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As Ax Falls In Foster City, ABI Shifts Focus on Sales; N. America, Consumables in Play

Following weeks of speculation that layoffs were on the way, Applied Biosystems announced last week that it was cutting roughly 250 jobs in an effort to "reduce and rebalance" its workforce.

The firm also said that it would take a pre-tax charge of $20 million to $22 million in its fiscal 2005 fourth quarter to cover the costs of employee severance and facility closures. ABI's fiscal 2005 year and fourth quarter ends June 30.

Although the cuts will result in a workforce reduction of around 6 percent, the firm has plans to add personnel in fiscal 2006 in areas such as manufacturing quality, advanced research, and field sales and support — especially in North America and most likely for consumables.

Asked if they could be more specific about which product lines might be affected by the cuts and potential hirings next year, a company spokesperson said in an e-mail, "They affect functions more than specific products."

The spokesperson said that most of the terminated employees worked at ABI's facilities in Foster City, Calif., though a small number worked outside the US.

"I think they're struggling a bit, but I'm not sure this latest move is all that telling," said Eric Schmidt, a managing director and senior research analyst at investment bank SG Cowen.

"I think they're struggling a bit, but I'm not sure this latest move is all that telling. It tells you they're not bursting at the seams with new revenue opportunity."

"It tells you they're not bursting at the seams with new revenue opportunity," he told BioCommerce Week. "But what they're suggesting to me is that some of the cuts they are making in R&D are actually going to be leveraged into sales and marketing. In research, they have historically spent more than their competitors in terms of percentage of sales going back into R&D, and maybe they're just trying to come more in line with the group in that regard."

The layoffs come nearly a year after ABI announced a major structural reorganization that resulted in the creation of four business divisions: molecular biology, proteomics and small molecules, applied markets, and service. Each division gained its own president, product development and advanced manufacturing resources, as well as product line and marketing management.

That restructuring, which came about after a year-long evaluation by Boston-based consultancy Bain & Co., also involved laying off 145 employees.

Since that time, ABI has struggled to grow revenues, reporting increases of 1 percent and 3 percent sequentially in its fiscal second and third quarters. Following the release of its second-quarter results, the firm modified its revenue projections for fiscal year 2005 to low single-digit growth from previous predictions of mid single-digit growth.

The lagging sales prompted the company to re-examine the effectiveness of its sales operations and determine the best way for the firm, which has focused on instrument sales, to cash in on the sale of consumables (see BioCommerce Week 4/14/2005).

The ABI spokesperson confirmed that the latest staff reductions were not a consequence of the earlier strategic review carried out by Bain. Rather, "the decision to rebalance resources was in part driven by a sales force effectiveness analysis conducted over the last several months which concluded that we have been underresourced in our North American sales and field support organization, hence a decision to hire more personnel in that area."

"Specifically, I think they're not addressing some of the commercial opportunities," particularly consumables, Schmidt said. He added that he expects the firm to place a greater emphasis on increasing sales of its applied genomics, gene expression, and real-time PCR products going forward.

A greater sales push for its consumables would not be a surprise. Carl Hull, vice president and general manager for ABI's RT-PCR and gene-expression business lines, told investors visiting the company's headquarters in April, "Our real opportunity is to take that core competence [in capital equipment sales] and build a shell around it. Consumables represent a big opportunity for us and we are focused on that."

ABI declined to comment on the products or parts of the company it expects will drive growth over the next year. The firm will provide its outlook for fiscal 2006 on July 27, when it reports its FY2005 results, the ABI spokesperson said.

Life After CE?

Company officials have repeatedly stated their belief that the capillary electrophoresis-based DNA sequencing technology that has given ABI a huge lead in the sequencing market has a lot of legs left in it, despite emerging technologies that have garnered attention.

For example, ABI competitor Beckman Coulter recently agreed to acquire Agencourt Bioscience, which is making a next-generation sequencing technology (see BioCommerce Week 5/5/2005). And Roche Diagnostics inked a partnership with 454 Life Sciences, which has developed what is considered the most advanced of the alternative sequencing technologies, in a deal potentially worth $62 million to 454 (see BioCommerce Week 5/19/2005).

ABI recently announced the sale of 20 capillary electrophoresis DNA sequencing instruments to the Broad Institute. The company said that the sale demonstrated that capillary electrophoresis was still the "gold standard" in DNA analysis technology, and the firm would continue to invest in the "development and enhancement of" the technology (see BioCommerce Week 6/16/2005).

While some investors and industry observers would like to see ABI make an acquisition in an attempt to bolster its top line, such a move would be unusual for the firm these days.

"Over the last three years they've done very little in terms of acquisitions of new technologies," Schmidt said. "Five years ago, they were very prolific, and I'd like to see them get a little bit more prolific."

— Edward Winnick ([email protected])

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