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Analysts Say Market

NEW YORK, March 21 – Traditionally, the market for R&D services and equipment in the life sciences would be considered less susceptible to the vagaries of the business cycle--but try telling that to Michael Hunkapiller, president of Applied Biosystems (ABI).

On Wednesday, Hunkapiller updated the company’s short term business outlook “in light of the recent uncertainty in the economy,” saying that shipments of some of the company’s instruments have been delayed, and that uncertain economic conditions “may influence the near-term buying patterns of other commercial accounts.”

In fact, earlier on Wednesday, Reuters reported that Genaissance had delayed its order of 35 additional sequencers from ABI, and that stock prices for biotech and genomics companies, including ABI and Celera Genomics, had dropped to new 52-week lows.

But analysts said the real reason for the drop in share prices was a lack of investor confidence in general, triggered by the sell-off in technology stocks, and that, if anything, the low share prices could indicate a promising environment for acquiring valuable genomics companies at a reasonable price. 

“A lot of [biotechnology/genomics] companies have made significant technological advances, but the black hole created by technology stocks has taken confidence away from other industries,” said Andrew Scott, an analyst at M. H. Meyerson in New York.

That may mean the timing is right for big pharma to acquire genomics companies trading at relatively cheap prices, added Scott.

“I definitely think there is an opportunity to acquire good biotech companies with good technology and balance sheets,” Scott said.

Scott and other analysts confirmed that many genomics companies are trading under value, or at a share price that gives the company a market capitalization below the amount of cash the company has on hand, but downplayed the possibility of hostile takeovers in the industry.

“It would be difficult to do a hostile takeover because you’re also buying a core group of scientists,” said Winton Gibbons, an analyst with William Blair in Chicago. The company’s real assets are in the employees, Gibbons added, who aren’t so easily converted into cash value.

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