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ABI Sees Significant Growth Opportunity In $5 Billion Research-Validation Market

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
Looking for opportunities beyond traditional genomics and proteomics applications, an Applied Biosystems official said this week that the firm is directing investments toward a rapidly growing research-validation market, which he claims offers a greater market potential than the early-stage research markets in which the firm has traditionally participated.
In making the company’s pitch to investors at the Lehman Brothers Global Healthcare Conference in Miami, Peter Dworkin, ABI’s vice president of investor relations, reiterated the firm’s focus on consumables as a key growth driver, but he also said ABI sees much greater opportunities for its products in the research-validation field.
ABI is one of several firms in the BCW Index that has been repositioning itself for growth in more downstream applications, such as biomarker validation and forensics. The day before ABI’s presentation, Waters and Affymetrix officials told investors at the same conference that they were targeting growth in clinical markets (see article in this week’s issue).
Dworkin told investors that the validation phase of life science research — such as interpreting genetic information, validating biomarkers, and genetic variability research — offers ABI a massive market opportunity for its current platforms as well as those in development.
“We see validation as a larger opportunity — about a $5 billion opportunity — than the discovery business,” he said. “As you move further down this [research] continuum, you get to the commercialization markets, and these include forensic analysis, quality and safety testing, biosecurity, and clinical diagnostics.”
“As we do product planning and strategy planning, we are focused still on the discovery market because it’s still very important, but a lot of the energy and investment is going more in that validation and commercialization space,” said Dworkin. “You might say that we’re following the money, because clearly the growth and the larger dollars” are in that area.
In its proteomics and small-molecule business, ABI is focused on “developing workflows to increase efficiency in the drug development process, to focus on targeted applications … and to continue our position in proteomics through a biomarker-focused product development program,” said Dworkin.
While the validation and commercialization markets may offer greater opportunities for the firm, Dworkin said the firm’s previous efforts for growing consumables sales, including the acquisition of Ambion last year and specific training for its sales force on consumables, have paid off.
“That’s a business we’ve been investing in, not only through the acquisition of Ambion, which brings us RNAi reagents, but also through some internal product development,” said Dworkin.
He said that as a result of those efforts, sales of consumables now account for roughly 40 percent of ABI’s total sales compared with 36 percent in fiscal 2004, the year before it underwent a major restructuring.
DNA Sequencing Turnaround
The focus on consumables was part of a larger effort begun in the summer of 2004 to reposition ABI for future growth amid declining revenues for DNA sequencing products, on which it had been largely dependent.
Dworkin said that since restructuring the business almost three years ago, ABI has rebalanced its R&D spending at 10 percent of revenues, employed six sigma programs, and specifically trained the sales force on driving consumables sales. “The net of this has been a gross margin expansion of 220 basis points over the last few years, and operating margins improvements of nearly 300 basis points” between 2004 and 2006, he said.
Dworkin also noted that the firm is on track to either meet or surpass its forecast of stable DNA sequencing revenues for fiscal 2007, which ends June 30 for ABI. He said those products had grown 5 percent in the first half of fiscal 2007.
“As we have stabilized the DNA sequencing category, and as we now anticipate some modest growth over the next few years, DNA sequencing will now contribute to the business, we believe, rather than retard the overall top-line performance of the business,” said Dworkin.

“As we do product planning and strategy planning, we are focused still on the discovery market because it’s still very important, but a lot of the energy and investment is going more in that validation and commercialization space.”

That part of the business should also receive a boost from the Agencourt Personal Genomics business that ABI purchased for $120 million from Beckman Coulter last year (see BioCommerce Week 5/31/2006).

Just last week, ABI invited about 50 scientists from around the world, most of them potential customers for its SOLiD next-generation sequencer, for a three-day meeting at its Foster City, Calif., headquarters. It plans to launch an early-access version of the platform by the middle of 2007.
ABI will likely be the third vendor to bring a next-generation sequencing system to market, trailing 454 Life Sciences, which sold its first Genome Sequencer 20 two years ago and had placed more than 60 by the end of 2006, and Illumina, which shipped 13 Genome Analyzers to early-access customers in 2006 and had received at least 40 orders for its system as of early February.
Finally, Dworkin also said that ABI has identified cellular analysis as a “potential path to growth going forward,” though the firm does not have any significant presence in that market. “That growth could be from internal product development, acquisition, or a combination of the two,” he said.
Those comments echoed an earlier statement from Applera CEO and interim ABI President Tony White at the JP Morgan Global Healthcare Conference in January. At that conference, White noted that ABI does not have a strong presence in cell analysis, and it intends to change that in the future through internal and external efforts (see BioCommerce Week 1/10/2007).
However, pressed during the breakout session whether a cell analysis instrument business would be a priority for ABI, White said that was not necessarily the case.

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