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Molecular Devices Third-Quarter Revenues Jump As Sales Team Feasts on Axon Purchase

Joe Keegan, CEO of Molecular Devices, greeted analysts at last week’s quarterly conference call by calling the period “the best third quarter in the company’s history.”

Keegan, who has been president and CEO of the 21-year-old company since 1998, was mixed in his outlook, however, noting that the company was surprised by weakness in the drug-discovery market and a slowdown in capital spending for high-dollar tools.

“The weakness in this market was unexpected,” he told analysts. “All of the product lines that showed weakness in the third quarter, we anticipate to be stronger in the fourth quarter.”

The company anticipates revenues of $46 million to $48 million for the fourth quarter, he said.

Molecular Devices reported total revenues of $41.5 million for the third quarter, 42 percent over $29.3 million for the year-ago period. The company posted a loss of $1.3 million, however, compared to net income of $2.3 million in the year-ago quarter. The company attributed this loss in part to a one-time charge of $5 million for acquired in-process research and development relating to the $140 million cash-and-stock acquisition of Axon Instruments, which closed in July.

“We saw good performance across a broad number of our product lines, particularly in our life-sciences segment,” said Keegan.

Molecular Devices divides its product lines into two groups — life sciences and drug discovery. Axon’s product lines for cellular, neuroscience, and genomics applications have been integrated into the life-sciences division, along with the firm’s legacy Maxline, MetaMorph, Skatron, and Threshold products. Axon’s PatchXpress patch-clamp products and ImageXpress cellular imaging products join the drug discovery product line, which includes the IonWorks, FLIPR, Analyst, and Discovery-1 systems.

“Putting [the PatchXpress and ImageXpress] products into our direct distribution channel was one of the key drivers for the acquisition,” Keegan said.

Before the acquisition, Axon did not have a direct sales channel for its products, he said. Now the firm has access to Molecular Devices sales team.

“The Xpress products were 50 percent over plan for the quarter,” said Keegan. “It is clear that they have been effectively transitioned to our drug discovery sales team.”

The company did not break out Axon’s revenues for the quarter. However, Keegan said the drug-discovery group had $16 million in revenues for the quarter, giving the life-sciences group an estimated $25.5 million in revenues.

For the quarter, Axon had SG&A expenses of $14 million, compared to $10.6 million for the year-ago quarter. The company spent $6.4 million on R&D for the quarter, compared to $4.6 million for the same period in 2003.

As of Sept. 30, the company had $19.4 million in cash and cash equivalents on hand.

The Axon integration has been completed to the point that both firms now operate as one unit, Keegan said.

“We feel that we have significantly increased our critical mass in our product portfolio by combining with Axon,” Keegan said. “We have completed all of the facilities and personnel moves and have successfully combined all of the technology and back-office systems so that we are now operating on common platforms.”

The integration of the company has produced savings ranging from $1 million to $2 million a quarter, Keegan said.

And, based on the increased sales in life sciences, the Axon sales team has enthusiastically adopted the new product line, perhaps to the detriment of the legacy products.

“There is some element of that,” said Keegan. “Obviously there is some initial enthusiasm for new products. The sales force has been trained, and they are actively selling the products. They are as strong as any sales organization out there.”

The company’s SpectraMax benchtop plate reader and cellular imaging products, Keegan said, drove sales in the life sciences division.

The drug discovery product line will recover from a quarter that “fell well short of our plan,” he said. “We continue to believe that high-throughput imaging and electrophysiology represent growth areas to us in drug discovery, and we remain committed to investing heavily in new product development in both areas. We now have a clear plan that we believe will leverage our expertise in both of these areas and will lead to a variety of product introductions in 2005.”

Upstate Divesture

In September, Serologicals agreed to buy Upstate Group of Charlottesville, Va., in a cash and stock deal valued at $205 million.

Molecular Devices had an equity interest in privately held Upstate dating back to January 2001, when MDCC purchased for $10 million in cash a 20-percent equity interest in Argonex, Upstate’s parent firm. The firms then entered into a long-term agreement to develop and market reagents for use in high-throughput screening.

MDCC now sells reagents and assay products that incorporate enzymes made by Upstate, and that will continue to be the case, said Keegan.

“We are no longer owners and no longer have board representation,” he said. “We will be receiving the benefit of the purchase in the next few weeks.” He did not provide financial details.

— Mo Krochmal ([email protected])

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