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A Legacy of Transformation as Burzik Departs ABI; Q1 Revenues Rise 15 Percent on Strong RT-PCR Sales

A little more than two years after taking over as president of Applied Biosystems, Cathy Burzik has left the firm to become CEO of Kinetic Concepts, a San Antonio-based company specializing in advanced wound care and therapeutic surfaces.
 
Burzik’s departure, announced the day after Applera’s board of directors meeting, comes at a crucial time for ABI, following a reorganization and refocusing of the firm on new markets. ABI also has been placing a greater emphasis on selling consumables, and is planning its entry into the next-generation sequencing and molecular diagnostics markets.
 
In addition to Burzik’s resignation, ABI announced this week that its first-quarter revenue climbed 15 percent, led by strong sales growth for its RT-PCR products.
 
With Burzik’s departure, investors, customers, and partners of ABI will be eager to see if there is any disruption in the firm’s transformation. Tony White, president and CEO of ABI parent Applera, has taken over as interim president and will collaborate with the executive team in running the company. He said in a statement issued by ABI last week that the board of directors would “carefully consider our alternatives for the management succession.”
 
White reiterated that point in a conference call this week, following the company’s third-quarter results, but said little else about Burzik’s departure or the succession process. Perhaps surprisingly, none of the investment analysts who cover ABI asked about Burzik’s departure, or how long the company anticipated the search for a successor would take.
 
A source with close ties to ABI told BioCommerce Week that Burzik’s resignation was a surprise to the company. He said among the likely candidates to fill the position is Mark Stevenson, division president of the molecular and cell biology division. Although Applera could look outside the firm for a new ABI president, he said that finding a qualified candidate to run a business as complicated as ABI’s could take a year or more.
 
In addition, Burzik “reoriented the ship and had it headed into the direction she wanted,” the source said. Now, “someone has got to come in and take over that vision or want to put their own mark on it and change the direction.”
 
In a statement issued by ABI, Burzik said, “Becoming a CEO of a significant public company has been a personal and professional goal of mine for a long time, and in my new role I will return to the medical device industry where I have spent the majority of my career.”
 
According to an 8-K filing with the US Securities and Exchange Commission by Kinetic Concepts, Burzik was offered a base salary of $800,000, an 18-percent increase over her scheduled 2007 salary at ABI of $680,000. In addition, Burzik, who will serve on Kinetic Concepts’ board, is eligible for an incentive bonus with a target amount equivalent to 100 percent of her annual salary. She also received a sign-on cash bonus of $350,000.
 
Burzik took over as president of ABI after Michael Hunkapiller retired in August 2004. She joined ABI as executive vice president and COO in September 2003 from Johnson & Johnson, where she was president of the company’s Ortho-Clinical Diagnostics business.
 
Tracking the Changes Under Burzik
 
Previous to taking over as president of ABI, Burzik was charged with leading a major operational review, which began in early 2004 with the help of management consultancy Bain & Co.
 
That review, which was completed just prior to Burzik’s appointment as president, led ABI to reorganize its business into four separate divisions: molecular biology (now called molecular and cellular biology), proteomics and small molecule, applied markets, and services. The reorganization was in response to a quickly changing and expanding market for integrated packages of life science tools following the sequencing of the human genome.
 
Since that time, ABI has repositioned itself for growth with a focus on new applications for its instruments and reagents. In particular, the firm has been targeting the estimated $6-billion applied markets, which comprise applications such as forensics, biosecurity, food and environmental testing, and quality assurance/quality control.
 
The firm also has plans to move into the molecular diagnostics market, which was made possible earlier this year when ABI sold its 50-percent stake in Celera Diagnostics to Celera Genomics in exchange for the right to sell its instruments to end-user diagnostic customers (see BioCommerce Week 1/11/2006).
 
At the time, Burzik said "We see this as an opportunity for almost every single type of instrument platform that Applied Biosystems has. The model here is [focused on] the platforms our customers use for discovery. We would like those same platforms to be utilized, or variances of those, for validation and then ultimately for commercialization.”
 
The firm has yet to further elucidate its plans for the molecular diagnostics field and whether its strategy will focus on building off of its mass spectrometry, sequencing, RT-PCR, or gene-expression platforms — or a combination of these.
 
ABI also made good on a promise to build its consumables business by acquiring the research products division of RNAi firm Ambion earlier this year for around $273 million in cash (see BioCommerce Week 1/4/2006). The acquisition provided ABI entry into a market that it estimated at $500 million and growing at an annual rate of more than 10 percent.
 
Throughout her tenure, Burzik faced questions from the industry and investors about ABI’s strategy for the next-generation DNA sequencing market. The firm answered those questions with a collaboration and investment in VisiGen, and its $120-million acquisition earlier this year of Agencourt Personal Genomics (see BioCommerce Week 11/3/2005 and 5/31/2006).
 
Unsurprisingly, the refocusing and reorganizing of the firm came with cost-cutting measures. In June 2005, ABI said that it would cut roughly 250 jobs in an effort to “reduce and rebalance” its workforce (see BioCommerce Week 6/30/2005). The cuts, which reduced the firm’s workforce by around 6 percent, came about a year after ABI laid off 145 employees as part of the second phase of the review of its operations.
 
“I think Cathy did a very good job, coming in there and streamlining the organization, focusing it in certain market segments, and increasing profitability,” said Harry Glorikian, a managing partner in life sciences consultancy TSG Partners Strategic Advisors. “She brought discipline to the group.”
 
Glorikian added, “ABI is at a critical juncture as it needs to pay close attention to the growth and diversification of its portfolio segments. Its revenue growth has improved in her tenure; however, its return on equity has significantly lagged its competitors, [and] this is an area that needs attention.”
 

Burzik “reoriented the ship and had it headed into the direction she wanted.” Now, “someone has got to come in and take over that vision or want to put their own mark on it and change the direction.”

Strong Q1 Sales as Profit Turns to Loss on Charges
 
This week, ABI reported that its first-quarter sales increased to $476.3 million from $415.5 million in the comparable quarter last year.
 
ABI said that its sequencing revenue increased 5.2 percent to $131.5 million from $124.9 million in the year-ago period; RT-PCR sales increased 30 percent to $158.1 million; mass spec sales increased 19 percent in the period to $116 million; core PCR and DNA synthesis declined 3 percent to $46.2 million; and “other” products increased 1 percent to $24.5 million.
 
The firm reported a significant increase in consumables sales, a key focus under Burzik’s tenure. For the quarter, ABI reported consumables sales of $192.7 million, an increase of 16 percent year over year. Its instrument sales grew 15 percent to $196.8 million.
 
Research and development spending increased to $45.1 million from $40.9 million year over year.     
 
The company posted a net loss of $58.7 million, or $.32 per share, compared to a profit of $43.1 million, or $.21 per share, one year ago. ABI attributed the loss to a nearly $115 million charge related to the acquisition of Agencourt Personal Genomics and $9.1 million related to the resolution of a legal dispute.
 
During the quarter, ABI settled legal disputes with Promega regarding the sale of forensic identification and paternity testing kits (see BioCommerce Week 9/6/2006). Terms of the settlement were not disclosed, and ABI officials did not say whether the charge to its first-quarter earnings was specifically the result of this settlement.
 
ABI finished the quarter with $284.2 million in cash and short-term investments.
 
Looking ahead, the firm said it expects to see “mid to high single digit revenue growth” for fiscal 2007, which ends June 30. This outlook includes the full fiscal year impact from the March 2006 acquisition of Ambion and the impact of currency, ABI said.
 
ABI also said it expects revenue from its RT-PCR/applied genomics and mass spec product lines to grow, and receipts from core PCR and DNA synthesis and other product lines to decline.
 
Revenues in the DNA sequencing segment are expected to remain flat with fiscal 2006.
 
Investors reacted positively to the results, sending shares of ABI up 11.7 percent to $37.41 in mid-day trade on Wednesday.

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