Stratagene Reports Third Quarter Results.Sales of QPCR QPCR Quantitative Polymerase Chain Reaction Instruments and Reagents Grow 9% Year-Over-Year Company Updates 2006 Financial Guidance To Reflect Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. Charge LA JOLLA La Jolla (lə hoi`yə), on the Pacific Ocean, S Calif., an uninc. district within the confines of San Diego; founded 1869. The beautiful ocean beaches, in particular La Jolla shores and Black's Beach, and sea-washed caves attract visitors and , Calif. -- Stratagene Corporation (Nasdaq: STGN), a developer, manufacturer and marketer of specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. life science research and diagnostic products, today released financial results for the third quarter of 2006 ended September 30, 2006. For the third quarter of 2006, revenue was $23.2 million, compared with revenue of $23.7 million in the third quarter of 2005. Revenues in the third quarter of 2006 included slightly lower software products and royalty revenues compared with the same quarter of 2005. Sales of QPCR instruments and reagents grew 8.6% year-over-year and sales of allergy allergy, hypersensitive reaction of the body tissues of certain individuals to certain substances that, in similar amounts and circumstances, are innocuous to other persons. Allergens, or allergy-causing substances, can be airborne substances (e.g. diagnostic products grew 4.9% year-over-year. These increases were offset by the continued and expected decline in sales of legacy products associated with gene discovery and cloning cloning: see clone. To make a product that functions like another. See clone. See also cloning software. systems. Third Quarter 2006 Highlights * QPCR instrument and reagent reagent /re·a·gent/ (re-a´jent) a substance used to produce a chemical reaction so as to detect, measure, produce, etc., other substances. re·a·gent n. growth of 8.6% year-over-year * Entered into a joint development and license agreement with Rosetta Inpharmatics, a subsidiary of Merck to develop an RNA RNA: see nucleic acid. RNA in full ribonucleic acid One of the two main types of nucleic acid (the other being DNA), which functions in cellular protein synthesis in all living cells and replaces DNA as the carrier of genetic purification purification, in religion, the ceremonial removal of what the religion deems unclean. The usual agents of purification are water (as in baptism), bodily alteration (as in circumcision), and fire. system to be used in molecular diagnostics applications * Launched ArrayAssist[R] CopyNumber software product; a guided workflow available to biologists for copy number analysis * Exercised option to license nucleic acid nucleic acid, any of a group of organic substances found in the chromosomes of living cells and viruses that play a central role in the storage and replication of hereditary information and in the expression of this information through protein synthesis. predictors for bladder cancer bladder cancer Malignant tumour of the bladder. The most significant risk factor associated with bladder cancer is smoking. Exposure to chemicals called arylamines, which are used in the leather, rubber, printing, and textiles industries, is another risk factor. * Participated in the Food and Drug Administrations MicroArray See micro array. microarray - A technique for performing many DNA experiments in parallel. Nothing to do with computers. Quality Control project with Stratagene's Universal RNA being chosen as a high-quality reference standard * Entered into agreement with VWR International VWR International is a global leader in the distribution of research laboratory products, with over 1,200,000 items to more than 250,000 customers in North America and Europe. The U.S. division is headquartered in West Chester, Pennsylvania. , Inc. to expand distribution of research products in Canada "We were disappointed by the court's decision to enhance the damage award in the Invitrogen v. Stratagene patent matter. The court had twice earlier found Stratagene to be not liable due to non-infringement and invalidity of Invitrogen's patent," said Joseph A. Sorge, M.D., President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Stratagene. "Nevertheless, we are expanding our QPCR instrument footprint, developing additional reagent technology and entering into new strategic relationships with dynamic partners. During the third quarter, we expanded our instrument installed base to more than 2,000 units." "As we have outlined in the past, the internal development of our instrument and reagent platform is one key component of our molecular diagnostics strategy," continued Dr. Sorge. "During the third quarter we also executed on the other two legs of our strategy by entering into a strategic agreement with Rosetta Inpharmatics, a division of Merck, and by exercising an option to license a family of gene expression predictors for bladder cancer that have been validated in a multi-center European study. Furthermore, we also continued to work closely with Bayer Diagnostics to continue to customize our Mx3005P instrument system for the new platform they are developing for molecular diagnostic tests. In addition, we are delighted that we now have a relationship with Quest Diagnostics Quest Diagnostics Incorporated (NYSE: DGX) is a United States corporation which provides clinical laboratory services . The company also has a business presence in England and Mexico. Quest Diagnostics is a member of the Fortune 500 and the S&P 500. as a result of its acquisition of Focus Diagnostics. We remain excited and confident that we are pursuing a strategy that will allow us, over the long-term, to become a leader in the molecular diagnostics space and we believe we have the talent, intellectual property and partnerships to be successful." For the third quarter of 2006, Stratagene recorded a net loss of $6.3 million. The net loss during the third quarter of 2006 included a $12.5 million pre-tax litigation charge related to a court judgment in a patent litigation matter that the Company plans to appeal. The total after-tax impact of the charge was $7.9 million or $0.35 per share. Excluding this charge, the Company would have achieved net income of $1.6 million or $.07 per share in the third quarter of 2006 compared with $0.7 million, or $0.03 per share in the comparable quarter of 2005. The third quarter net loss was also impacted by approximately $269,000 before taxes or $0.01 per share, after income taxes, in non-cash share-based compensation expense associated with the implementation of FAS 123R "Share-Based Payments" in 2006. The third quarter of 2005 was not impacted by the share-based compensation expense. In the matter of Invitrogen vs. Stratagene, Stratagene intends to file an appeal with the United States Court of Appeals for the Federal Circuit The United States Court of Appeals for the Federal Circuit is a United States court of appeals. The Federal Circuit was created by Congress with passage of the Federal Courts Improvement Act of 1982. The court is headquartered in Washington, D.C., and occupies the Howard T. in Texas and will post a civil supersedeas bond A bond that a court requires from an appellant who wants to delay payment of a judgment until the appeal is over. An appellant's bond to stay execution on a judgment during the pendency of the appeal. Fed. R. Civ. P. 62(d); Fed. R. App. P. 8(b). to stay payment of the judgment. The final arrangements related to the bonding of the judgment will be concluded later this week and as a result the Company expects to file a Form 12b-25 extension with the SEC to allow five more days to complete the necessary documentation and disclosures in its Report on Form 10-Q Form 10-Q See 10-Q. for the third quarter of 2006. As of September 30, 2006, the Company had total cash and cash equivalents of approximately $38.1 million of which approximately $16.6 million was unrestricted. The Company will utilize available cash resources in connection with the posting of the appeal bond. The posting of these two appeal bonds in 2006 will have a significant impact on the cash resources of the Company because the appeal bonds require cash be set aside for the full amount of the damage awards. The appeal bond amounts do not consider the offsetting income tax benefit, which would result in a refund of about one-third of the cash back to the Company in the event of payment or settlement of these matters for cash. Stratagene remains cash flow positive from its operating activities. Gross margin decreased to 63.0% of revenues for the third quarter of 2006 compared with 64.4% of revenues for the same quarter of 2005. The lower gross margin in 2006 was primarily the result of higher royalty expense associated with newly developed software solutions products. This higher expense impacted the gross margin rate in the third quarter of 2006 by approximately 1.4%. Research and development expenses were $2.8 million, consistent with the same period a year ago. Selling and marketing expenses decreased 9.2% to $4.8 million in the third quarter of 2006 compared with $5.3 million in the third quarter of last year, primarily related to the reorganization of marketing efforts earlier in 2006 compared with the same period in 2005. General and administrative expenses decreased 26.8% in the third quarter to $4.3 million compared with $5.9 million in the third quarter of 2005. General and administrative expenses in the third quarter of 2006 continued to be impacted by legal expenses associated with patent litigation but to a lesser extent in 2006 than in 2005. The Company is updating its earnings guidance provided in August 2006 to reflect the impact of the $12.5 million charge to earnings resulting from a court judgment in a patent litigation matter and for additional legal expenses and interest costs that are expected to be incurred related to this matter in the remainder of 2006. 2006 guidance is as follows: * Revenue expected to be between $94 and $98 million. * Gross margin expected to range from 63% to 65% of revenues. * Research and development expenses expected to range from 13% to 15% of revenues. * GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). loss per share expected to range from a loss of $0.34 to $0.37 per share. This includes an expected $1.0 million pre-tax effect ($0.03 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share) from the implementation of FAS 123R in 2006 and the after-tax impact of the $0.57 per diluted share litigation-related charge. The Company recorded $0.22 per share of this charge in the second quarter of 2006 and the remainder in the third quarter of 2006. * Expected fully diluted share count of 22.4 million. Conference Call Today Stratagene will host a conference call and webcast today, Monday, November 13, 2006, at 4:30 p.m. Eastern Time to discuss the Company's third quarter 2006 results, outlook for 2006, and current corporate developments. The dial-in number for the conference call is 800-218-8862 for domestic participants and 303-262-2142 for international participants. A taped replay of the conference call will also be available beginning approximately one hour after the call's conclusion and will remain available for seven days. It can be accessed by dialing 800-405-2236 for domestic callers and 303-590-3000 for international callers, using the passcode 11074147#. To access the live webcast of the call, go to Stratagene's website at http://www.stratagene.com and click on the Investors icon. An archived webcast will also be available at http://www.stratagene.com. About Stratagene Corporation Stratagene is a developer, manufacturer and marketer of specialized life science research and diagnostic products. The Company's life science research unit supports advances in science by inventing, manufacturing and distributing products that simplify, accelerate and improve research. These products are used throughout the academic, industrial and government research sectors in fields spanning molecular biology molecular biology, scientific study of the molecular basis of life processes, including cellular respiration, excretion, and reproduction. The term molecular biology was coined in 1938 by Warren Weaver, then director of the natural sciences program at the Rockefeller , genomics, proteomics, drug discovery and toxicology toxicology, study of poisons, or toxins, from the standpoint of detection, isolation, identification, and determination of their effects on the human body. Toxicology may be considered the branch of pharmacology devoted to the study of the poisonous effects of drugs. . The Company's diagnostic unit develops and manufactures products for urinalysis urinalysis (y  r'ənăl`ĭsĭs), clinical examination of urine for the purpose of medical diagnosis. as well as high quality automated instrument and reagent
systems that use blood samples to test for more than 1,000 different
allergies Allergies DefinitionAllergies are abnormal reactions of the immune system that occur in response to otherwise harmless substances. Description Allergies are among the most common of medical disorders. and autoimmune disorders Autoimmune Disorders Definition Autoimmune disorders are conditions in which a person's immune system attacks the body's own cells, causing tissue destruction. . In addition, by combining its expertise in diagnostics and molecular biology, as well as its experience with FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. regulatory procedures, the Company is pursuing opportunities to expand its product portfolio to include molecular diagnostic kits and instrumentation. More information is available at www.stratagene.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement Certain statements in this news release that are not historical fact constitute "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements. Stratagene generally identifies forward-looking statements by using words like "believe," "intend," "target," "expect," "estimate," "may," "should," "plan," "project," "contemplate," "anticipate," "predict" or similar expressions. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results of Stratagene to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those contained in or implied by the forward-looking statements are risks associated with the company's inability to sufficiently anticipate market needs and develop products and product enhancements that achieve market acceptance, the company's ability to compete effectively in the diagnostics and life science research markets, variability of the company's quarterly revenues and operating results, the failure of the company to retain key employees, the company's ability to obtain debt or equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. for unexpected litigation outcomes and for operating needs, the possibility of declining sales due in part to a reduction in research and development budgets or government funding, the company's ongoing ability to protect its own intellectual property rights and to avoid violating the intellectual property rights of third parties, extended manufacturing difficulties and currency fluctuations. For more information about these and other factors that could cause actual results to differ materially from those contained in or implied by the forward-looking statements please see Item "1A. Risk Factors" included in Stratagene's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2005 and in other reports filed by Stratagene from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q.
[TABLE OMITTED]
CONDENSED CONSOLIDATED BALANCE SHEETS > >
> > Sept. 30,
Dec. 31,
> > 2006
2005
Cash and cash equivalents, unrestricted > > $ 16,634
$ 40,508
Cash, restricted > > 21,474
192
Other current assets > > 45,217
38,440
Property and equipment, net > > 11,016
11,267
Goodwill > > 27,234
27,234
Other assets, net > > 7,015
7,041
Total assets > > $ 128,590
$ 124,682
> >
Current portion of long-term debt > > $ 240
$ 5,740
Dividend payable > > -
5,571
Other current liabilities > > 29,106
28,287
Litigation accruals > > 41,800
20,600
Long-term debt, less current portion > > 3,535
3,775
Other long-term liabilities > > 2,400
2,219
Stockholders' equity > > 51,509
58,490
Total liabilities and stockholders' equity > > $ 128,590
$ 124,682
[TABLE OMITTED]
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