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PROSPECTUS
OCTOBER 27, 1999
[LOGO]-Registered Trademark-
5,900,000 SHARES OF COMMON STOCK
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THE COMPANY:
- We develop, manufacture and sell research kits and products and provide
services designed to facilitate molecular biology research.
NASDAQ SYMBOL: IVGN
THE OFFERING:
- Invitrogen is offering 2,400,000 shares and existing stockholders are
offering 3,500,000 shares.
- The underwriters have an option to purchase an additional 885,000 shares
from Invitrogen and the existing stockholders participating in this
offering to cover over-allotments.
- There is an existing market for our shares. The last reported sale price
for our common stock on October 26, 1999, was $25 3/16 per share.
- Closing: November 1, 1999.
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PER SHARE TOTAL
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Public offering price: $ 25.00 $147,500,000
Underwriting fees: 1.25 7,375,000
Proceeds to Invitrogen: 23.75 57,000,000
Proceeds to selling stockholders: 23.75 83,125,000
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN
RAUSCHER INCORPORATED
DLJDIRECT INC.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 16
Price Range of Common Stock........... 16
Dividend Policy....................... 16
Capitalization........................ 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 26
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Management............................ 50
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Certain Transactions.................. 58
Principal and Selling Stockholders.... 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 63
Underwriting.......................... 65
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 67
Index to Financial Statements......... F-1
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Discovery Line-TM-, DNA DipStick-TM-, Gene Pool-TM-, Hybrid Hunter-TM-,
Micro-FastTrack-TM-, Northern Territory-TM- and Zero Background-TM- are
trademarks of Invitrogen. The Invitrogen logo, MaxBac-Registered Trademark-,
FastTrack-Registered Trademark-, One Shot-Registered Trademark-, TA
Cloning-Registered Trademark-, TOPO-Registered Trademark- and Zero
Blunt-Registered Trademark- are Invitrogen trademarks which have been registered
with the United States Patent and Trademark Office. GeneStorm-TM-,
Invitrogenomics-TM-, Morphagen-TM- and Morphatides-TM- are trademarks of
Invitrogen for which registration applications have been filed with the United
States Patent and Trademark Office.
XCell II-TM-, Blue Horizon-TM-, Mark12-TM- and Coomassie-TM-are trademarks
of NOVEX. NOVEX-Registered Trademark-, Serva-Registered Trademark-,
Quickpoint-Registered Trademark-, NuPAGE-Registered Trademark-,
Powerease-Registered Trademark-, SeeBlue-Registered Trademark-,
Multi-Mark-Registered Trademark-and SilverXpress-Registered Trademark- are
trademarks of NOVEX which have been registered with the United States Patent and
Trademark Office. WesternBreeze-TM- is a trademark of NOVEX for which an
application for registration has been filed with the United States Patent and
Trademark Office.
All other trademarks or trade names referred to in this prospectus are the
property of their respective owners.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. WE
URGE YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY. UNLESS STATED OTHERWISE, THE
INFORMATION CONTAINED IN THE PROSPECTUS ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTION TO PURCHASE 885,000 SHARES FROM INVITROGEN AND THE SELLING
STOCKHOLDERS IS NOT EXERCISED.
THROUGHOUT THIS PROSPECTUS, UNLESS OTHERWISE INDICATED, "INVITROGEN," "WE,"
"OUR," AND "US" REFER TO INVITROGEN AND ALL OF ITS SUBSIDIARIES, INCLUDING THE
OPERATIONS OF NOVEX.
INVITROGEN CORPORATION
Invitrogen develops, manufactures and markets research tools in kit form and
provides other research products and services to corporate, academic and
government entities. Our research kits simplify and improve gene cloning, gene
expression and gene analysis techniques as well as other molecular biology
activities (see "Business--Scientific Overview"). These techniques and
activities are used to study how a cell is regulated by its genetic material,
known as functional genomics, and to search for drugs that can treat diseases.
Our kits and products allow researchers to perform these activities more
accurately, efficiently and with greater reproducibility compared to
conventional research methods. Our kits and products have made molecular biology
research techniques more accessible to pharmaceutical, biotechnology,
agricultural, government and academic researchers with backgrounds in a wide
range of scientific disciplines. In 1998 we began marketing our
"high-throughput" gene cloning and expression technology, which allows us to
clone and expression-test genes on an industrial scale. We are utilizing this
high-throughput technology to generate additional license, service and product
opportunities. In August 1999, Invitrogen merged with NOVEX, a developer and
manufacturer of pre-cast electrophoresis gels and associated products for gene
and protein analysis. From 1994 through 1998, Invitrogen experienced compound
annual growth in revenue of 27% and net income of 60%.
Based on independent market studies, in 1998 researchers spent over
$1.4 billion on molecular biology products and supplies such as chemicals,
reagents, enzymes and kits. Gene cloning, expression and analysis kits represent
a rapidly emerging segment of the molecular biology product and supply market.
Based on independent market studies, we project sales of gene cloning,
expression and analysis kits to grow approximately 21% in 1999, compared to
approximately 14% growth in 1999 for the overall molecular biology product and
supply market. We believe the gene cloning, expression and analysis kit market
will continue to expand due to several factors, including:
- Increasing levels of government funding for the study of genetic material
and molecular biology research;
- Increasing availability of new data from the Human Genome Project, a
federally funded effort to identify all human genes, and other genome
sequencing projects;
- Proliferation of high-throughput molecular biology research techniques;
and
- Increasing investment in commercial research activities.
We offer approximately 700 kits and other products that researchers use to
conduct key molecular biology research activities. Our kits and products make
molecular biology techniques easier, faster and more accessible to an
increasingly broad community of researchers. For example, as compared to
conventional cloning methods, our proprietary cloning method, known as TOPO TA
Cloning, reduces the time required for a key step in the gene cloning process
from 12 hours to five minutes, reduces total experiment completion time from
three to five days to one day and increases the cloning success rate from 50-60%
to over 90%. Based on our 1998 sales of these kits, we estimate that researchers
who
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used TOPO TA Cloning Kits in 1998 saved over 7 million hours compared to
standard cloning methods.
In 1998 we developed a high-throughput gene cloning and expression system by
scaling up our TOPO TA Cloning technology and automating much of the cloning and
expression process. We are marketing this technology under the name
Invitrogenomics. We are using this new technology to rapidly clone and patent
full-length gene libraries, which we are licensing and selling. To date, we have
assembled libraries of over 2,300 full-length cloned human genes that correctly
express their specific proteins. In addition, we are using this technology to
provide gene cloning and expression services on a contract basis to
pharmaceutical, biotechnology and agricultural companies that wish to reduce the
time and costs associated with identifying and validating new drug targets and
developing novel therapeutics.
We believe we have assembled one of the broadest portfolios of gene cloning,
expression and analysis related intellectual property in our industry. To date,
we have obtained over 85 licenses, which provide us with access to over 200
patents and applications covering gene cloning, expression and analysis
materials and techniques. In total, we own or control 28 issued and pending
patents and applications. We believe our intellectual property portfolio has
established us as a licensing partner of choice for corporate and academic
researchers who wish to commercialize their gene cloning, gene expression and
gene analysis-related discoveries. We believe our leadership position derives
from our ability to rapidly enhance the value of the technologies we license by
combining them with our existing products and licensed technologies.
Our principal offices are located at 1600 Faraday Avenue, Carlsbad,
California 92008. Our telephone number is (760) 603-7200. Our website address is
www.invitrogen.com. Our website is not a part of this prospectus.
MERGER WITH NOVEX
On August 17, 1999 we completed our merger with NOVEX. As consideration for
the merger we issued 2,530,124 shares of our common stock and assumed options
which were converted into options to purchase 469,678 shares of our common
stock. Invitrogen merged with NOVEX because we believe that NOVEX's pre-cast gel
electrophoresis product lines are highly complementary with Invitrogen's product
lines. In connection with the integration of NOVEX, we recently reduced the size
of our U.S. workforce by approximately 14%. This transaction has been accounted
for as a pooling of interests and the consolidated financial statements and
other financial data included in this prospectus have been restated for all
periods prior to the merger to reflect the combined financial and operating
results of Invitrogen and NOVEX.
Our NOVEX subsidiary develops, manufactures and markets research
electrophoresis products in pre-cast form, which improves the speed, reliability
and convenience of gel electrophoresis. Gel electrophoresis is a technique that
is used as a tool to visualize the results of many different types of molecular
biology experiments. As such, it is an integral part of the majority of the
molecular biology activities that our kits and other products address. NOVEX
offers approximately 450 products that enable researchers to complete their
experiments more accurately, efficiently and with greater reproducibility
compared to traditional electrophoresis methods. For example, our pre-cast gels
eliminate the time required to make gels in the laboratory, resulting in savings
of 1-2 hours every time a gel is purchased from us rather than made by the
researcher.
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THE OFFERING
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Common stock offered:
By Invitrogen.................................... 2,400,000 shares
By the selling stockholders...................... 3,500,000 shares
Total.......................................... 5,900,000 shares
Common stock to be outstanding after this
offering......................................... 18,905,259 shares
Use of proceeds.................................... - Continued development and manufacture of our
existing products and services
- Research and development of additional
products and services
- Working capital and general corporate
purposes, including potential acquisitions of
products, technologies or companies
Risk factors....................................... For a discussion of certain considerations
relevant to an investment in our common stock,
see "Risk Factors."
Nasdaq National Market symbol...................... IVGN
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The number of shares outstanding after this offering is based on shares
outstanding as of September 30, 1999 and:
- Includes 330,000 shares issued upon exercise of options at a weighted
average exercise price of $1.75 which selling stockholders exercised in
connection with this offering.
- Excludes the remaining 3,578,662 shares of common stock issuable upon
exercise of outstanding stock options at a weighted average exercise
price of $10.17 per share.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The tables below summarize financial data of Invitrogen set forth in more
detail in the Consolidated Financial Statements at the end of this prospectus.
The Consolidated Financial Statements have been restated to include the results
of NOVEX as if the merger had occurred at the beginning of the periods
presented. The As Adjusted Balance Sheet Data as of September 30, 1999, has been
adjusted to reflect the sale of 2,400,000 shares of common stock by Invitrogen
at a price of $25.00 per share, the exercise of options to purchase 330,000
shares of common stock by selling stockholders at a weighted average exercise
price of $1.75 and the application of the net proceeds from such sale and option
exercises. See "Use of Proceeds."
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NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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1996 1997 1998 1998 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues............................................... $32,556 $ 41,182 $53,660 $39,212 $51,288
Cost of revenues....................................... 12,094 15,958 19,191 13,707 17,461
------- -------- ------- ------- -------
Gross margin......................................... 20,462 25,224 34,469 25,505 33,827
Operating expenses:
Sales and marketing.................................. 6,563 8,305 11,352 8,316 10,496
General and administrative........................... 6,291 7,312 8,091 5,816 6,742
Research and development............................. 3,882 5,918 8,603 6,390 7,447
Merger related costs................................. -- -- -- -- 4,379
------- -------- ------- ------- -------
Total operating expenses........................... 16,736 21,535 28,046 20,522 29,064
------- -------- ------- ------- -------
Income from operations................................. 3,726 3,689 6,423 4,983 4,763
Other income and expense, net.......................... 28 117 217 200 715
------- -------- ------- ------- -------
Income before taxes.................................... 3,754 3,806 6,640 5,183 5,478
Provision for income taxes............................. 1,418 1,371 2,410 1,858 2,157
------- -------- ------- ------- -------
Net income............................................. 2,336 2,435 4,230 3,325 3,321
Less: Preferred stock dividends........................ -- (475) (900) (675) (163)
Accretion of non-voting redeemable common stock... (171) (175) (204) (150) (74)
Accretion of beneficial conversion feature related
to convertible preferred stock.................... -- (15,000) -- -- --
Adjustment to beneficial conversion feature
related to convertible preferred stock............ -- -- -- -- 985
------- -------- ------- ------- -------
Net income (loss) applicable to common shares..... $ 2,165 $(13,215) $ 3,126 $ 2,500 $ 4,069
======= ======== ======= ======= =======
Earnings (loss) per share:
Basic................................................ $ 0.20 $ (1.15) $ 0.26 $ 0.21 $ 0.27
======= ======== ======= ======= =======
Diluted.............................................. $ 0.17 $ (1.15) $ 0.23 $ 0.18 $ 0.23
======= ======== ======= ======= =======
Weighted average shares used in per share calculation:
Basic................................................ 10,831 11,461 12,152 12,154 15,099
Diluted.............................................. 12,554 11,461 13,883 13,648 17,646
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SEPTEMBER 30, 1999
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ACTUAL AS ADJUSTED
(UNAUDITED, IN THOUSANDS)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 39,025 $ 96,102
Total assets................................................ 68,273 125,350
Long-term obligations, less current maturities.............. 741 741
Total stockholders' equity.................................. 57,780 114,857
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RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER
THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS.
FAILURE TO SUCCESSFULLY INTEGRATE NOVEX INTO OUR OPERATIONS COULD REDUCE OUR
PROFITABILITY
We closed our merger with NOVEX on August 17, 1999. NOVEX is now a
wholly-owned subsidiary of Invitrogen. Integrating the two companies' operations
is ongoing and will require significant efforts from each company, including the
coordination of research and development and sales and marketing efforts.
Invitrogen may find it difficult to integrate the operations of NOVEX. Personnel
may leave or be terminated because of the merger. We recently reduced the size
of our U.S. workforce by approximately 14% in connection with the integration of
the two companies. Also David E. McCarty, former President and Chief Executive
Officer of NOVEX, former Executive Vice President of Invitrogen and a selling
stockholder, is no longer our employee but continues as a director of
Invitrogen. Such employee resignations or terminations may require us to make
severance or other payments and may result in related litigation. Four former
employees of NOVEX, including Mr. McCarty and Sheldon Engelhorn, a former
Executive Vice President of NOVEX and a selling stockholder in this offering,
have retained counsel and threatened to take legal actions against us arising
out of the termination of their employment. These former employees allege fraud
and wrongful termination in connection with the termination of their employment
following the merger between Invitrogen and NOVEX and the reduction of our U.S.
workforce. These former employees have indicated that their damages would
include lost earnings, severance and the value of unvested stock options which
they lost as a result of the termination of their employment. Mr. McCarty has
requested arbitration of his claims. Although no formal legal action has been
filed and no other specific demands have been made, actions may be filed against
us in the future. Additionally, other former employees could assert similar or
other claims arising out of the termination of their employment. We are
currently evaluating all such claims and no assurances can be given as to the
outcome of any resulting litigation.
NOVEX customers, distributors or suppliers may terminate their arrangements
with NOVEX, or demand amended terms to these arrangements, because of the
merger. Invitrogen management may have their attention diverted while trying to
integrate the two companies. Such diversion of management's attention or
difficulties in the transition process could have a material adverse impact on
us. If we are not able to successfully integrate the operations of NOVEX, our
expectations of future results of operations may not be met. Factors which will
determine the success of the merger include:
- Changes in the favorable market reaction to NOVEX's and Invitrogen's
significant products;
- Competitive factors, including technological advances attained by
competitors and patents granted to or contested by competitors, which
would result in their ability to compete against us more effectively;
- The ability of the combined company to increase sales of both NOVEX and
Invitrogen products; and
- The ability of the combined company to operate efficiently and achieve
cost savings.
Even if the two companies are able to integrate operations, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.
FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS
Our business has grown rapidly. Our net revenues increased from
$32.6 million in 1996 to $53.7 million in 1998. During that same period we
significantly expanded our operations in the United
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States and in Europe. The number of our employees has increased from
approximately 220 at December 31, 1996 to approximately 380 at September 30,
1999.
It is very difficult to manage this rapid growth, and our future success
depends on our ability to implement:
- Research and product development;
- Sales and marketing programs;
- Customer support programs;
- Operational and financial control systems; and
- Recruiting and training of new personnel.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures and to
expand and train our workforce worldwide.
We are in the process of upgrading and integrating our enterprise-wide
financial and manufacturing information system. If we fail to successfully
complete this process we could experience manufacturing and shipping delays
which, in turn, could cause increased manufacturing costs and deferred or lost
sales.
We have developed a high-throughput gene cloning and expression system by
scaling up our TOPO TA Cloning technology. We are commercializing this
technology under the name Invitrogenomics. Our future business growth depends in
part on the success of our Invitrogenomics products and services. In order to
succeed in this business we may need to hire additional senior managers.
Moreover, operation of Invitrogenomics may present unfamiliar management
challenges that we might not successfully address. We may not be able to locate
or hire the necessary managers or successfully address the potentially
unfamiliar management issues that may occur in Invitrogenomics or other areas of
our business.
We recently merged with NOVEX, requiring additional investments in
operations, product research and development and sales and marketing which are
significant expenses. Failure to successfully manage and coordinate the growth
of the combined company could adversely impact our revenue and profits.
REDUCTION IN RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT FUNDING MAY IMPACT
SALES
Our customers include researchers at pharmaceutical and biotechnology
companies, academic institutions and government and private laboratories.
Fluctuations in the research and development budgets of these researchers and
their organizations could have a significant effect on the demand for our
products. Research and development budgets fluctuate due to changes in available
resources, spending priorities and institutional budgetary policies. Our
business could be seriously damaged by any significant decrease in life sciences
research and development expenditures by pharmaceutical and biotechnology
companies, academic institutions or government and private laboratories.
In recent years, the United States pharmaceutical industry has undergone
substantial downsizing and consolidation. Further mergers or corporate
consolidations in the pharmaceutical industry could cause us to lose existing
customers and potential future customers, which could have a material adverse
effect on our business, financial condition and results of operations.
A significant portion of our sales have been to researchers, universities,
government laboratories and private foundations whose funding is dependent upon
grants from government agencies such as the U.S. National Institutes of Health
and similar domestic and international agencies. Also, a portion of our direct
revenues comes from NIH Small Business Innovation Research grant funds. Although
the
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level of research funding has increased during the past several years, we cannot
assure you that this trend will continue. Government funding of research and
development is subject to the political process, which is inherently fluid and
unpredictable. Our revenues may be adversely affected if our customers delay
purchases as a result of uncertainties surrounding the approval of government
budget proposals. Also, government proposals to reduce or eliminate budgetary
deficits have sometimes included reduced allocations to the NIH and other
government agencies that fund research and development activities. A reduction
in government funding for the NIH or other government research agencies could
seriously damage our business.
Our customers generally receive funds from approved grants at particular
times of the year, as determined by the federal government. Grants have, in the
past, been frozen for extended periods or have otherwise become unavailable to
various institutions without advance notice. The timing of the receipt of grant
funds affects the timing of purchase decisions by our customers and, as a
result, can cause fluctuations in our sales and operating results.
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR OUR NEW PRODUCT DEVELOPMENT
Our business model of providing products to researchers working on a variety
of genetic projects requires us to develop a wide spectrum of products. To
generate broad product lines it is advantageous to sometimes license
technologies from the scientific community at large rather than depending
exclusively on our own employees. As a result, we believe our ability to
in-license new technologies from third parties is and will continue to be
critical to our ability to offer new products. Over 40% of our revenues are from
products manufactured or sold under licenses from third parties.
From time to time we are notified or become aware of patents held by third
parties which are related to technologies we are selling or may sell in the
future. After a review of these patents, we may decide to obtain a license for
these technologies from such third parties. We are currently in the process of
negotiating several such licenses and expect that we will also negotiate these
types of licenses in the future. There can be no assurances that we will be able
to negotiate such licenses on favorable terms, or at all.
Our ability to gain access to technologies needed for new products and
services depends in part on our ability to convince inventors that we can
successfully commercialize their inventions. We cannot assure you that we will
be able to continue to identify new technologies developed by others. Even if we
are able to identify new technologies of interest, we may not be able to
negotiate a license on favorable terms, or at all.
LOSS OF LICENSES COULD HURT OUR PERFORMANCE
Some of our licenses do not run for the length of the underlying patent. We
may not be able to renew our existing licenses on favorable terms, or at all. If
we lose the rights to a patented technology, we may need to stop selling certain
of our products or redesign our products or lose a competitive advantage.
Potential competitors could in-license technologies that we fail to license and
potentially erode our market share for certain products.
Our licenses typically subject us to various commercialization, sublicensing
and other obligations. If we fail to comply with these requirements we could
lose important rights under a license, such as the right to exclusivity in a
certain market. In some cases, we could also lose all rights under a license. In
addition, certain rights granted under the license could be lost for reasons out
of our control. For example, the licensor could lose patent protection for a
number of reasons, including invalidity of the licensed patent. We typically do
not receive significant indemnification from a licensor against third party
claims of intellectual property infringement. See "Business--Technology
Licensing" regarding our current licenses.
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OUR MARKET SHARE DEPENDS ON NEW PRODUCT INTRODUCTIONS AND ACCEPTANCE
The market for our products and services is only about fifteen years old.
Rapid technological change and frequent new product introductions are typical
for the market. For example, prepackaged kits to perform research in particular
cell lines and already-isolated genetic material are only now coming into
widespread use among researchers. Our future success will depend in part on
continuous, timely development and introduction of new products that address
evolving market requirements. We believe successful new product introductions
provide a significant competitive advantage because customers make an investment
of time in selecting and learning to use a new product, and are reluctant to
switch thereafter. To the extent we fail to introduce new and innovative
products, we may lose market share to our competitors, which will be difficult
or impossible to regain. An inability, for technological or other reasons, to
successfully develop and introduce new products could reduce our growth rate or
damage our business.
We have made a substantial investment in developing the technology
underlying Invitrogenomics products and services. The products portion of
Invitrogenomics was launched commercially in 1998, and has not achieved
significant revenues. We cannot be sure that Invitrogenomics will achieve any
commercial success or that revenues will equal or exceed the cost of our
investment.
In the past we have experienced, and are likely to experience in the future,
delays in the development and introduction of products. We cannot assure you
that we will keep pace with the rapid rate of change in life sciences research,
or that our new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Some of the factors affecting market
acceptance of new products include:
- Availability, quality and price relative to competitive products;
- The timing of introduction of the product relative to competitive
products;
- Scientists' opinion of the product's utility;
- Citation of the product in published research; and
- General trends in life sciences research.
The expenses or losses associated with unsuccessful product development
activities or lack of market acceptance of our new products could materially
adversely affect our business, operating results and financial condition.
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS
Our products and services are highly technical in nature. In general only
highly qualified and trained scientists have the necessary skills to develop and
market our products and provide our services. We face intense competition for
these professionals from our competitors and our customers, marketing partners
and companies throughout our industry. Any failure on our part to hire, train
and retain a sufficient number of qualified professionals would seriously damage
our business. We do not generally enter into employment agreements requiring
these employees to continue in our employment for any period of time. See
"Management."
COMPETITION IN THE LIFE SCIENCES RESEARCH MARKET COULD REDUCE SALES
The markets for our products are very competitive and price sensitive. Many
other life sciences research product suppliers have greater financial,
operational, sales and marketing resources, and more experience in research and
development than we do. 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. If a competitor develops superior technology or
cost-effective alternatives to our kits and other products, our business,
operating results and financial condition could be materially adversely
affected.
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The market for our electrophoresis products is also subject to specific
competitive risks. The recent sale by FMC of its BioProducts division to a
competitor of NOVEX may result in additional market and pricing pressure on our
products. Further, NOVEX recently increased its prices, which may be met with
customer resistance and could give competing companies an additional opening
into our markets. The gel electrophoresis market is highly price competitive.
Our competitors have in the past and may in the future compete by lowering
prices on certain products. In certain cases, we may respond by lowering our
prices which would reduce revenues and profits. Conversely, failure to
anticipate and respond to price competition may hurt our market share.
We believe that customers in our markets display a significant amount of
loyalty to their initial supplier of a particular product. Therefore, it may be
difficult to generate sales to customers who have purchased products from
competitors. To the extent we are unable to be the first to develop and supply
new products, our competitive position will suffer. See "Business--Competition"
for more information.
DISTRIBUTORS MAY FORCE US TO USE MORE EXPENSIVE MARKETING AND DISTRIBUTION
CHANNELS
Certain of our customers have developed purchasing initiatives to reduce the
number of vendors they purchase from in order to lower their supply costs. In
some cases these accounts have established agreements with large distributors,
which include discounts and the distributors' direct involvement with the
purchasing process. These activities may force us to supply the large
distributors with our products at a discount to reach those customers. For
similar reasons many larger customers, including the federal government, have
requested and may in the future request special pricing arrangements, including
blanket purchase agreements. These agreements may limit our pricing flexibility,
especially with respect to our electrophoresis products, which could adversely
impact our business, financial condition and results of operations. Currently we
do not have the capability to accept and process orders through our website.
Accordingly, we may implement sales through Internet vendors. Internet sales
through third parties may negatively impact our gross margins as the commission
paid on Internet sales would be an additional cost not incurred through the use
of non-Internet vendors.
WE RELY ON THIRD-PARTY MANUFACTURERS TO MANUFACTURE SOME OF OUR PRODUCTS AND
COMPONENTS
We rely on third-party manufacturers to supply many of our raw materials,
product components and in some cases, entire products. In particular, we
purchase all of the cassettes used in our electrophoresis pre-cast gels from a
single third-party manufacturer. Also, we recently contracted with an outside
vendor for the production of our PowerEase instrument products. Manufacturing
problems may occur with these and other outside sources. If such problems occur,
there can be no assurance that we will be able to manufacture our products
profitably or on time.
INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS
Including subsidiaries and distributors, our products are currently marketed
in over 30 countries throughout the world. Our international revenues, which
include revenues from our Netherlands and Germany subsidiaries and export sales,
represented 35% of our product revenues in 1998, 29% in 1997 and 25% in 1996. We
expect that international revenues will continue to account for a significant
percentage of our revenues for the foreseeable future, in part because we intend
to expand our international operations.
There are a number of risks arising from our international business,
including:
- General economic and political conditions in the markets in which we
operate;
- Potential increased costs associated with overlapping tax structures;
- Potential trade restrictions and exchange controls;
- More limited protection for intellectual property rights in some
countries;
11
<PAGE>
- Difficulties and costs associated with staffing and managing foreign
operations;
- Uncertain effects of the movement in Europe to a unified currency;
- Slower growth in the European market before the unified currency is fully
adopted;
- Unexpected changes in regulatory requirements;
- The difficulties of compliance with a wide variety of foreign laws and
regulations;
- Longer accounts receivable cycles in certain foreign countries; and
- Import and export licensing requirements.
A significant portion of our business is conducted in currencies other than
the U.S. dollar, which is our reporting currency. We recognize foreign currency
gains or losses arising from our operations in the period incurred. As a result,
currency fluctuations among the U.S. dollar and the currencies in which we do
business have caused and will continue to cause foreign currency transaction
gains and losses. We cannot predict the effects of exchange rate fluctuations
upon our future operating results because of the number of currencies involved,
the variability of currency exposures and the potential volatility of currency
exchange rates. We engage in foreign exchange hedging transactions to manage our
foreign currency exposure, but we cannot assure you that our strategies will
adequately protect our operating results from the effects of exchange rate
fluctuations. For more information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Currency Hedging and Foreign
Currency Translation."
The Asia/Pacific region has recently experienced unstable economic
conditions and significant devaluation in its currencies. The economic situation
in the region may result in slower payments of outstanding receivable balances.
To date this region has not represented a significant portion of our revenues.
However, to the extent the Asia/Pacific region becomes increasingly important,
or to the extent the factors affecting the region begin to affect other
geographic locations, our business could be damaged.
INABILITY TO PROTECT OUR TECHNOLOGIES COULD AFFECT OUR ABILITY TO COMPETE
Our success depends to a significant degree upon our ability to develop
proprietary products and technologies. However, we cannot assure you that
patents will be granted on any of our patent applications. We also cannot assure
you that the scope of any of our issued patents will be sufficiently broad to
offer meaningful protection. We only have patents issued in selected countries.
Therefore, third parties can make, use and sell products covered by our patents
in any country in which we do not have patent protection. In addition, our
issued patents or patents we license could be successfully challenged,
invalidated or circumvented so that our patent rights would not create an
effective competitive barrier. The right to use our products is given to our
customers under label licenses that are for research purposes only. These
licenses could be contested and no assurances can be made that we would either
be aware of an unauthorized use or be able to enforce the restrictions in a
cost-effective manner. See "Business--Patents and Proprietary Technologies" for
more information regarding our existing and pending patents.
PUBLICITY OF TRADE SECRETS COULD AID OUR COMPETITORS
We attempt to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants. However, these
agreements can be breached and, if they are, there may not be an adequate remedy
available to us. If our trade secrets become known we may lose our competitive
position.
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<PAGE>
INTELLECTUAL PROPERTY OR OTHER LITIGATION COULD HARM OUR BUSINESS
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. We are aware that patents have been
applied for and in some cases issued to others claiming technologies which are
closely related to ours. As a result, and in part due to the ambiguities and
evolving nature of intellectual property law, we periodically receive notices of
potential infringement of patents held by others. Although we have to date
successfully resolved these types of claims, we may not be able to do so in the
future.
In the event of an intellectual property dispute we may be forced to
litigate. Such litigation could involve proceedings declared by the U.S. Patent
and Trademark Office or the International Trade Commission, as well as
proceedings brought by affected third parties. Intellectual property litigation
can be extremely expensive, and such expense, as well as the consequences should
we not prevail, could seriously harm our business.
If a third-party claimed an intellectual property right to technology we
use, we might need to discontinue an important product or product line, alter
our products and processes, pay license fees or cease certain activities.
Although we might under these circumstances attempt to obtain a license to such
intellectual property, we may not be able to do so on favorable terms, or at
all.
In addition to intellectual property litigation, other substantial, complex
or extended litigation could result in large expenditures by us and distraction
of our management. For example, lawsuits by employees, stockholders,
collaborators or distributors could be very costly and substantially disrupt our
business. Disputes from time to time with such companies or individuals are not
uncommon and we cannot assure you that we will always be able to resolve them
out of court.
ACCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS
Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our safety procedures comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination of property or injury to individuals from these
materials cannot be completely eliminated. In the event of such an accident, we
could be liable for any damages that result, which could seriously damage our
business. Additionally, any accident could partially or completely shut down our
research and manufacturing facilities and operations.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT OUR EARNINGS AND FINANCIAL
CONDITION
We face a potential risk of liability claims based on our products or
services. We carry product liability insurance coverage which is limited in
scope and amount but which we believe to be adequate. We cannot assure you,
however, that we will be able to maintain this insurance at reasonable cost and
on reasonable terms. We also cannot assure you that this insurance will be
adequate to protect us against a product liability claim, should one arise.
VOLATILITY IN OUR STOCK PRICE COULD IMPAIR YOUR INVESTMENT
The price of our common stock may fluctuate substantially due to a variety
of factors, including:
- Quarterly fluctuations in our operating and earnings per share results;
- Technological innovations or new product introductions by us or our
competitors;
- Economic conditions;
- Disputes concerning patents or proprietary rights;
- Changes in earnings estimates by market research analysts;
13
<PAGE>
- Sales of common stock by existing holders;
- Loss of key personnel; and
- Securities class action or other litigation.
The market price for our common stock may also be affected by our ability to
meet analyst's expectations. Any failure to meet such expectations, even
slightly, could have an adverse effect on the market price of our common stock.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against that company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business, results of operations and financial condition. See "Price Range of
Common Stock."
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD ADVERSELY AFFECT OUR STOCK
PRICE
The market price of our common stock could drop as a result of sales of a
large number of shares in the market after this offering or in response to the
perception that such sales could occur. Upon completion of this offering, we
will have outstanding 18,905,259 shares of common stock (based upon shares
outstanding as of September 30, 1999). This assumes no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options after
September 30, 1999, other than options the selling stockholders exercised in
connection with this offering. Of these shares, approximately 12,838,984 will be
registered and freely tradable. All of the remaining approximately 6,066,275
shares are unregistered but may be sold in accordance with Rule 144 and
Rule 701 of the Securities Act of 1933, as amended. Following this offering,
approximately 6,969,811 registered and unregistered shares will be subject to
90-day lock-up agreements, subject to certain exceptions. After expiration of
the lock-up period, all of such shares will be eligible for immediate sale, in
certain instances subject to the volume limitations of Rule 144. Donaldson,
Lufkin & Jenrette can release shares from one or more of the lock-up agreements
without our approval. Holders of 882,942 shares will have the right to request
that we register those shares for sale in the public market. See "Shares
Eligible for Future Sale."
CONTROL OF INVITROGEN BY EXECUTIVE OFFICERS AND DIRECTORS MAY IMPEDE CHANGES TO
INVITROGEN OR ITS POTENTIAL SALE
After this offering, our executive officers and directors collectively will
beneficially own approximately 31.7% of the outstanding common stock. That
percentage would drop to 29.8% if the underwriters' overallotment option is
exercised in full. Executive officers and directors may therefore be able to
exercise effective control of Invitrogen. Such a concentration of ownership may
have the effect of delaying or preventing transactions resulting in a change of
control of Invitrogen, including transactions where stockholders might otherwise
receive a premium for their shares over current market prices. See "Principal
and Selling Stockholders."
ANTI-TAKEOVER PROVISIONS COULD IMPAIR OUR STOCK PRICE
Certain provisions of our certificate of incorporation, bylaws and Delaware
law could be used by our incumbent management to make it substantially more
difficult for a third party to acquire control of Invitrogen. These provisions
could discourage potential takeover attempts and could adversely affect the
market price of our common stock. See "Description of Capital Stock--Delaware
Anti-takeover Law and Certain Charter Provisions."
14
<PAGE>
ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS
Some investors favor companies that pay dividends, particularly in market
downturns. We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings for funding growth and,
therefore, we do not currently anticipate paying cash dividends on our common
stock in the foreseeable future. Because we may not pay dividends, your return
on this investment likely depends on your selling our stock at a profit. See
"Dividend Policy."
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, including the above risk
factors, contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements relating to trends
in revenues, expenses and net income, and are therefore prospective. You can
identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "project," and "continue" or
similar words. You should read statements that contain these words carefully
because they:
- - Discuss our future expectations;
- - Contain projections of our future results of operations or of our financial
condition; and
- - State other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any similar language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectation we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, operating results and financial
condition.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to Invitrogen from the sale of the 2,400,000 shares of
common stock at an offering price per share of $25.00 are estimated to be
approximately $56,500,000 after deducting underwriting discounts and commissions
and estimated offering expenses. The net proceeds to Invitrogen would increase
to $65,050,000 if the underwriters exercise their over-allotment option in full.
Invitrogen will not receive any of the proceeds from the sale of common stock by
the selling stockholders.
We intend to use the net proceeds of this offering for:
- The continued development and manufacture of existing products and
services;
- Research and development of additional products and services; and
- Working capital and other general corporate purposes, including potential
acquisitions of products, technologies or companies.
While we from time to time engage in preliminary discussions with respect to
acquisitions, we are not a party to any agreements, understandings or
commitments with respect to such transactions. We will invest the net proceeds
in short-term, interest bearing, investment grade securities.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with our available cash, expected interest income and
funds from operations, should be sufficient to finance our capital requirements
for the next two years. This estimate is based on assumptions that could be
negatively impacted by the matters discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
IVGN. Public trading of our stock began on February 26, 1999. The following
table shows the high and low sales prices per share of our stock for each period
shown since our stock began publicly trading.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999: HIGH LOW
<S> <C> <C>
First quarter (beginning February 26)....................... $15 1/2 $12
Second quarter.............................................. 26 12 7/8
Third quarter............................................... 35 1/8 23 3/8
Fourth quarter (through October 26)......................... 34 1/2 25 1/8
</TABLE>
On October 26, 1999, the last reported sale price of our common stock on the
Nasdaq National Market was $25 3/16. As of September 30, 1999, there were
16,175,259 shares of common stock outstanding and approximately 234 shareholders
of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and do
not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our results of
operation, financial condition and other factors as the board of directors, in
its discretion, deems relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Invitrogen as of
September 30, 1999. The As Adjusted column gives effect to the application of
the net proceeds from the sale of 2,400,000 shares of common stock to be offered
by Invitrogen at a public offering price of $25.00 per share and the exercise of
options to purchase 330,000 shares of common stock by selling stockholders at a
weighted average exercise price of $1.75 per share. In addition, the
calculations in the table do not reflect the remaining 3,578,662 shares of
common stock issuable upon exercise of outstanding options at September 30, 1999
at an average exercise price of $10.17 See "Management--Stock Option Plans."
This table should be read in conjunction with the Invitrogen Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
prospectus. Also see "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
ACTUAL AS ADJUSTED
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current maturities.............. $ 741 $ 741
Stockholders' equity:
Preferred stock, $0.01 par value: 6,405,884 shares
authorized; no shares issued or outstanding, actual and
as adjusted............................................. -- --
Common stock, $0.01 par value: 50,000,000 shares
authorized; 16,175,259 shares issued and outstanding
actual; 18,905,259 issued and outstanding as adjusted... 162 189
Other stockholders' equity................................ 57,618 114,668
------- --------
Total stockholders' equity.............................. 57,780 114,857
------- --------
Total capitalization.................................... $58,521 $115,598
======= ========
</TABLE>
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998, as well as interim
financial data as of and for the nine months ended September 30, 1998 and 1999,
are derived from our consolidated financial statements. The 1995, 1996, 1997 and
1998 full-year financial statements have been audited by Arthur Andersen LLP,
independent public accountants. The September 30, 1998 and 1999 financial data
has not been audited. The consolidated balance sheets as of December 31, 1997
and 1998, the related statements of operations for each of the three years ended
December 31, 1996, 1997 and 1998 together with the related report of independent
public accountants, are included elsewhere in this prospectus.
The selected consolidated financial data set forth below contains only a
portion of Invitrogen's financial statements, and should be read in conjunction
with the Consolidated Financial Statements and related Notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. In particular, see Notes to Consolidated
Financial Statements for an explanation of the calculations of earnings per
share and per share amounts.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 20,390 $ 24,728 $ 32,556 $ 41,182 $ 53,660 $ 39,212 $ 51,288
Cost of revenues...................................... 8,926 9,803 12,094 15,958 19,191 13,707 17,461
--------- --------- --------- --------- --------- --------- ---------
Gross margin........................................ 11,464 14,925 20,462 25,224 34,469 25,505 33,827
Operating expenses:
Sales and marketing................................. 4,222 5,068 6,563 8,305 11,352 8,316 10,496
General and administrative.......................... 3,723 4,916 6,291 7,312 8,091 5,816 6,742
Research and development............................ 2,737 3,220 3,882 5,918 8,603 6,390 7,447
Merger related costs................................ -- -- -- -- -- -- 4,379
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.......................... 10,682 13,204 16,736 21,535 28,046 20,522 29,064
--------- --------- --------- --------- --------- --------- ---------
Income from operations................................ 782 1,721 3,726 3,689 6,423 4,983 4,763
Other income and expense, net......................... (148) (57) 28 117 217 200 715
--------- --------- --------- --------- --------- --------- ---------
Income before taxes................................... 634 1,664 3,754 3,806 6,640 5,183 5,478
Benefit (provision) for income taxes.................. 16 (332) (1,418) (1,371) (2,410) (1,858) (2,157)
--------- --------- --------- --------- --------- --------- ---------
Net income............................................ 650 1,332 2,336 2,435 4,230 3,325 3,321
Less: Preferred stock dividends....................... -- -- -- (475) (900) (675) (163)
Accretion of non-voting redeemable common stock... -- (110) (171) (175) (204) (150) (74)
Accretion of beneficial conversion feature related
to convertible preferred stock.................. -- -- -- (15,000) -- -- --
Adjustment to beneficial conversion feature
related to convertible preferred stock.......... -- -- -- -- -- -- 985
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common shares......... $ 650 $ 1,222 $ 2,165 $ (13,215) $ 3,126 $ 2,500 $ 4,069
========= ========= ========= ========= ========= ========= =========
Earnings (loss) per share:
Basic............................................... $ 0.05 $ 0.10 $ 0.20 $ (1.15) $ 0.26 $ 0.21 $ 0.27
========= ========= ========= ========= ========= ========= =========
Diluted............................................. $ 0.05 $ 0.10 $ 0.17 $ (1.15) $ 0.23 $ 0.18 $ 0.23
========= ========= ========= ========= ========= ========= =========
Weighted average shares used in per share calculation:
Basic............................................... 11,947 11,928 10,831 11,461 12,152 12,154 15,099
Diluted............................................. 11,947 11,928 12,554 11,461 13,883 13,648 17,646
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------
1994 1995 1996 1997 1998 1999
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 672 $ 649 $ 1,430 $ 9,317 $ 6,530 $ 39,025
Total assets................................................ 7,349 9,877 13,342 23,947 32,050 68,273
Long-term obligations, less current portion................. 838 1,022 888 628 1,116 741
Non-voting redeemable common stock of Invitrogen B.V........ -- 1,143 1,306 1,295 1,599 --
Convertible preferred stock................................. -- -- -- 15,242 16,141 --
Total stockholders' equity.................................. 2,418 4,098 6,700 985 4,676 57,780
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We develop, manufacture and market research tools in kit form and provide
other research products and services to corporate, academic and government
entities. Our research kits simplify and improve gene cloning, gene expression
and gene analysis techniques as well as other molecular biology activities.
Substantially all of our revenue to date has come from the sale of these
research kits and related products used by a variety of scientific researchers
to conduct gene cloning, expression and analysis experiments. Our research kits
are sold primarily in the United States, Europe and Japan. Our products are used
for research purposes and their use is not regulated by the United States Food
and Drug Administration or by any comparable international organization.
We manufacture the majority of our research kits and other products in our
manufacturing facilities in Carlsbad and San Diego, California. In addition, we
purchase products from third party manufacturers. We also assemble pre-cast gels
and buffers in Frankfurt, Germany and have a manufacturing facility in
Heidelberg, Germany for formulating and packaging fine chemicals.
The majority of our sales activities are conducted through a dedicated
direct sales organization located in the United States and Europe. We also
conduct marketing and distribution activities at our facilities in the United
States and at a facility we own in the Netherlands. A small proportion of our
sales are to international distributors who resell Invitrogen kits to
researchers. These distributors are located in selected territories in Europe,
as well as in Japan and other territories in Asia. We currently have no plans to
establish a direct sales force in these territories, although we may choose in
the future to establish a direct sales organization in additional territories.
We conduct research activities in the United States and business development
activities in the United States and Europe. As part of these activities we
actively seek to license intellectual property from academic, government and
commercial institutions relating to gene cloning, expression and analysis
technologies. To date, we have obtained over 85 licenses, which provide us with
access to over 200 patents covering gene cloning, expression and analysis
materials and techniques.
In June 1998, we began using our high-throughput cloning and expression
technologies, which we market under the name Invitrogenomics. We are using this
technology to rapidly clone and patent full-length genes which we are licensing
and selling. In addition, we use our Invitrogenomics technology to provide gene
cloning and expression services on a contract basis to pharmaceutical,
biotechnology and agricultural companies. Invitrogenomics products and services
have generated limited revenues to date.
Our revenues have increased significantly since our inception, and from 1994
to 1998, we have experienced compound annual revenue growth of 27%. The increase
in our revenues has been due to several factors, including the continued growth
of the market for gene cloning, expression and analysis kits, increasing market
acceptance of our gene cloning, expression and analysis kits, our introduction
of new research kits for gene cloning, expression and analysis, and the
expansion of our direct sales and marketing efforts. We plan to continue to
introduce new research kits, as we believe continued new product development and
rapid product introduction is a critical competitive factor in the market for
molecular biology research kits. In order to support increased levels of sales
and to augment our long-term competitive position, we anticipate that we will
continue to increase expenditures in sales and marketing, manufacturing and
research and development.
We currently manufacture products for inventory and ship products shortly
after the receipt of orders, and anticipate that we will do so in the future.
Accordingly, we have not developed a significant backlog and do not anticipate
we will develop a material backlog in the future.
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<PAGE>
We have acquired a significant number of patent rights from third parties as
part of our business activities. These patent rights are used as a basis for the
development of our research kits and Invitrogenomics technologies. We have
historically paid and are obligated to pay in the future to such third parties
royalties relating to sales of some of our research kits and selected services.
Royalty expense is recognized as a cost of revenue as the related royalties are
incurred.
On August 17, 1999 we completed our merger with NOVEX. This transaction has
been accounted for as a pooling of interests and the consolidated financial
statements and other financial data included in this prospectus have been
restated for all periods prior to the merger to reflect the combined financial
and operating results of Invitrogen and NOVEX.
In May 1998, NOVEX purchased the assets of the Serva product line from
Boehringer Ingleheim Bioproducts Partnership in Heidelberg, Germany. Revenues,
expenses and acquired assets relating to this product line are included in our
consolidated financial statements from the date of acquisition.
We anticipate that our results of operations may fluctuate from quarter to
quarter and will be difficult to predict. The timing and degree of fluctuation
will depend upon several factors, including:
- Changes in customer research budgets which are influenced by the timing of
their research and commercialization efforts and their receipt of
government grants;
- Competitive product introductions;
- Our ability to successfully introduce or transition the market to new
products;
- Market acceptance of existing or new products;
- Our ability to manufacture our products efficiently; and
- Our ability to control or adjust research and development, marketing,
sales and general and administrative expenses in response to changes in
revenues.
In addition, our results of operations could be affected by the timing of
orders from distributors and the mix of sales among distributors and our direct
sales force. Although we have experienced growth in recent years, there can be
no assurance that, in the future, we will sustain revenue growth or remain
profitable on a quarterly or annual basis or that our growth will be consistent
with predictions made by securities analysts. Additionally, quarter to quarter
comparisons of operating results are not necessarily indicative of future
results.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Revenues for the three months ended September 30 increased $3.0
million, or 21%, from $14.5 million in 1998 to $17.5 million for 1999. For these
same periods, revenues in North America increased $2.3 million, or 25%, from
$9.5 million to $11.8 million, and revenues outside of North America increased
$0.7 million, or 13%, from $5.0 million to $5.7 million. For the three months
ended September 30, 1998 the results indicate unusually high sales of Serva
products as customers delayed purchases until after the acquisition of the
product line by NOVEX in May 1998. As a result, Serva product line revenues
declined $0.4 million, or 30%, for the three months ended September 30, 1999
compared to the same period in 1998. Excluding the Serva product line revenues
for the three months ended September 30, worldwide revenues increased $3.4
million, or 26% from $13.2 million in 1998 to $16.6 million in 1999 and revenues
outside North America increased $1.0 million, or 27% from $3.8 million in 1998
to $4.8 million in 1999.
For the nine months ended September 30, revenues increased $12.1 million, or
31%, from $39.2 million in 1998 to $51.3 million in 1999. Revenues in North
America increased $7.4 million, or 28%,
20
<PAGE>
from $26.5 million in 1998 to $33.9 million in 1999 and revenues outside of
North America increased $4.7 million, or 37%, from $12.7 million in 1998 to
$17.4 million in 1999. Revenues for the nine months ended September 30, 1998
include only four months of Serva product line revenues because the acquisition
of Serva occurred at the end of May 1998. Excluding the Serva product line
revenues for the nine months ended September 30, worldwide revenues increased
$10.7 million, or 29% from $37.6 million in 1998 to $48.3 million in 1999 and
revenues outside North America increased $3.3 million, or 30% from $11.0 million
in 1998 to $14.3 million in 1999.
The overall increase in revenues for the three and nine months ended
September 30, 1999 was primarily attributable to continued market growth for
gene cloning, expression and analysis kits and increased market penetration of
our gene cloning, expression and analysis product lines. We expect that future
revenues will be affected by new product introductions, competitive conditions,
customer research budgets, and the rate of expansion of our customer base.
GROSS MARGIN. Gross margin as a percentage of revenues for the three months
ended September 30, 1999 increased to 66.4% from 62.6% for the same period in
1998. This improvement resulted from general price increases, higher grant
revenue and lower shipping costs.
For the nine months ended September 30, gross margin increased from 65.0% in
1998 to 66.0% in 1999. The increase resulted from the improvements discussed
above.
We believe that gross margin for future periods could be affected by sale
volumes, competitive conditions, royalty payments on licensed technologies, and
foreign exchange factors. Foreign currency fluctuations had a negligible impact
during both periods. The functional currency of our Netherlands subsidiary,
Invitrogen B.V., is the Netherlands Guilder (NLG) and for our German
subsidiaries, NOVEX GmbH and Serva GmbH, is the Deutsche Mark. The translation
from NLG and the Deutsche Mark to the U.S. Dollar for revenue and expenses is
based on the average exchange rate during the period; large increases or
decreases in the spread between currencies have affected and may continue to
affect gross margin and reported income. All three European subsidiaries conduct
their European business in the currencies of its significant customers. Exchange
gains or losses arising from transactions denominated in these currencies are
recorded using the actual exchange differences on the date of the transaction.
Large increases or decreases in these currency fluctuations could also impact
gross margin and reported profits.
SALES AND MARKETING. Sales and marketing expenses increased $0.5 million
from $3.0 million for the three months ended September 30, 1998 to $3.5 million
for the same period in 1999. As a percentage of revenues, sales and marketing
expenses decreased from 21% to 20% for these periods as our revenue growth
continued to outpace spending for sales and marketing.
For the nine months ended September 30, 1999, sales and marketing expenses
increased $2.2 million from $8.3 million in 1998 to $10.5 million in 1999 and as
a percentage of sales remained the same at 21% for both periods in 1999 and
1998.
We anticipate that sales and marketing expenses will comprise over 20% of
revenues over the next few years as we continue the expansion of our field sales
forces in both North America and Europe.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended September 30 increased $0.4 million from $1.9 million in 1998
to $2.3 million in 1999. As a percentage of revenues for the same periods,
general and administrative expenses remained the same at 13%.
For the nine months ended September 30, 1999 general and administrative
expenses increased $0.9 million from $5.8 million, or 15% of revenues, in 1998
to $6.7 million, or 13% of revenues in 1999.
The absolute increase resulted from the continued expansion of
administrative resources to support our growth and requirements as a newly
public company in 1999. The decline as a percentage of
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revenues occurred as a fixed portion of our general and administrative expenses
was spread over a larger revenue base.
RESEARCH AND DEVELOPMENT. Research and development expenses increased $0.2
million from $2.3 million for the third quarter in 1998 to $2.5 million in 1999.
As a percentage of revenues, research and development expenses decreased from
16% in 1998 to 15% in 1999.
For the nine months ended September 30, 1999, research and development
expenses increased $1.0 million to $7.4 million, or 15% of revenues, from $6.4
million for the same period in 1998, or 16% of revenues. The absolute increase
resulted from increased costs associated with the expansion of research and
business development competencies in our core gene cloning, expression and
analysis business.
OTHER INCOME (EXPENSE). Other income increased $0.3 million from $0.2
million for the three months ended September 30, 1998 to $0.5 million for the
same period in 1999. The increase was mainly attributable to higher interest and
other income, resulting primarily from the larger balances of cash and
investments during the period.
For the nine months ended September 30, other income increased $0.5 million
from $0.2 million in 1998 to $0.7 million in 1999. The increase in other income
was attributable to higher interest income partially offset by higher foreign
currency transaction costs.
PROVISION FOR INCOME TAXES. Our effective tax rate increased from 36% for
the nine months ended September 30, 1998 to 39% for the same period in 1999. The
increase in our effective tax rate resulted from certain merger related costs
incurred in August 1999 that are not deductible for tax purposes. Including
these non-deductible items, we anticipate that our effective tax rate for the
full year 1999 will be approximately 38%.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Revenue increased $12.5 million, or 30%, from $41.2 million in
1997 to $53.7 million in 1998. For these same periods, revenues in North America
increased $5.8 million, or 20%, from $29.6 million to $35.4 million, and revenue
outside North America increased $6.7 million, or 57%, from $11.6 million to
$18.3 million. The acquisition of the Serva product line in 1998 accounted for
$2.8 million of the increase in revenues for 1998. Excluding the Serva product
line revenues in 1998, revenue growth outside North America was $3.8 million, or
33%. The overall increase in revenue was primarily attributable to continued
market growth for gene cloning, expression and analysis kits and increased
market penetration of our gene cloning, expression and analysis product lines.
In 1998 our new products contributed approximately $2.7 million in revenue.
GROSS MARGIN. Our gross margin increased from $25.2 million in 1997 to
$34.5 million in 1998. Gross margin as a percentage of revenues increased from
61% to 64% for these periods. Gross margin improvements during the period were
primarily a result of absorbing certain manufacturing labor and overhead costs
over an increased revenue base. These improvements were offset slightly by a low
gross margin on Serva product revenues which was 36% in 1998 and one-time
charges to cost of goods sold for process and design changes in the
manufacturing of electrophoresis products in 1998. Foreign currency fluctuations
had a negligible impact during both periods.
SALES AND MARKETING. Sales and marketing expenses increased 37% from $8.3
million in 1997 to $11.4 million in 1998. As a percentage of revenues, sales and
marketing expenses increased from 20% to 21% for these periods. These increases
resulted from the growth of our field sales force in North America and Europe
and the addition of expenses related to the Serva product line.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
11% from $7.3 million in 1997 to $8.1 million in 1998. As a percentage of
revenues, general and administrative expenses
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decreased from 18% to 15% for these periods. The absolute increase resulted from
the continued expansion of administrative resources to support our growth and
the addition of expenses related to the Serva product line. The decline as a
percentage of revenues occurred as a fixed portion of our general and
administrative expenses was spread over a larger revenue base.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 45%
from $5.9 million in 1997 to $8.6 million in 1998. As a percentage of revenues,
research and development expenses increased from 14% to 16% for these periods.
The increases resulted primarily from the development of our high-throughput
gene cloning and expression technology and greater personnel and research
supplies expense as we continue to expand our gene cloning, expression, analysis
and related products.
OTHER INCOME (EXPENSE). Other income and expense, net, increased $0.1
million, from $0.1 million in 1997, to $0.2 million in 1998. This increase
resulted from higher interest income earned on larger average balances of cash
and cash equivalents during the period offset by lower gains on foreign currency
transactions.
PROVISION FOR INCOME TAXES. Our effective tax rate remained the same at 36%
for 1998 and 1997.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenue increased $8.6 million, or 26%, from $32.6 million in
1996 to $41.2 million in 1997. Revenues in North America increased $5.2 million,
or 21%, from $24.4 million to $29.6 million, and revenue from outside North
America increased $3.4 million, or 42%, from $8.2 million to $11.6 million. The
overall increase in revenue was primarily attributable to increased market
penetration of our gene cloning, expression and analysis product lines. In
addition, in 1997 our new products contributed $2.1 million in revenue.
GROSS MARGIN. Our gross margin increased from $20.5 million in 1996 to
$25.2 million in 1997. Gross margin as a percentage of revenues decreased from
63% in 1996 to 61% in 1997 due to one-time charges to cost of goods sold for
process and design changes in the manufacturing of electrophoresis products, the
impact of foreign exchange rates on revenues and to a lesser extent increased
royalty payments on licensed technologies.
SALES AND MARKETING. Sales and marketing expenses increased 27% from $6.6
million in 1996 to $8.3 million in 1997. As a percentage of revenues, sales and
marketing expenses remained the same at 20% for both periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
16% from $6.3 million in 1996 to $7.3 million in 1997. The absolute increase
resulted from the continued expansion of administrative resources to support our
growth offset by a one-time expense of $0.8 million incurred in 1996 for
defending and resolving licensing and patent issues with a competitor. As a
percentage of revenues, general and administrative expenses decreased from 19%
in 1996 to 18% in 1997 as a fixed portion of our general and administrative
expenses was spread over a larger revenue base.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 52%
from $3.9 million in 1996 to $5.9 million in 1997. As a percentage of revenues,
research and development expenses increased from 12% in 1996 to 14% in 1997.
These increases resulted primarily from greater personnel and research supplies
expense as we continued the expansion of our gene cloning, expression and
analysis products and the development of our high-throughput gene cloning and
expression technologies.
OTHER INCOME (EXPENSE). Other income and expense, net, increased $0.1
million to $0.1 million in 1997, primarily from higher interest income earned on
higher average cash balances.
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PROVISION FOR INCOME TAXES. Our effective tax rate decreased from 38% in
1996 to 36% in 1997, due to the accounting treatment of net operating losses in
1996 for our wholly-owned German subsidiary offset by changes in the utilization
of tax credits in the United States in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities generated $5.5 million during the first
nine months of 1999. Net cash generated from financing activities totaled $30.3
million and represents $49.4 million in net proceeds from the sale of common
stock in our initial public offering and from stock option exercises, reduced by
$17.1 million that was used to redeem preferred and non-voting common stock and
pay accrued dividends and $2.0 million that was used to pay off debt acquired in
the NOVEX merger. Capital expenditures and payments for intangible assets for
the first nine months of 1999 totaled $2.3 million and $1.1 million,
respectively.
In August 1999 we completed our merger with NOVEX. As consideration for the
merger, we issued 2,530,124 shares of our common stock for all of the
outstanding common stock of NOVEX and assumed the outstanding options of NOVEX
which were converted into options to purchase 469,678 shares of our common
stock. Costs incurred as a result of the merger and related integration are
expected to be $4.4 million and are subject to change. These costs were expensed
in August 1999, after the merger was completed.
As of September 30, 1999 we had cash, cash equivalents and short-term
investments totaling $39.0 million and working capital of $45.6 million. Our
funds are currently invested in U.S. Treasury and government agency obligations,
and dividend-bearing securities. With the cash available from our initial public
offering we reduced our available line of credit from $10.0 million to $3.0
million in June 1999. This line of credit expires in October 2001, and at
September 30, 1999 no amounts were outstanding. In August 1999 we assumed
NOVEX's $1.2 million line of credit facility, which expires in August 2000. At
September 30, 1999, no amounts were outstanding under this line of credit.
We expect that our cash, cash equivalents, short term investments, funds
from operations and interest income earned thereon, will be sufficient to fund
our operations for at least two years. Our future capital requirements and the
adequacy of our available funds will depend on many factors, including
scientific progress in our research and development programs, 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, competing technological and market developments and
future business acquisitions.
CURRENCY HEDGING AND FOREIGN CURRENCY TRANSLATION
We conduct business transactions with our subsidiary in the Netherlands and
with our foreign distributors, including those in Asia, in U.S. Dollars.
Transactions with the German subsidiaries are denominated in foreign currencies.
We have not taken any action to reduce our exposure to changes in foreign
currency exchange rates, such as options or futures contracts with respect to
transactions with our German subsidiaries or transactions with our European
customers. However, in the normal course of business, Invitrogen B.V. from time
to time purchases exchange-traded put options on U.S. Dollars and U.K. Pounds
Sterling to mitigate foreign currency exposure. At September 30, 1999
outstanding options totaled $0.3 million and mature on various dates through
December 1999.
NLG is the functional currency for Invitrogen B.V. and the Deutsche Mark is
the functional currency for NOVEX GmbH and Serva GmbH. The translation from NLG
and the Deutsche Mark to the U.S. Dollar for balance sheet accounts is done
using the current exchange rate in effect at the balance sheet date and for
revenue and expense accounts using the average exchange rate during the period.
The effects of translation are recorded as a separate component of stockholder's
equity. Invitrogen B.V., NOVEX GmbH and Serva GmbH conduct their business with
significant customers in their local European currencies; exchange gains and
losses arising from these transactions are recorded
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using the actual exchange differences on the date of the transaction and are
included in the Consolidated Statements of Income in the respective period
incurred.
YEAR 2000 EFFECT ON COMPUTER SYSTEMS
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, in less than one year,
computer systems and/or software used by many companies in a very wide variety
of applications will experience operating difficulties unless they are modified
or upgraded to adequately process information involving, related to or dependent
upon the century change. Some businesses may be financially affected by such
computer problems.
We believe our existing manufacturing, financial and accounting systems will
be year 2000 compliant prior to January 1, 2000, meaning that they will be
capable of distinguishing 21st century dates from 20th century dates. We are in
the process of replacing a portion of our existing computer system with new
hardware and software that will also be year 2000 compliant and expect to
complete this process in the fourth quarter of 1999.
We are in the process of testing our other internal systems, including
embedded control systems in our manufacturing and storage equipment. We
currently believe these systems are year 2000 compliant. We have made inquiries
of our suppliers to attempt to assess their readiness for the year 2000. The
failure of systems maintained by our customers, distributors, and suppliers
could reduce our revenues, cause us to incur significant expenses to remedy any
problems, or otherwise seriously damage our business.
To date we have spent immaterial amounts to comply with accounting and
statutory requirements regarding the year 2000. We believe that we will spend
minimal additional amounts for year 2000 issues in the foreseeable future. These
assessments have not been independently verified.
If we discover year 2000 errors or defects in our internal systems, we may
have to spend substantial amounts in making repairs. These errors may result in
the temporary failure of our manufacturing, accounting and financial systems,
which in turn would delay the taking and processing of orders for a minimum of
3-5 days.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, certain member states of the European Economic
Community, including the Netherlands, fixed their respective currencies to a new
currency, the Euro. On that day, the Euro became a functional legal currency
within these countries. During the three years beginning on January 1, 1999,
business in these EEC member states will be conducted in both the existing
national currency, such as the Netherlands Guilder, French Franc or Deutsche
Mark, and the Euro. Businesses will be required to complete transition to the
Euro and begin reporting and conducting their transactions in the Euro by
January 1, 2002. On July 1, 2002 the existing national currencies will be
withdrawn and will no longer be considered legal tender.
Companies operating in or conducting business in EEC member states will need
to ensure that their financial and other software systems are capable of
processing transactions and properly handling the existing currencies, as well
as the Euro. We are still assessing the impact that the Euro will have on our
internal systems and products. We believe that our enterprise-wide financial and
manufacturing information systems will be Euro compliant by January 1, 2000.
However, we have not determined the costs related to any problems that may arise
in the future. Any such problems may materially adversely affect our business,
operating results and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion above under "Currency Hedging and Foreign Currency
Translation" for quantitative and qualitative disclosures about market risk.
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BUSINESS
THE COMPANY
Invitrogen develops, manufactures and markets research tools in kit form and
provides other research products and services to corporate, academic and
government entities. Our research kits simplify and improve gene cloning, gene
expression and gene analysis techniques as well as other molecular biology
activities (see "Business--Scientific Overview"). These techniques and
activities are used to study how a cell is regulated by its genetic material,
known as functional genomics, and to search for drugs that can treat diseases.
Our kits and products allow researchers to perform these activities more
accurately, efficiently and with greater reproducibility compared to
conventional research methods. Our kits and products have made molecular biology
research techniques more accessible to pharmaceutical, biotechnology,
agricultural, government and academic researchers with backgrounds in a wide
range of scientific disciplines. In 1998 we began marketing our
"high-throughput" gene cloning and expression technology, which allows us to
clone and expression-test genes on an industrial scale. We are utilizing this
high-throughput technology to generate additional license, service and product
opportunities. In August 1999, Invitrogen merged with NOVEX, a developer and
manufacturer of pre-cast electrophoresis gels and associated products for gene
and protein analysis. From 1994 through 1998, Invitrogen experienced compound
annual growth in revenue of 27% and net income of 60%.
Based on independent market studies, in 1998 researchers spent over
$1.4 billion on molecular biology products and supplies such as chemicals,
reagents, enzymes and kits. Gene cloning, expression and analysis kits represent
a rapidly emerging segment of the molecular biology product and supply market.
Based on independent market studies, we project sales of gene cloning,
expression and analysis kits to grow approximately 21% in 1999, compared to
approximately 14% growth in 1999 for the overall molecular biology product and
supply market. We believe the gene cloning, expression and analysis kit market
will continue to expand due to several factors, including:
- Increasing levels of government funding for the study of genetic material
and molecular biology research;
- Increasing availability of new data from the Human Genome Project, a
federally funded effort to identify all human genes, and other genome
sequencing projects;
- Proliferation of high-throughput molecular biology research techniques;
and
- Increasing investment in commercial research activities.
We offer approximately 700 kits and other products that researchers use to
conduct key molecular biology research activities. Our kits and products make
molecular biology techniques easier, faster and more accessible to an
increasingly broad community of researchers. For example, as compared to
conventional cloning methods, our proprietary cloning method, known as TOPO TA
Cloning, reduces the time required for a key step in the gene cloning process
from 12 hours to five minutes, reduces total experiment completion time from
three to five days to one day and increases the cloning success rate from 50-60%
to over 90%. Based on our 1998 sales of these kits, we estimate that researchers
who used TOPO TA Cloning Kits in 1998 saved over 7 million hours compared to
standard cloning methods.
In 1998 we developed a high-throughput gene cloning and expression system by
scaling up our TOPO TA Cloning technology and automating much of the cloning and
expression process. We are marketing this technology under the name
Invitrogenomics. We are using this new technology to rapidly clone and patent
full-length gene libraries, which we are licensing and selling. To date, we have
assembled libraries of over 2,300 full-length cloned human genes that correctly
express their specific proteins. In addition, we are using this technology to
provide gene cloning and expression services on a contract basis to
pharmaceutical, biotechnology and agricultural companies that wish to reduce the
time and costs associated with identifying and validating new drug targets and
developing novel therapeutics.
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We believe we have assembled one of the broadest portfolios of gene cloning,
expression and analysis related intellectual property in our industry. To date,
we have obtained over 85 licenses, which provide us with access to over 200
patents and applications covering gene cloning, expression and analysis
materials and techniques. In total, we own or control 28 issued and pending
patents and applications. We believe our intellectual property portfolio has
established us as a licensing partner of choice for corporate and academic
researchers who wish to commercialize their gene cloning, gene expression and
gene analysis-related discoveries. We believe our leadership position derives
from our ability to rapidly enhance the value of the technologies we license by
combining them with our existing products and licensed technologies.
On August 17, 1999 we completed our merger with NOVEX. As consideration for
the merger we issued 2,530,124 shares of our common stock and assumed options
which were converted into options to purchase 469,678 shares of our common
stock. Invitrogen merged with NOVEX because we believe that NOVEX's pre-cast gel
electrophoresis product lines are highly complementary with Invitrogen's product
lines.
Our NOVEX subsidiary develops, manufactures and markets research
electrophoresis products in pre-cast form, which improves the speed, reliability
and convenience of gel electrophoresis. Gel electrophoresis is a technique that
is used as a tool to visualize the results of many different types of molecular
biology experiments. As such, it is an integral part of the majority of the
molecular biology activities that our kits and other products address. NOVEX
offers approximately 450 products that enable researchers to complete their
experiments more accurately, efficiently and with greater reproducibility
compared to traditional electrophoresis methods. For example, our pre-cast gels
eliminate the time required to make gels in the laboratory, resulting in savings
of 1-2 hours every time a gel is purchased from us rather than made by the
researcher.
NOVEX purchased Serva from Boehringer Ingelheim in 1998. Serva sells fine
chemicals and reagents. This acquisition brought new technologies and
capabilities that extend our technologies further into areas such as
two-dimensional, or 2D, electrophoresis. Serva is one of the few companies in
the world with the technical know-how and equipment required to manufacture
ampholytes immobilized in gels coated on plastic film, which is a desirable
component for the first stage of 2D electrophoresis. We believe this platform
technology fits very well with our existing technologies and will open up
avenues for new product development.
SCIENTIFIC OVERVIEW
All living cells are largely comprised of proteins and contain long chains
of deoxyribonucleic acid, better known as DNA. The entire DNA content of an
organism is called its genome. Genomics is the term used for the study of the
genome. A gene is a specific segment of DNA that is used as a template to
produce a particular protein; in scientific terminology, a gene is said to
express its encoded protein. It is estimated that genes make up only 3% of the
human genome; the function of the remaining DNA is not well understood but is
believed to regulate the amount and timing of the protein expression from the
genes. The entire spectrum of proteins expressed by an organism is called its
proteome. Functional genomics, or proteomics, is the study of the function of
genes, including how expression of a particular gene is regulated and the
function of the protein that the gene encodes.
The DNA molecule is comprised of two linear sequences, or strands, of four
nucleotide bases, commonly known as C, G, A and T. It is estimated that there
are three billion nucleotide base pairs in the human genome. The individual DNA
strands are held together by chemical bonds between the nucleotide bases on each
strand. Only certain pairs of nucleotide bases can form these bonds: C always
pairs with G, and A always pairs with T. Such paired strands are said to be
complementary. When two DNA strands are complementary, they can bind together to
form a double helix in a process called hybridization. DNA itself does not
produce proteins. Instead, the double strand of the DNA helix unwinds and
complementary nucleotide bases are attracted to the separated strands of DNA,
forming
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messenger ribonucleic acid, or mRNA. The mRNA molecules typically move to a
different area of the cell where they are used as templates for protein
synthesis, or expression.
Proteins and their interactions are responsible for all of the biochemical
and physical properties of a cell, as well as the variations among different
types of cells. Proteins take various forms including, enzymes, hormones,
antibodies and receptors. As noted above, genes code for proteins. By studying
the proteins that genes express, researchers can study topics such as the way a
particular gene and the protein it encodes impact an organism's susceptibility
or resistance to disease. Virtually all drugs on the market today interact with
about 500 specific protein targets. As the functions of additional proteins
become better understood, hundreds or thousands more such targets may be
identified, creating new opportunities for drug development by pharmaceutical
companies.
Molecular biology techniques are used to study how a cell uses its genetic
information to direct the production of its proteins and regulate its biological
activities. Researchers use molecular biology techniques to identify the
functions and interactions of proteins and to develop new drugs, diagnostic
techniques, therapies for disease and useful variations of species, including
crops and livestock. As a result, molecular biology has emerged as a key
scientific discipline and is used by a wide variety of researchers at
pharmaceutical, biotechnology and agricultural companies, as well as at
government and academic research institutions.
Five frequently used molecular biology techniques are DNA sequencing, gene
identification, gene cloning, gene expression and gene analysis. DNA sequencing
is used to determine the linear order of nucleotide bases in a DNA fragment. The
other techniques listed above are used to analyze the data obtained by DNA
sequencing and to determine the role and function of proteins encoded and
regulated by the sequence data. Each of the five techniques generates data and
results that are used by the subsequent technique in the above list. Ultimately,
gene analysis provides information about additional genetic material that should
be sequenced and studied. Gel electrophoresis is utilized at some stage in each
of these techniques to visualize the results of experiments. These techniques
and their applications are illustrated and described below:
CHART
Diagram illustrates in a clockwise circle a sequence of steps performed for
molecular biological research, including DNA sequencing, gene identification,
gene cloning, gene expression and gene analysis. A box illustrating the
'sequence' step contains a graphic depiction of a cell and chromosomes. Text in
it reads 'The total genetic information carried by an organism is called its
genome, which is a linear sequence of nucleotide bases. An illustration of
arrows in a circle is labelled 'Discovery Cycle.' A box illustrating the
'Identify' step contains a graphic depiction of a chromosome and a DNA sequence.
Text in it reads 'A gene is a specific functional unit of nucleotide bases that
code for a particular protein.' A box illustrating the 'clone' step contains a
graphic depiction of an expression vector including a cloned gene. Text in it
reads 'Genes are cloned into vectors so they can be replicated in cells and used
in other studies, such as gene expression.' A box illustrating the 'express'
step contains a graphic depiction of DNA and protein. Text in it reads 'cloned
genes are used to express proteins in a variety of host organisms.' A box
illustrating the 'analyze' step contains a graphic depiction of a sequencing gel
and a family tree. Text in it reads 'Expressed proteins are studied to determine
their function. This analysis provides information about other genes that need
to be cloned and expressed to understand cellular functions.'
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- DNA SEQUENCING. DNA sequencing is the technique used by researchers to
determine the linear order of nucleotide bases (i.e. the order of C's,
G's, A's and T's) in a DNA fragment. Sequencing is performed because it
provides researchers with the core information they need to identify,
clone, express and analyze specific genes and their encoded proteins. The
first step in sequencing involves isolating DNA from a sample (such as
cells, tissue, blood, hair or the leaf of a plant). Next, the isolated
DNA is used in four different reactions that occur in buffers containing
salts, a mixture of the four nucleotide bases, a nucleotide primer and an
enzyme. Each of the four reactions also contains one of the four
nucleotide bases that has been specifically modified for use in
sequencing. The nucleotide primer is a short, single strand of DNA with a
known sequence that is complementary to the strand to be sequenced. After
the isolated DNA is placed in the buffer, it is heated to separate the
DNA strands, then cooled rapidly. Rapid cooling forces the DNA to
hybridize, or bind, to the primer rather than to its opposite DNA strand.
The enzyme in the buffer then elongates the complementary strand, one
base at a time, starting from the primer. When the modified sequencing
nucleotide in the buffer incorporates into the growing strand, the
elongation process stops. Running the four different reactions side by
side on a sequencing gel then creates a visual layout that the researcher
uses to determine the actual nucleotide sequence of the DNA.
High-throughput automated DNA sequencing is a recent innovation that has
made it possible to sequence all of the DNA in a genome. The United
States government is funding the sequencing of the human genome to
provide researchers with the building blocks to be used for further
medical and pharmaceutical research. Similarly, governments and major
corporations have begun agricultural genome projects to study and improve
crops like rice, corn, soybeans and tomatoes. Genomes of organisms like
fruit flies, mice, flatworms and yeast are also being sequenced for the
indirect understanding that comparisons among organisms provide.
- GENE IDENTIFICATION. Gene identification is the process of determining
the specific nucleotide sequence of the protein-encoding region of a
gene. It is required because, while DNA sequencing provides researchers
with the entire linear nucleotide sequence of a DNA molecule, it does not
provide any information about which portions of a sequence are genes or
which part of these genes code for proteins. Because many researchers are
interested in determining how proteins exert their influence, gene
identification techniques are used to determine the coding sequences that
lie within the genomic sequence.
One method for gene identification involves mRNA isolation and
complementary DNA ("cDNA") synthesis. Genes use mRNA as an intermediary
that is translated into protein. Thus, an mRNA molecule indicates a DNA
sequence that codes for a protein. But mRNA degrades very quickly and
cannot be replicated for further studies. Because of this, researchers
have developed a method to synthesize cDNA from isolated mRNA. cDNA can
then be used in various experiments like gene identification, gene
cloning and gene expression.
Another method used to perform gene identification, called
bioinformatics, utilizes computer programs that attempt to predict which
DNA sequences are genes that code for proteins. Entire genomic sequences
are entered into databases and sophisticated algorithms search for
specific DNA sequences that are usually found at the beginning and end of
a gene. When these are found, there is a high probability that a gene has
been identified.
- GENE CLONING. Gene Cloning is a process used to move a selected gene or
other piece of DNA into a cloning vector for use in other techniques. A
cloning vector is a circular DNA molecule used to capture foreign DNA and
carry it into other organisms, usually bacteria, where it can replicate.
Cloning gives scientists the ability to produce sufficient quantities of
a
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specific DNA fragment for use in further studies, like gene expression
and gene analysis. Using cloned DNA can simplify research because the
host organisms and conditions in which a clone can replicate are far
simpler to work with than those in which the cloned DNA normally resides.
The ability to perform gene expression and analysis studies under these
controlled, simplified conditions increases the ability of researchers to
determine how genes and their encoded proteins function.
There are several methods used for cloning. Researchers choose among
methods depending upon how the piece of DNA to be cloned was generated
and what information is known about it. When a researcher does not know
the sequence of the DNA to be cloned, two frequently used methods are
genomic library and cDNA library construction. In genomic library
construction, the entire DNA of a cell is isolated and broken into
smaller pieces using a technique called shearing. These pieces are then
cloned into vectors and either sequenced or screened to find DNA
fragments that have some property that the researcher wishes to study.
cDNA library construction is similar; however, the researcher first
isolates mRNA from the cells, then reverse transcribes it into cDNA prior
to cloning. Genomic libraries contain all of the DNA in a genome, whereas
cDNA libraries only contain genes that encode proteins. Various screening
methods enable researchers to identify specific genes from among the many
in the library.
When researchers have some information about the sequence of a DNA
fragment that they wish to clone, they can use a type of protein called a
restriction enzyme. Restriction enzymes recognize specific DNA sequences,
called restriction sites, and cut the DNA strands in a manner that leaves
nucleotide overhangs, or "sticky ends." When some of the sequence of the
DNA fragment to be cloned is known, researchers can choose a restriction
enzyme that cuts isolated DNA at known restriction sites, then use the
generated sticky ends to hybridize the specific, cleaved DNA fragment
into a cloning vector.
Blunt-ended cloning is a technique that is used when the DNA fragment to
be cloned does not contain sticky overhangs, which is termed as being
blunt. Some restriction enzymes leave blunt ends when they cut. Cloning
blunt-ended DNA fragments is a very inefficient process because there are
no exposed nucleotide bases with which to form base pairs. Blunt ends,
however, have a slight affinity for one another, which makes it possible
for researchers to clone these fragments into blunt-ended cloning
vectors.
PCR cloning is another method that can be used to clone a DNA fragment
when some information about its sequence is known. PCR, or polymerase
chain reaction, is one of the most popular techniques used in molecular
biology because it quickly generates large amounts of specific DNA
fragments. Researchers use restriction enzymes, blunt-ended cloning, TA
cloning or other methods to clone these PCR-produced fragments.
- GENE EXPRESSION. Gene expression is a collection of techniques that is
used to produce proteins from genes that have been cloned into expression
vectors and introduced into various host organisms. Most expression
studies involve expressing the cloned gene in a variety of hosts,
including bacteria, fungi, insects and mammalian cells, under various
growth conditions. The protein that a DNA sequence expresses can vary
slightly depending upon the host in which it is expressed and the growth
conditions used. By compiling the results of multiple experiments,
researchers develop an understanding of how a gene and its encoded
protein function are regulated in the context of an entire organism.
Generally, gene expression experiments fall into two categories: those in
which the goal is to produce a large amount of protein that will be
purified for use in other studies and those in which the goal is to
monitor the host for physiological changes caused by expression of the
foreign protein. Specific hosts and expression vector elements provide
functions for these
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different experiment types. Complete expression systems can facilitate
each type of experiment.
Gene expression relies on expression vectors, which, like cloning
vectors, are circular DNA molecules. Expression vectors contain various
elements of DNA that, at a minimum, enable the vector to replicate in the
host and cause the cloned gene to express its encoded protein. Usually,
expression vectors also contain antibiotic resistance genes to facilitate
selection. Each particular host organism requires expression vectors with
specific elements that function in that host, as well as methods for
introducing the vector into the host, and detecting and purifying the
expressed protein. Other gene expression techniques involve specifically
mutating DNA sequences that code for protein, using only portions of a
DNA sequence, or creating gene fusions that use more than one DNA
sequence.
Gene expression analysis is used to identify which genes cause a
difference between two cell types, for example the differences in genes
being expressed in a healthy cell as opposed to those in a diseased cell.
One relatively new technique involves placing thousands of partial gene
sequences, or tags, onto different glass slides, or chips. mRNA isolated
from different cell types is then applied to identical chips. Comparison
of the chips reveals that many tags, sometimes hundreds, bind mRNA on one
chip but not the other. These indicate genes that were being expressed in
one cell type but not the other. The sequences of these tags are then
used to identify, clone, express and analyze full-length genes to
determine which are responsible for the observed differences in the cell
types. Thus, the availability of chip technology both expands the need
for gene identification, cloning, expression and analysis tools and
ultimately provides targets that can be used for drug discovery.
- GENE ANALYSIS. Gene analysis techniques are used to discover the identity
of an expressed protein, to determine its function or role and to
establish if it interacts with other proteins or nucleic acids. Because
most cellular processes are mediated through pathways that involve many
proteins and nucleic acids, determining which proteins or nucleic acid
molecules can interact with a given protein is one of the keys to
understanding its function in the context of the entire cell.
Electrophoresis is a technique that is central to gene analysis as it is
used to analyze the proteins encoded by the genes.
Molecular interaction studies is one method that can be used to determine
protein function. A given protein is expressed from an expression vector
that can indicate whether the expressed protein binds to other proteins
that are expressed from a second vector. Both expression vectors contain
specific elements that enable detection of interactions. Researchers can
express one gene or an entire library of genes from the second vector.
When an interaction is indicated, researchers then isolate the gene in
the second vector and begin to study the two genes and their proteins to
determine exactly how they bind to one another, if other proteins are
involved in the binding and the events that precede and follow this
molecular interaction. With an estimated 100,000 genes in a human cell,
each capable of producing several different mRNA molecules and proteins
due to differential splicing, there are billions of potential protein and
nucleic acid interactions. For this reason, gene analysis studies to date
have been more of a starting than an ending point in understanding a
protein's function. The information provided by these studies indicates
which additional genes must be identified, cloned, expressed and analyzed
before the function of the entire pathway is understood.
The most commonly used method for characterizing the protein products of
both gene expression and gene analysis experiments is slab gel
electrophoresis. Gel electrophoresis is a process by which a complex
mixture of proteins can be quickly separated on the basis of size or
charge. A porous gel slab is used as a "sieve." An electrical charge is
used to propel the mixture of protein molecules through the sieve. As the
proteins move through the gel, smaller
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molecules travel further through the gel than larger molecules. Depending
on their size, the molecules are trapped at different levels in the gel
to form a series of discrete bands. By controlling the porosity of the
gel, the researcher can optimize the separation for a particular set of
proteins.
Gel electrophoresis is used to visualize the results of molecular biology
experiments and functional genomics studies. For example, electrophoresis
enables a researcher to verify that the desired protein is indeed being
produced during a gene expression experiment. It is also used to identify
and characterize proteins, for example when an unknown protein binds to a
known protein in a molecular interaction study, electrophoresis is used
to establish its identity. With the speed, effectiveness and convenience
of pre-cast electrophoresis products, it is commonplace for scientists to
use electrophoresis to check their work at several points during an
extended experiment involving protein or nucleic acid manipulation. It is
a flexible technique that does not require a significant investment in
hardware, requires little or no method development, and is reliable and
robust under widely diverse sample conditions. A simple apparatus is used
to hold one or two gels in place. A unique advantage of electrophoresis
is that, after the proteins have been separated, they can easily be
recovered from the gel for use in subsequent experiments. This is not the
case with most instrumental separation methods.
There are several different types of electrophoresis as well as related
techniques. These include protein electrophoresis, 2D electrophoresis,
gel visualization, western blotting and nucleic acid electrophoresis.
These techniques are described below:
- PROTEIN ELECTROPHORESIS. Protein electrophoresis is typically
conducted using sodium dodecyl sulfate (SDS) polyacrylamide gel
electrophoresis (SDS-PAGE). SDS is a negatively charged compound that
binds tightly to, and imparts a uniform negative charge to all
proteins. This charge provides the force that drives the proteins
through the gel and ensures a separation based only on size. A
molecular weight standard, which is a mixture of proteins of known
molecular weight, is run in a lane on the same gel as the unknown
sample. By comparing the migration distances, one can determine the
approximate molecular weight of the unknown protein.
- 2D ELECTROPHORESIS. 2D electrophoresis is used to separate proteins of
the same molecular weight, which would migrate together and not be
resolved by SDS-PAGE. Proteins are made up of amino acids, some of
which contain positively or negatively charged functional groups. As a
result of its unique amino acid composition, each protein has a
natural isoelectric point, the pH at which it carries a neutral
charge. In order to separate two proteins with the same molecular
weight, isoelectric focusing (IEF) is first used to separate the
proteins on the basis of charge. The proteins are then separated again
on the basis of molecular weight. This is known as two-dimensional, or
2D, electrophoresis and is commonly used in proteomics research.
In IEF, a mixture of compounds carrying a spectrum of charges known
as ampholytes is either added to the gel matrix or immobilized within
the gel matrix. When an electrical charge is applied, the proteins
organize themselves linearly within the gel according to their
relative charge. Proteins with higher isoelectric points will form
bands on one end of the gel and proteins with lower isoelectric
points will form bands at the other end of the gel.
- GEL VISUALIZATION. After electrophoresis, the gel containing the
separated or "resolved" proteins must be stained to visualize the
proteins. This allows the researcher to determine the molecular weight
and purity of the sample. Various stains are used that have different
levels of sensitivity and specificity. The gel can then be dried and
saved as a permanent
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record of the experiment, or a gel documentation system can be used to
photograph the results and store them in digital form for analysis.
- WESTERN BLOTTING. Alternatively, the proteins can be transferred from
the gel to a membrane in a process called western blotting. The
proteins on the membrane are then exposed to antibodies specific to
the protein of interest or to a specific "tag" that has been
intentionally incorporated into an expressed protein. This allows the
scientist to identify the presence of a specific protein from within a
highly complex mixture. In addition, the separated proteins can be
recovered from the gel or the membrane for further analysis such as
protein sequencing or mass spectrophotometry.
- NUCLEIC ACID ELECTROPHORESIS. Nucleic acid electrophoresis may also be
conducted using a polyacrylamide gel matrix. In DNA sequencing
(described above), polyacrylamide gels ranging in lengths up to 40cm
long are used to separate the results of a DNA sequencing reaction.
Small format (10cm X 10cm or 10cm X 12cm) polyacrylamide gels are also
used for nucleic acid analysis. These gels are used when accurate,
sensitive visualization of small DNA or RNA fragments is required, for
example, when analyzing PCR products.
Nucleic acid electrophoresis is more commonly performed using agarose
as the gel matrix. Agarose has lower resolving power than
polyacrylamide and is typically used for separating large DNA
fragments. Examples include analysis of plasmid preparations and
restriction digestions. DNA fragments can be recovered from the gel
for subsequent cloning into a vector. Agarose gels are easier to make
than polyacrylamide gels, however the stains are hazardous and
require special handling.
MARKET OVERVIEW
Based on independent market studies, in 1998 over $1.4 billion was spent on
molecular biology products and supplies such as chemicals, reagents, enzymes and
kits. The market for these products and for related services consists of the
academic market, comprised of universities and government institutions, and the
commercial market, comprised of pharmaceutical, biotechnology and agricultural
companies. It is estimated that there are over 300,000 scientists worldwide
engaged in molecular biology research. A substantial number of scientists
perform their research using the conventional methods they were taught during
their training, assembling their own reagents and developing their own
protocols. Because not all scientists replace their familiar methods rapidly,
even with improved methods, a large number of scientists using molecular biology
techniques are not currently using kits.
Gene cloning, expression and analysis kits and pre-cast gel electrophoresis
products represent a rapidly emerging segment of the overall molecular biology
product and supply market. Based on independent market studies, we project that
the market for gene cloning, expression and analysis kits will grow
approximately 21% in 1999, compared to approximately 14% for the overall
molecular biology product and supply market. Several factors are driving market
growth and the need for gene cloning, expression and analysis kits, products and
services:
- INCREASING GOVERNMENT FUNDING. The National Institutes of Health is the
largest purchaser of research products and services in the world. In
October 1998, the U.S. Congress approved a 14.6% increase in NIH funding,
raising its 1999 budget to $15.6 billion. The U.S. Congress has stated
its intention to double the NIH budget in the next five to ten years.
Other governments are similarly increasing funding for biomedical
research. In the past, funding increases of this nature have resulted in
a corresponding increase in the purchase of molecular biology research
products and services.
- HIGH-THROUGHPUT SEQUENCING ENABLES GENOME SEQUENCING & PROTEOMICS
PROJECTS. High-throughput automated DNA sequencing is a recent innovation
that has made it
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both technically possible and economically feasible to sequence all of
the DNA in a genome. The U.S. government launched the Human Genome
Project in 1990 to determine the DNA sequence of the estimated 3 billion
nucleotide base pairs contained in the human genome and to identify its
estimated 100,000 genes. Through the end of 1998, $1.9 billion had been
spent, and as of September 1999 approximately 12% of the genome had been
fully sequenced. An ambitious schedule has been set to complete the full
sequence by the end of 2003, two years ahead of previous projections.
Similarly, governments and major corporations worldwide have begun
agricultural genome sequencing projects to study and improve crops like
rice, corn, soybeans and tomatoes. We believe that the markets for gene
cloning, gene expression, gene analysis and electrophoresis technologies
will continue to expand as researchers begin proteomics projects designed
to determine the function of the many genes for which sequence data is
becoming available.
- PROLIFERATION OF HIGH-THROUGHPUT MOLECULAR BIOLOGY TECHNIQUES. The advent
of high-throughput technologies for DNA sequencing and gene expression
analysis has exponentially increased the number of genes that need to be
analyzed. In addition, these technologies have enabled research to be
performed on a much larger scale. For example, while researchers used to
study genes one or two at a time, the emergence of chip technologies
provides information on tens or hundreds of genes that might need to be
cloned and studied to accurately determine the cause of a
genetically-based disease. For increasing numbers of research
organizations, especially those that wish to use personnel with limited
training in molecular biology techniques, the availability of easy-to-use
molecular biology methods, or kits, enables research to be performed more
efficiently, conveniently and cost-effectively than conventional
techniques. We believe that the increased numbers of researchers using
molecular biology techniques and the increased number of experiments
being performed will accelerate the tendency of researchers to convert
from conventional techniques to easy-to-use kits.
- INCREASING INVESTMENT IN COMMERCIAL RESEARCH. As more genes of the human
and other genomes are sequenced, we believe that the focus of research
will shift toward discovering the specific functions of each gene,
especially of those implicated in disease states. Companies wishing to
develop economically viable therapeutic and diagnostic products based on
such discoveries hope to rapidly establish and protect intellectual
property rights by obtaining patents or licenses covering these
full-length genes and their encoded proteins. These companies are
competing with one another to be the first to identify, clone and express
the finite number of genes thought to be of commercial importance. The
desire to secure proprietary positions increasingly leads companies to
seek a competitive advantage by adopting methods that can accelerate
their research, including outsourcing of research tasks to companies with
demonstrated expertise.
TECHNOLOGY AND CAPABILITIES
We believe that many of the conventional molecular biology research methods
described above are time consuming, require the use of hard-to-obtain or
hazardous materials or require considerable scientific training and experience
to generate accurate, reproducible results. We have developed a diverse line of
kits and services that address these limitations and make molecular biology
research techniques faster, easier and more cost-effective. In addition, our
offerings make these techniques available to a broader range of researchers with
varying skill levels. For example, the conventional PCR cloning method requires
researchers to perform several steps between the PCR and ligation reactions to
prepare the PCR products for cloning. Our TOPO TA Cloning Kit enables
researchers to clone the PCR products directly, bypassing all intermediate
steps, which both saves time and improves the cloning efficiency. Whereas the
conventional method requires three to five days and generates a 50-60% cloning
efficiency, the TOPO TA Cloning Kit requires only one day and increases the
cloning efficiency
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to over 90%. Our FastTrack Kit is another example of a product that provides
researchers with significant advantages over conventional research methods.
Whereas mRNA isolation methods typically took two days to complete and required
the use of hazardous reagents, our method is completed in only three hours and
does not involve the use of any hazardous materials. Our broad portfolio of gene
expression vectors and systems also provide scientific as well as ease-of-use
advantages to researchers. Specifically, we offer complete protocols with our
expression vectors, which enable researchers to perform their experiments more
easily.
Making and running polyacrylamide gels in a research laboratory is time
consuming, requires the use of hazardous materials and requires significant
expertise to produce high quality, reliable gels. Gradient gels and isoelectric
focusing gels are particularly difficult to make consistently. For example, the
conventional method requires researchers to first assemble two glass plates
together with spacers and tape. Then, a mixture of acrylamide and cross-linker
is made, catalysts are added and the solution is carefully poured between the
glass plates, making sure it is poured evenly and does not leak through the
tape. The gel must then be left to polymerize for up to two hours before it is
ready for use. Our pre-cast gels eliminate the time required to make gels in the
laboratory, resulting in savings of 1-2 hours every time a gel is purchased from
us rather than made by a researcher. We have developed a complete line of
pre-cast gels that eliminates this entire gel casting procedure. Other of our
products such as the SeeBlue ready-to-use standards, and the WesternBreeze
pre-optimized western blotting kits make other electrophoresis-related processes
faster and easier, while providing better performance than products that
researchers can make on their own.
We have developed significant expertise in identifying molecular biology
techniques that could be simplified and improved by their development as
research kits. We have a consistent track record of identifying new
technologies, licensing or applying for the necessary patents and rapidly
introducing new or enhanced products based on those technologies to the market.
Our corporate development group has significant molecular biology research
expertise. In addition, most of our sales and technical service representatives
are experienced molecular biologists who work with our customers to identify
emerging molecular biology techniques or potential new product and service
opportunities. Specifically, our corporate development, sales and technical
service groups have identified and obtained rights to over 200 patents to date.
Since the beginning of 1997, our new product development teams have introduced
over 50 new or enhanced research kits to the market, and two major new
electrophoresis product lines: WesternBreeze western blotting kits specific for
rabbit and mouse antibodies and QuickPoint gels for the fast growing nucleic
acid analysis market.
BUSINESS STRATEGY
Our business strategy is to develop and market a comprehensive portfolio of
products and services based on our expertise in gene cloning, expression and
analysis technologies. Our business strategy includes the following key
elements:
- MAINTAIN AND ENHANCE LEADERSHIP POSITIONS. Based on our market shares, we
believe we are a worldwide leader in gene cloning, gene expression and
pre-cast gel electrophoresis technologies. We believe that the
competitive advantages offered by our innovative products and
technologies and the comprehensive nature of our product line will
provide an opportunity to increase our market share. We seek to enhance
our position by investing additional resources in research and
development and in-licensing efforts to continually introduce novel
products and expand our product line. In addition, we are actively
expanding our direct worldwide sales force to increase market penetration
of our products.
- DEVELOP NEW PRODUCTS AND MARKETS BASED UPON CORE EXPERTISE. We will
continue to develop and launch novel product lines related to gene
cloning, expression and analysis. For example, we have utilized our
capabilities in cloning and expression to launch our GeneStorm product
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line, which facilitates functional genomics studies. Similarly, our NOVEX
subsidiary developed the WesternBreeze complete western blotting kits,
which are used by electrophoresis users. By introducing new,
complementary products we believe we can enhance our position in our
current core markets while targeting additional high-growth market
segments.
- CAPTURE ADDITIONAL VALUE THROUGH SERVICES AND OUT-LICENSING. We believe
our technologies in gene cloning and expression provide opportunities to
develop high margin services and out-licensing arrangements. Through
Invitrogenomics, we intend to use our high-throughput gene cloning and
expression technology to develop a proprietary library of full-length
genes, which can be licensed and sold to corporate partners for drug
discovery and other commercial development activities. In addition, we
plan to utilize our high-throughput capabilities to rapidly clone and
expression-test thousands of genes for drug development and agriculture.
We seek to carry out our business strategies by identifying and
in-licensing, or by developing on our own, promising technologies that can be
rapidly commercialized as products or services. We also intend to continue
out-licensing our technologies to customers wishing to use them in other fields
of use, as well as to combine our own research and development expertise with
the technologies of corporate partners to participate in processes such as drug
discovery. In addition, we will continue to consider acquisitions of
complementary companies or technologies.
PRODUCTS AND SERVICES
We currently offer approximately 700 gene identification, cloning,
expression, and analysis products and services. The following table describes
our top selling products, as well as the leading product lines in our key areas
of focus:
<TABLE>
<CAPTION>
<S> <C>
GENE IDENTIFICATION PRODUCTS
FastTrack 2.0 Kit This kit simplifies isolation of pure, full-length mRNA
directly from cells or tissue in three hours, as opposed to
the two days required for conventional methods.
Micro-FastTrack Kit This kit is a modified version of the FastTrack Kit,
optimized for improved results when isolating mRNA from
small sample sizes.
Discovery Line Northern Territory mRNA and total RNA blots, Gene Pool cDNA
and Discovery Line mRNA, total RNA and premade cDNA
libraries have been created from a variety of hard-to-obtain
human normal, fetal and tumor tissue sources and are sold
ready-to-use, enabling researchers not trained in these gene
identification techniques to begin their studies with high
quality materials.
GENE CLONING PRODUCTS
TA Cloning Kit This kit enables fast, efficient cloning of PCR products
generated using TAQ polymerase, which is used by the
majority of researchers, by eliminating intermediate steps
required by conventional PCR cloning methods, like special
PCR primers, modifying enzymes, DNA purification and
restriction digestion.
TOPO TA Cloning Kit This improved version of the TA Cloning Kit utilizes
topoisomerase in the ligation reaction, reducing the time
required for this step from 12 hours to only 5 minutes.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
TOPO TA Cloning Kit-- The cloning vector in this version of the TOPO TA Cloning
Dual Promoter Kit contains promoters in opposite orientations, enabling
researchers to generate both sense and anti-sense
transcripts of their cloned PCR product.
Zero Blunt PCR Cloning This kit enables researchers to efficiently clone
Kit blunt-ended PCR products by employing a lethal gene that
prevents bacterial growth unless the cloning reaction was
successful.
GENE EXPRESSION PRODUCTS
Expression Vectors These kits comprise the world's largest collection of
expression vectors for bacterial, yeast, insect and
mammalian cells. Choices in each host type include various
promoters, selectable markers, epitope tags and targeting
sequences.
MaxBac Baculovirus This complete kit provides researchers with all required
Expression System components to perform gene expression in insect cells
(including vectors, cell lines, viral stocks, growth media,
transfection reagents and protocols).
Ecdysone-Inducible This system provides tightly controlled, inducible
Mammalian Expression expression in mammalian cells, allowing researchers to study
System the effects of a particular protein by turning on and off
its expression as desired.
GENE ANALYSIS PRODUCTS
GeneStorm Expression- Researchers can purchase the gene they wish to study, cloned
Ready Clones into a quality vector and tested to verify that it expresses
protein.
Hybrid Hunter Systems These systems are complete kits for the IN VIVO detection of
protein-protein and protein-RNA interactions and have been
designed to help reduce false positives.
Pre-Cast NuPAGE Gels NuPAGE gels can be used in place of Tris Glycine gels for
protein electrophoresis. These patented gels provide
superior resolution, run in half the time of conventional
gels and have a one-year shelf life. In addition, NuPAGE gel
stability allows ambient temperature shipping and room
temperature storage.
Pre-Cast Tris Glycine TG gels are available in 12 different percentages. These
Gels traditional Laemmli-type gels are used for SDS-PAGE. TG gels
have a refrigerated shelf life of 3-4 months.
Pre-Cast Isoelectric NOVEX supplies pH 3-7 and pH 3-10 pre-cast IEF gels in the
Focusing Gels standard vertical 10x10 cm format, as well as in a
horizontal format, which allows up to 43 samples to be run
simultaneously.
Pre-Cast TBE Tris borate EDTA (TBE) gels are used to provide
Polyacrylamide Gels high-resolution separation of double-stranded DNA fragments
such as PCR products. They are also widely used to conduct
single-stranded conformational polymorphism (SSCP) studies
to detect single point DNA mutations and gel mobility shift
assays to characterize DNA-protein interactions.
QuickPoint These ultra thin, polyacrylamide gels are used for the rapid
separation of single-stranded DNA for sequencing. They run
in only 15 minutes, compared to three hours for conventional
sequencing gels. QuickPoint gels are useful for analyzing
the results of RNase Protection Assay experiments and for
running short DNA sequences from site-directed mutagenesis
and differential display experiments.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
WesternBreeze This complete kit provides all of the components required
for western blotting. Kit components have been optimized to
provide low background and high sensitivity.
XCell II Mini-Cell and This apparatus holds the gels and buffers during
Blotting Apparatus electrophoresis and western blotting.
Pre-Made Protein We make three protein standards used during electrophoresis
Standards to determine the approximate molecular weights of proteins
in a sample. Mark12 is a ready-to-use protein standard that
does not require dilution or pretreatment. SeeBlue is a
broad range pre-mixed and pre-stained standard. Multi-Mark
is a multi-colored standard that is particularly useful for
western blotting. In addition, we make a liquid mix pI 3-10
IEF marker for determining the isoelectric point of
proteins.
SUPPORT PRODUCTS
One Shot INVALPHAF', These three different bacterial strains are sold
TOP10F'and TOP10 ready-to-use for cloning and expression experiments to
Competent E. COLI transfer vectors into bacteria. They are packaged in
convenient, single-use aliquots to prevent loss of
efficiency caused by freeze-thaw cycles.
Zeocin Antibiotic This antibiotic quickly and completely kills mammalian,
yeast and bacterial cell lines, enabling researchers to
eliminate all cells that do not contain vectors with the SH
BLE antibiotic resistance gene.
RESEARCH SERVICES
Invitrogenomics Invitrogenomics services include a variety of functional
genomics and molecular biological services, such as
high-throughput gene cloning and gene expression.
</TABLE>
GENE IDENTIFICATION PRODUCTS
FASTTRACK 2.0 AND MICRO-FASTTRACK KITS. These kits provide researchers with
all of the reagents needed to quickly isolate mRNA directly from cells, tissue
or total RNA samples. The two products differ from one another in that the
protocol and materials configuration of the Micro-FastTrack Kit have been
optimized for isolation from small sample sizes. These kits contain all required
buffers, oligo(dT) cellulose resin and spin columns.
For each product, the researcher begins by placing the sample in lysis
buffer to break open the cells. The inside material, or cell lysate, is applied
to an oligo(dT) cellulose resin, which binds the mRNA. This resin is transferred
to a spin column, then wash buffer is added and spun through the resin with a
microcentrifuge to remove materials other than the mRNA. An elution buffer is
then spun through the resin to remove the mRNA and complete the procedure.
These products were the first to enable researchers to isolate mRNA directly
from cells and tissue, eliminating the need to first isolate total RNA, which
has reduced the time required from two days to three hours. The kits have also
eliminated the use of hazardous chemicals like guanidinium isothiocyanate and
the need for expensive equipment like ultracentrifuges.
DISCOVERY LINE. One of the first steps for researchers performing gene
identification studies is to isolate mRNA from a chosen sample. However, if the
sample is of poor quality or the mRNA isolation done improperly, downstream
experiments that rely on undegraded mRNA will not provide accurate results. We
have recognized the absolute necessity for using quality materials and responded
by providing researchers with Discovery Line mRNA and total RNA, Northern
Territory mRNA and total RNA
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blots, Gene Pool cDNA and Discovery Line pre-made cDNA libraries. Isolations of
mRNA and total RNA are performed from hard-to-obtain human normal, fetal and
tumor tissue samples. The mRNA and total RNA is then sold ready-to-use or used
to create ready-to-use Northern blots, cDNA for PCR and cDNA libraries. This
enables researchers to use high quality materials and to study the similarities
and differences between normal, fetal and cancerous tissues. These products save
researchers time and effort because the upstream experiments required to prepare
these materials as well as the failures caused by working with inferior
materials are eliminated.
GENE CLONING PRODUCTS
TA CLONING KIT. This kit enables researchers to clone TAQ
polymerase-generated PCR products quickly and efficiently. The kit contains
prepared cloning vector, competent cells for transferring the vector into after
the cloning reaction and all required buffers and enzyme for cloning.
To clone with the TA Cloning Kit, researchers perform a normal PCR reaction,
add a portion of it to a tube that contains TA Cloning vector and T4 DNA ligase
in a ligation buffer, then incubate this ligation reaction for 10-12 hours, or
overnight. This reaction is then added to a tube of competent bacteria, which
are then plated onto an agar plate. The plates are incubated for a day to allow
colonies to form. Colonies are then picked based on a color selection
method-positive colonies, or those that have incorporated PCR product, are
white, while negatives are blue. DNA is then isolated from positive colonies to
verify that the cloning was successful and to determine the orientation of the
PCR product that inserted into the vector.
The TA Cloning Kit is faster and more efficient than conventional PCR
cloning techniques because it takes advantage of the single base A overhangs
that are added automatically to PCR products by TAQ polymerase, the polymerase
most frequently used for PCR, rather than relying on additional steps to remove
these overhangs or to add sticky overhangs. Among these steps are the addition
of extra bases to the PCR primers to add restriction sites, which makes these
primers more expensive and less specific than normal primers, purification of
the PCR products after they are generated, restriction digestion of the PCR
products and inactivation of the restriction enzyme. Moreover, the restriction
method requires that the entire sequence of PCR products be known prior to
cloning. The TA Cloning Kit offers a better cloning efficiency than the
restriction method, as well as providing blue/white color to indicate positive
clones. Quality Control specifications for the TA Cloning Kit require that each
manufactured lot achieve a minimum cloning efficiency of 90%, whereas the
restriction method typically yields only 50-60%.
We are the sole owner by assignment of U.S. and foreign patents on the TA
Cloning method and materials.
TOPO TA CLONING AND TOPO TA CLONING-DUAL PROMOTER KITS. These two kits are
improved versions of the TA Cloning Kit. They both contain prepared cloning
vector, competent cells for transferring the vector into after the cloning
reaction and all required buffers for cloning.
Both of these kits use and take advantage of the TA Cloning method described
above, but also utilize a technology called TOPO Cloning. This method uses an
enzyme called topoisomerase to mediate the ligation of PCR products into the
cloning vector, rather than T4 DNA ligase. This reduces the ligation step to
only five minutes, as opposed to a 12 hour or overnight ligation. TOPO Cloning,
therefore, saves researchers a full day as they are able perform their ligation
reaction and transform it into bacteria on the same day. The TOPO Cloning-Dual
Promoter Kit has a vector that contains transcriptional promoters in both
orientations, which enables researchers to make both sense and anti-sense RNA
transcripts from the same cloned insert. In other vectors, to achieve this the
insert would need to be cloned twice, once in each direction, a less efficient
and lower yield process.
We are the exclusive worldwide licensee to all rights in all fields to a
patent granted to Sloan-Kettering Institute for Cancer Research for the TOPO
Cloning method.
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ZERO BLUNT PCR CLONING KIT. When DNA fragments do not contain sticky
overhangs, which is termed as being blunt, they do not have exposed nucleotide
bases with which to form base pairs with a cloning vector. This makes
blunt-ended cloning a very inefficient process. Invitrogen has solved this
problem through the use of the lethal CCDB gene, or control of cell death, which
prevents colonies from growing unless they have successfully incorporated a DNA
fragment. Incorporation occurs in the middle of the lethal gene, so these clones
can grow because they have disrupted expression of the lethal gene. While the
actual cloning efficiency remains low, because the negative colonies cannot
grow, the effective efficiency is very high. The Zero Blunt PCR Cloning Kit
enables researchers to clone blunt-ended PCR products, which are generated by
thermostable polymerases like PFU. It contains a prepared cloning vector,
competent cells for transferring the vector into after the cloning reaction and
all required buffers.
Using the Zero Blunt PCR Cloning Kit is much like using the TOPO TA Cloning
Kits. Researchers perform PCR as normal, add the PCR products to the prepared
cloning vector, wait five minutes, transform the competent bacteria, then plate
out the bacteria and wait overnight for colony growth. Because of the lethal
gene, nearly all colonies that grow contain an insert. DNA is then isolated from
the colonies to verify that the cloning was successful. The advantage of the
Zero Blunt PCR Cloning Kit is that it improves the effective cloning efficiency
of blunt-ended cloning and prevents researchers from having to use other, more
difficult techniques.
GENE EXPRESSION PRODUCTS
EXPRESSION VECTORS. We provide researchers with an extensive collection of
gene expression vectors and complete expression systems, enabling researchers to
express genes in a variety of host organisms, as well as IN VITRO. Because of
their differing posttranslational modification characteristics, different hosts
produce a slightly different variant of the same protein. By combining results
obtained from experiments performed in different hosts, researchers can slowly
piece together how a gene's expression is regulated and what functions its
protein performs in the context of the entire organism. The kit contains an
expression vector, another expression vector with a cloned reporter gene that
serves as a positive control, a vial of bacteria, complete protocols and the
entire vector sequence.
Depending on their purpose, expression vectors can contain many different
elements, each of which provides a specific function. Various combinations of
the individual elements are used to create vectors with unique functions. We
offer a broad line of expression vectors, providing researchers with the ability
to perform various types of experiments in different hosts to reach a
conclusion. In addition, several of our vectors contain elements that are
available exclusively from Invitrogen.
MAXBAC BACULOVIRUS EXPRESSION SYSTEM. This kit is a complete system that
provides researchers with all of the reagents needed to express protein in
insect cells using recombinant baculovirus. This includes expression vectors,
insect cell lines, baculovirus stocks, growth media, transfection reagents and
complete protocols.
Insect cells are chosen as a host organism because they produce high-levels
of protein and are simple and inexpensive to grow. Also, the posttranslational
modifications performed by insect cells are well understood and are similar to
those of mammalian cells. This enables researchers to study proteins using a
system that is similar to, but simpler and cheaper to use, than mammalian cells.
ECDYSONE-INDUCIBLE MAMMALIAN EXPRESSION SYSTEM. This system provides
tightly controlled, inducible expression in mammalian cells, allowing
researchers to study the effects of a particular protein by turning on and off
its expression whenever desired. The kits contain an expression vector, a
control vector, sequencing primers, a supply of Zeocin antibiotic, an inducing
agent and a complete protocol. The system utilizes a promoter that has an
extremely low basal level of expression until an inducing agent is added to the
media. Protein expression then increases over 200-fold.
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The advantage of inducible expression is that it enables researchers to
study the effects of the expression of a particular protein. Most promoters used
in expression vectors cause protein to be expressed constitutively, or all the
time. Inducible promoters allow researchers to study the physiological effects
caused by the recombinant protein by turning expression on and off and observing
how the cells respond.
GENE ANALYSIS PRODUCTS
GENESTORM EXPRESSION-READY CLONES. We have created a large collection of
cloned yeast and human genes with our high-throughput gene cloning and
expression technology. The entire yeast genome, over 6,000 genes, has been
cloned into both yeast and mammalian expression vectors. These vectors are then
tested for protein expression. We are currently cloning human gene families that
are likely to be of importance in various disease states, like kinase genes
involved in cell signaling pathways. To date we have assembled a collection of
over 2,300 full-length cloned human genes that express their encoded proteins.
GeneStorm Clones enable researchers to purchase the exact gene they wish to
study and go directly to expression studies, bypassing the laborious procedures
required to clone and test the gene for expression. The genes are cloned into
the same high quality, multi-functional expression vectors sold to Invitrogen's
customers and used in Invitrogenomics research.
HYBRID HUNTER SYSTEMS. Molecular interaction is a technique used to
determine if various molecules are able to bind to, or interact with one
another. Because most cellular processes are mediated through pathways of many
proteins, determining if a given protein interacts with other proteins or
nucleic acid molecules is one of the keys to understanding its function. We
offer products for determining both protein-protein and protein-RNA
interactions. These studies are performed in yeast because its cells are similar
to, but far simpler than, mammalian cells. The kits contain "bait" and "prey"
expression vectors, yeast strains, positive and negative control vectors,
sequencing primers, a supply of Zeocin antibiotic and complete protocols.
Molecular interaction systems work by using reporter genes that are
expressed only if an interaction occurs. The gene for the protein being studied
is cloned into a "bait" vector that also contains the reporter gene. A second
gene, or an entire library of genes, is cloned into a second vector, called a
"prey" vector. The prey vector contains a transcriptional activator. If the
proteins expressed from the bait and prey vectors interact with one another, the
transcriptional activator is brought into close proximity of the reporter gene.
This causes the reporter gene to express its protein. Cells that express the
reporter gene indicate that they contain a prey vector that is interacting with
the bait. The gene in the prey vector is then isolated and used for further
expression and molecular interaction studies.
With an estimated 100,000 genes in a human cell, each capable of producing
several different mRNA molecules and proteins due to differential splicing,
there are billions of potential nucleic acid and protein interactions. Designing
methods that are sensitive enough to detect actual interactions, yet that do not
signal false interactions, has challenged suppliers of gene analysis systems.
Because the study of each interaction is extremely time consuming, researchers
need assays which are highly sensitive yet extremely accurate, or they will
waste their time, money and efforts trying to study interactions that do not
actually exist. Our Hybrid Hunter Systems have been designed using technologies
that help prevent the occurrence of false interactions.
PRE-CAST GEL SYSTEM. There are three key advantages to our pre-cast gel
electrophoresis system: ease-of-use, versatility and performance.
- The core of our pre-cast gel system is the XCell II Mini-Cell apparatus
and the polyacrylamide gels that are pre-cast in easy-to-handle
10 X 10cm plastic cassettes. The gels are individually pouched and
ready-to-use. The researcher simply opens the storage pouch, places two
gels in the
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Mini-Cell, adds buffer and loads the samples into the sample wells. An
electrical charge is applied to the Mini-Cell for about one hour to
complete the electrophoresis process. After electrophoresis is complete,
the plastic cassette is opened and the slab gel containing the separated
proteins is released for staining or western blotting.
- We offer over 180 pre-cast gels to meet researchers' diverse needs. These
gels incorporate ten different gel chemistries, each optimized for a
particular application, as well as 37 different gel percentages
(porosities) for optimizing the separation of different kinds of samples.
Gradient gels such as the 4-20% Tris-Glycine gel are used to separate a
broad range of proteins on a single gel. Our pre-cast IEF gels contain
compounds called ampholytes that enable the separation of proteins based
on their native electrical charge rather than their size. A variety of
sample well formats and thicknesses allows the user to select the
appropriate gel for their application.
- Important research decisions are made based upon the results of
electrophoresis experiments, so reliable, high quality gel performance is
essential. It is difficult for a researcher making gels on an occasional
basis to ensure the quality of the gel prior to use, in particular,
gradient gels or IEF gels. We use proprietary and patented technology to
produce highly reproducible gels with superior qualities such as gel
straightness, and crisp, sharp separation of bands (resolution).
These products include:
PRE-CAST NUPAGE GELS. NuPAGE is a unique, patented, long-shelf life
(one year) family of gels for SDS-PAGE protein electrophoresis. NuPAGE is
used in place of the traditional Tris-Glycine gels when faster run time (as
little as 40 minutes), improved resolution, and long-shelf life is desired.
The long shelf life aspect allows the product to be stored and shipped at
ambient temperature and reduces the number of unused expired gels, leading
to reduced costs for the end-user.
PRE-CAST TRIS-GLYCINE GELS. These are the traditional gels used for
SDS-PAGE analysis of proteins. We offer 12 different Tris-Glycine gel
percentages. Tris-Glycine gels have a refrigerated shelf life of three to
four months.
PRE-CAST IEF GELS. We offer pre-cast IEF gels in the 10 X 10cm
vertical format. This gel allows the researcher to separate proteins based
on native charge rather than size.
PRE-CAST TBE GELS. TBE (Tris Borate EDTA) gels are used to separate
double stranded DNA fragments while TBE-Urea gels are used to separate
single stranded RNA and DNA. These gels are used in gel mobility shift
assays, a common technique for identifying and characterizing DNA:protein
interactions. After the run, the DNA:protein complex can be extracted from
the gel for further study.
QUICKPOINT. These ultra-thin 10 X 12cm pre-cast polyacrylamide gels
are used for rapid separation of short DNA sequences and analysis of double
stranded DNA fragments. The 15-minute run time is a significant improvement
over the three hours it takes to run standard manual sequencing gels.
Typically, researchers would have to make a large (30 X 40cm) standard DNA
sequencing gel in order to analyze even short DNA sequences. Now researchers
have the option of using pre-made, easy-to-handle gels with significantly
shorter run times, while still getting the single base resolution needed to
read the DNA sequence.
WESTERNBREEZE. This is a complete western blotting reagent kit that
has been optimized to generate blots with clean backgrounds and high
sensitivity. Western blotting is typically a time-consuming, complex process
with many steps, several different reagents and multiple formulas from which
to choose. Researchers typically use reagents from different vendors and
spend a great deal of time working out satisfactory blotting conditions. The
WesternBreeze kit is optimized to
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work the first time, providing a significant time savings. All of the
solutions are packaged as pre-mixed solutions for maximum ease-of-use.
XCELL II MINI-CELL AND BLOTTING APPARATUS. This apparatus is
specifically designed to run our pre-cast gels. A simple wedge design
eliminates buffer leakage, a common problem found in traditional
electrophoresis apparatus that can result in interruption of the run and
sample loss. Our blotting apparatus fits inside the XCell II Mini-Cell,
saving space, reducing buffer volume and reducing transfer time.
PRE-MADE PROTEIN STANDARDS. Protein standards for electrophoresis
are a mixture of proteins with known molecular weights. Standards are run on
a gel with unknown samples in order to help determine the molecular weight
of the samples. The NOVEX Mark12 protein standard is a wide range standard
that is stable in liquid form and is ready to load onto the gel. NOVEX
SeeBlue pre-stained, wide-range standard has exceptionally sharp bands for
more accurate molecular weight determination. NOVEX MultiMark is a
ready-to-use multi-colored pre-stained marker used primarily for western
blotting. NOVEX ready-to-use IEF markers are used for determining the
isoelectric point of proteins separated in isoelectric focusing gels.
SUPPORT PRODUCTS
ONE SHOT INVALPHAF', TOP10F' and TOP10 Competent E. coli. Nearly all
molecular biology techniques, including gene cloning and gene expression,
require that researchers be able to propagate vector in E. COLI bacteria. We
sell many different bacterial strains, each with different characteristics used
by researchers depending on the experiment to be performed. Our best-selling
bacteria are competent, meaning that they have been processed in a manner that
makes them able to bring vector in from outside their cell walls.
Placing a vector into bacteria is termed transformation. The most common
method to do this is to make cells chemically competent by growing them in a
series of buffers. After this procedure, competent cells can be frozen and
stored for later use. Competent cells can take up vector from outside their cell
walls. All that researchers need to do to transform competent bacteria is to
thaw them and combine the vector and the competent bacteria in a test tube.
Vectors usually contain an antibiotic resistance gene, so an antibiotic is then
used to kill the cells that did not take up vector.
Our One Shot Competent E. COLI are sold ready-to-use and are packaged in
convenient, single-use aliquots. Researchers thaw the bacteria and add vector
directly to the tube, using the tube's entire contents. This prevents the
researcher from having to aliquot competent cells into tubes and refreezing the
unused cells. Aliquoting and freeze-thaw cycling greatly reduce the competency
of bacteria, so this convenient packaging not only saves time, it ensures better
results. Because of this, One Shot Competent E. COLI are included in all of our
PCR Cloning Kits. The popularity of One Shot products stems in great part from
researchers first using One Shot cells in our PCR Cloning Kits, then buying the
One Shot products separately for all of their transformation procedures.
ZEOCIN ANTIBIOTIC. This antibiotic quickly and completely kills mammalian,
yeast and bacterial cell lines. Researchers buy it to use for selection of the
many different expression vectors we sell that contain the SH BLE antibiotic
resistance gene. We also sell cassette vectors that enable researchers to easily
move the SH BLE gene into other vectors.
After transformation or transfection, which is transformation of
non-bacterial cells, researchers add Zeocin to the media to kill cells that have
not taken up vector with a SH BLE gene. The cells that grow are homogeneous in
that they all contain vector. Having a homogeneous population is important when
performing expression experiments because cells without vector will have
different characteristics than those that do, causing inaccurate results.
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The Zeocin antibiotic offers researchers advantages over other antibiotics.
Its selection is relatively fast, enabling the researcher to begin expression
studies with a homogeneous, or stable, cell line sooner. Because the antibiotic
and the gene of interest may be causing physiological effects during selection,
it is advantageous for it to occur as quickly as possible. Secondly, Zeocin and
the SH BLE gene function in bacteria as well as yeast and mammalian cells. Most
antibiotics function in only one host type. This forces the construction of
vectors that contain one resistance gene for bacteria and another for the other
host, which increases the size of the vector. Increased vector size makes nearly
everything that is done with vectors (including propagation, cloning,
transformation and transfection) less efficient. Finally, Zeocin uses a
different mode of action than other commonly used antibiotics, like G418 and
hygromycin B. This enables researchers to select more than one vector at the
same time.
RESEARCH SERVICES
INVITROGENOMICS. We have developed a high-throughput gene cloning and
expression technology by scaling up our proprietary TOPO TA Cloning technology.
We believe this technology can provide significant opportunities to develop new
licenses, services and products, which we are marketing under the name
Invitrogenomics. We are using our Invitrogenomics high-throughput capabilities
to rapidly clone and expression-test thousands of genes for corporate customers
in drug development and agriculture. To date, we have assembled libraries of
over 2,300 full-length cloned human genes that express their encoded proteins.
We plan to continue to develop a proprietary library of full-length genes, which
can be sold and licensed to corporate partners for drug discovery and other
commercial development activities.
We intend to focus the Invitrogenomics activities and technology on two
important business opportunities. First, as genome sequencing efforts
accelerate, pharmaceutical, biotechnology and agricultural firms will wish to
analyze large amounts of data to isolate relevant gene targets as quickly as
possible. To do so, these companies will need to conduct cloning and
expression-testing on a large scale. We are using our high-throughput technology
and personnel to provide gene cloning and expression services for corporate
partners on a contract basis. Second, as we build upon our library of patented
cloned full-length genes and expression vectors for use in drug and agricultural
biotechnology discovery efforts, we expect licensing and research kit revenue
opportunities to increase.
Our Invitrogenomics effort is currently staffed with 24 personnel, primarily
in research and development, manufacturing and marketing. Business development
activities are conducted primarily by our senior management.
TECHNOLOGY AND PRODUCT DEVELOPMENT
We are focusing our technology and product development on expanding our
existing product lines and developing innovative new products in areas where we
have expertise and have identified substantial unmet market needs. We seek to
introduce products that can be manufactured and marketed profitably by
continuing to develop products that are not regulated by government agencies
such as the Food and Drug Administration. In addition to our internal technology
and product development programs, we aggressively in-license and acquire
technology and intellectual property. Research institutions seeking to license
their technologies are attracted to our ability to package innovations as
convenient and cost-effective research kits and to rapidly introduce those kits
to the market. Our employees also actively stay abreast of industry developments
to identify and acquire innovative technologies from researchers and research
institutions throughout the world.
We spent $8.6 million, $5.9 million and $3.9 million on research and
development activities in 1998, 1997 and 1996, respectively. No material portion
of this investment in research and development was sponsored by our customers.
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SALES AND MARKETING
We currently market our products in over 30 countries throughout the world.
We sell our products directly to customers in the United States, Germany,
Switzerland, the United Kingdom and 16 other countries. In addition, we utilize
specialized distributors to market our products exclusively in more than 13
other countries as well as in some of the countries in which we sell directly.
These independent distributors may also market research products for other
companies, including some products that are competitive with our offerings. For
more information regarding foreign sales and revenues, see Note 1 to Invitrogen
Consolidated Financial Statements. As of September 30, 1999 we employed
approximately 113 people in our sales and marketing department worldwide to
market our products and provide customer support and service.
Our sales strategy has been to employ scientists to work as our technical
sales representatives. Most technical sales representatives have an extensive
background in biology. A thorough knowledge of biological techniques and an
understanding of the research process allows our sales representatives to become
advisors, acting in a consultative role with our customers. Our use of technical
sales representatives also enables us to better identify unmet market needs and
new technologies that we can license and develop into new products.
Our marketing departments in our U.S. and European headquarters combine
various types of media and methods to inform customers of new product
developments and enhancements to existing products. We advertise in prominent
scientific journals, publish a yearly catalog, a bi-monthly newsletter and
conduct direct mail campaigns to researchers in the U.S. and Europe. We also
reach a broad range of scientists by hosting an annual symposium, presenting at
scientific seminars and exhibiting at scientific meetings. Invitrogen's website
allows researchers to view an on-line catalog, download technical manuals and
vector sequences, read our newsletter and participate in interactive forums and
discussion groups. The website for our NOVEX subsidiary allows researchers to
view an on-line catalog and download NOVEX technical manuals and application
notes.
MANUFACTURING
The U.S. manufacturing facilities for Invitrogen products occupy
approximately 15,000 square feet of our Carlsbad, California facility. Seven
manufacturing cells are responsible for the complete production, quality testing
and process improvements of Invitrogen's various product lines. The plant
engineering department supports the manufacturing department with equipment
maintenance and repair. The manufacturing processes include quality control
testing of all products to ensure that every product meets or exceeds its
minimum specifications and quality assurance testing of purchased materials that
will be used in products.
Our U.S. manufacturing facilities for NOVEX products are located in San
Diego, California. NOVEX's manufacturing department is responsible for
production, quality testing, process improvements, customer service and
shipping. The engineering department supports the manufacturing department with
development of proprietary manufacturing automation, equipment maintenance and
repair. The manufacturing processes include quality control testing of all
products to ensure that every product meets or exceeds its minimum
specifications and quality assurance testing of purchased materials that will be
used in products. NOVEX obtained ISO 9001 certification in 1997.
NOVEX also assembles pre-cast gels and buffers in Frankfurt, Germany and has
a manufacturing facility in Heidelberg, Germany for formulating and packaging
fine chemicals.
TECHNOLOGY LICENSING
Many of our products are manufactured or sold under the terms of license
agreements which require us to pay royalties to the licensor based upon a
percentage of the sales of products containing
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the licensed materials or technology. Although we have increasingly emphasized
our own research and development in recent periods, we believe our ability to
in-license new technologies from third parties is and will continue to be
critical to our ability to offer new products. Our ability to compete as an
innovator in the development of molecular biology research products and services
depends in part on our ability to convince inventors that we can successfully
bring our new technologies to market. Our significant licenses or exclusivity
rights expire at various times during the next fifteen years. These licenses
include:
TA CLONING. The patents on this cloning method were formerly co-owned by
Invitrogen and Molecular Biology Resources. We had an exclusive license from
Molecular Biology Resources for cloning purposes. In June 1999 we purchased all
of Molecular Biology Resources' rights in the TA Cloning patents and are now the
sole owner of those patents. The patents on this cloning method have been issued
in the United States, the United Kingdom, the Netherlands, France and Germany.
TOPO CLONING. This patented technology significantly accelerates gene
cloning and is an enhancement to our TA Cloning products, among others. The
technology was invented by Dr. Stewart Shuman working at the Sloan-Kettering
Institute for Cancer Research (SKI), which owns the patent. In 1997, we obtained
exclusive worldwide rights to commercialize this technology for all purposes for
the life of the underlying patent. We paid certain initial fees to SKI, and
continue to pay royalties on sales of products designed to use this enhanced
cloning method. These royalties depend in part on the type of product sold and
the level of annual sales. We have also committed to minimum yearly royalty
payments to SKI. Sublicenses may be granted to third parties upon approval by
SKI with a portion of the sublicense income payable to SKI. SKI retains rights
to use and practice the technology for any purpose. Additionally, we have
reimbursed SKI for costs of patent prosecution, and have agreed to pay for
future patent prosecution in exchange for the right to prepare and control the
ongoing patent applications.
ZEOCIN AND ZEOCIN RESISTANCE. In 1994, we obtained from CAYLA of Toulouse,
France, exclusive worldwide rights to use a patented gene that confers
resistance to certain antibiotics including Zeocin. We paid an up-front fee to
CAYLA, and pay royalties on sales of kits and vectors containing this gene. We
also make minimum royalty commitments to CAYLA, which grow at a fixed rate from
year to year, in exchange for exclusive rights. In addition, we have
historically purchased the Zeocin and certain additional antibiotics exclusively
from CAYLA at a price set each year. We have agreed that our purchases will grow
each year, in order to obtain most-favored pricing terms.
ZERO BACKGROUND. We licensed the CCDB or Zero Background gene, used for
selection of successful clones, from the Universite Libre de Bruxelles in 1995
for a ten-year period, unless otherwise terminated under the provisions of the
license. This license grants us exclusive rights to use this patented "lethal
gene" technology for commercial purposes in all fields worldwide. We paid an
initial license fee and reimbursed certain patent costs of the University and
pay a royalty on sales of products containing the lethal gene. In order to
maintain the exclusive rights, we pay minimum royalties each year. We are also
responsible for reimbursing the University's patent prosecution costs for this
technology, up to a fixed cap.
TAQ AND PCR. Probably the most pervasive and essential tool in molecular
biology today, the Polymerase Chain Reaction (PCR) enables researchers to target
and amplify, or copy in large numbers, certain portions of DNA. This technique,
and certain aspects of TAQ polymerase, which is an essential reagent in PCR, are
patented and now owned by F. Hoffmann-La Roche, Ltd. of Basel, Switzerland. We
have a non-exclusive license to use TAQ polymerase and PCR in our research
efforts as well as non-exclusive rights to make and sell TAQ to the research
community for the life of patents underlying the technology. We paid an initial
license fee for these rights and also pay royalties, which are calculated using
both sales of TAQ-based products and the use or sale of TAQ. We granted F.
Hoffmann-La Roche the right to negotiate for a license to make and sell any
competing enzyme we may develop in
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the future. If F. Hoffmann-La Roche does not exercise its right to negotiate the
foregoing license, we have agreed that F. Hoffmann-La Roche shall nonetheless be
entitled to a license to make, use and sell any such competing enzyme under the
same terms and conditions as the most favorable nonexclusive license granted by
us. Prior to obtaining this license, we purchased TAQ from authorized sources in
order to have the rights to use PCR for our research.
Royalties in 1998 related to the licenses described above were less than 10%
of our 1998 cost of revenues. In 1998 the royalty amounts, and in the case of
the Zeocin license, the combined royalty and purchase amounts, related to the
five licenses described above were approximately $309,000, $67,500, $950,000,
$38,000 and $8,800, respectively.
In addition to these licenses, we maintain a portfolio of exclusive,
co-exclusive and non-exclusive rights to make, use and/or sell many of the
various technologies underlying our products and services. Depending upon
factors including the scope of rights granted, the usefulness and commercial
potential of the technology and whether the rights are exclusive, we provide
various financial and other considerations to the patent holder or the holder of
senior license rights. Typically, our other licenses include an initial license
fee and continuing royalties. Some licenses also include payments at certain
milestones, e.g., at the first commercial sale of a product. Many licenses,
especially exclusive licenses, call for certain minimum royalty payments each
year. A license will often contain other undertakings by us, such as a
commitment to diligently pursue development and marketing of commercial products
utilizing the licensed technology.
There can be no assurance that we will be able to continue to successfully
identify new technologies developed by others. Even if we are able to identify
new technologies of interest, we may not be able to negotiate a license on
favorable terms, or at all. Some of our licenses do not run for the length of
the underlying patent. We may not be able to renew our existing licenses on
favorable terms, or at all. If we lose the rights to patented technology, we may
need to discontinue selling certain of our products, redesign our products, and
we may lose a competitive advantage. Potential competitors could in-license
technologies that we fail to license and potentially erode our market share for
certain products.
Our licenses typically subject us to various commercialization, sublicensing
and other obligations. If we fail to comply with these requirements we could
lose important rights under a license, such as the right to exclusivity in a
certain market. In some cases, we could also lose all rights under a license. In
addition, certain rights granted under the license could be lost for reasons out
of our control. For example, the licensor could lose patent protection for a
number of reasons, including invalidity of the licensed patent. We do not
receive significant indemnification from a licensor against third party claims
of intellectual property infringement.
PATENTS AND PROPRIETARY TECHNOLOGIES
We consider the protection of our proprietary technologies and products for
molecular and cellular biology research to be important to the success of our
business. We rely on a combination of patents, licenses and trademarks to
establish and protect our proprietary rights to our technologies and products.
We currently own nine issued patents in the United States and two issued patent
families in five other major industrialized nations, and, in total, own or
control 28 issued and pending patents and applications. Generally, U.S. patents
have a term of 17 years from the date of issue for patents issued from
applications submitted prior to June 8, 1995 and 20 years from the date of
filing of the application in the case of patents issued from applications
submitted on or after June 8, 1995. Patents in most other countries have a term
of 20 years from the date of filing the patent application. Our nine issued
United States patents will expire between 2012 and 2019 and our five foreign
patents will expire between 2011 and 2015.
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Our success depends to a significant degree upon our ability to develop
proprietary products and technologies. It is critically important to our success
that we adequately 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
protection for our intellectual property. However, the assertion of patent
protection involves complex legal and factual determinations and is therefore
uncertain. In addition, the laws governing the scope of patent coverage and the
periods of enforceability of patent protection continue to evolve, particularly
in the areas of molecular biology of interest to Invitrogen.
Patent applications in the United States are maintained in secrecy until
patents issue. Also, publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by at least several months. As
a result, there can be no assurance that patents will issue from any of our
patent applications or from applications licensed to us. The scope of any of our
issued patents may not be sufficiently broad to offer meaningful protection. In
addition, our issued patents or patents licensed to us could be successfully
challenged, invalidated or circumvented so that our patent rights would not
create an effective competitive barrier. Our intellectual property positions
involve complex legal and factual questions and may be uncertain.
We rely in part on trade secret protection of our intellectual property. We
attempt to protect our trade secrets by entering into confidentiality agreements
with third parties, employees and consultants. Employees and consultants also
sign agreements to assign to Invitrogen their interests in patents and
copyrights arising from their work for us. Employees also agree not to compete
unfairly with us after their employment by using confidential information,
soliciting employees or soliciting customers. However, these agreements can be
breached and, if they were, there may not be an adequate remedy available to us.
Also, a third party may learn our trade secrets through means other than by
breach of our confidentiality agreements, or they could be independently
developed by our competitors.
COMPETITION
The markets for our products are very competitive and price sensitive. We
expect the intensity of competition to increase. Currently, we compete primarily
with other life sciences research product suppliers. Many of our competitors
have greater financial, operational, sales and marketing resources, and more
experience in research and development than us. These competitors and other
companies may have developed or could in the future develop new technologies
that compete with our products or which could render our products obsolete.
Competitors offer a broad range of equipment, laboratory supplies and other
products, including research products that compete with ours. We believe that
customers in our markets display a significant amount of loyalty to their
initial supplier of a particular product. Therefore, we may experience
difficulties in generating sales to customers who initially purchased products
from competitors. Similarly, we believe that there is a significant competitive
advantage in being the first to introduce a new product to market. Accordingly,
we believe that to compete effectively, we will need to consistently be first to
market with important new research products and services. To the extent that we
are unable to be the first to develop and supply new products, our competitive
position may suffer. See "Risk Factors--Competition in the Life Sciences
Research Market Could Reduce Sales."
GOVERNMENT REGULATION
We are not subject to direct governmental regulation other than the laws and
regulations generally applicable to businesses in the jurisdictions in which we
operate, including those governing the handling and disposal of hazardous wastes
and other environmental matters. Our research and development activities involve
the controlled use of small amounts of hazardous materials, chemicals and
radioactive compounds. Although we believe that our safety procedures for
handling and disposing of such materials comply with applicable regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, we could be held liable
for resulting damages; such liability could have a material adverse effect on
us.
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<PAGE>
EMPLOYEES
As of September 30, 1999, we employed approximately 380 persons, of whom 36
hold Ph.D. or M.D. degrees and 43 hold other advanced degrees. Approximately 59
employees are engaged in research and development, 113 in sales and marketing,
160 in manufacturing and 48 in supporting corporate development, intellectual
property, finance and other administrative functions.
Our success will depend in large part upon our ability to attract and retain
employees. We face competition in this regard from other companies, research and
academic institutions, government entities and other organizations. We believe
that we maintain good relations with our employees.
FACILITIES
We lease an approximately 60,000 square foot facility in Carlsbad,
California for our headquarters, as well as for marketing and product support
operations, research and development and manufacturing activities. We presently
pay rent of approximately $40,000 per month with predetermined cost-of-living
rent increases at annual intervals. The lease expires in February 2007. We
believe that adequate facilities will be available upon the conclusion of our
lease. We are currently in negotiation to lease additional space in Carlsbad. We
also own an approximately 17,000 square foot facility in the Netherlands to
support sales and distribution in Europe.
Our NOVEX subsidiary leases two buildings comprising a total of
approximately 41,000 square feet at its San Diego, California location, which is
used for manufacturing as well as for marketing and product support operations,
and research and development. We presently pay rent of approximately $30,000 per
month plus $11,000 per month for tenant improvements. The lease expires in 2000
and we hold options to extend the lease for another two years. We believe that
adequate facilities will be available upon the conclusion of this lease. NOVEX
also leases approximately 12,000 square feet in Frankfurt, Germany and 18,000
square feet in Heidelberg, Germany, which leases run through 2002 and 2001
respectively. Payments under these leases total approximately $22,000 per month
and include all utilities for the Frankfurt facilities.
LEGAL PROCEEDINGS
From time to time we have been and expect to be involved in legal
proceedings arising from our ordinary business operations. In early 1999, our
NOVEX subsidiary received a letter outlining a $1.1 million claim from a
distributor in Austria. The letter stated that the claim arose from the
termination of NOVEX's relationship with the distributor. We also received a
letter from a supplier alleging breach of contract in a supply arrangement. No
formal legal action has been taken in either case. None of the proceedings that
are currently pending are expected to have a material adverse effect on our
financial condition and business operations.
Four former employees of NOVEX, including David E. McCarty, former President
and Chief Executive Officer of NOVEX, former Executive Vice President of
Invitrogen and a current director of Invitrogen and Sheldon Engelhorn, former
Executive Vice President of NOVEX, both selling stockholders in this offering,
have retained counsel and threatened to take legal action against us arising out
of the termination of their employment. These former employees alleged fraud and
wrongful termination in connection with the termination of their employment
following the merger between Invitrogen and NOVEX and the reduction of our U.S.
workforce. These former employees have indicated that their damages would
include lost earnings, severance and the value of unvested stock options which
they lost as a result of the termination of their employment. Mr. Engelhorn has
demanded payment of approximately $158,000 plus pro rata amounts allegedly due
under a bonus plan. Mr. McCarty has requested arbitration of his claims.
Although no formal legal action has been filed and no other specific demands
have been made, actions may be filed against us in the future. Additionally,
other former employees could assert similar or other claims arising out of the
termination of their employment. We are currently evaluating all such claims and
no assurances can be given as to the outcome of any resulting litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning directors and executive
officers of Invitrogen as of September 24, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lyle C. Turner............................ 46 President, Chief Executive Officer and Chairman of
the Board of Directors
James R. Glynn............................ 52 Executive Vice President, Corporate Development,
Chief Financial Officer and Director
Donald W. Grimm........................... 57 Director
Kurt R. Jaggers(1)(2)..................... 40 Director
Bradley G. Lorimier....................... 54 Director
David E. McCarty.......................... 57 Director
Jay M. Short, Ph.D.(2).................... 41 Director
Lewis J. Shuster(1)....................... 44 Director
</TABLE>
- ------------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
LYLE C. TURNER, a founder of Invitrogen, has served as President, Chief
Executive Officer and Director since February 1988. Previously, Mr. Turner
served as Director of Sales and Marketing at Stratagene, a life science research
company, from January 1987 through February 1988, and as Technical Sales
Specialist at Boehringer Mannheim Corp., a pharmaceutical company, from
June 1985 to January 1987. From September 1981 through May 1985, Mr. Turner
worked at Syntro Corporation, an animal health company, at which his final
position was Manager of Business Development. Mr. Turner received his B.A. in
Chemistry from the University of California, San Diego.
JAMES R. GLYNN became a Senior Vice President, Corporate Development, Chief
Financial Officer and Director of Invitrogen in June 1998 and previously served
as Director in 1995. In September 1999, Mr. Glynn became an Executive Vice
President of Invitrogen. From July 1995 to May 1997 he served as Senior Vice
President and Chief Financial Officer and from May 1997 to July 1998 as Chief
Operating Officer, Chief Financial Officer and Director of Matrix
Pharmaceutical, Inc., a company focusing on the treatment of cancer. Mr. Glynn
served as Executive Vice President, Chief Financial Officer and Director of
Mycogen Corporation, an agribusiness and biotechnology company, from April 1987
to February 1995. From 1982 to 1987 Mr. Glynn was Vice President, Finance and
Treasurer of Lubrizol Enterprises, Inc., a venture development company. He is
currently a Director of Matrix Pharmaceutical, Inc. in addition to his positions
with Invitrogen. Mr. Glynn received his B.B.A. in Accounting from Cleveland
State University.
DONALD W. GRIMM has served as a Director of Invitrogen since June 1998. From
September 1995 to March 1998 Mr. Grimm was Managing Director, West Coast for
Copenhagen Capacity, a Danish trade group focused on biotechnology and medical
devices. Since June 1995 he has served as Chairman of the Board and President of
Strategic Design, a strategic planning and consulting company. He was a Director
of MedNet M.P.C. Corp., a medical services company from November 1997 to
December 1997. Mr. Grimm retired from Eli Lilly & Company, a research-based
pharmaceutical company, in 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. From September 1987 to
December 1993, Mr. Grimm served as President, CEO and Chairman of
Hybritech, Inc., a company involved in physical and biological research. For the
six month period between June 1994 and
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December 1994, Mr. Grimm served as President, CEO and Director of Telios
Pharmaceuticals, a pharmaceutical and medical device company. Telios and MedNet
filed petitions for bankruptcy after Mr. Grimm's resignation from those
companies. Mr. Grimm received his B.S. in Pharmacy and M.B.A. from the
University of Pittsburgh. Mr. Grimm is currently a Director of several private
companies and non-profit organizations.
KURT R. JAGGERS has served as a Director of Invitrogen since June 1997.
Mr. Jaggers has served as a Managing Director of TA Associates, Inc., an equity
investment firm, since January 1997. He has also served as a Principal for TA
Associates from 1993 to 1996, and as Vice President of that firm from 1990 to
1992. Mr. Jaggers attended Stanford University, receiving B.S. and M.S. degrees
in Electrical Engineering, and an M.B.A. He is currently a Director of several
private companies.
BRADLEY G. LORIMIER has served as a Director of Invitrogen since
November 1998. Mr. Lorimier has been retired since July 1997. From March 1994 to
June 1997 Mr. Lorimier served as Senior Vice President, Business Development and
Director of Human Genome Sciences, Inc., a biotechnology company. From
July 1991 to March 1994 Mr. Lorimier served as Vice President, Corporate
Development of Ortho-McNeil Pharmaceutical, Inc., a subsidiary of Johnson &
Johnson, a pharmaceutical manufacturing company. He is also currently a Director
of Matrix Pharmaceutical, Inc. as well as several private companies.
DAVID E. MCCARTY has served as a Director of Invitrogen since August 1999.
From August to September 1999 he served as Senior Vice President and in
September 1999 he served as Executive Vice President of Invitrogen. Previously,
Mr. McCarty served as President and Chief Executive Officer of NOVEX, a position
he held from August 1997 through September 1999. Prior to joining NOVEX,
Mr. McCarty was President and CEO of Alexon Biomedical, an immunoassay
diagnostic company which he joined in 1990. Mr. McCarty also serves as a
director of a privately held company. Mr. McCarty holds a B.S. in Chemistry from
California State University at Northridge and an M.B.A. from California State
University at Long Beach. Mr. McCarty is serving as a director of Invitrogen
pursuant to our merger agreement with NOVEX.
JAY M. SHORT has served as a Director of Invitrogen since February 1995.
From September 1994 to the present Dr. Short has served as Chief Executive
Officer, President, Chief Technology Officer and Director of Diversa
Corporation, a biotechnology research company. From September 1985 to
September 1994 Dr. Short held various positions at Stratagene including Vice
President, Research and Development & Operations and Senior Staff Scientist.
Previously, he was President of Stratacyte Inc., a molecular biology company.
Dr. Short received his Ph.D. in Biochemistry from Case Western Reserve
University. Dr. Short is currently a Director of StressGen Biotechnologies
Corporation, a biopharmaceutical company.
LEWIS J. SHUSTER has served as a Director of Invitrogen since June 1998.
Mr. Shuster is presently President and Chief Operating Officer of Pharmacopeia
Laboratories, an operating unit of Pharmacopeia, Inc., a pharmaceutical and
biotechnical research company, a position he has held since February 1999. From
November 1994 to February 1999 Mr. Shuster served as Executive Vice President
and Chief Financial Officer of Pharmacopia, Inc. From September 1992 to
November 1994 Mr. Shuster served as Executive Vice President, Operations and
Finance of Human Genome Sciences, Inc., a pharmaceutical company. Mr. Shuster
received his M.B.A. from Stanford University Graduate School of Business and his
B.A. from Swarthmore College. He is currently a Director of US Biomaterials
Corporation, a private biomedical company.
BOARD OF DIRECTORS
Invitrogen currently has authorized between five and nine directors with the
current number set at eight. Invitrogen's certificate of incorporation provides
for three classes of directors. The terms of Class I, Class II and Class III
directors expire at the annual meeting of stockholders held in 2000, 2001 and
2002, respectively, or at special meetings held instead of such annual meetings.
At each annual
51
<PAGE>
meeting of stockholders after the initial classification, or special meetings
held instead, the successors to directors whose terms will then expire will be
elected to serve until the third annual meeting following their election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of the
board of directors may have the effect of delaying or preventing changes in
control or management of Invitrogen.
Under the terms of the merger with NOVEX, Invitrogen agreed that for the
next two annual meetings of our stockholders we shall include David E. McCarty
on the management slate of director nominees (or, if Mr. McCarty is not then
employed by us, a person designated by a majority-in-interest of the former
stockholders of NOVEX). Accordingly, Mr. McCarty joined the board of directors
immediately after our merger with NOVEX.
BOARD COMMITTEES
The board of directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, which consists of Mr. Jaggers and Mr. Shuster,
reviews the results and scope of the annual audit and meets with our independent
auditors to review our internal accounting policies and procedures. The
Compensation Committee, which consists of Mr. Jaggers and Dr. Short, makes
recommendations to the board of directors with respect to our general and
specific compensation policies and practices and administers our 1995 and 1997
Stock Option Plans and the 1996 and 1998 NOVEX Stock Option Plans we assumed in
connection with our merger.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In March 1997 Invitrogen made an initial investment of $500,000 to acquire
shares of preferred stock and a warrant to purchase shares of preferred stock of
MorphaGen, Inc., a start-up company engaged in the business of researching and
developing Morphatides, a special type of nucleic acid. The President of
MorphaGen, Heidi Short, is the spouse of Dr. Short, a member of the board of
directors of Invitrogen. During 1997, Invitrogen performed research services for
MorphaGen for which it was paid approximately $81,000. In November 1998,
Invitrogen acquired all of the outstanding shares of MorphaGen not already owned
by Invitrogen in exchange for a grant of an option to purchase 50,000 shares of
Invitrogen common stock, at an exercise price of $8.50 per share, to Heidi
Short, payment of royalties contingent upon certain milestones, the assumption
of outstanding options of MorphaGen employees and the assumption of certain
liabilities. MorphaGen was dissolved as a separate corporate entity in 1999.
Dr. Short's father, Roy Short, receives royalties of approximately $100,000 per
year from sales relating to Invitrogen's DNA DipStick product line and
electroporation cuvettes. There were no other interlocks or other relationships
among Invitrogen's executive officers and directors that are required to be
disclosed under applicable executive compensation disclosure requirements.
COMPENSATION OF DIRECTORS
Invitrogen does not currently provide cash compensation to directors for
services as directors, other than to Dr. Short, who receives up to $1,500 per
meeting and Mr. Grimm who receives up to $750 per meeting, both pursuant to
preexisting agreements. Directors may be reimbursed for certain expenses in
connection with attendance at Board of Directors and committee meetings. Since
November 19, 1998, directors who are not employees of Invitrogen receive annual
grants of options to purchase 10,000 shares of common stock in accordance with
the 1997 Stock Option Plan. Options to purchase 30,000 shares of common stock
were granted to non-employee directors of Invitrogen during the year ended
December 31, 1998.
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LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, permitted by
Delaware General Corporation Law, which provide that directors of Invitrogen
shall not be personally liable for monetary damages to Invitrogen or its
stockholders for a violation of the directors' duty to act with care and in the
best interests of the shareholders, except for liability:
- For acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal;
- Under Section 174 of the Delaware Law relating to improper dividends or
distributions; and
- For any transaction from which the director obtained an improper personal
benefit.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware Law. Section 145 of the Delaware
Law empowers us to enter into indemnification agreements with our officers,
directors, employees and agents. We have entered into separate indemnification
agreements with our directors and executive officers which may, in some cases be
broader than the specific indemnification provisions contained in the Delaware
Law. The indemnification agreements may require us, among other things, to
indemnify such executive officers and directors against liabilities that may
arise by reason of status or service as directors or executive officers and to
advance expenses they spend as a result of any proceeding against them as to
which they could be indemnified.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of Invitrogen where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table summarizes, for the periods indicated, the compensation
paid to or earned by our Chief Executive Officer and our other current executive
officer whose aggregate compensation during the fiscal year ended December 31,
1998 exceeded $100,000. Mr. Glynn joined Invitrogen on July 1, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------
SHARES OF
COMMON STOCK
ISSUABLE UPON
EXERCISE OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS($) OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C>
Lyle C. Turner ..................... 1998 $285,601 $270,998 -- --
President and Chief Executive 1997 258,405 640,690
Officer...........................
James R. Glynn ..................... 1998 136,146 123,125 250,000 --
Executive Vice President Corporate 1997 -- -- --
Development and Chief Financial
Officer
</TABLE>
53
<PAGE>
1998 OPTION GRANTS
The following table contains information about the stock option grants in
1998 to the executive officers described in the first sentence of "Executive
Compensation." The table is based on an aggregate of 1,233,500 options granted
by Invitrogen during 1998 to employees of and consultants to Invitrogen. The
exercise price per share of each option was equal to the fair market value of
the common stock on the date of grant as determined by the board of directors.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James R. Glynn.......... 250,000 20.3 $5.60 7/01/08 $880,000 $2,230,000
</TABLE>
- ------------------------------
(1) Options are granted under Invitrogen's 1995 and 1997 Stock Option Plans.
Such options expire ten years from the date of grant, or earlier upon
termination of employment.
Amounts reported in the Potential Realizable Value column above represent
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, assuming that the stock price
on the date of grant appreciates at the specified annual rates of appreciation,
compounded annually over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercises and common stock holdings are dependent
on the time of such exercise and the future performance of Invitrogen's common
stock.
YEAR-END VALUES
The table below provides information about the number and value of options
held by the executive officers described above at December 31, 1998. Since there
was no public trading market for Invitrogen common stock as of December 31,
1998, the values of in-the-money options have been calculated on the basis of
$15.00 per share, the Invitrogen board's good faith determination of the fair
market value of a share of Invitrogen's common stock as of that date, less the
applicable exercise price.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
James R. Glynn............................ 70,833 179,167 $665,830 $1,684,170
</TABLE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
On March 31, 1999 we entered into severance agreements with two of our
former executive officers, Joseph M. Fernandez and Theodore J. DeFrank, pursuant
to their resignations. Under those agreements, each former officer receives
monthly severance pay at their regular salary rate on the date of the
agreements; Mr. DeFrank for six months, Mr. Fernandez for twelve months. Each
former officer additionally entered into consulting agreements with Invitrogen,
for nine months and twelve months respectively. As part of its merger with
NOVEX, in August 1999 Invitrogen assumed an employment agreement with David E.
McCarty, former President and Chief Executive Officer of NOVEX. Under
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<PAGE>
that agreement Mr. McCarty will receive severance pay totaling $240,000 paid
monthly during the twelve month period ending September 2000.
STOCK OPTION PLANS
We have adopted a 1995 Stock Option Plan and a 1997 Stock Option Plan, as
amended November 20, 1998. The 1995 Plan originally provided for the grant of
options to purchase up to 500,000 shares, but specified that the number would be
adjusted due to stock splits. Due to a seven-for-one split, the shares available
for future option grants under the 1995 Plan were increased to 3,500,000. In
May 1997, we adopted the 1997 Plan and discontinued granting options under the
1995 Plan. The 1997 Plan carried forward 3,125,794 shares available for issuance
or subject to outstanding options under the 1995 Plan and added 609,685 shares,
resulting in 3,735,479 shares available for future option grants under the 1997
Plan.
As of the adoption of the 1997 Plan, options to purchase 89,313 shares
granted under the 1995 Plan had been exercised. We have been granting all
options under the 1997 Plan since its adoption. The 1997 Plan was subsequently
amended on two occasions to provide for the issuance of options to purchase an
additional 750,000 shares and 1,000,000 shares of common stock. With those
amendments, the 1997 Plan allows for the issuance of options to purchase up to
5,485,479 shares of common stock.
Under the 1997 Plan, all employees of Invitrogen or any subsidiary, all
directors who are not employees of Invitrogen or any subsidiary and any
independent contractor or advisor who performs services for Invitrogen or a
subsidiary are eligible to receive Nonstatutory Stock Options. Employees are
also eligible to receive Incentive Stock Options intended to qualify under
Section 422A of the Internal Revenue Code of 1986. The 1997 Plan is administered
by a committee of the Board of Directors of Invitrogen, which selects the
persons who will receive options, determines the number of shares in each
option, and prescribes other terms and conditions, including the type of
consideration to be paid to Invitrogen upon exercise and vesting schedules, in
connection with each option. The committee's recommendations are forwarded to
the full board of directors for approval. The 1995 Plan and the NOVEX plans
(discussed below) similarly make employees, officers, directors and consultants
eligible for NSOs and provides that employees are eligible for ISOs. The 1995
Plan may be administered by the board of directors or a committee.
Under the 1997 Plan, after November 19, 1998, outside directors receive an
initial NSO to purchase 10,000 shares when they are first appointed or elected
to the board of directors. In addition, our outside directors, including outside
directors that were formerly employees of Invitrogen, will automatically receive
an option to purchase 10,000 shares of common stock at each annual meeting of
stockholders after their election, provided such director has served at least
six months. The first such grants were in January 1999. The exercise price of
the options in all cases will be equal to the fair market value of the common
stock on the date of grant. Options received by outside directors generally vest
over three years and must be exercised within ten years.
With respect to NSOs granted under the 1997 Plan at the discretion of the
board of directors upon committee recommendation, the exercise price must be at
least 85% of the fair market value of the common stock on the date of grant. The
exercise price under ISOs cannot be lower than 100% of the fair market value of
the common stock on the date of grant and, in the case of ISOs given to holders
of more than 10% of the voting power of Invitrogen, not less than 110% of such
fair market value. The term of an option cannot exceed ten years, and the term
of an ISO given to a holder of more than 10% of the voting power of Invitrogen
cannot exceed five years. Options generally expire not later than 90 days
following a termination of employment, 12 months following the optionee's
disability, or not later than 12 months following the optionee's death. The
terms for options granted under the 1995 Plan are substantially similar to those
granted under the 1997 Plan.
Effective August 17, 1999, Invitrogen assumed NOVEX's 1996 and 1998 Stock
Option/Stock Issuance Plans in connection with the merger of Invitrogen and
NOVEX. Pursuant to the terms of the merger, each outstanding NOVEX common stock
option was assumed and converted into an option to
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<PAGE>
acquire the number of shares of Invitrogen common stock obtained by multiplying
the number of shares of NOVEX common stock subject to the option by the exchange
ratio used in the merger. The terms of NOVEX's 1996 and 1998 Stock Option/Stock
Issuance Plans are substantially similar to Invitrogen's 1995 Plan and 1997
Plan. All options granted to NOVEX employees after the merger have been and will
be granted under Invitrogen's 1997 Plan.
As of September 30, 1999, there were outstanding options to purchase an
aggregate of 3,908,662 shares of common stock at exercise prices ranging from
$.8357 to $28.125 per share, or a weighted average exercise price per share of
$9.46 under the 1995 Plan and the 1997 Plan and the NOVEX plans. Options to
acquire 743,413 shares have been exercised. As of September 30, 1999 a total of
1,374,504 shares of common stock were available for future option grants under
the 1995 Plan and the 1997 Plan, and none were available for future option
grants under the NOVEX plans. If any option granted under the 1997 Plan expires,
terminates or is canceled for any reason, or if shares of stock issued subject
to a right of repurchase are repurchased by Invitrogen, the shares allocable to
the unexercised option or the repurchased shares will become available for
additional option grants under the 1997 Plan. The 1995 Plan similarly allows the
shares allocable to expired or terminated options to be made available for
additional option grants, but does not explicitly discuss the acquisition by
Invitrogen of shares subject to repurchase.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1989 we adopted the Invitrogen Corporation Employee Stock Ownership Plan
(ESOP), as amended January 1, 1993, amended and restated January 1, 1996 and as
amended August 31, 1997 and November 24, 1998. The ESOP's purpose was to reward
eligible employees for service to Invitrogen by providing them with retirement
benefits. The ESOP was a qualified retirement plan designed to comply with
provisions of sections 4975(e)(7) and 401(a) of the Internal Revenue Code, the
Employment Retirement Income Security Act of 1974 and applicable regulations.
We terminated contributions to the ESOP Trust as of December 31, 1998, which
accelerated vesting of all ESOP participants. Contributions historically were
made in the form of common stock, as valued by an independent valuation firm.
Contributions were allocated based on the participants' compensation and
employees were eligible to participate in the ESOP after one year of service.
Distributions from the ESOP Trust to vested employees occur upon their
retirement, death, total and permanent disability or termination. The ESOP has
been submitted to the Internal Revenue Service for a determination letter in
connection with its termination. When the determination letter is received, the
ESOP will be fully terminated and distributions of all plan assets will be made
from the ESOP as directed by its participants. An employee may elect to receive
distributions in the form of cash or Invitrogen stock and may elect to receive
the distribution in a lump sum or in installments over a period not to exceed
the shorter of (1) his/her life expectancy or the combined life expectancy of
the participant and his/her beneficiary or (2) a period between five and ten
years, depending upon the value of the participant's ESOP account balance.
Invitrogen stock distributed to beneficiaries is subject to a right of first
refusal by Invitrogen and the ESOP Trust before any sale to a third party.
The ESOP trustees are Lyle C. Turner and Lisa G. McCurdy. The trustees vote
all Invitrogen stock held by the ESOP Trust, except that individual
beneficiaries may direct the voting of stock allocated to their accounts. The
ESOP may be amended or terminated by us at any time, subject to certain
restrictions, the Internal Revenue Code and ERISA.
As of September 30, 1999 the ESOP Trust held 1,203,499 shares of Invitrogen
stock as well as $461,000 invested in a money-market fund.
NOVEX has also established a 401(k)/ESOP Plan. The NOVEX Plan was originally
established in April 1995 only as an ESOP which allowed employees to acquire
shares of NOVEX stock and thus participate in the growth of the company. Between
its inception and April 1997, the NOVEX Plan was funded through contributions by
the company. In April 1997 the NOVEX Plan was amended to add a
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<PAGE>
401(k) feature which allows employees to contribute salary deductions on a
pretax basis. We contribute to the NOVEX Plan by matching employees' salary
deductions.
NOVEX employees who complete 1,000 hours or more in a twelve-month period
are eligible to participate in the NOVEX Plan. These employees vest in the
amounts contributed by NOVEX over a six-year period at 20% per year beginning
with their second year of service. Distributions from the NOVEX Plan are made
under substantially the same conditions and restrictions as outlined for the
Invitrogen Plan above, except that no right of first refusal exists on the
Invitrogen common stock held by the NOVEX Plan Trust.
The NOVEX Plan is administered by a Committee appointed by the board of
directors. Union Bank of California is the NOVEX Plan's trustee. The Committee
votes the NOVEX Plan's stock except with respect to matters as listed above in
the description of Invitrogen's Plan. The NOVEX Plan may be amended or
terminated at any time, subject to the same restrictions as Invitrogen's Plan.
As of the closing of the merger with Invitrogen, the NOVEX Plan held 628,005
shares of NOVEX common stock, which were converted into 145,622 shares of
Invitrogen common stock. The NOVEX Plan also has cash assets invested in various
mutual and money-market funds as directed by participants.
Invitrogen intends to terminate the NOVEX Plan, to distribute its assets to
the participants or roll those assets into the Invitrogen 401(k) Plan or other
qualified retirement plans designated by the participants, and to enroll the
NOVEX Plan participants who wish to do so in the Invitrogen Section 401(k) Plan
(see below) as of January 1, 2000.
1998 EMPLOYEE STOCK PURCHASE PLAN
A total of 250,000 shares of Invitrogen common stock have been reserved for
issuance under our 1998 Employee Stock Purchase Plan. Of those, 17,454 have been
issued as of September 30, 1999. The employee stock purchase plan permits
eligible employees to purchase common stock at a discount through payroll
deductions, during 24-month offering periods. Unless the board of directors
establishes different periods, each offering period will be divided into eight
consecutive three-month purchase periods. Unless the board of directors
establishes a higher purchase price, the price at which stock is purchased under
the employee stock purchase plan shall be equal to 85% of the fair market value
of the common stock on the first day of the offering period or the last day of
the purchase period, whichever is lower.
SECTION 401(k) PLAN
Effective June 1, 1994, Invitrogen adopted a 401(k) tax-deferred savings
plan for the benefit of its employees. The 401(k) Plan is intended to be a
qualified retirement plan under section 401(a) of the Internal Revenue Code. Our
employees are eligible to make salary deferral contributions to the 401(k) Plan
upon the completion of three months of employment and to participate in employer
non-elective and matching contributions to the 401(k) Plan upon the completion
of 1,000 hours of service. We may, but are not required to, make matching
contributions to the 401(k) Plan based on the participants' salary deferral
contributions. Our contributions are subject to a graduated vesting schedule
based upon an employee's years of service with Invitrogen. All contributions to
the 401(k) Plan are held in a trust which is intended to be exempt from income
tax under Section 501(a) of the Internal Revenue Code. The 401(k) Plan's
trustees are Lyle C. Turner and James R. Glynn. Participants may direct the
investment of their contributions among specified Salomon Smith Barney
investment funds. The 401(k) Plan may be amended or terminated by us at any
time, subject to certain restrictions imposed by the Internal Revenue Code and
ERISA.
57
<PAGE>
CERTAIN TRANSACTIONS
In June 1997, we sold a total of 2,202,942 shares of convertible preferred
stock at $6.8091 per share, for an aggregate purchase price of approximately
$15 million, to three accredited investors, each of which are affiliates of TA
Associates. Kurt R. Jaggers, a director of Invitrogen, is a Managing Director of
TA Associates. Concurrently with the sale of the convertible preferred stock, we
repurchased and retired 1,101,471 shares of common stock at $6.8091 per share,
for an aggregate purchase price of approximately $7.5 million, from Lyle C.
Turner, Joseph M. Fernandez, Anh Nguyen and Malcolm Finlayson, executive
officers and former executive officers of Invitrogen. In this transaction, the
TA Associates affiliates acquired registration rights with respect to the common
stock issued or issuable upon conversion of the convertible preferred stock.
At the closing of our initial public offering, the convertible preferred
stock was converted into an equal number of shares of common stock and
redeemable preferred stock, and such redeemable preferred stock was redeemed out
of proceeds of that offering at a cost of approximately $13.5 million.
Additionally, holders of the convertible preferred stock received accumulated
dividends of approximately $1.5 million.
In December 1998, Invitrogen received a promissory note from Mr. Turner in
the amount of $150,000. The note, secured by a pledge of 16,000 shares of
Invitrogen common stock, is due in December 1999 and bears interest of 6.5%.
During 1997 and 1998, Invitrogen leased an airplane from Turner Aviation, a
company controlled by Mr. Turner, for $7,200 per month. Invitrogen had also
advanced $150,000 to Turner Aviation to assist in the acquisition of the plane.
The lease agreement terminated in February 1999, upon the closing of
Invitrogen's initial public offering. The advance was repaid through the
December 1998 promissory note described above.
In connection with our acquisition of MorphaGen, Inc., in November 1998 we
issued an option to purchase 50,000 shares of our common stock to the spouse of
Dr. Short, one of our directors. See "Management-Compensation Committee
Interlocks and Insider Participation."
Dr. Short's father, Roy Short, receives royalties of approximately $100,000
per year from sales relating to Invitrogen's DNA DipStick product line and
electroporation cuvettes.
Invitrogen has entered into indemnification agreements with each of its
officers and directors containing provisions which may require us, among other
things, to indemnify its officers and directors against liabilities that may
arise by reasons of their status or service as officers or directors and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. Invitrogen also intends to execute such
agreements with its future directors and executive officers.
On August 17, 1999 Invitrogen issued to David E. McCarty, a former executive
officer and a current director of Invitrogen, an option to purchase 110,000
shares of our common stock at an exercise price of $28.125 per share, in
connection with his employment by Invitrogen following the merger with NOVEX.
His employment terminated on September 20, 1999. In connection with the
acquisition of NOVEX, Invitrogen also assumed NOVEX's obligations under an
employment agreement with Mr. McCarty and options held by Mr. McCarty to
purchase NOVEX common stock, which were converted into options to purchase
139,128 shares of Invitrogen common stock at an exercise price of $4.14 per
share. See "Management--Employment and Severance Arrangements."
58
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the shares of our common stock as of September 30, 1999, by:
- Each person Invitrogen knows to be the beneficial owner of 5% or more of
the outstanding shares of common stock, together with the affiliates of
such person;
- Each executive officer listed in the Summary Compensation Table;
- Each director of Invitrogen, who, where applicable, is listed under the
name of the principal stockholder with which he is affiliated; and
- All executive officers and directors of Invitrogen as a group.
Except in cases where community property laws apply or as indicated in the
footnotes to this table, Invitrogen believes that each stockholder identified in
the table possesses sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by such stockholder. Unless
otherwise noted, the address of the individuals and the Invitrogen ESOP Trust
listed below is c/o Invitrogen Corporation, 1600 Faraday Avenue, Carlsbad,
California 92008.
<TABLE>
<CAPTION>
SHARES THAT MAY
BE ACQUIRED
WITHIN 60 DAYS
SHARES BENEFICIALLY OF
SHARES BENEFICIALLY SHARES BEING OWNED AFTER THE SEPTEMBER 30,
OWNED OFFERED OFFERING 1999(2)
--------------------- ------------ -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER PERCENT(1) NUMBER PERCENT
Lyle C. Turner(3)........................ 5,718,996 35.4% 800,000 4,918,996 26.0% --
Joseph M. Fernandez(4)................... 1,823,369 11.2 300,000 1,523,369 8.1 159,607
TA Associates(5)......................... 1,702,942 10.5 820,000 882,942 4.7 --
Kurt R. Jaggers
TA Associates, Inc.
125 High Street Tower, Suite 2500
Boston, Massachusetts 02110
ESOP Trust Fund
Lyle C. Turner and Lisa G. McCurdy, co-
trustees(6)............................ 1,203,499 7.4 0 1,203,499 6.4 --
Sheldon C. Engelhorn(7).................. 983,686 6.1 500,000 483,686 2.6 --
Ampersand Ventures(8).................... 973,901 6.0 750,000 223,901 1.2 --
55 William Street, Suite 240
Wellesly, MA 02181
Essex Investment Management, LLC......... 905,960 5.6 0 905,960 4.8 --
125 High Street, 29(th) floor
Boston, MA 02110
Charlie B. McAtee(9)..................... 271,134 1.7 80,000 191,134 1.0 214,000
Ann M. McCormick(10)..................... 182,183 1.1 30,000 152,183 * 155,250
Glenn E. Davies(11)...................... 178,394 1.1 30,000 148,394 * 155,300
Wilfred S. Paul(12)...................... 167,700 1.0 50,000 117,700 * 166,000
Jay M. Short(13)......................... 154,500 * 90,000 64,500 * 129,500
James R. Glynn........................... 117,114 * 0 117,114 * 116,665
David E. McCarty(14)..................... 93,381 * 50,000 43,381 * 93,313
Donald W. Grimm.......................... 23,000 * 0 23,000 * 20,000
Lewis J. Shuster......................... 17,500 * 0 17,500 * 17,500
Bradley G. Lorimier...................... 10,000 * 0 10,000 * 10,000
All Directors and Executive Officers as a
group (8 persons)(15).................. 7,837,433 47.3 1,760,000 6,077,433 31.7 386,978
</TABLE>
- ------------------------------
* Less than 1%.
59
<PAGE>
(1) Percentage of ownership is based on: 16,175,259 shares of common stock
outstanding as of September 30, 1999. Shares of common stock that an
individual or group has the right to acquire within 60 days of
September 30, 1999, pursuant to the exercise of options are deemed to be
outstanding for the purposes of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
(2) Includes 330,000 shares of common stock subject to options which selling
stockholders exercised and sold in connection with this offering.
(3) Mr. Turner is President, Chief Executive Officer, and Chairman of the board
of directors of Invitrogen. As co-trustee of the Invitrogen ESOP Trust, Mr.
Turner has certain voting and investment power with respect to the 1,203,499
shares held of record by the Invitrogen ESOP Trust. These shares are also
included for Ms. McCurdy, the other co-trustee, and are included once for
the category, "All Directors and Executive Officers as a Group." Mr. Turner
disclaims beneficial ownership of such shares, except with respect to the
162,645 shares in the Invitrogen ESOP Trust as to which Mr. Turner holds a
pecuniary interest.
(4) Includes 1,550,341 held by the Fernandez Family Trust and 113,421 shares
held of record by the Invitrogen ESOP Trust as to which Mr. Fernandez holds
a pecuniary interest.
(5) Includes 1,410,304 shares by TA/Advent VIII L.P. before the offering and
731,215 shares held after the offering, 264,432 shares held by Advent
Atlantic and Pacific III L.P. before the offering and 137,103 shares held
after the offering, and 28,206 shares held by TA Venture Investors L.P.
before the offering and 14,624 shares held after the offering. Atlantic and
Pacific III, L.P. and TA Venture Investors L.P. are part of an affiliated
group of investment partnerships referred to collectively as TA Associates
Group. The general partner of TA/Advent VIII, L.P. is TA Associates VIII
LLC. The general partner of Advent Atlantic and Pacific III, L.P. is TA
Associates AAP III Partners. The general partner of each of TA Associates
VIII LLC. and TA Associates AAP III Partners is TA Associates, Inc. In such
capacity, TA Associates, Inc. exercises sole voting and investment power
with respect to all of the shares held of record by the named investment
partnerships, with the exception of those shares held by TA Venture
Investors, L.P.; individually, no stockholder, director or officer of TA
Associates, Inc., is deemed to have or share such voting or investment
power. Principals and employees of TA Associates, Inc., including
Mr. Jaggers, a director, comprise the general partners of TA Venture
Investors, L.P. In such capacity, Mr. Jaggers may be deemed to share voting
and investment power with respect to the 28,206 shares held of record by TA
Venture Investors, L.P. Mr. Jaggers disclaims beneficial ownership of such
shares.
(6) As co-trustee of the Invitrogen ESOP Trust, Ms. McCurdy has certain voting
and investment power with respect to the 1,203,499 shares held of record by
the Invitrogen ESOP Trust. These shares are also included for Mr. Turner,
the other co-trustee, and are included once for the category, "All Directors
and Executive Officers as a Group." Ms. McCurdy disclaims beneficial
ownership of such shares.
(7) Includes 9,783 shares held by NOVEX's ESOP Trust Fund as to which
Mr. Engelhorn holds a pecuniary interest.
(8) Includes 182,606 shares held by Laboratory Partners I Limited Partnership
before the offering and 41,981 shares held after the offering, 60,868 shares
held by Laboratory Partners Companion Fund Limited Partnership before the
offering and 13,993 shares held after the offering, and 730,427 shares held
by Ampersand Specialty Materials and Chemicals II Limited Partnership before
the offering and 167,927 shares held after the offering. Laboratory Partners
I Limited Partnership, Laboratory Partners Companion Fund Limited
Partnership, and Ampersand Specialty Materials and Chemicals II Limited
Partnership are part of an affiliated group of investment partnerships
referred to collectively as Ampersand Ventures. Ampersand Lab Partners MCLP
LLP is the general partner of Ampersand Lab Partners Management Company
Limited Partnership, which is the general partner of Laboratory Partners I
Limited Partnership and Laboratory Partners Companion Fund Limited
Partnership, which exercises sole voting and investment power with respect
to all of the shares held of record by Laboratory Partners I Limited
Partnership and Laboratory Partners Companion Fund Limited Partnership.
ASMC-II MCLP LLP is the general partner of ASMC-II Management Company
Limited Partnership, which is the general partner of Ampersand Specialty
Materials and Chemicals II Limited Partnership, which exercises sole voting
and investment power with respect to all of the shares held of record by
Ampersand Specialty Materials and Chemicals II Limited Partnership.
(9) Includes 47,102 shares held of record by the Invitrogen ESOP Trust as to
which Mr. McAtee holds a pecuniary interest.
(10) Includes 26,144 shares held of record by the Invitrogen ESOP Trust as to
which Ms. McCormick holds a pecuniary interest.
(11) Includes 22,394 shares held of record by the Invitrogen ESOP Trust as to
which Mr. Davies holds a pecuniary interest.
(12) Includes 960 shares held of record by the Invitrogen ESOP Trust as to which
Mr. Paul holds a pecuniary interest.
(13) Includes options to purchase 5,000 shares held of record by Dr. Short's
spouse.
(14) Includes 68 shares held of record by NOVEX's ESOP Trust Fund as to which
Mr. McCarty holds a pecuniary interest.
(15) Includes 1,203,499 shares held by the Invitrogen ESOP Trust as to which
Mr. Turner owns a beneficial interest. Includes 68 shares held of record by
NOVEX's ESOP Trust Fund as to which Mr. McCarty holds a pecuniary interest.
Includes options to purchase 5,000 shares held of record by Dr. Short's
spouse.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The information set forth below is a general summary of the capital stock
structure of Invitrogen. As a summary, this section is qualified and not a
substitute for the provisions of Invitrogen's certificate of incorporation, as
amended and Invitrogen's bylaws, as amended, both of which are on file with the
SEC.
AUTHORIZED CAPITAL STOCK
Invitrogen's authorized capital stock consists of 50,000,000 shares of
common stock, par value $0.01 per share, and 6,405,884 shares of preferred
stock, par value $0.01 per share.
COMMON STOCK
As of September 30, 1999, 16,175,259 shares of Invitrogen common stock were
outstanding. In addition, 5,665,712 shares of Invitrogen common stock were
reserved and available for issuance pursuant to Invitrogen's employee benefit
plans, including 424,940 shares reserved for issuance upon exercise of the NOVEX
options assumed in the recent merger.
The holders of Invitrogen common stock are entitled to receive ratably, from
funds legally available for the payment thereof, dividends when and as declared
by resolution of the board of directors, subject to any preferential dividend
rights which may be granted to holders of any preferred stock authorized and
issued by the board of directors. Traditionally, Invitrogen has not declared and
paid dividends. In the event of liquidation, each share of Invitrogen common
stock is entitled to share pro rata in any distribution of Invitrogen's assets
after payment or providing for the payment of liabilities and any liquidation
preference of any preferred stock authorized and issued by the board of
directors. Each holder of Invitrogen common stock is entitled to one vote for
each share of Invitrogen common stock held of record on the applicable record
date on all matters submitted to a vote of shareholders, including the election
of directors.
Holders of Invitrogen common stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other securities,
and there are no conversion rights or redemption rights or sinking fund
provisions with respect to Invitrogen common stock. All outstanding shares of
Invitrogen common stock are duly authorized, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
As of September 30, 1999, no shares of preferred stock were outstanding.
The board of directors has the authority, without further action by the
stockholders, to issue from time to time the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers, and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
Invitrogen.
REGISTRATION RIGHTS
Under a Stock Purchase and Stockholders' Agreement dated June 20, 1997,
after this offering the holders of approximately 882,942 shares of Invitrogen
common stock, or persons to whom such holders transfer the common stock, have
registration rights with respect to such shares. If Invitrogen proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders, holders of shares entitled
to registration rights are entitled to notice of such
61
<PAGE>
registration and are entitled to include their shares in such registration, at
Invitrogen's expense. However, the underwriters of any such offering have the
right to limit the number of shares included in such registration. In addition,
holders of at least 50% of the shares entitled to registration rights
outstanding may require Invitrogen to prepare and file a registration statement
under the Securities Act, at Invitrogen's expense, covering such shares, and
Invitrogen is generally required to use its best efforts to effect such
registration. Invitrogen is not obligated to effect more than two of these
stockholder-initiated registrations. Further, holders of shares entitled to
registration rights generally may require Invitrogen to file additional
registration statements on Form S-3.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
We are required to follow Section 203 of the Delaware Law, an anti-takeover
law. In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. A "business combination" includes a merger, asset or stock
sale or other transaction resulting in financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deterring or preventing a change of control of Invitrogen without
further actions by the stockholders.
Invitrogen's certificate of incorporation provides that any action permitted
to be taken by stockholders of Invitrogen must be effected at a duly-called
annual or special meeting of stockholders and will not be able to be effected by
a consent in writing. The board of directors is composed of a classified board
where only one-third of the directors are eligible for election in any given
year. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of Invitrogen and may maintain incumbents on the board of directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors. Our certificate of incorporation also requires the approval of at
least two-thirds of the total number of authorized directors in order to adopt,
amend or repeal our bylaws. In addition, our certificate of incorporation
similarly permits the stockholders to adopt, amend or repeal our bylaws only
upon the affirmative vote of the holders of at least two-thirds of the voting
power of all then outstanding shares of stock entitled to vote. Also, a director
is removable by stockholders only for cause. Vacancies on the board of directors
resulting from death, resignation, removal or other reason may be filled by a
majority of the directors or a majority of the shares entitled to vote. In
general, other vacancies are to be filled by a majority of the directors.
Lastly, the provisions in the certificate of incorporation described above and
other provisions pertaining to the limitation of liability and indemnification
of directors may be amended or repealed only with the affirmative vote of the
holders of at least two-thirds of the voting power of all then outstanding
shares of stock entitled to vote. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of
Invitrogen, which could have an adverse effect on the market price of the our
common stock.
Invitrogen's bylaws also contain many of the above provisions found in
Invitrogen's certificate of incorporation. Our bylaws do not permit stockholders
to call a special meeting. In addition, our bylaws provide an advance notice
procedure with regard to matters to be brought before an annual or special
meeting of stockholders of Invitrogen, including the election of directors.
Business permitted to be conducted in any annual meeting or special meeting of
stockholders is limited to business properly brought before the meeting.
TRANSFER AGENT AND REGISTRAR
Boston EquiServe L.P., is the transfer agent and registrar for the
Invitrogen stock.
STOCK EXCHANGE LISTING
Invitrogen's stock is quoted on the Nasdaq National Market under the symbol
"IVGN."
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock in the public market
could adversely affect market prices prevailing from time to time. As described
below, only a limited number of shares will be available for sale shortly after
this offering due to certain contractual and legal restrictions on resale.
Nevertheless, sales of substantial amounts of our common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price at such time and the ability of Invitrogen to raise equity capital in the
future.
- Upon the closing of this offering, we will have outstanding an aggregate
of approximately 18,905,259 shares of common stock based on the number of
shares of common stock outstanding at September 30, 1999, and assuming no
exercise of the underwriters' over-allotment option.
- Of these shares, approximately 6,938,984 shares previously registered and
the 5,900,000 shares of common stock to be sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless such shares are held by "affiliates" of Invitrogen
as such term is defined in Rule 144 of the Securities Act. However, some
of these shares will be subject to lock-up agreements, as described below.
- All remaining shares held by our existing stockholders were issued and
sold by Invitrogen in private transactions and are eligible for public
sale if registered under the Securities Act or sold in accordance with
Rule 144 and Rule 701 thereunder, which are summarized below.
Invitrogen's directors, executive officers and the selling stockholders will
together hold an aggregate of approximately 6,969,811 shares of common stock
after the offering. These stockholders have signed lock-up agreements which
prevent them from selling any common stock owned by them for a period of
90 days from the date of this prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. When determining whether or
not to release shares from the lock-up agreements, DLJ will consider, among
other factors, the stockholder's reasons for requesting the release, the number
of shares for which the release is being requested and market conditions at the
time. After giving effect to lock-up agreements with DLJ and the provisions of
Rule 144 and Rule 701, approximately 11,935,448 of the outstanding common shares
will be freely tradable on the date of this prospectus, subject to the
applicable volume limitations. Upon expiration of the lock-up period, all of our
outstanding shares will be freely tradable, subject to the same volume
limitations.
In general, under Rule 144 as currently in effect, a person or persons whose
shares are aggregated, including an "affiliate", who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of either 1% of the then
outstanding shares of common stock or the average weekly trading volume of the
common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. One
percent of the outstanding shares of common stock would be 189,053 shares
immediately after the offering. Sales under Rule 144 are also subject to
prescribed requirements regarding the manner of sale, notice and availability of
current public information about Invitrogen. Under Rule 144(k), a person who is
not deemed to have been an "affiliate" of Invitrogen at any time during the
90 days preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years, would be entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice requirements described above. Therefore, unless otherwise restricted,
"144(k) shares" may be sold immediately following completion of the offering
without limitations as to volume.
In general, under Rule 701 of the Securities Act as currently in effect, any
employee, consultant or advisor of Invitrogen, except for "affiliates," who
purchased shares from us in connection with a compensatory stock or option plan
or written employment agreement is eligible to resell such shares 90 days after
the effective date of our initial public offering in reliance on Rule 144, by
complying with the
63
<PAGE>
applicable requirements of Rule 144 other than the holding period, volume,
current public information and the filing of a Form 144 requirements.
Invitrogen has filed registration statements under the Securities Act
covering shares of common stock reserved for issuance under stock option,
employee stock purchase and 401(k) plans. After the closing of this offering,
such registration statements will cover approximately 5,335,712 reserved but
unissued shares. These shares will, subject to Rule 144 volume limitations
applicable to affiliates, be available for immediate sale in the public market
upon issuance, unless such shares are subject to lock up agreements described
above.
Holders of approximately 882,942 shares of common stock issued in
February 1999 upon the conversion of the convertible preferred stock have the
right to cause Invitrogen to register the sale of such shares under the
Securities Act. Registration of such shares under the Securities Act would
generally result in such shares becoming freely tradable without restriction
under the Securities Act immediately upon the effectiveness of such
registration. However, shares purchased by affiliates of Invitrogen would not be
freely tradable. See "Risk Factors--Future Sales of Currently Outstanding Shares
Could Adversely Affect Our Stock Price," "Management--Stock Option Plans,"
"Management--Employee Stock Ownership Plan," "Management--1998 Employee Stock
Purchase Plan," and "Description of Capital Stock--Registration Rights."
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
October 26, 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC, U.S.
Bancorp Piper Jaffray Inc. and Dain Rauscher Wessels have each agreed to
purchase from Invitrogen and the selling stockholders the respective number of
shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... 2,900,000
Hambrecht & Quist LLC....................................... 1,160,000
U.S. Bancorp Piper Jaffray Inc.............................. 1,160,000
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.............................................. 580,000
DLJDIRECT Inc............................................... 100,000
----------
Total................................................... 5,900,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock offered by this
prospectus are subject to conditions set forth in the Underwriting Agreement.
Except for shares covered by the over-allotment option described below, the
underwriters are obligated to purchase and accept delivery of all the shares of
common stock offered by this prospectus if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers, including the
underwriters, at such price less a concession not in excess of 75 CENTS per
share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of 10 CENTS per share. After the
initial offering of the common stock, the public offering price and other
selling terms may be changed by the representatives of the underwriters at any
time without notice. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The underwriters have an option, exercisable within 30 days after the date
of this prospectus, to purchase up to an aggregate of 885,000 additional shares
of common stock at the public offering price less underwriting discounts and
commissions. The underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the offering. To the extent that
the underwriters exercise such option, each underwriter will become obligated,
subject to certain conditions, to purchase its pro rata portion of such
additional shares based on such underwriter's percentage underwriting commitment
as indicated in the preceding table.
Invitrogen and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make in respect thereof.
Each of Invitrogen, its executive officers and directors and certain
stockholders of Invitrogen has agreed, subject to certain exceptions, not to:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock or
65
<PAGE>
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock for a period of 90 days after the date of this prospectus without
the prior written consent of DLJ.
In addition, during such period, we have also agreed not to file any
registration statement with respect to any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without DLJ's prior written consent. Each of our executive officers, directors
and certain stockholders have agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without DLJ's prior written consent.
Other than in the United States, no action has been taken by Invitrogen, the
selling stockholders or the underwriters that would permit a public offering of
the shares of common stock offered by this prospectus in any jurisdiction where
action for that purpose is required. The shares of common stock offered by this
prospectus may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares of common stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the offering of the
common stock and the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any shares of
common stock offered hereby in any jurisdiction in which such an offer or a
solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot the offering, which would involve
syndicate sales in excess of the offering size, creating a syndicate short
position. The underwriters may bid for and purchase shares of common stock in
the open market to cover such syndicate short position or to stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. These activities may stabilize or maintain the market
price of the common stock above independent market levels. These transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued any time.
66
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for Invitrogen by Gray Cary Ware & Freidenrich LLP, San Diego, California.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Latham & Watkins, San Diego, California.
EXPERTS
The consolidated financial statements of Invitrogen Corporation as of
December 31, 1998 and 1997 and for the three years in the period ended
December 31, 1998 included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, of which
this prospectus is a part, under the Securities Act with respect to the shares
of common stock offered hereby. This prospectus does not contain all of the
information contained in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and our common stock, we refer you to the registration statement and the
exhibits and schedules filed as part of the registration statement. Statements
in this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to that exhibit. Each
statement in this prospectus relating to a contract or document filed as an
exhibit to the registration statement is qualified by the filed exhibits.
IN ADDITION, WE FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE SEC. YOU MAY READ AND COPY ANY DOCUMENT WE FILE AT THE SEC'S PUBLIC
REFERENCE ROOMS IN WASHINGTON, D.C., NEW YORK, NEW YORK AND CHICAGO, ILLINOIS.
PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION ON THE PUBLIC
REFERENCE ROOMS. OUR SEC FILINGS ARE ALSO AVAILABLE TO THE PUBLIC ON THE SEC'S
WEBSITE AT HTTP://WWW.SEC.GOV.
67
<PAGE>
INVITROGEN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVITROGEN CORPORATION
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997
and 1996.............................................. F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996........... F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997
and 1996.............................................. F-7
Notes to Consolidated Financial Statements.............. F-8
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Interim Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998............................. F-26
Interim Consolidated Statements of Income for the Three
Months and Nine Months ended September 30, 1999 and
1998................................................... F-27
Interim Consolidated Statements of Cash Flows for the
Nine Months ended
September 30, 1999 and 1998........................... F-28
Notes to Interim Consolidated Financial Statements...... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Invitrogen Corporation:
We have audited the accompanying consolidated balance sheets of Invitrogen
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Invitrogen Corporation and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
August 17, 1999
F-2
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,316 $ 5,540
Short-term investments.................................... 4,214 3,777
Accounts receivable, net of allowance for doubtful
accounts of $266 and $306............................... 5,628 3,934
Note receivable officer................................... 150 --
Inventories............................................... 5,374 2,753
Deferred income taxes..................................... 767 991
Prepaid expenses and other current assets................. 1,294 629
------- -------
Total current assets.................................... 19,743 17,624
Property and Equipment, net................................. 10,036 4,743
Intangible Assets, net...................................... 1,708 1,152
Deferred income taxes....................................... 106 --
Other Assets................................................ 457 428
------- -------
Total assets............................................ $32,050 $23,947
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank...................................... $ 779 $ 963
Current portion of long term obligations.................. 995 529
Accounts payable.......................................... 3,106 1,911
Accrued expenses.......................................... 2,836 1,895
Income taxes payable...................................... 802 499
------- -------
Total current liabilities............................... 8,518 5,797
------- -------
Long term obligations....................................... 1,116 628
------- -------
Commitments and contingencies
Non-voting Redeemable Common Stock of Invitrogen B.V;
Subsidiary common stock, 66,000 shares authorized and
18,000 issued; final liquidation value of $1,507 (NLG
3,150).................................................... 1,599 1,295
------- -------
Convertible Redeemable Preferred Stock; $0.01 par value,
2,202,942 shares authorized; 2,202,942 shares issued and
outstanding on December 31, 1998 and 1997; 6% redeemable
convertible, converted subsequent to December 31, 1998
(see Note 14)............................................. 16,141 15,242
------- -------
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares
authorized; 9,948,035 and 9,949,230 shares issued and
outstanding at December 31, 1998 and 1997,
respectively............................................ 100 100
Additional paid-in-capital................................ 4,705 3,757
Deferred compensation..................................... (962) (495)
Value of common stock designated pursuant to Employee
Stock
Ownership Plan.......................................... 100 100
Foreign currency translation adjustment................... (40) (124)
Retained earnings (deficit)............................... 773 (2,353)
------- -------
Total stockholders' equity.............................. 4,676 985
------- -------
Total liabilities and stockholders' equity.............. $32,050 $23,947
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues.................................................... $53,660 $ 41,182 $32,556
Cost of Revenues............................................ 19,191 15,958 12,094
------- -------- -------
Gross margin.............................................. 34,469 25,224 20,462
------- -------- -------
Operating Expenses:
Sales and marketing....................................... 11,352 8,305 6,563
General and administrative................................ 8,091 7,312 6,291
Research and development.................................. 8,603 5,918 3,882
------- -------- -------
Total operating expenses................................ 28,046 21,535 16,736
------- -------- -------
Income from operations.................................. 6,423 3,689 3,726
------- -------- -------
Other Income (Expense):
Net gains on foreign currency transactions................ 25 145 172
Interest and other expense................................ (249) (242) (218)
Interest and other income................................. 441 214 74
------- -------- -------
217 117 28
------- -------- -------
Income before provision for income taxes.................... 6,640 3,806 3,754
Provision for income taxes.................................. 2,410 1,371 1,418
------- -------- -------
Net income.................................................. 4,230 2,435 2,336
Less: Preferred stock dividends........................... (900) (475) --
Accretion of non-voting redeemable common stock....... (204) (175) (171)
Adjustment to beneficial conversion feature related to
convertible preferred stock......................... -- (15,000) --
------- -------- -------
Income (loss) available to common stockholders.......... $ 3,126 $(13,215) $ 2,165
======= ======== =======
Earnings (loss) per share:
Basic..................................................... $ 0.26 $ (1.15) $ 0.20
======= ======== =======
Diluted................................................... $ 0.23 $ (1.15) $ 0.17
======= ======== =======
Weighted average shares used in per share calculation:
Basic..................................................... 12,152 11,461 10,831
Diluted................................................... 13,883 11,461 12,554
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVITROGEN COPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
COMMON STOCK SERIES A SERIES B
------------------- ------------------- --------
SHARES AMOUNT SHARES AMOUNT SHARES
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995................................ 2,464 $ 25 7,143 $ -- 1,188
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- -- 111 -- --
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- -- -- --
Exercise of stock options................................... -- -- 70 -- --
Repurchase of common stock.................................. (974) (10) (98) -- --
Issuance of common stock to acquire subsidiary.............. 58 1 -- -- --
Accretion of redemption value over stated value on
subsidiary common stock issued to NOM..................... -- -- -- -- --
Conversion of convertible preferred stock................... 974 10 -- -- --
Foreign currency translation adjustment..................... -- -- -- -- --
Net income.................................................. -- -- -- -- --
------ ---- ------ ---- ------
Balance at December 31, 1996.............................. 2,522 26 7,226 -- 1,188
Recapitalization of stock................................... 8,414 84 (7,226) -- (1,188)
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ 23 -- -- -- --
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- -- -- --
Deferred compensation....................................... -- -- -- -- --
Amortization of deferred compensation expense............... -- -- -- -- --
Exercise of stock options................................... 179 2 -- -- --
Repurchase of common stock.................................. (87) (1) -- -- --
Repurchase of common stock under stock purchase agreement... (1,102) (11) -- -- --
Beneficial conversion feature related to convertible
preferred stock........................................... -- -- -- -- --
Accretion of beneficial conversion feature related to
convertible preferred stock............................... -- -- -- -- --
Preferred stock dividends declared and accretion of
redemption value over stated value on subsidiary common
stock issued to NOM....................................... -- -- -- -- --
Foreign currency translation adjustment..................... -- -- -- -- --
Net income.................................................. -- -- -- -- --
------ ---- ------ ---- ------
Balance at December 31, 1997.............................. 9,949 100 -- -- --
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ 13 -- -- -- --
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- -- -- --
Deferred compensation....................................... -- -- -- -- --
Amortization of deferred compensation expense............... -- -- -- -- --
Exercise of stock options................................... 20 -- -- -- --
Tax effect of exercise of stock options..................... -- -- -- -- --
Repurchase of common stock.................................. (34) -- -- -- --
Issuance of stock options to acquire MorphaGen, Inc......... -- -- -- -- --
Preferred stock dividends declared and accretion of
redemption value over stated value on subsidiary common
stock issued to NOM....................................... -- -- -- -- --
Foreign currency translation adjustment..................... -- -- -- -- --
Net income.................................................. -- -- -- -- --
------ ---- ------ ---- ------
Balance at December 31, 1998.............................. 9,948 $100 -- $ -- --
====== ==== ====== ==== ======
<CAPTION>
COMMON STOCK
---------- EMPLOYEE
ERIES B
---------- PAID-IN DEFERRED PLAN
AMOUNT CAPITAL COMPENSATION CONTRIBUTION
<S> <C> <C> <C> <C>
Balance at December 31, 1995................................ $ -- $ 1,554 $ -- $ 199
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- 199 -- (199)
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- -- 100
Exercise of stock options................................... -- 68 -- --
Repurchase of common stock.................................. -- (202) -- --
Issuance of common stock to acquire subsidiary.............. -- 189 -- --
Accretion of redemption value over stated value on
subsidiary common stock issued to NOM..................... -- -- -- --
Conversion of convertible preferred stock................... -- 2,548 -- --
Foreign currency translation adjustment..................... -- -- -- --
Net income.................................................. -- -- -- --
---- -------- ----- -----
Balance at December 31, 1996.............................. -- 4,356 -- 100
Recapitalization of stock................................... -- (84) -- --
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- 100 -- (100)
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- -- 100
Deferred compensation....................................... -- 664 (664) --
Amortization of deferred compensation expense............... -- -- 169 --
Exercise of stock options................................... -- 158 -- --
Repurchase of common stock.................................. -- (333) -- --
Repurchase of common stock under stock purchase agreement... -- (1,104) -- --
Beneficial conversion feature related to convertible
preferred stock........................................... -- 15,000 -- --
Accretion of beneficial conversion feature related to
convertible preferred stock............................... -- (15,000) -- --
Preferred stock dividends declared and accretion of
redemption value over stated value on subsidiary common
stock issued to NOM....................................... -- -- -- --
Foreign currency translation adjustment..................... -- -- -- --
Net income.................................................. -- -- -- --
---- -------- ----- -----
Balance at December 31, 1997.............................. -- 3,757 (495) 100
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- 100 -- (100)
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- -- 100
Deferred compensation....................................... -- 683 (683) --
Amortization of deferred compensation expense............... -- -- 216 --
Exercise of stock options................................... -- 30 -- --
Tax effect of exercise of stock options..................... -- 138 -- --
Repurchase of common stock.................................. -- (150) -- --
Issuance of stock options to acquire MorphaGen, Inc......... -- 147 -- --
Preferred stock dividends declared and accretion of
redemption value over stated value on subsidiary common
stock issued to NOM....................................... -- -- -- --
Foreign currency translation adjustment..................... -- -- -- --
Net income.................................................. -- -- -- --
---- -------- ----- -----
Balance at December 31, 1998.............................. $ -- $ 4,705 $(962) $ 100
==== ======== ===== =====
<CAPTION>
FOREIGN RETAINED
CURRENCY EARNINGS STOCKHOLDERS' COMPREHENSIVE
TRANSLATION (DEFICIT) EQUITY INCOME
<S> <C> <C> <C> <C>
Balance at December 31, 1995................................ $ 57 $ 2,264 $ 4,099 $ --
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- -- -- --
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- 100 --
Exercise of stock options................................... -- -- 68 --
Repurchase of common stock.................................. -- (2,182) (2,394) --
Issuance of common stock to acquire subsidiary.............. -- -- 190 --
Accretion of redemption value over stated value on
subsidiary common stock issued to NOM..................... -- (171) (171) --
Conversion of convertible preferred stock................... -- -- 2,558 --
Foreign currency translation adjustment..................... (86) -- (86) (86)
Net income.................................................. -- 2,336 2,336 2,336
----- ------- -------- ------
Balance at December 31, 1996.............................. (29) 2,247 6,700 $2,250
======
Recapitalization of stock................................... -- -- -- --
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- -- -- --
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- 100 --
Deferred compensation....................................... -- -- -- --
Amortization of deferred compensation expense............... -- -- 169 --
Exercise of stock options................................... -- -- 160 --
Repurchase of common stock.................................. -- -- (334) --
Repurchase of common stock under stock purchase agreement... -- (6,385) (7,500) --
Beneficial conversion feature related to convertible
preferred stock........................................... -- -- 15,000 --
Accretion of beneficial conversion feature related to
convertible preferred stock............................... -- -- (15,000) --
Preferred stock dividends declared and accretion of
redemption value over stated value on subsidiary common
stock issued to NOM....................................... -- (650) (650) --
Foreign currency translation adjustment..................... (95) -- (95) (95)
Net income.................................................. -- 2,435 2,435 2,435
----- ------- -------- ------
Balance at December 31, 1997.............................. (124) (2,353) 985 $2,340
======
Issuance of common stock pursuant to Employee Stock
Ownership Plan............................................ -- -- -- --
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- -- 100 --
Deferred compensation....................................... -- -- -- --
Amortization of deferred compensation expense............... -- -- 216 --
Exercise of stock options................................... -- -- 30 --
Tax effect of exercise of stock options..................... -- -- 138 --
Repurchase of common stock.................................. -- -- (150) --
Issuance of stock options to acquire MorphaGen, Inc......... -- -- 147 --
Preferred stock dividends declared and accretion of
redemption value over stated value on subsidiary common
stock issued to NOM....................................... -- (1,104) (1,104) --
Foreign currency translation adjustment..................... 84 -- 84 84
Net income.................................................. -- 4,230 4,230 4,230
----- ------- -------- ------
Balance at December 31, 1998.............................. $ (40) $ 773 $ 4,676 $4,314
===== ======= ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 4,230 $ 2,435 $ 2,336
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................. 1,957 1,345 1,180
Amortization of deferred compensation..................... 216 169 --
Employee stock ownership plan contribution................ 100 100 100
Deferred income taxes..................................... 118 (578) (143)
Non-cash write-off of investments......................... -- 330 --
Other non-cash adjustments................................ 26 161 62
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,690) (773) (317)
Inventories............................................. (2,120) 80 (997)
Prepaid expenses and other current assets............... (665) (170) (62)
Other assets............................................ (179) (265) 40
Accounts payable........................................ 1,190 745 304
Accrued expenses........................................ 951 233 521
Income taxes payable.................................... 442 (295) 535
------- ------- -------
Net cash provided by operating activities............. 4,576 3,517 3,559
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short term investments.......................... (438) (3,777) --
Advance made on note receivable from officer.............. -- -- (150)
Payment received on note receivable from officer.......... -- 415 125
Purchases of property and equipment....................... (7,120) (2,697) (1,596)
Payments for intangible assets............................ (576) (249) (456)
Investment in related party............................... -- (500) --
------- ------- -------
Net cash used in investing activities................. (8,134) (6,808) (2,077)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (principal payments) on lines of credit, net..... (184) 638 (105)
Proceeds from long term obligations....................... 1,300 361 --
Principal payments on long term obligations............... (845) (586) (733)
Proceeds from sale of preferred stock..................... -- 14,766 --
Proceeds from sale of common stock........................ 30 161 405
Repurchase of common stock................................ (150) (7,834) (174)
------- ------- -------
Net cash provided by (used in) financing activities... 151 7,506 (607)
Effect of exchange rate changes on cash................... 183 (105) (94)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents.......................................... (3,224) 4,110 781
Cash and cash equivalents, beginning of period............ 5,540 1,430 649
------- ------- -------
Cash and cash equivalents, end of period.................. $ 2,316 $ 5,540 $ 1,430
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 253 $ 236 $ 212
======= ======= =======
Cash paid for income taxes................................ $ 1,466 $ 1,604 $ 468
======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Converted deposit to note receivable-officer.............. $ 150 $ -- $ --
======= ======= =======
Preferred dividends declared.............................. $ 900 $ 475 $ --
======= ======= =======
Accretion of redemption value for redeemable common
stock................................................... $ 204 $ 175 $ 171
======= ======= =======
Options issued for assets of MorphaGen, Inc............... $ 147 $ -- $ --
======= ======= =======
Note issued for Serva product line assets acquired........ $ 500 $ -- $ --
======= ======= =======
Deferred compensation..................................... $ 683 $ 664 $ --
======= ======= =======
Accretion of beneficial conversion feature of convertible
preferred stock......................................... $ -- $15,000 $ --
======= ======= =======
Notes issued to former officer/stockholder for release and
settlement agreement and covenant not to compete........ $ -- $ -- $ 524
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Invitrogen Corporation (the "Company") was incorporated in the state of
California on September 29, 1989. The Company operates in one business segment
which develops, manufactures and sells products designed to facilitate molecular
biology research. The Company sells its products to researchers at universities,
corporations, and research institutions throughout North America, the Pacific
Rim and Europe. In 1997, the Company changed its state of incorporation to
Delaware. In connection with the Company's recapitalization, all of the
Series A common stock and Series B common stock of the former California
corporation were converted to the common stock of the new Delaware corporation;
accordingly, Series A common stock and Series B common stock ceased to exist
(see Note 3).
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction (see Note 2). NOVEX, formerly known as Novel
Experimental Technology, a California corporation, was incorporated on April 5,
1989. NOVEX manufactures protein and nucleic acid electrophoresis gels and
related equipment, solutions, standards, and fine chemicals, primarily for use
in research laboratories. This transaction has been accounted for as a pooling
of interests and, accordingly, the Company's consolidated financial statements
have been restated for all periods prior to the business combination to combine
the financial results of Invitrogen and NOVEX.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its 100% controlled subsidiaries, NOVEX, Invitrogen B.V., which commenced
operations in The Netherlands in April 1993, NOVEX Electrophoresis GmbH
(formerly known as Anamed GmbH), which commended operations in Germany in
December 1992, Serva GmbH, incorporated in Germany in May 1998, Invitrogen
Export Company, Ltd., a foreign sales corporation incorporated in 1996 and NOVEX
International Sales Corporation, incorporated in February 1997. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CONCENTRATIONS OF RISKS
REVENUES (EXCLUSIVE OF GRANTS AND ROYALTIES)
Revenues were earned from sales to customers in the following geographic
regions for the years ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
North America.................................... $34,171 $28,893 $23,939
Europe........................................... 15,157 8,967 6,226
Pacific Rim...................................... 2,928 2,482 1,811
Other............................................ 180 169 145
------- ------- -------
Total revenue.................................. $52,436 $40,511 $32,121
======= ======= =======
</TABLE>
Certain countries in the Pacific Rim have recently been experiencing
significant volatility in their currencies. While the Company sells principally
in U.S. dollars to customers in these countries, the volatility in the
countries' currencies may have an adverse impact on the Company's revenue and
profit
F-8
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in the future. The Company did not have any material accounts receivable from
customers in this region in any of the years presented.
CUSTOMERS
Approximately $15.7 million, $12.8 million and $10.5 million, or 29%, 31%
and 32% of the Company's revenues during the years ended December 31, 1998,
1997, and 1996, respectively, were derived from university and research
institutions which management believes are, to some degree, directly or
indirectly supported by the U.S. Government. A change in current research
fundings, particularly with respect to the National Institutes of Health, may
have an adverse impact on the Company's future results of operations.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment to the customer.
The Company does not receive material upfront fees; those that are received are
deferred and recognized upon shipment to the customers. Grant revenue is
recorded as earned, as defined within the specific agreements and is not
refundable. Grant revenue was $649,000, $671,000 and $435,000 in 1998, 1997 and
1996, respectively. Cost of grant revenue is included in research and
development.
Royalty revenue is recognized when earned, generally upon the receipt of
cash, and is not refundable.
CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1998 and 1997 consist primarily of commercial paper. All other
investments are classified as held to maturity short-term investments and
consist of commercial paper and mature through June 1, 1999. Short term
investments are carried at cost.
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method) or
market. The Company reviews the components of its inventory on a quarterly basis
for excess, obsolete and impaired inventory and makes appropriate dispositions
as obsolete stock is identified.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets (3 to 39 years) using the straight-line method.
Amortization of leasehold improvements is computed on the straight-line method
over the shorter of the lease term or the estimated useful lives of the assets.
Maintenance and repairs are charged to operations as incurred. When assets are
sold, or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
F-9
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets, representing primarily patents and license agreements,
are recorded at cost and amortized on a straight-line basis over estimated
useful lives of 5 to 17 years. The excess of cost over the fair value of the net
tangible assets purchased (goodwill) arose from the Company's acquisition of its
wholly-owned subsidiary, NOVEX Electrophoresis GmbH, and is being amortized over
ten years.
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets". The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. The Company periodically re-evaluates the original
assumptions and rationale utilized in the establishment of the carrying value
and estimated lives of its long-lived assets. The criteria used for these
evaluations include management's estimate of the asset's continuing ability to
generate income from operations and positive cash flow in future periods as well
as the strategic significance of any intangible asset in the Company's business
objectives.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Statement Accounting Standards No. 109,
"Accounting for Income Taxes". Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The balance sheet accounts of the Company's foreign operations are
translated from their respective foreign currencies into U.S. dollars at the
exchange rate in effect at the balance sheet date and revenue and expense
accounts are translated using an average exchange rate during the period of
recognition. The effects of translation are recorded as a separate component of
stockholders' equity. Exchange gains and losses arising from transactions
denominated in foreign currencies are recorded using the actual exchange
differences on the date of the transaction and are included in the Consolidated
Statements of Income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments such as foreign cash
accounts, accounts receivable, accounts payable and accrued expenses are
reasonable estimates of their fair value because of the
F-10
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
short maturity of these items. The Company believes the carrying amounts of the
Company's note receivable from officer, line of credit and obligations under
capital leases approximate fair value because the interest rates on these
instruments are subject to change with, or approximate, market interest rates.
COMPUTATION OF EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128 requires
companies to compute basic and diluted per share data for all periods for which
an income statement is presented. Basic earnings per share was computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential dilution
that could occur if the income were divided by the weighted-average number of
common shares and potential common shares from outstanding stock options.
Potential common shares were calculated using the treasury stock method and
represent incremental shares issuable upon exercise of the Company's outstanding
options. Diluted earnings per share does not consider the impact of the
conversion of outstanding redeemable convertible preferred stock as its
inclusion would be anti-dilutive for all periods presented. Potentially dilutive
securities are not considered in the calculation of net loss per share as their
impact would be antidilutive.
COMPREHENSIVE INCOME
The Company has implemented Statement of Financial Accounting Standards
No. 130 "Comprehensive Income." This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Accordingly, in addition to
reporting net income under the current rules, the Company is required to display
the impact of any fluctuations in its foreign currency translation adjustments
as a component of comprehensive income and to display an amount representing
total comprehensive income for each period presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal use software as well
as assists in determining when computer software is for internal use. The
adoption by the Company of SOP 98-1 on January 1, 1999 did not have a material
impact on the Company's financial statements.
F-11
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This Statement of Position provides guidance on the financial reporting of
start-up costs and organization costs. It requires that the cost of start-up
activities and organization costs be expensed as incurred. The adoption by the
Company of SOP 98-5 on January 1, 1999 did not have a material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement changes the previous
accounting definition of derivative--which focused on freestanding contracts
such as options and forwards (including futures and swaps)--expanding it to
include embedded derivatives and many commodity contracts. Under the Statement,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. During June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement 133." The Statement defers the effective
date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company does not anticipate that the adoption of
SFAS No. 133 will have a material impact on its financial position or results of
operations.
The Company has adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
and, as explained above, has determined that it operates in one business segment
dedicated to molecular biology research.
2. BUSINESS COMBINATIONS
NOVEX MERGER
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction. NOVEX manufactures protein and nucleic acid
electrophoresis gels and related equipment, solutions, standards, and fine
chemicals, primarily for use in research laboratories.
Invitrogen issued 2,530,124 shares of common stock in exchange for all the
outstanding shares of NOVEX stock based on an exchange ratio of approximately
.23188 shares of Invitrogen common stock for each share of NOVEX common stock.
Invitrogen also assumed and exchanged all options to purchase NOVEX common stock
for options to purchase 469,678 shares of Invitrogen common stock. The merger is
intended to qualify as a tax-free reorganization and has been accounted for as a
pooling of interests. Costs incurred as a result of the merger and related
integration are expected to be $4.4 million and are subject to change. These
costs were expensed in August 1999, after the merger was completed.
Prior to the merger, NOVEX used a fiscal year ending March 31. In order to
report the combined results on a consistent basis, NOVEX's fiscal years have
been recast to a twelve-month period ended December 31, for all periods
presented. These recast results have been combined with the corresponding fiscal
years ended December 31, 1998, 1997 and 1996, of Invitrogen to arrive at the
financial information presented. The combined results of operations of
Invitrogen and NOVEX are presented as if the merger had occurred at the
beginning of the periods presented.
F-12
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
2. BUSINESS COMBINATIONS (CONTINUED)
SERVA ACQUISITION
In May 1998, the Company purchased the assets of the Serva product line from
Boehringer Ingleheim Bioproducts Partnership ("Boehringer Ingelheim") in
Heidelberg, Germany. The purchase price was $1.5 million comprised of
$0.8 million in cash, acquisition costs of $0.2 million, and a promissory note
for $0.5 million. The assets acquired include inventory and property with an
estimated fair value of $1.5 million. Revenues, expenses and acquired assets
relating to this product line are included in the consolidated financial
statements from the date of acquisition
3. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE-OFFICER
The Company holds a note receivable of $150,000 from an officer of the
Company. The promissory note originated in December 1998, is collateralized by
16,000 shares of common stock of the Company, bears annual interest of
6.5 percent and is due in full on December 31, 1999.
RELEASE AND SETTLEMENT AGREEMENT
In January 1996, the Company executed a release and settlement agreement
with a former major stockholder and officer of NOVEX for an alleged breach of
contract and wrongful termination claim. As consideration for execution of the
agreement, the former stockholder and officer received $75,000 in legal fees
incurred and a $300,000 non-interest bearing promissory note which was paid in
full in January 1999. The agreement included a covenant not-to-compete for a
period of 24 months which was fully amortized and paid in full in January 1998.
INVESTMENT IN MORPHAGEN, INC.
In February 1997, the Company entered into an agreement with
MorphaGen, Inc., a start-up company, for an initial investment of $500,000 in
exchange for 109,850 shares of Series A Preferred Stock of MorphaGen, Inc. The
president of MorphaGen, Inc. is the spouse of a member of the board of directors
of the Company. On November 3, 1998, the Company acquired all of the outstanding
common stock of MorphaGen, Inc. which the Company did not already own for 50,000
options to purchase Company stock at $8.50 per share. In connection with this
acquisition, the Company recorded $147,000 as additional paid-in capital
representing the estimated fair value of the options issued.
COMMON STOCK
In connection with the Company's recapitalization in 1997, all of the
Series A common stock and Series B common stock of the former California
corporation were converted to the common stock of the new Delaware corporation;
accordingly, Series A common stock and Series B common stock ceased to exist.
SERIES A. All outstanding shares of Series A common stock were issued to
founders, directors, employees or consultants of the Company pursuant to
agreements which entitles the Company to repurchase the shares at the current
market value in the event of termination of employment.
F-13
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
3. RELATED PARTY TRANSACTIONS (CONTINUED)
SERIES B. All outstanding shares of Series B common stock were issued to
the president and majority stockholder of the Company. The Series B common stock
has the same rights, preferences, privileges and restrictions of Series A common
stock except the Series B shares may not vote in the election of directors of
the Company. In 1997, the Company converted all the outstanding Series B common
stock to Series A common stock on a one to one basis.
4. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Raw materials and components.............................. $ 1,610 $ 649
Work in process........................................... 1,118 717
Finished goods............................................ 2,646 1,387
------- -------
$ 5,374 $ 2,753
======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Land...................................................... $ 216 $ --
Building.................................................. 1,629 --
Machinery and equipment................................... 12,215 7,348
Leasehold improvements.................................... 1,516 1,000
Construction in process................................... 302 455
------- -------
15,878 8,803
Accumulated depreciation and amortization................. (5,842) (4,060)
------- -------
$10,036 $ 4,743
======= =======
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Licensing agreements (see Note 8)......................... $ 984 $ 574
Patents and trademarks.................................... 848 609
Goodwill.................................................. 156 156
Covenant not to compete................................... -- 268
Other..................................................... 49 10
------- -------
2,037 1,617
Accumulated amortization.................................. (329) (465)
------- -------
$ 1,708 $ 1,152
======= =======
</TABLE>
F-14
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Accrued purchases......................................... $ 678 $ 240
Accrued payroll and related expenses...................... 1,148 1,006
Accrued ESOP contribution................................. 254 213
Accrued other............................................. 756 436
------- -------
$ 2,836 $ 1,895
======= =======
</TABLE>
8. LICENSING AGREEMENTS
The Company manufactures and sells certain products under several licensing
agreements. The agreements require royalty payments based upon various
percentages of sales or profits from the products. Terms of the agreements range
from five to ten years and initial costs are amortized over their terms using
the straight-line method. Total royalties paid under the agreements were
approximately $996,000, $815,000, and $444,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
Certain of the licensing agreements require guaranteed minimum annual
royalty payments, to maintain exclusively. Future minimum guaranteed royalties
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years Ending December 31,
1999........................................................ $ 877
2000........................................................ 1,174
2001........................................................ 1,501
2002........................................................ 1,391
2003........................................................ 1,520
-------
$ 6,463
=======
</TABLE>
The Company has a minimum purchase commitment with a vendor, which requires
annual purchases of approximately $1 million to maintain preferential pricing.
9. LINES OF CREDIT
In June 1999 the Company reduced its available line of credit from
$10 million to $3 million. The credit facility bears interest at the bank's
Libor rate (5.75% at December 31, 1998) plus 2% or the bank's prime rate. The
line of credit expires on October 1, 2001. No amounts were outstanding on this
credit facility at December 31, 1998. The line of credit agreement contains
various normal and customary financial covenants, which the Company was in
compliance with for all periods presented.
The Company has available an additional credit facility from a bank, which
provides a revolving line of credit for advances up to $1.2 million and bears
interest at the bank's prime lending rate (7.75% at December 31, 1998) plus
1.0%. At December 31, 1998, $421,000 was available for advances and a balance of
$779,000 was outstanding on this revolving line of credit. The credit facility
expires in
F-15
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
9. LINES OF CREDIT (CONTINUED)
August 2000. The line is collateralized by assets with a net book value of
$9.2 million at December 31, 1998.
10. LONG TERM OBLIGATIONS
The Company leases certain equipment under capital leases which are
personally guaranteed by the Company's principal stockholders, are due in
aggregate monthly installments of $32,000 and mature at various dates through
November 2001. Property and equipment at December 31, 1998 and 1997, include
approximately $498,000 and $595,000, respectively, of equipment under capital
leases which have been capitalized. Accumulated depreciation for such equipment
was approximately $100,000 and $347,000 at December 31, 1998 and 1997,
respectively.
Long term Obligations consist of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Note Payable to bank, payable in 60 installments of $22 plus
interest through May 11, 2003, with interest at prime
(7.75% at December 31, 1998) plus 1.75%, collateralized by
assets with a net book value of $9.2 million at
December 31, 1998......................................... $1,148 $ --
Note payable to Boehringer Ingelheim, payable $500 plus
interest on December 31, 1999, with interest at 8%,
supported by a stand-by letter of credit with the bank.... 500 --
Note payable to the Company's landlord, bearing interest at
12% due in monthly installments of $11 through
October 1, 2000........................................... 208 311
Notes payable to German bank, payable in monthly
installments of $5 through October 2001, collateralized by
certain assets of the company with a net book value
totaling $133 at December 31, 1998........................ 94 98
Unsecured note payable to a former stockholder, payable in
12 equal quarterly installments of $25 each through
January 19, 1999, at an imputed interest rate of 10.25%,
personally guaranteed by a stockholder of the company..... 24 116
Note payable to bank, payable in 48 installments of $6 plus
interest through August 15, 1999, with interest at prime
plus 2%, collateralized by accounts receivable,
inventories, equipment and intangibles, outstanding
balance prepaid during 1998 at the election of the
Company................................................... -- 125
Note payable to bank, payable in 48 installments of $5 plus
interest through August 15, 2001, with interest at prime
plus 1%, collateralized by accounts receivable,
inventories, equipment and intangibles, outstanding
balance pre-paid during 1998 at the election of the
Company................................................... -- 207
Unsecured note payable to a former stockholder, payable in 8
equal quarterly installments of $38 each through
January 19, 1998, at an imputed interest rate of 10.25%,
personally guaranteed by a stockholder of the company..... -- 36
Capital leases.............................................. 137 264
------ ------
2,111 1,157
Less current maturities..................................... (995) (529)
------ ------
$1,116 $ 628
====== ======
</TABLE>
F-16
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
10. LONG TERM OBLIGATIONS (CONTINUED)
Maturities of long term obligations at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years Ending December 31,
1999........................................................ $ 995
2000........................................................ 446
2001........................................................ 302
2002........................................................ 260
2003........................................................ 108
------
$2,111
======
</TABLE>
11. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
<S> <C> <C>
Deferred tax assets:
Various accruals.......................................... $675 $ 780
Net operating loss carryforwards.......................... -- 91
State taxes............................................... 91 93
Depreciation and amortization............................. -- 61
Other..................................................... 121 46
---- ------
Total deferred tax assets................................... 887 1,071
Deferred tax Liabilities:
Valuation allowance....................................... -- (80)
Depreciation and amortization............................. (14) --
---- ------
Net deferred tax assets..................................... $873 $ 991
==== ======
</TABLE>
Income before income taxes includes the following components for the years
ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
United States....................................... $5,528 $3,065 $2,283
Foreign............................................. 1,112 741 1,471
------ ------ ------
$6,640 $3,806 $3,754
====== ====== ======
</TABLE>
F-17
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
11. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal........................................... $1,587 $1,285 $1,021
State............................................. 363 329 120
Foreign........................................... 342 334 462
------ ------ ------
Total current provision............................. 2,292 1,948 1,603
Deferred:
Federal........................................... 100 (433) (131)
State............................................. 18 (144) (54)
------ ------ ------
Total deferred provision............................ 118 (577) (185)
------ ------ ------
Total provision..................................... $2,410 $1,371 $1,418
====== ====== ======
</TABLE>
The difference between the provision for income taxes and the amounts that
would be obtained by applying the Federal statutory rate to income before income
taxes relates primarily to the utilization of certain tax credit and net
operating loss carryforwards.
The provision for income taxes differs from the amount computed by applying
the federal statutory rate to the Company's income before provision for income
taxes as follows for the years ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
Federal tax provision at statutory rate............. $2,258 $1,294 $1,276
State tax, net of federal benefit................... 398 228 225
Foreign Sales Corporation Benefit................... (74) (39) --
Research and development and other credits.......... (323) (197) --
Change in valuation allowance....................... (80) 26 54
Other............................................... 231 59 (137)
------ ------ ------
Provision for income taxes.......................... $2,410 $1,371 $1,418
====== ====== ======
</TABLE>
The tax benefit associated with the disqualifying dispositions by employees
of shares issued in the Company's stock options plans reduced taxes payable by
$138,000 for 1998. This benefit has been reflected as additional paid-in capital
in the accompanying statement of stockholders' equity.
F-18
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain equipment and its office and manufacturing
facilities under operating leases which expire through February 2007. Three
facility leases provide for specific escalating rental payments. Rent expense
under all operating leases was $1.3 million, $1.0 million and $.6 million for
the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum lease commitments for operating leases at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years Ending December 31,
1999........................................................ $1,113
2000........................................................ 993
2001........................................................ 666
2002........................................................ 521
2003........................................................ 542
Thereafter.................................................. 1,759
------
Total minimum lease payments.............................. $5,594
======
</TABLE>
LITIGATION
The Company and its subsidiaries are subject to claims and from time to time
are named as defendants in legal proceedings. In the opinion of management, the
amount of ultimate liability, if any, with respect to those actions will not
materially affect the financial position or results of operations of the
Company.
HEDGING
At December 31, 1998 the Company had outstanding put options to sell
1.2 million pounds sterling at $1.63 per pound. Additionally, the Company had
outstanding call options to purchase 1.2 million pounds sterling at $1.675 per
pound. These contracts expire monthly through December 1999. The above contracts
had no net value at December 31, 1998.
13. REDEEMABLE COMMON STOCK OF INVITROGEN B.V.
Effective February 26, 1993, Invitrogen B.V. entered into a money loan
agreement with N.V. Noordelijke Ontwikkelingsmaatschappij, Investment and
Development Company for the Northern Netherlands ("NOM"). As of December 31,
1994, the due date of the Loan, the Company had borrowed $618,000, at a 15%
effective interest rate, under the agreement which had provisions by which NOM
could convert its loan balance to Invitrogen B.V. common stock. On April 7,
1995, the Company, Invitrogen B.V. and NOM entered into a Shareholders'
Agreement. As a result, Invitrogen B.V. issued 18,000 shares of non-voting
redeemable common stock to NOM in exchange for NLG 1.8 million. The proceeds
from the issuance of the non-voting redeemable common stock were utilized to
retire the outstanding debt of $618,000 (NLG 1.2 million). The Company redeemed
all of the shares on April 7, 1999 for the redemption amount of NLG 3,150,000
(USD $1,507,000).
F-19
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
13. REDEEMABLE COMMON STOCK OF INVITROGEN B.V. (CONTINUED)
The excess of the redemption value over the issue price was accredited by
periodic charges to equity over the life of the issue through April 7, 1999.
14. PREFERRED STOCK
AUTHORIZED SHARES
The Company has authorized 6,405,884 shares of preferred stock, designated
as follows:
<TABLE>
<CAPTION>
SHARES
<S> <C>
Series A cumulative convertible redeemable preferred
stock..................................................... 2,202,942
Series A redeemable preferred stock......................... 2,202,942
Undesignated preferred stock................................ 2,000,000
---------
Total preferred shares.................................... 6,405,884
=========
</TABLE>
The Series A Cumulative Convertible Redeemable Preferred Stock ("Convertible
Preferred Stock") accrues dividends at a rate of 6% per annum and has a
liquidation preference of $6.8091 per share plus accrued and unpaid dividends.
Additionally, the Convertible Preferred Stock entitles the holder thereof to one
vote per outstanding share in the election of one director of the Company,
voting together as one separate class. The holders of the Convertible Preferred
Stock vote separately as a class on significant transactions including
acquisitions, redemption of shares, declaration of dividends, creation of any
senior securities, or securities on par with the Convertible Preferred Stock,
increases in the size of the Board of Directors, and payment of executive
bonuses. Holders of the Convertible Preferred Stock also elect one director. The
Convertible Preferred Stock may be voluntarily converted upon the election of
holders of not less than 66.67% of the voting power of this stock. The rate at
which the Convertible Preferred Stock converts to common stock is automatically
adjusted in the event of most future issuances of equity securities by the
Company below the original purchase price of the Convertible Preferred Stock,
resulting in an increase in the percentage of the Company owned by the holders
on a fully diluted basis. After June 18, 2003, the holders of the Convertible
Preferred Stock have the right to require the Company to redeem their shares for
the original purchase price plus accrued dividends.
The Series A Redeemable Preferred Stock (RPS) Stock accrues dividends at 3%
per annum and entitles the holder thereof to one vote per outstanding share in
the election of one director of the Company, voting together as a separate
class. The RPS is redeemable upon the occurrence of a qualified public offering
or sale or other qualified event. Upon liquidation, the RPS is entitled to be
paid out of the assets of the Company at the redeemable base liquidation amount
(original issue price of $6.8091 per share plus accrued dividends) per share
determined at the measurement date. There are no shares of RPS outstanding at
December 31, 1998.
ISSUED SHARES
On June 20, 1997, the Company entered into a stock purchase agreement with a
group of three investors (Investors). The Company sold 2,202,942 shares of
Convertible Preferred Stock at $6.8091 per share to the Investors in exchange
for $14,766,000, net of issuance costs. Additionally, the Company
F-20
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
14. PREFERRED STOCK (CONTINUED)
repurchased and retired 1,101,471 shares of the Company's common stock at
$6.8091 per share, representing the fair value of these shares, from certain
stockholders of the Company in exchange for $7.5 million. In accordance with
EITF D-60, the maximum possible premium to holders of convertible preferred
stock ($15 million) was recognized as a beneficial conversion feature through a
charge to equity on June 20, 1997, the date the Convertible Preferred Stock
first became convertible. This $15 million charge has been recognized as a
reduction to earnings available to common stockholders in 1997.
SUBSEQUENT CONVERSION AND REDEMPTION
In February 1999, upon the closing of the Company's IPO (see Note 15), each
of the 2,202,942 outstanding shares of Convertible Preferred Stock were
automatically converted into 2,202,942 shares of Common Stock and 2,202,942
shares of RPS. At the closing of the IPO, the RPS was redeemed for $14,015,000
and accumulated dividends on the Convertible Preferred Stock of $1,538,000 were
paid. Upon determination of the final redemption price of $14,015,000 at the IPO
a credit to equity of $985,000 was recorded which has been reported as an
adjustment to Income Available to Common Stockholders in the income statement
for the quarter ended March 31, 1999.
15. COMMON STOCK AND SUBSEQUENT INITIAL PUBLIC OFFERING
AUTHORIZED SHARES
In November 1998, the Company amended its bylaws to reflect an increase of
authorized shares of common stock from 20,000,000 to 50,000,000.
STOCK SPLIT
On June 20, 1997, the Company approved a recapitalization which authorized
20,000,000 shares of common stock and a stock split that converted each share of
Series A and Series B stock into seven shares of common stock of the Company.
All prior period share amounts have been restated to reflect the stock split.
SUBSEQUENT INITIAL PUBLIC OFFERING
In February 1999, the Company completed its initial public offering and
issued 3,525,000 new shares of its Common Stock at a price of $15.00 per share.
The Company received $48.1 million in cash, net of underwriting discounts,
commissions and other offering costs.
F-21
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
16. EARNINGS PER SHARE
Earnings per share is calculated as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1998
--------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders..................... $ 3,126 12,152 $ 0.26
======
Stock options............................................... -- 1,731
-------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions............................................... $ 3,126 13,883 $ 0.23
======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------
LOSS SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic and Diluted EPS:
Loss available to common stockholders....................... $(13,215) 11,461 $(1.15)
======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders..................... $ 2,165 10,831 $ 0.20
======
Stock options............................................... -- 1,723
-------- ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions............................................... $ 2,165 12,554 $ 0.17
======== ====== ======
</TABLE>
In accordance with SAB Topic 4D, the Company considers any common stock
issuable upon the occurrence of an IPO for little or no consideration as a
nominal issuance. In accordance with the above bulletin, the Company has
considered 2,202,942 common shares issuable in connection with the conversion of
convertible preferred stock to be a nominal issuance and outstanding for all
periods since the original issuance of the underlying security.
F-22
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
17. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLANS
The Company has an Employee Stock Ownership Plan ("ESOP") covering all
Invitrogen employees who have completed one year of continuous service or have
completed 1,000 hours of service in a twelve-month period prior to entry date.
Contributions to the ESOP are made at the discretion of the Board of Directors.
Contributions of $100,000 in Company stock were designated for the ESOP for each
of the years ended December 31, 1998, 1997 and 1996. Future contributions to the
ESOP were terminated as of December 31, 1998. The assets of the ESOP will be
distributed to the participants or rolled into the Invitrogen 401(k) plan or
other qualified retirement plans as designated by the participants.
The Company also has a 401(k)/ESOP plan covering all NOVEX employees who
have completed 1,000 or more hours of service within a twelve-month period.
Contributions to the 401(k)/ESOP are based upon a Company match of employee
401(k) salary deferrals, as well as a discretionary percentage of eligible
participants' total compensation. The Company made contributions of $136,000,
$383,000 and $354,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company intends to terminate the 401(k)/ESOP plan and to
distribute the assets to the participants or roll those assets into the
Invitrogen 401(k) plan or other qualified retirement plans as designated by the
participants. An aggregate of 150,000 shares of the Company's common stock have
been reserved for issuance under this plan.
SECTION 401(K) PROFIT SHARING PLAN
The Company has a profit sharing plan which allows each eligible employee to
voluntarily make pre-tax deferred salary contributions. The Company may make
matching contributions in amounts as determined by the board of directors. The
Company made matching contributions of approximately $179,000, $134,000 and
$111,000, for the years ended December 31, 1998, 1997 and 1996, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan which become effective upon
the Company's initial public offering in February 1999. An aggregate of 250,000
shares of the Company's common stock have been reserved for issuance under this
plan.
18. STOCK OPTION PLANS
The Company has four stock option plans, the 1995 and 1997 Invitrogen
Corporation Stock Option Plans and the 1996 and 1998 NOVEX Stock Option/Stock
Issuance Plans. Under these plans, incentive stock options are granted to
eligible employees to purchase shares of the Company's common stock at an
exercise price equal to no less than the estimated fair market value of such
stock as determined by the Board of Directors on the date of grant; nonqualified
stock options are granted at an exercise price of no less than 85% of the fair
market value of the common stock on the date of grant. The Company recognizes as
compensation expense the difference between the exercise price and the fair
market value of the common stock on the date of grant. Stock based compensation
expense is deferred and recognized over the vesting period of the stock option.
During the years ended December 31, 1998 and 1997 the Company recognized
$216,000 and $169,000, respectively, in stock based compensation expense.
F-23
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
18. STOCK OPTION PLANS (CONTINUED)
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
fixed stock option or stock purchase plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
SFAS 123, the Company's results of operations would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C> <C>
Income available to common stockholders: As reported............... $3,126 $(13,215) $2,165
Pro forma................. 2,682 (13,297) 2,074
Basic earnings per share: As reported............... $ 0.26 $ (1.15) $ 0.20
Pro forma................. 0.22 (1.16) 0.19
Diluted earnings per share: As reported............... $ 0.23 $ (1.15) $ 0.17
Pro forma................. 0.19 (1.16) 0.17
</TABLE>
Under these four Plans, the Company may grant up to 5,962,875 options, of
which 3,620,458 are outstanding and 2,159,932 are available for issue at
December 31, 1998. Options vest immediately or over a period of time ranging up
to five years, are exercisable in whole or in installments, and expire ten years
from date of grant.
A summary of the status of the Company's stock option plans at December 31,
1998, 1997 and 1996 and changes during the periods then ended is presented in
the tables below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
WTD. AVG. WTD. AVG. WTD. AVG.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of the year........ 2,240 $1.60 3,605 $1.01 2,956 $0.86
Granted................................... 1,429 $8.00 393 $3.88 719 $1.61
Exercised................................. (20) $1.66 (179) $0.90 (70) $0.98
Canceled.................................. (29) $2.80 (1,579) $0.90 -- $ --
----- ------ -----
Outstanding, end of the year.............. 3,620 $4.12 2,240 $1.60 3,605 $1.01
===== ====== =====
Exercisable, end of the year.............. 1,804 $1.69 1,375 $1.15 1,334 $0.89
Weighted average fair value of options
granted................................. $3.04 $1.26 $0.52
</TABLE>
F-24
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998, 1997 AND 1996
18. STOCK OPTION PLANS (CONTINUED)
At December 31, 1998:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WTD. AVG.
REMAINING
CONTRACTUAL
OPTIONS OPTIONS EXERCISE LIFE IN
OUTSTANDING EXERCISABLE PRICE YEARS
<S> <C> <C> <C>
1,088 936 $ 0.84 6.1
406 406 $ 0.98 6.8
230 91 $ 1.78 7.2
115 59 $ 3.28 7.5
221 109 $ 3.80 8.1
305 48 $ 4.14 9.0
466 112 $ 5.60 9.0
161 35 $ 6.12 9.7
10 3 $ 6.14 9.6
22 -- $ 5.48 9.8
63 5 $ 8.50 9.8
533 -- $12.00 9.9
----- -----
3,620 1,804 $ 4.12 7.9
===== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the present value pricing method as described in SFAS No. 123. The underlying
assumptions used to estimate the fair values of options granted during 1998,
1997 and 1996 are weighted average risk-free interest rates of 5.48%, 5.89%, and
6.02%, respectively, with expected lives of 8.7, 7.0, and 5.0 years,
respectively. No dividend yield or stock price volatility was used in these
calculations.
F-25
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $38,216 $ 2,316
Short-term investments.................................... 809 4,214
Accounts receivable, net of allowance for doubtful
accounts of
$167 and $266........................................... 7,923 5,628
Note receivable officer................................... 150 150
Inventories............................................... 5,301 5,374
Deferred income taxes..................................... 786 767
Prepaid expenses and other current assets................. 2,164 1,294
------- -------
Total current assets.................................... 55,349 19,743
Property and Equipment, net................................. 8,961 10,036
Intangible Assets, net...................................... 3,577 1,708
Other Assets................................................ 386 563
------- -------
Total assets............................................ $68,273 $32,050
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank..................................... $ -- $ 779
Current portion of long-term obligations.................. 1,137 995
Accounts payable.......................................... 1,670 3,106
Accrued expenses.......................................... 6,409 2,836
Income taxes payable...................................... 536 802
------- -------
Total current liabilities............................... 9,752 8,518
------- -------
Long term obligations....................................... 741 1,116
------- -------
Non-voting Redeemable Common Stock of Invitrogen B.V.;
Subsidiary common stock, 66,000 shares authorized; no
shares issued or outstanding on September 30, 1999 and
18,000 shares issued and outstanding on December 31,
1998...................................................... -- 1,599
------- -------
Convertible Redeemable Preferred stock; $0.01 par value,
2,202,942 shares
authorized; no shares issued or outstanding on September
30, 1999 and 2,202,942 shares issued and outstanding on
December 31, 1998....................................... -- 16,141
------- -------
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares
authorized; 16,175,259 and 9,948,035 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively............................................ 162 100
Additional paid-in-capital................................ 54,794 4,705
Deferred compensation..................................... (803) (962)
Value of common stock designated pursuant to Employee
Stock Ownership Plan.................................... -- 100
Foreign currency translation adjustment................... (230) (40)
Retained earnings......................................... 3,857 773
------- -------
Total stockholders' equity.............................. 57,780 4,676
------- -------
Total liabilities and stockholders' equity.............. $68,273 $32,050
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-26
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................ $17,522 $14,507 $51,288 $39,212
Cost of Revenues........................................ 5,883 5,427 17,461 13,707
------- ------- ------- -------
Gross margin.......................................... 11,639 9,080 33,827 25,505
Operating Expenses:
Sales and marketing................................... 3,490 3,005 10,496 8,316
General and administrative............................ 2,344 1,907 6,742 5,816
Research and development.............................. 2,537 2,341 7,447 6,390
Merger related costs (see Note 5)..................... 4,379 -- 4,379 --
------- ------- ------- -------
Total operating expenses............................ 12,750 7,253 29,064 20,522
------- ------- ------- -------
Income (loss) from operations..................... (1,111) 1,827 4,763 4,983
------- ------- ------- -------
Other Income (Expense):
Gain (loss) on foreign currency transactions.......... 107 84 (99) 78
Interest and other expense............................ (83) (63) (222) (197)
Interest and other income............................. 433 132 1,036 319
------- ------- ------- -------
457 153 715 200
------- ------- ------- -------
Income (loss) before provision for income taxes......... (654) 1,980 5,478 5,183
Benefit (provision) for income taxes.................... 27 (687) (2,157) (1,858)
------- ------- ------- -------
Net income (loss)....................................... (627) 1,293 3,321 3,325
Less: Preferred stock dividends...................... -- (225) (163) (675)
Accretion of non-voting redeemable common
stock............................................... -- (52) (74) (150)
Adjustment to beneficial conversion feature
related
to convertible preferred stock................ -- -- 985 --
------- ------- ------- -------
Income (loss) available to common stockholders.... $ (627) $ 1,016 $ 4,069 $ 2,500
======= ======= ======= =======
Earnings (loss) per share:
Basic................................................. $ (0.04) $ 0.08 $ 0.27 $ 0.21
======= ======= ======= =======
Diluted............................................... $ (0.04) $ 0.07 $ 0.23 $ 0.18
======= ======= ======= =======
Weighted average shares used in per share calculation:
Basic................................................. 16,006 12,150 15,099 12,154
Diluted............................................... 16,006 13,783 17,646 13,648
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,321 $ 3,325
Adjustments to reconcile net income to net cash provided
by operating
activities:
Depreciation and amortization............................. 1,965 1,248
Amortization of deferred compensation..................... 276 162
Employee stock ownership plan contribution................ -- 75
Deferred income taxes..................................... (34) (58)
Merger related costs...................................... 1,820 --
Other non-cash adjustments................................ 182 26
Changes in operating assets and liabilities:
Accounts receivable..................................... (2,409) (2,193)
Inventories............................................. 24 (1,609)
Prepaid expenses and other current assets............... (1,379) (831)
Other assets............................................ (27) 63
Accounts payable........................................ (1,380) 787
Accrued expenses........................................ 3,408 404
Income taxes payable.................................... (251) 1,099
------- -------
Net cash provided by operating activities............. 5,516 2,498
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short term investments.......................... 3,405 672
Purchases of property and equipment....................... (2,261) (6,135)
Payments for intangible assets............................ (1,071) (389)
------- -------
Net cash provided by (used in) investing activities... 73 (5,852)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (payments on) line of credit, net........... (764) 74
Proceeds from long term obligations....................... -- 1,300
Principal payments on long term obligations............... (1,250) (506)
Redemption of preferred and common stock and payment of
accrued dividends....................................... (17,060) --
Proceeds from sale of common stock........................ 49,398 14
Repurchase of common stock................................ -- (150)
------- -------
Net cash provided by financing activities............. 30,324 732
Effect of exchange rate changes on cash................... (13) 197
------- -------
Net increase (decrease) in cash and cash equivalents...... 35,900 (2,425)
Cash and cash equivalents, beginning of period............ 2,316 5,540
------- -------
Cash and cash equivalents, end of period.................. $38,216 $ 3,115
======= =======
</TABLE>
F-28
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
(UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 134 $ 162
======= =======
Cash paid for income taxes................................ $ 2,608 $ 1,256
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Convertible Redeemable Preferred Stock into
Redeemable
Preferred Stock......................................... $14,015 $ --
======= =======
Conversion of Redeemable Preferred Stock into Common
Stock................................................... $ 751 $ --
======= =======
Adjustment to beneficial conversion feature related to
Convertible
Redeemable Preferred Stock.............................. $ 985 $ --
======= =======
Note issued for patent rights............................. $ 1,000 $ --
======= =======
Preferred dividends declared.............................. $ 163 $ 675
======= =======
Contribution of common stock to ESOP...................... $ 100 $ 100
======= =======
Accretion of redemption value for Redeemable Common
Stock................................................... $ 74 $ 150
======= =======
Deferred compensation..................................... $ 164 $ 683
======= =======
Note issued for Serva product line assets acquired........ $ -- $ 500
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The consolidated financial statements include the accounts of Invitrogen
Corporation and its 100% controlled subsidiaries, NOVEX, Invitrogen B.V., NOVEX
Electrophoresis GmbH, Serva GmbH, NOVEX International Sales Corporation and
Invitrogen Export Company, Ltd. All significant intercompany accounts and
transactions have been eliminated in consolidation. The interim financial
statements have been prepared by Invitrogen, without audit, according to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments, which include only normal recurring adjustments, necessary to state
fairly the financial position, results of operations and cash flows as of and
for the periods indicated.
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction (see Note 5). NOVEX, formerly known as Novel
Experimental Technology, a California corporation, was incorporated on April 5,
1989. NOVEX manufactures protein and nucleic acid electrophoresis gels and
related equipment, solutions, standards, and fine chemicals, primarily for use
in research laboratories. This transaction has been accounted for as a pooling
of interests and, accordingly, the Company's consolidated financial statements
have been restated for all periods prior to the business combination to combine
the financial and operating results of Invitrogen and NOVEX.
It is suggested that these financial statements be read in conjunction with
the audited financial statements and the notes thereto included elsewhere in
this Registration Statement and Prospectus.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components........................ $1,609 $1,610
Work in process..................................... 889 1,118
Finished goods...................................... 2,803 2,646
------ ------
$5,301 $5,374
====== ======
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment
was $7.3 million and $5.8 million at September 30, 1999 and December 31, 1998,
respectively. Accumulated amortization of intangible assets was $0.5 million and
$0.3 million at September 30, 1999 and December 31, 1998, respectively.
F-30
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Accrued purchases................................... $ 839 $ 678
Accrued payroll and related expenses................ 1,600 1,148
Accrued ESOP contribution........................... 353 254
Accrued merger related costs........................ 2,684 --
Accrued other....................................... 933 756
------ ------
$6,409 $2,836
====== ======
</TABLE>
4. INITIAL PUBLIC OFFERING, CONVERSION AND REDEMPTION OF PREFERRED STOCK
In February 1999, the Company completed its initial public offering and
issued 3,525,000 newly issued shares of its Common Stock at a price of $15.00
per share. The Company received $48.1 million in cash, net of underwriting
discounts, commissions and other offering costs.
Simultaneously with the closing of the initial public offering, each of the
2,202,942 outstanding shares of Series A Cumulative Convertible Preferred Stock
was automatically converted into 2,202,942 shares of Common Stock and 2,202,942
shares of Series A Redeemable Preferred Stock (RPS). At the closing of the IPO,
the RPS was redeemed for $14,015,000 and accumulated dividends on the Series A
Cumulative Convertible Preferred Stock of $1,538,000 were paid. In 1997, when
the stock was issued, a charge to equity of $15 million was recorded to reflect
the beneficial conversion feature of the convertible preferred stock. Upon
determination of the final redemption price of $14,015,000 at the IPO a credit
to equity of $985,000 was recorded which has been reported as an adjustment to
Income Available to Common Stockholders in the income statement for the quarter
ended March 31, 1999.
5. NOVEX MERGER
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction. NOVEX manufactures protein and nucleic acid
electrophoresis gels and related equipment, solutions, standards, and fine
chemicals, primarily for use in research laboratories.
Invitrogen issued 2,530,124 shares of common stock in exchange for all the
outstanding shares of NOVEX stock based on an exchange ratio of approximately
.23188 shares of Invitrogen common stock for each share of NOVEX common stock.
Invitrogen also assumed and exchanged all options to purchase NOVEX common stock
for options to purchase 469,678 shares of Invitrogen common stock. The merger is
intended to qualify as a tax-free reorganization and has been accounted for as a
pooling of interests. Costs incurred as a result of the merger and related
integration are expected to be $4.4 million and are subject to change. These
costs were expensed in August 1999, after the merger was completed.
Prior to the merger, NOVEX used a fiscal year ending March 31. In order to
report the combined results on a consistent basis, NOVEX's fiscal years have
been recast to a twelve-month period ended December 31, for all periods
presented. These recast results have been combined with the corresponding fiscal
years ended December 31, 1998, 1997 and 1996, of Invitrogen to arrive at the
financial information presented. The combined results of operations of
Invitrogen and NOVEX are presented as if the merger had occurred at the
beginning of the periods presented.
F-31
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------
LOSS SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic and Diluted EPS:
Loss available to common stockholders...................... $ (627) 16,006 $ (0.04)
====== ====== =======
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................... $1,016 12,150 $ 0.08
=======
Stock options.............................................. -- 1,633
------ ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $1,016 13,783 $ 0.07
====== ====== =======
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................... $4,069 15,099 $ 0.27
=======
Stock options.............................................. -- 2,547
------ ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $4,069 17,646 $ 0.23
====== ====== =======
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................... $2,500 12,154 $ 0.21
=======
Stock options.............................................. -- 1,494
------ ------
Diluted EPS:
Income available to common stockholders plus assumed
conversions.............................................. $2,500 13,648 $ 0.18
====== ====== =======
</TABLE>
In accordance with SAB Topic 4D, the Company considers any common stock
issuable upon the occurrence of an IPO for little or no consideration as a
nominal issuance. In accordance with the above bulletin, the Company has
considered 2,202,942 common shares issuable in connection with the conversion of
convertible preferred stock to be a nominal issuance and outstanding for all
periods since the
F-32
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE (CONTINUED)
original issuance of the underlying security until the conversion into common
stock upon the IPO in February 1999.
7. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) is determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
(IN THOUSANDS) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income (loss)........................................... $(627) $1,293 $3,321 $3,325
Foreign currency translation adjustments.................... 13 146 (190) 166
----- ------ ------ ------
Total comprehensive income (loss)......................... $(614) $1,439 $3,131 $3,491
===== ====== ====== ======
</TABLE>
F-33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OCTOBER 27, 1999
[LOGO]-Registered Trademark-
5,900,000 SHARES OF COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
DLJDIRECT INC.
------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
