy to build partnerships with pharmaceutical majors for companion diagnostic development including participation in early-phase clinical trials.

We are also impressed with the company entering into a license and supply agreement with Singapore based VelaDx in October 2012. The latter will develop next generation sequencing-based, in vitro diagnostic tests that will run on Life Technologies’ Ion Personal Genome Machine platform. Further, we are optimistic about the company’s companion diagnostic partnership with GlaxoSmithKline's (GSK) MAGE-A3 cancer immunotherapy. Life Technologies also strengthened its diagnostics franchise with three recent tuck-in acquisitions – Compendia Bioscience, Navigenics and Pinpoint Genomics.

Meanwhile, as a result of Life Technologies’ increasing focus on emerging markets, this region now accounts for approximately 10% of total sales. The company has been experiencing growth in its emerging markets as well as Asia-Pacific, where it is currently expanding its operations.

After recording a temporary slowdown in its Greater China business about a year ago, the company augmented its dealer model and supplemented it with its own sales force. These efforts have successfully restored operations in Greater China to normal levels with high-teens growth. During the reported quarter, Life Technologies completed the acquisition of Genewindows, a distributor covering the Invitrogen brand reagent portfolio in south and west China. Besides, Life Technologies expanded its footprint further with the completion of its facility in Beijing where it will manufacture advanced DNA testing solutions in a cost effective way.

Life Technologies’ Genetic Analysis segment sales received a strong boost from the Ion Torrent franchise. The company is satisfied with the progress Ion Torrent technologies has made so far and expects the growth momentum to continue. This growth has been supported further by the recent launch of Ion Proton system in September with the company continuing to take additional orders.

However, economic uncertainties which lowered discretionary spending and unfavorable currency were the major headwinds for Life Technologies during the reported quarter. The company tightened its 2012 earnings outlook and expects organic revenue growth at 2%.Our recommendation is backed by Zacks #2 Rank (Buy) in the short term.