Stock Pitch for Techne Corporation Healthcare Sector Harvard Financial Analysts Club

1. Stock Pitch for Techne Corporation Healthcare Sector Harvard Financial Analysts Club

2. Firm Summary • Incorporated in Minnesota in 1981, Techne is a holding company with two wholly-owned subsidiaries, R&D Systems and R&D Systems Europe • Two operating divisions: Hematology and Biotechnology • Hematology products are used by hospitals to check the accuracy of blood analysis equipment • Biotechnology Division develops and manufactures purified proteins and antibodies that are sold primarily to the research market and also assay kits

3. Firm Summary • World’s leading supplier of research and diagnostic cytokine products with over 20,000 products • Market Cap of 2.72B • Recently opened R&D Systems China in Shanghai to provide support and better product distribution there

4. Porter’s Five Forces • Rivalry • 3 segments: Biotechnology, R&D, Hematology • High cost of switching, lack of highly perishable products • Acquisition of Fortron Bio Science, Inc., and Biospacific

5. Threat of Substitutes • Drugs cannot be easily replaced by other products in the industry. • Unique drugs needed. • Buyer Power • Products are not standardized • Difficult to switch to another product. • Number of different buyers.

6. Supplier Power • Hard to find generic substitutes • Patent protection • Federal trademark registration • Barriers to Entry • Government barriers: FDA regulations • Patents • Knowledge base • Asset specificity

7. SWOT: Strengths • Unique and diversified array of biotechnology products and hematology calibrators and controls • Over 11,000 products available with a growing catalog • Access to key distribution channel as an established and reputable company with a long track record of reliability • Has long term relationships with universities and government centers • Customers are more likely to buy from again due to the technical nature of their products • Announced a $150 million stock buyback last month

8. SWOT: Weaknesses • Some claims of patent infringement from other companies in the past • Cutback in the biotech industry in the past few years • Sales of older products have leveled off due to changing technology

9. SWOT: Opportunities • Just opened a wholly owned foreign enterprise in China • Growing biomedical community in China • Can provide better technical support for their equipment in China • Worldwide operations with subsidiaries in Minnesota, England, China, California, and Germany • Large area for continued research as cytokines play a central role in the immune system and their function is crucial to combating a number of diseases

10. SWOT: Threats • Other biotechnology companies such as Amgen Corporation, which successfully filed a lawsuit against Techne in 2002, especially as the biotechnology industry becomes more concentrated • Takeover of biotech companies by more traditional and larger pharmaceuticals • Changing technological landscape means that Techne needs to be constantly updating its catalog of products

11. C o m p e t i t o r A n a l y s i s Invitrogen (IVGN) • Invitrogen Overview • Leading biotechnology company – Market Cap (4.58 B) Price: 98.43 • Same market niche – pre-made products to facilitate research process • Direct competition – products and tools in analyzing components in serum • Invitrogen’s Strength • Larger R&D base • Widely-recognized product - Gibco • Invitrogen’s Weakness • Heavy reliance on research funding • Fluctuation in Fetal Bovine serum pricing • International sales affected by exchange rates • Advantages and Disadvantages between Invitrogen and Techne • Market expansion • Invitrogen has larger base of research institution, international market. • Bureaucracy • Invitrogen relies heavily by grants from NIH • Techne’s R&D is wholly owned and self subsidized, making the company more flexible (quality especially critical in biotechnology industry)

12. Competitor Analysis: Millipore (MIL) • Life science company that provides technologies, and tools and services to facilitate discovery, development, and production of therapeutic drugs, vaccines, and detection tools worldwide 5 year Comparison of TECH and MIL stock prices

13. Strengths • From 2006-07, revenues grew 27 percent to $1.26 billion (compared to TECH’s 10% growth) • Bioscience market performance was driven by strong growth in laboratory water, successful new product launches, and execution of go-to-market initiatives (acquired Serologicals) • Bioproduction market performance was driven by strong consumable sales to biopharmaceutical customers (acquired Newport Bio Systems) • Sales outside the United States were approximately 61 percent and 64 percent of total sales in 2006 and 2005, respectively Weaknesses • Demand for MIL bioprocess products and services are subject to the commercial success of customer products, which may vary for reasons outside of MIL control • MIL uses third party manufacturers, which exposes it to increased risks that may affect its ability to supply customers • Relies heavily on air cargo carriers and other third party package delivery services • Operations must comply strictly with government statutes and regulations

14. TECH’s Competitive Advantages • Direct competition in bioscience and bioprocess market; however TECH and MIL production lines have different niches • In general, TECH is known for its temperature control and regulator products while MIL is known for its filtration products. • Example 1: Water-baths and temperature regulator (TECH), Water filtration system (MIL) • Example 2: Stirring 125-5000 mL (TECH), up to 75 or 300 mL (MIL) • The advantage of TECH over MIL is that temperature control and regulation is widely used among laboratories while MIL products are used in specialized laboratories to perform micro-level experiments

15. Valuation Metrics

16. Financial Statement Techne Inc. (NASDAQ: TECH)

17. Balance Sheet: Analysis • Current Assets: 212.8M; Current Liabilities: 17.2M • Solvency: 12.4 • Cash as Percentage of Market Cap: 3% • Inventories: decrease by 3% from June 2006

18. Balance Sheet: Analysis • Long Term Assets and Liabilities • Goodwill: 25.1M • Intangible Assets: 5.1M • Long Term Debt: N/A

19. Income Statement: Analysis • Interest Expense: 1.08M • Anomalies • No One Year Bumps • 2005-06: 13% revenue and 16% net income increase • 2006-07: 10% revenue and 11% net income increase • 2007 Q: Stable and steady revenue • Income Tax Expense: No abnormalities: 43.8M

20. DCF Model Relevant WACC analysis data: • Risk-free rate = 4.15% • Beta = 0.64 • Market premium = 6.5% • Total capital = 481.06M • Total debt = 0 • Total equity = 466.26M • Other = 14.8M • Discount rate = 8.3%

21. DCF Model Value per share: $47.48 (Current Price: $68.66)

22. DCF Model What might be missing? Expanding market into China Zero debt outstanding Niche market

23. Conclusion • Industry-leading operating margins, strong cash flow, and strong balance sheet • Potential for growth as cytokines and proteins are becoming increasingly important in understanding biological processes • Growth into China • Niche market