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Bio-Rad Sees Similarities in US, Japan Spending Patterns as Q3 Revenues Jump Nearly 8 Percent

This article has been updated from a previous version, which incorrectly listed Applied Biosystems as a competitor in the protein-protein interaction instrumentation market. ABI stopped selling the 8500 Affinity Chip Analyzer, developed by HTS Biosystems, in 2004. Biacore then acquired the technology from HTS in 2005.
 
Bio-Rad Laboratories said last week that the spending slowdown by research customers in Japan reflects a similar downturn in the US, and the firm is hoping for spending to pick up during the next two quarters.
 
However, these challenges, particularly in selling to academic researchers, were overcome by strong demand from big pharma, whose appetite for basic R&D tools helped Bio-Rad post revenue growth of 7.6 percent for the third quarter.
 
The firm also said it expects to close its delayed acquisition of Ciphergen’s life science business this week, bringing with it a large base of proteomics customers. The acquisition had been expected to close by Nov. 1.
 
Spending cutbacks by large pharmaceutical customers in the US has been a trend over the past couple of years and has hurt many capital equipment vendors in the research tools space. But many of these vendors noted in recent quarterly conference calls that spending by these customers has picked up somewhat.
 
While Bio-Rad officials did not disagree with that notion, Brad Crutchfield, vice president and group manager of life sciences, pointed out that difficulties remain in selling to academic and non-profit research customers. He also pointed to a continuing weak Japanese market as a sales challenge.
 
“I think, in general, the US research market is a bit challenged right now,” he said during the firm’s third-quarter conference call last week. “The increase year over year from NIH or NSF spending is certainly lower and our customers are seeing that.”
 
“In terms of big pharma or biopharma … we continue to see a fairly healthy increase in their [investment] in basic R&D and we've been able to realize that,” he said. “And certain products, like our new ProteOn instrument, are actually very much tailored to that marketplace, and those are exactly the customers that are the early adopters of it.”
 
Crutchfield said the Japanese research market mirrors that of the US. “There's a lot of interest in protein expression, gene expression analysis, and even some of our newer products — so there's a lot of commitments and plans to proceed,” he said. “It's just a matter of when they want to pull the trigger and in some cases, when the funding will be released.”
 
Like many other firms in the BCW Index, Bio-Rad reported a revenue decline in Japan for the quarter. Such decreases have persisted over the past year and a half as the Japanese government changed the way it funds academic research, Crutchfield noted.
 
“It's really made it difficult for the end user, the people that are spending the money, to forecast when they're going to get the money and how much they're going to get,” Crutchfield said. “What we've seen is a real conservative approach on behalf of our Japanese customers.
 
“In general, the whole market is very, very slow right now. We hope that in the next quarter, and certainly in the first quarter of 2007, which is a very strong quarter for Japan, things will pick up and a lot of the pent-up demand will then be released,” he said.
 
Spotlight on Protein Research Tools
 
Two months ago, Bio-Rad launched the ProteOn XPR36, a protein interaction array instrument based on surface plasmon resonance technology that the firm gained through an earlier acquisition of Israeli firm ProteOptics (see BioCommerce Week 9/13/2006).
 
“This crisscross, or 36-sample six-by-six array, is really unique to the marketplace,” said Crutchfield in describing the instrument. “And we've priced it at a point that we're … making it much more accessible. I think it will take a while to get full adoption in the marketplace, in terms of as people understand the application and true power of it.”
 
The ProteOn instrument competes with a protein-interaction instruments made by BiaCore, which was recently purchased by GE Healthcare (see BioCommerce Week 6/21/2006).
 
“The initial customer response to this new technology has been very encouraging,” added Christine Tsingos, Bio-Rad’s CFO, during the call.
 
The firm expects the combination of that new instrument along with Ciphergen’s proteomics tools business will greatly expand its customer base in the protein research field. Bio-Rad signed an agreement in August to acquire the life science business of Ciphergen for approximately $20 million in cash plus an equity investment of $3 million (see BioCommerce Week 8/16/2006).
 
“This acquisition, which we expect to close this quarter, will bring us both a large installed base of customers around the world, as well as access to leading technology for the identification and analysis of proteins,” said Tsingos. A Bio-Rad spokesperson confirmed that the acquisition is expected to close this week.
 

“What we've seen is a real conservative approach on behalf of our Japanese customers. In general, the whole market [in Japan] is very, very slow right now.”

Tsingos declined to provide growth or revenue expectations for the Ciphergen business once it joins Bio-Rad. But she said, “They were a public company and you could follow their performance historically.”
 
Ciphergen this week reported a 34-percent decline in third-quarter revenue to $4.7 million.
 
Diagnostics Drive Q3 Gains
 
Bio-Rad reported revenues of $304.8 million for the quarter, up 7.6 percent from $283.2 million for the third quarter last year. The firm’s clinical diagnostics business led the gains with a 10.8-percent increase in revenue to $164.4 million for the period. On a currency-neutral basis, revenues for the segment rose 7.8 percent.
 
Revenue for Bio-Rad’s life science segment grew 4 percent to $137.4 million year over year, but only 2 percent on a currency-neutral basis. The firm said sales in this segment were driven by early adopters of the ProteOn instrument, as well as growth in sales of its amplification reagents and process chromatography media.
 
Bio-Rad’s revenue growth was offset by a continued decline in sales of its BSE testing products. That decline is expected to continue through next year, but Crutchfield noted during the call that “it’s getting to be a smaller number and its overall impact will be much less.”
 
The firm posted a third-quarter net profit of $23.2 million, or $.86 per share, compared with $16.2 million, or $.61 per share, last year. This year’s results include a pre-tax investment gain of $4.7 million related to the sale of a semiconductor business previously owned by Bio-Rad, in which the firm had retained an interest.
 

Bio-Rad’s R&D spending increased to $31 million from $28.7 million year over year, and the firm finished the quarter with cash and cash equivalents of $238.4 million.

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