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Caliper Expects Q4 Turnaround for Imaging Business Aided by New Spectrum Patent

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
Caliper Life Sciences officials are confident that the company’s IVIS imaging business will return to “strong double-digit” growth levels in the fourth quarter and beyond, following a decline in imaging sales during the third quarter.
While its microfluidics and drug services business had a strong quarter, imaging products were affected by a couple of factors that the firm assured investors would not be repeated in the fourth quarter. Caliper also expects a relatively new imaging patent to help drive strong revenue growth going forward.
Last week, Caliper reported third-quarter revenues of $36.7 million, up from revenues of $26.5 million in last year’s third quarter (see BioCommerce Week 11/7/2007). Sales for its microfluidics instruments and reagents grew 49 percent year over year, but were offset by IVIS imaging revenues, which declined $1.5 million year over year.
During the firm’s third-quarter conference call last week, CEO Kevin Hrusovsky said the decline in IVIS sales was “due to both a seasonal and a funding anomaly.”
He said some grants that previously weren’t approved have since been approved, which had an effect on university sales. Third-quarter sales are also affected by vacations, particularly in Europe.
“We saw a few large IVIS opportunities shift into Q4, and as a result fully expect a recovery of IVIS in Q4,” said Hrusovsky.
He said the number of units sold in the third quarter “wasn’t that far off, it was more the mix of units. What we saw there was more of a mix toward Lumina as opposed to Spectrum.”
The IVIS Lumina is an older system that performs in vivo biophotonic imaging using fluorescent and/or bioluminescent reporters. The IVIS Spectrum was launched last fall and performs both bioluminescence and fluorescent conjugate experimentation while minimizing autofluorescence. Caliper officials have touted the instrument as the key growth driver for the company’s imaging business.
Hrusovsky noted the firm has sold around $10 million worth of IVIS Spectrums since it introduced the instrument nine months ago. He also told BioCommerce Week via e-mail this week that “there were several important deals that were back-end loaded in Europe that were delayed slightly and will fall into the forth quarter as well.
“We fully expect our fourth-quarter revenue to return to the 16 percent-plus level, which is the level of growth we have experienced since acquiring the Xenogen business five quarters ago,” he wrote.
Hrusovsky said during the call that the IVIS Spectrum provides “superior imaging capabilities to its competitors,” and added, “We are complementing it with animal models for research in oncology, central nervous system, metabolic disease, and inflammation.”
He said that “Q4 is going to be very large compared to Q3,” and the firm is “very bullish” on sales of the systems in 2008.
Hrusovsky said the firm’s confidence is partially based on two user-group meetings for IVIS Spectrum over the past couple of months.
“There was a lot of excitement regarding several different things,” said Hrusovsky. “One is our expansion into other therapeutic groups, other than oncology.” He also noted interest in “the higher-sensitivity luciferase that Caliper is providing, [which] is enabling detection [of] cells actually down to the singular cell level.”

“We saw a few large IVIS opportunities shift into Q4, and as a result fully expect a recovery of IVIS in Q4.”

Hrusovsky also said that a new patent underpinning IVIS Spectrum’s capabilities has “aided our cause” in winning business. “One of the biggest benefits … to this patent was the protection of the existing licensing revenues,” he said.
The patent, No. 7,255,851, was granted in August by the US Patent and Trademark Office and is part of an intellectual property estate that Caliper gained through its $80 million acquisition of Xenogen last year.
At the time the patent was issued, Hrusovsky said that the firm was informing other potential customers that don’t currently have licenses to Caliper’s patents about the technology and the new claims (see BioCommerce Week 8/15/2007). “Our hope then is that through that education we will create interest in future licensing opportunities,” he said.
He added that new licensing agreements could begin as early as the second half of this year. The dollar amount of such pacts is “still too early to predict, but I think it could be as great as $1 million, and maybe even north of that.”
He told BioCommerce Week at the time that each deal would likely bring in between $150,000 and $200,000 annually.
EPA Contract Helps Boost Service Revenue
Caliper also noted last week that it service revenue grew 73 percent in the quarter. While Hrusovsky said he expects the Caliper Discovery Alliances and Services revenue to return to a more modest level of growth in the mid-teens next quarter, a contract signed in the spring with the US Environmental Protection Agency helped boost revenues in the business during the quarter.
The five-year contract offers “a major growth platform” for the firm’s CDAS business, said Hrusovsky. The program, which aims to migrate chemical toxicity testing primarily on agricultural chemicals to in vitro rather than in vivo testing, is still in the feasibility stage, but could provide a lucrative return for Caliper.
The five-year revenue range projected by EPA for the project is very wide — $2 million to $60 million — and is partially dependent on the in vitro studies correlating to in vivo results, said Hrusovsky. It also depends on the volume of testing required by the EPA as well as funds available for future years of the project.
“Unfortunately, we haven’t had a lot of what I’ll call precise predictability on the government’s timeliness relative to their communications with us,” he said. “It’s because, I think, they’re managing several other partners, particularly the people that are providing the compounds.
“Our hope is that by the time we have our next conference call and we’re providing direction for 2008, we will have had some of that feedback,” said Hrusovsky. “But there’s just no guarantee we’ll have it by then.”
He said the firm expects revenue associated with the EPA contract to continue to grow, though he added that the firm’s forecast so far is not counting on revenue at the high end of the range.

Caliper expects to report revenues in a range of $37 million to $40 million for the fourth quarter, and $137 million to $140 million for full-year 2007.

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