How bad is the market for life science tools companies? If you accept Applied Biosystems’ late March press release at face value, things aren’t looking too good. Revising its forecast for earnings during the quarter ended March 31, the Foster City, Calif.-based analytical instruments company said government funding delays in the US and overseas, as well as “economic uncertainty” linked to turmoil in the Middle East, would lower its earnings for the current quarter and possibly also for the quarter ending June 30.
Financial analysts who cover ABI tend to agree with the company’s explanation for the softness in its financial results. “My assumption is that ABI is not one to make excuses,” says Ken Goldman at Lehman Brothers. Goldman backed up ABI’s assertion that some European governments cannot increase expenditures on science because they have reached the limit for deficit spending under EU currency accords. Eric Schmidt, at SG Cowen, also supported ABI’s claim that delays in the release of US government funding for fiscal year 2003 were partly responsible for lower demand for life sciences instruments. “In a repeat of last year, the money was not released in time to change ABI’s earnings for the [third quarter of the fiscal year],” he says.
But what surprised Schmidt was that ABI also mentioned the possibility of lower than expected earnings for the quarter ending June 30. If the release of US government funding is simply delayed, he reasons, the effect should be an increase in revenue above expectations for ABI the following quarter. Perhaps to avoid again revising its figures down in future quarters, ABI said in its statement that “it would be neither constructive nor possible to accurately update our financial outlook at this time.”
And the question remains as to whether ABI’s experience heralds a larger trend for life science instrument manufacturers in general, and if so, for how long. One of the few other “pure play” life science instrument manufacturers, Bruker Daltonics, says its earnings expectations for the first quarter of 2003 remain unchanged, and that the Billerica, Mass.-based company will see 18 to 22 percent growth in life science systems and aftermarket revenue for 2003. “Our January numbers are still quite strong,” says a Bruker spokesman. In any event, Lehman’s Goldman says a downturn — even if just for ABI — would be temporary, given the underlying demand for systems that should in theory decrease the overall cost of healthcare.
— John S. MacNeil