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ABI Completes Year-Long Strategic Review, But 05 Revenue Growth Will Likely Remain Anemic

Last week, Applied Biosciences announced the completion of a year-long strategic review of its business, wrapping up the process by filling positions among its senior management. But the review process apparently didn’t jump-start revenue growth for the molecular biology tools leader.

“The overall numbers aren’t going up,” said Tony White, CEO of Applera, ABI’s parent company. He said the company modified its revenue projections for FY 2005 to low single-digit growth, from its previous projection of mid-single digit growth.

“Here we’re halfway through the year and we are not seeing mid-single digit growth, and our prospects as we see the year play out don’t look any different from the last couple of quarters,” he said. “This is a more accurate statement to project from where we have been.”

ABI reported revenues of $463 million for its second quarter of FY ‘05, which ended Dec. 31, 2004, a 1-percent increase over the year-ago quarter. This increase was boosted by foreign-exchange benefits of 2 percent. Net income grew to $73 million, compared to $52 million for the prior-year quarter.

ABI was among four companies in the BioCommerce Index issuing quarterly reports last week, including Waters, Beckman Coulter, and PerkinElmer (see p. 3 for details).

Mass Spec, RT-PCR Climbs;
Gene Sequencing, PCR Ebbs

ABI’s traditional strength in DNA sequencing and PCR ebbed, as both segments saw revenues decrease. However, receipts for its RT-PCR and mass spectrometry units grew.

The company’s flagship DNA-sequencing segment had revenues of $141 million, a 17-percent decrease over $170 million in the year-ago quarter. The segment’s Q2 revenues improved sequentially over $116 million reported for the quarter ending Sept. 30, 2004, which was the segment’s lowest revenue performance in the last 12 quarters.

Core PCR and DNA synthesis generated revenues of $47 million for the quarter, down 8 percent compared to $52 million for the year-ago quarter. Meantime, mass spectrometry revenues were up 10 percent at $114 million, compared to $103 million a year ago, and the RT-PCR and applied markets segment had revenues of $135 million, up 29 percent over $104 million reported in Q2 2004.

Overall instrument sales for the quarter fell 8 percent to $217 million, compared to $235 million a year ago, while consumables grew 14 percent to $170 million, from $149 million in the year-ago quarter.

Research and development costs were $54 million for the quarter, compared to $61 million for the year-ago period, while SG&A costs grew to $243 million from $238 million a year ago.

White said the strategic review delved into the efficacy of its R&D program.

“We have made big investments in that over the past several years, and despite the tough environment, we probably could have had expected a little better output from that,” White said.

ABI reorganized its R&D in July, after the second phase of its review, which included a layoff of 145 people and a reorganization of ABI’s business operations into four separate divisions, each with its own leadership, strategic planning resources, R&D, marketing, and sales.

Additionally, the company created several new cross-divisional functional groups to add to the previously created Advanced Research and Technology segment.

“For the first time, we have some fairly rigorous metrics for R&D that will be monitored closely,” said White. He declined to explain the metrics.

Cathy Burzik, ABI’s new president, said that the company is engaging in product and cycle-time excellence, an R&D productivity methodology that aims at measuring, and eventually improving, R&D effectiveness.

Additionally, the company is looking at the effectiveness of its sales force. “This is an area that has not been very focused ... in the past because we were driven by innovation and strong R&D capabilities and felt that [it] was more of a service organization,” White said.

He said Burzik is also looking at that issue and expects that it will take “incremental investment.”

Where that money will come from, he didn’t specify. Perhaps from the $655 million in cash on hand that the company had at the end of the period? Again, White wouldn’t say.

“We’re keeping our powder dry,” he said. “We are evaluating internal and external investment options.”

— Mo Krochmal ([email protected])

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