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PerkinElmer Sacrifices Short-Term Profit to Preserve R&D, Buy Technologies on the Cheap

Not many CEOs of publicly traded companies tell Wall Street that they are willing to sacrifice profits for the next few quarters to preserve the long-term health of their R&D operations. So I was eager to hear Rob Friel, CEO of Waltham, MA-based PerkinElmer, explain why he thinks this strategy makes sense for his company, a giant maker of fancy picks and shovels for biomedical researchers.

The main reason is that years of investing in R&D has put his company in a better position than a lot of people realize, Friel says. Most investors see, for example, that PerkinElmer (NYSE: PKI) has made a lot of money in the past selling a machine called Opera, a sophisticated cell-analysis tool for biotech, pharmaceutical, and academic researchers that prices out at $750,000. In an economic downturn, that’s not a great business.

But thanks to PerkinElmer’s previous investment in continued R&D on the technology underlying the Opera system, Friel says, the company is already in the process of switching over customers to the next-generation tool it calls Operetta. This newer version is faster, better at archiving data from reams of cell analysis experiments, and, at $150,000 to $200,000, much cheaper than Opera. Friel’s confident the new system stacks up well with competitors like Thermo Fisher Scientific’s Cellomics machine, and General Electric’s IN CELL Analyzer.

And if PerkinElmer, a seven-decade old company, can catch a lucky break—like President Obama boosting the National Institutes of Health budget as part of an economic stimulus—then its strategy of continuing to invest in such advanced life sciences research tools might just end up being farsighted. What’s more, because it’s sitting on a relatively comfortable pile of $179 million in cash, PerkinElmer may be able to scoop up cutting-edge technologies from distressed small companies for thrift-shop prices.

“We are taking the approach that we should continue to invest in the long-term, even though it may be difficult for some time,” Friel says.

Naturally, this long-term emphasis is unpopular with Wall Street. PerkinElmer stock has fallen to a five-year low, dipping to $14.11 at Friday’s close. The company now trades at … Next Page »

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