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ABI to Focus on Ambion Integration in FY '07; RT-PCR, Mass Spec Drive Q4 Revenue Growth

Applied Biosystems is focusing on integrating Ambion and increasing sales of the unit’s products worldwide as it begins fiscal year 2007, company officials said last week during a conference call.
 
ABI acquired the research products business of Ambion — which was essentially all of the firm’s commercial business — for roughly $273 million earlier this year as part of its plans to grow consumables sales and get more involved in the RNAi field (see BioCommerce Week 1/4/2006). Ambion has historically returned 20-percent quarterly revenue growth, and ABI officials said they believe they can achieve greater growth by focusing on untapped markets for the firm’s products.
 
ABI officials also announced last week that its fiscal fourth-quarter revenue increased 9 percent to $523.1 million, led by strong growth for its real-time PCR and mass spectrometry products.
 
“The company is extremely focused on Ambion and on the integration globally right now,” said Cathy Burzik, president of ABI, during the firm’s fourth-quarter conference call. “Ambion as a standalone company had more penetration in the US, so our focus right now has been to get the sales force up to speed in Europe, in Asia, et cetera. I see us ramping up during the course of this coming year as our sales force gets trained, [and] we get products on the website.”
 
Tony White, CEO of ABI parent Applera, said that the firm had “put in a fairly aggressive plan for Ambion for ’07,” but he would not break out a specific forecast for Ambion’s contribution for the year.
 
In its first full quarter as part of ABI, Ambion contributed $14.9 million, or just under 9 percent, in fourth-quarter revenue as part of the firm’s real-time PCR and applied genomics segment. “Ambion historically has grown 20 percent a year, and I think you should expect us to be able to certainly accelerate beyond that,” said Burzik. Ambion products contributed around 3 percent to ABI’s total revenue in the quarter.
 
Revenue from ABI’s sequencing business, on the other hand, declined around 4 percent to $137.8 million in the period. In fact, one of the primary reasons ABI acquired Ambion was to boost sales of its consumables and mitigate declining revenues from its DNA sequencing instruments.
 
Since telling investors in April 2005 that it planned to focus on building its consumables business (see BioCommerce Week 4/14/2005), the firm's sales efforts in that area have met with mixed success. Consumable sales have fluctuated on a quarterly basis and have accounted for between 37 percent and 40 percent of total revenues.
 
For the fourth quarter ended June 30, 2006, ABI’s consumables sales of $199.6 million accounted for 38.2 percent of total revenues. The firm’s instrument sales of $234.8 million accounted for 44.9 percent of revenues.
 
RT-PCR, Mass Spec Drive Q4 Sales
 
ABI said total net revenues for the three months ended June 30 increased to $523.1 million from $478.5 million during the similar period in 2005. Excluding the impact of the Ambion acquisition, revenues for the quarter increased 6 percent over the year-ago period. 
 
“This is an important milestone for Applied Biosystems as it is the first quarter that we have generated revenues in excess of $500 million,” Burzik noted during the conference call.
 
Sales growth for the quarter was driven by ABI’s real-time PCR and applied genomics segment, which jumped 23 percent to $169.7 million from $138.5 million. “We are seeing pick up in India and China in our real-time PCR space, which is indicative of molecular biology penetration in those markets,” said Burzik.
 
Sales of the firm’s mass spectrometry unit grew 13 percent to $134.7 million year over year.
 
“Global pharma spending continues to be variable as we have seen ongoing outsourcing to CROs, which has led to mass spec demand in emerging markets,” said Burzik. “Our proteomics business generated notable results this quarter, with significant demand in European markets for our 4800 MALDI TOF/TOF system and our QTRAP products from customers performing biomarker discovery and validation.”
 
However, she said, “The academic market is certainly tough — that’s a worldwide statement with NIH budgets and these other life science budgets on the academic side — but you’ve got to follow where our people make the investments. That’s why we’re so optimistic on the applied markets, clinical research, forensics, et cetera.”
 
Laura Lauman, division president of proteomics and small molecules for ABI, said, “We saw broad-based adoption of our new [mass spec] products in all areas including pharmaceutical, applied markets, as well as proteomics. What we’re seeing is very strong growth [for mass specs] in both India and China in the CRO market. We’re also seeing strong growth in the large pharma [market] as well.”
 
Asked during the conference call whether the firm’s mass spec instruments were being used for molecular diagnostic purposes, Lauman responded, “We currently sell [mass spec instruments] into the research-only market … and we are seeing a fair adoption there of mass spec into new applications.”
 

“The academic market is certainly tough … but you’ve got to follow where our people make the investments. That’s why we’re so optimistic on the applied markets, clinical research, forensics, et cetera.”

The 4-percent decline in sequencing sales during the quarter followed a 4-percent decline in the previous quarter, but company officials said they believe the sequencing market will stabilize in 2007.
 
Ensuring that it would not be shut out of the emerging next-generation sequencing market, ABI completed the acquisition of Agencourt Personal Genomics last month (see BioCommerce Week 5/31/2006). “We are committed to a rapid commercialization timeline of the Agencourt technology and look towards a mid-calendar 2007 for the introduction of instruments to early access customers,” Burzik said.
 
Revenues from ABI’s core PCR and DNA synthesis segment increased 12 percent to $51.7 million as sales of “other” products declined 7 percent to $29.2 million.
 
ABI’s R&D spending for the fourth quarter of 2006 declined to $46.3 million from $48.2 million in the fourth quarter of 2005.
 
Profits for the fourth quarter grew to $76.7 million, or $.41 per share, from $71.6 million, or $.35 per share, year over year.
 
ABI said three main items affected the comparability of results for the fourth quarters of both 2006 and 2005, which increased pre-tax income in Q4 2006 by $14 million. Items for the fourth quarter of 2006 included a $16.9-million pre-tax gain from the sale of an ABI-owned facility, amortization expense of $2.9 million related to acquired intangibles, and a $1.4-million favorable tax adjustment to a previously recorded charge in the second quarter of the firm’s 2006 fiscal year.
 
Items affecting the fourth quarter 2005 included pre-tax items that decreased income before taxes by about $20.5 million. The company also recorded fourth-quarter 2005 tax benefits of $23.5 million related to US R&D credit carryforwards, the expected results of Canadian examinations, and the settlement of UK tax matters, the company said.
 
Excluding these items for both years, ABI’s earnings per share would have been $.35 in Q4 2006 compared with $.31 in Q4 2005.
 
For full-year 2006, ABI reported revenue growth of 7 percent to $1.9 billion from $1.8 billion the year before. The firm’s net earnings grew 16.1 percent to $275.1 million, or $1.43 per share, from $236.9 million, or $1.19 per share, in 2005. ABI’s R&D spending declined to $180.3 million in fiscal 2006 from $192.1 million in 2005.
 
Looking ahead, ABI said it believes that fiscal 2007 revenue will grow in the mid- to high-single digits. This outlook includes the full fiscal year impact from the Ambion acquisition and currency effects.
 
Revenues are expected to increase for both instruments and consumables during fiscal 2007, which began July 1, ABI said. Specifically, the company expects revenue from RT-PCR/applied genomics and mass spectrometry products to grow and receipts to decline from its core PCR and DNA synthesis and “other” product segments.
 
Revenues in the DNA sequencing product category are expected to remain flat compared with fiscal 2006.
 
“DNA sequencing declined by a modest 1 percent for all of fiscal 2006,” said Burzik. “Additionally, DNA sequencing consumables were flat for fiscal 2006 and showed modest growth in the fiscal fourth quarter. These data support our perspective that the sequencing market will stabilize in fiscal 2007.”
 
Despite the overall revenue and profit growth, investment firm Piper Jaffray downgraded shares in ABI to “Market Perform” from “Outperform” after the company reported its quarterly and yearly results. The firm’s shares hit a 52-week high of $33.59 on June 19 but have since receded 4.7 percent, closing at $32.02 on Tuesday.

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