BioSource Maintains Low Profile During Expansion Corporate Focus By SHELLY GARCIA Senior Reporter For the past few quarters, BioSource International Inc. has been doing everything it said it would increasing sales, improving profit margins, beefing up research and development. But none of that has been reflected in the company’s recent stock price, which has hovered around $6 for three months now, down from a 52-week high of $8.46 and an all-time high of $25 two years ago. On Friday, July 5, the stock closed at $5.36. Part of the problem lies with the sector in which BioSource, a Camarillo-based developer of biomedical research products, operates. The health care sector is down by about 15 percent and the biotechnology component has fared even worse, losing about 35 percent of its value in the past three months. Another problem is the company’s low profile. “I think it’s a combination of it’s an unknown story, it’s in the health care sector and its transition is unrecognized,” said Paul R. Knight, an analyst with Thomas Weisel Partners, a New York-based investment firm. Strides aside, BioSource officials say they won’t be tooting their horn anytime soon. “We don’t want to go out and promise too early,” said CFO Charles Best. “We’ve under-performed and we’ve had some management issues. We accepted that and we had to get to work.” Shares in BioSource soared several years ago on news that scientists had mapped the human genome sequence. The company’s product lines, test kits to assist research into DNA, rode a wave of enthusiasm for the sector that lifted the company’s own share price to $25 in mid-2000. The company poured money into R & D; and pounded out products but, without any strong direction, its earnings and revenues fluctuated wildly. “We’ve been building products, but nothing that was exciting to the industry,” Best said. In September, BioSource appointed a new president and CEO and embarked on a strategy focused on the signal transduction market. Instead of testing products that would help explain how two cells interact, BioSource began to concentrate on products researchers could use to explore how a single cell reacts. BioSource has hired about 25 new researchers since the beginning of the year and opened a new facility dedicated to signal transduction. The new focus hit a nerve with the researchers, universities and laboratories that BioSource sells to. For the first quarter of 2002, the company reported sales increases of 13 percent to $9.8 million. Because of recent changes in accounting rules, BioSource had to take a one-time goodwill charge of $2.87 million in the period, an expense that resulted in a net loss of $2.5 million or $0.03 per diluted share for the quarter. But without the charge, attributed to the acquisition of its new signal transduction facility, BioSource would have recorded net income of $371,000, or $0.03 cents a share for the quarter ended March 30, 2002. (Under FAS 142, companies must take certain goodwill charges in one lump sum instead of spreading them out over several quarters, as had been the practice previously.) The company kept its selling, marketing and administrative expenses level with last year at $3.7 million while increasing R & D; as a percentage of its sales. Gross margin profit increased to 57 percent from 54 percent for the comparable period last year. “They have exceeded guidance for the last two quarters,” said Knight. “The other thing is their management team has done a nice job of getting the company’s costs under control and focusing on the signaling market.” But officials say they don’t want to hang their hat on their first-quarter performance. “What we would like to see is a couple of good, solid quarters of results, both from our own expectations and also from the two analysts we have out there,” Best said. “We didn’t want to do that with the first quarter because we didn’t have enough solid results.” Analysts are not ready to jump solidly behind the stock either. Knight downgraded the stock from a “buy” to “attractive,” which means buy on weakness, after the company downgraded its quarterly guidance earlier in the year, but he said the company’s long-term prospects remain strong. “It looks like they’re going to be able to increase their growth rate,” he said. “They’re going to increase because the signaling market is definitely accelerating their growth. That, along with cost controls, should drive better earnings.”