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ABI Plans Additional European Consumables Sales Staff; Mass Spec Sales Drive Q3 Revenue Gains

As ABI continues to focus on driving consumables sales, company officials disclosed last week that the firm plans to hire additional sales staff in Europe specializing in the sale of such products.

The firm said global consumables sales grew 8 percent during its fiscal third quarter and accounted for nearly 40 percent of total receipts in the period. Separately last week, ABI said that it had reached a preliminary agreement with Beckman Coulter to settle a legal dispute regarding Beckman's capillary electrophoresis technology and PCR instrumentation.

Over the past year, ABI has made an effort to boost its consumables sales as a way to mitigate declining revenues from its DNA sequencing instrument sales and variable purchasing patterns. ABI is one of several firms in the BCW Index whose primary revenue source is capital equipment sales, and many of these vendors — including Agilent, Waters, Beckman Coulter, and Fisher Scientific — have stressed the importance of consumables as a steady source of revenue.

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 (see table below).

ABI's Consumables Sales Over the Past 5 Quarters
Quarter Total
Consumables Sales
Sales Growth Year Over Year Percentage of Total Sales
Q3 2006
$191 million
8 percent 39 percent
Q2 2006
$178 million
5 percent 37 percent
Q1 2006
$166 million
7 percent 40 percent
Q4 2005
$176 million
6 percent 39 percent
Q3 2005
$179 million
17 percent 37 percent

"We've added and continue to add significant sales force within the United States and plan to do so in Europe relative to consumables," said Cathy Burzik, president of ABI, during the firm's third-quarter conference call last week. She did not say how many people ABI planned to add to the European force or how many employees currently focus on consumables sales there.

"Consumables, going forward, remain a focus. You're starting to see, certainly with the Ambion acquisition, some of the impact of that strategy. We are seeing considerable growth in our TaqMan assays … and we continue to see uptake on our kits for forensics, quality and safety testing, and biosecurity," Burzik said.

ABI completed the approximately $273 million purchase of Ambion last month, giving ABI entry into a market that it estimated at $500 million and growing at an annual rate of more than 10 percent. The acquisition also is a key part of ABI's strategy to drive sales growth through expanded consumables offerings.

"We have invested now in sales force expansion activity in selected countries around the world, primarily in the United States," Burzik said during a conference call last month (see BioCommerce Week 3/29/2006). "We have redone our website to be much more consumables friendly, and … we have a very active program in place to leverage the Ambion acquisition in consumables."

Q3 Revenue Up 8 Percent
on Strong Mass Spec Sales

ABI last week said that total revenues for the three months ended March 31 increased 8 percent to $490.7 million from $454.8 million in the third quarter last year. ABI said the Ambion assets contributed 1 percent to total third-quarter revenue and unfavorable currency valuations shed around 2 percent from the company's top line.

Consumables sales accounted for $191.1 million of the third-quarter revenues, or 39 percent of total receipts, and were up 8 percent over the comparable quarter a year ago. The firm's instrument sales rose 4 percent to $207.1 million.

Mass spectrometry sales, which climbed 9 percent year over year to $113.9 million, helped drive the increase.

Revenue for the firm's DNA sequencing segment declined 4 percent to $136.5 million year over year. "While customer purchasing patterns continue to be variable on a quarterly basis, year to date revenues in the sequencing product category are flat, which reflects the trend toward stabilization that we are seeing in the marketplace," Burzik said during the call.

"Consumables, going forward, remain a focus. You're starting to see, certainly with the Ambion acquisition, some of the impact of that strategy."

"We continue to implement our strategy to develop internally and consider the acquisition of next-generation sequencing technologies," she said.

Core PCR and DNA synthesis revenue increased 4 percent to $51.7 million, and "other" product lines inched up 1 percent to $26.4 million.

Revenue from ABI's RT-PCR and applied genomics segment surged 23 percent year over year to $162.2 million. Ambion contributed $5.5 million, or 4 percent, to growth in the segment.

Receipts also included around $14 million in licensing fees and royalty payments related to ABI's settlement with Bio-Rad Laboratories and its MJ Research business (see BioCommerce Week 2/15/2006).

ABI's net income surged in the period to $124.4 million, or $.67 per basic share, from $55.5 million, or $.28 per basic share. Its profits were helped by the Bio-Rad settlement and tax benefits of $63.3 million related to a completed IRS exam, a state valuation allowance reversal, and research and development credits.

For the quarter, certain items decreased profits by a total of $5.4 million, ABI said. These items included a pre-tax charge of $35 million ABI paid as part of an agreement with Beckman Coulter to settle certain patent infringement claims against ABI; $33.4 million related to the Bio-Rad settlement; a $3.4 million pre-tax charge to write off certain parts of the Ambion acquisition; and a $900,000 "favorable" pre-tax adjustment for a previously recorded asset impairment.

ABI finished the quarter with $358.4 million in cash and short-term investments, down from $502.5 million as of Dec. 31, 2005. The decline was due to the Ambion acquisition, but was partially offset by $30 million ABI received after selling its stake in Celera Diagnostics to sister company Celera Genomics (see BioCommerce Week 1/11/2006).

Settlement with Beckman in the Works

Also last week, ABI parent Applera and Beckman Coulter said that they had reached a preliminary agreement to settle an ongoing patent dispute, and each company has agreed to pay the other royalty-bearing licenses for their respective technologies.

If approved, the settlement would resolve all outstanding legal disputes regarding Beckman's capillary electrophoresis and PCR instrumentation technology and Applera's breach-of-contract allegations against Beckman.

Terms of the settlement call for Beckman to grant Applera licenses to its patents for replaceable gels for capillary electrophoresis instruments and DNA sequencers, and to its patent for a heated lid for thermal cyclers. As a result, ABI will pay Beckman $35 million to "release ... any and all claims of infringement relating to DNA sequencer and thermal cycler products."

Applera, meantime, will grant Beckman licenses to its patents for nucleic acid sequencing and real-time PCR thermal cycling that the company will be able to use in the diagnostics market. Consequently, Beckman will pay Celera Genomics $20 million over 30 months for rights to use the technology in that market.

"Once executed, this agreement will provide both companies with access to important patents and technologies required for continued success in the rapidly growing field of nucleic acid sequencing and molecular diagnostic testing," Beckman President and CEO Scott Garrett said in a statement.

The settlement will enable Beckman to add DNA sequencing to the menu of molecular diagnostic tests available on its recently launched Vidiera NsD capillary electrophoresis systems and CEQ family of instruments.

"Access to real-time thermal cycling provides a key technology needed for our plans to fully automate high value molecular diagnostic testing from sample preparation through final analysis," Garrett said.

The US District Court for the Central District of California said it will stay its proceedings for 90 days pending completion of definitive agreements based on these terms.

ABI officials said during the call that they could not provide an estimate of royalty payments from Beckman going forward.

— Edward Winnick ([email protected])

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