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ABI s Revenues Rise 4 Percent in Q2; DNA Sequencing Revs Expected to Fall in 2006

Applied Biosystems today reported that its second-quarter revenues increased 4 percent year over year to $482 million, but excluding the impact of foreign currency, sales growth would have been 6 percent for the quarter.

DNA sequencing revenues fell 1 percent to $140.7 million year over year, and the firm is predicting a continued decline in sales of those products over the rest of the year.

Cathy Burzik, ABI's president, said during a conference call this morning that DNA sequencing instrument sales remained relatively constant on a year-over-year basis. "The modest decline was due largely to timing of consumables purchases by certain large customers," and is more a consequence of seasonal spending patterns, based on how certain customers are granted money from NHGRI, she said.

Burzik said the primary challenge in the DNA sequencing market comes from selling to the large genome centers, and the firm expects sales of both instruments and consumables to continue to slide.

"We continue to see our end markets transfer from de novo whole-genome sequencing to directed sequencing in addition to forensic applications in the applied markets," she said. Burzik also noted that resequencing applications now account for over 50 percent of revenue in this segment for ABI.

"We don't see the threat of the newer sequencing technologies as very consequential at this point in time with the large genome centers."

Despite the decline and impending competition from newer DNA sequencing technologies, company officials reiterated their view that capillary electrophoresis-based sequencing technology will remain the "gold standard" of the industry. "We don't see the threat of the newer sequencing technologies as very consequential at this point in time with the large genome centers," said Burzik.

Though the firm continues to tout the CE-based technology that its sequencing business was built on, the firm publicly acknowledged for the first time during the quarter that it was working on next-generation DNA sequencing technologies (see BioCommerce Week 10/6/2005).

A month later, ABI said it would make an undisclosed equity investment in next-generation DNA sequencing technology firm VisiGen Biotechnologies and begin collaborating with the firm (see BioCommerce Week 11/3/2005). VisiGen is developing a real-time sequencing system in which polymerase and nucleotides act together as direct molecular sensors for DNA base identification.

In the wake of the VisiGen deal, company officials have said that they would continue to evaluate other alternative sequencing technologies.

Instrument, Consumable Sales Up in Q2

ABI's instrument sales grew 3 percent to $223 million for the quarter ended Dec. 31, while consumables sales rose 5 percent to $178 million. ABI's revenue from other sources, including service, royalties, and licensing, grew 7 percent to $81 million.

Revenues for ABI's real-time PCR and applied genomics products grew 10 percent to $146.6 million from $133.2 million, and its mass spec business had sales growth of 5 percent to $119.5 million for the quarter compared with $113.8 million in the comparable period a year ago.

Burzik said "buying patterns across pharma companies are mixed, [but] we introduced … new products in order to differentiate AB's portfolio."

The firm's net income dropped 58 percent to $30.9 million, or $.17 per share, compared with net income of $72.7 million, or $.37 per share, in the second quarter last year.

During the quarter, the firm took a charge of $28 million related to the repatriation of cash, and if one-time items for the second quarter this year and last year are excluded from results, ABI's earnings per share would have risen to $.32 from $.28 last year.

Analysts had expected the firm to report adjusted earnings of 30 cents per share on sales of $477.6 million.

ABI also reported R&D expenses of $45 million for the quarter, a slight decrease from $47 million a year ago, a decrease ABI attributed to a realignment of its R&D investments.

During the quarter, ABI settled litigation with Genetic Technologies over non-coding DNA technology covered by Genetic Technologies' patents (see BioCommerce Week 12/15/2005). The firm also resumed settlement talks with Bio-Rad Laboratories in a long-running PCR patent suit (see BioCommerce Week 12/22/2005).

ABI officials declined to provide further details about the settlement talks, other than to say those discussions are ongoing.

The firm finished the year by signing a deal to acquire the research products division of RNAi firm Ambion for roughly $273 million in cash (see BioCommerce Week 1/4/2006). The acquisition is an important part of ABI's strategy to drive growth of its consumables, while gaining entry to a market that it estimated at $500 million and growing at an annual rate of more than 10 percent.

ABI hopes to close that acquisition during the third quarter of fiscal 2006, Burzik said during the call.

The firm finished the quarter with cash and short-term investments of $503 million and no debt on the books.

Company officials said they expect sales growth to be in the low to mid single-digits for all of fiscal 2006.

— Edward Winnick ([email protected])

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