Molecular Devices, which cut its third-quarter revenue outlook by as much as 12 percent last week, may have to reassess certain product lines if the flat sales continue, President and CEO Joseph Keegan told investors at a recent conference.
Keegan, who refused to blame any one product line or the company’s overall sales and marketing force for the revenue shortfall, also said the company would focus on increasing the level of specialization of a sales and marketing team that “might be at capacity.”
Speaking during a breakout session at the UBS Global Life Sciences conference in New York last week, Keegan said that Molecular Devices “will reassess questions about specific instrument lines, but one of the first things we’ll do when we’ve seen the individual product performances is to get those groups together and decide what to do.
“So far, we are not commenting on specific product performances, but I wouldn’t target imaging,” he added.
Molecular Devices last week disclosed that soft pharma sales had forced it to cut its third-quarter revenue outlook by between 8 percent and 12 percent. Based on the renewed projections, the firm expects to report between $44 million and $46 million in revenue for the quarter. The announcement sent shares in the firm tumbling 17.4 percent in a single day.
It was the second major hit to Molecular Devices’ share price in the past two months. After reporting second-quarter results that fell short of expectations, its stock dropped 23.2 percent, and had yet to recover when the firm restated the Q3 revenue guidance last week. Overall, Molecular Devices’ shares are down roughly 38 percent since July 20, the day it released its second-quarter results (see graph).
Molecular Devices is more dependent on instrument sales than many of its BCW Index rivals that have focused on building their consumables portfolios, and this disparity has left the company with greater exposure to selling cycles and declines in big-ticket spending by customers.
In spite of a two-week stretch during which Molecular Devices launched a new plate reader for kinetic cell-based assays, announced a GPCR screening alliance with biotech firm Multispan, filled a management position in its imaging division, and announced plans to launch a new line of plate readers later this year and early next year, Keegan found himself explaining Molecular Devices’ anticipated underwhelming Q3 performance to investors in a breakout session at the UBS conference.
Investors asked Keegan whether the revenue decline could be blamed on events such as recent mergers of large pharmaceutical companies in Europe or a diminished National Institutes of Health research grant budget.
“The mergers in pharma were not related to [our] performance this quarter,” Keegan said. “And although the increase in annual spending by the NIH has dropped from 15 percent to 2 percent in recent years, it is still a substantial budget.”
Keegan’s take is somewhat different than that of Fran DiNuzzo, senior director of business development for Agilent’s Life Sciences and Chemical Analysis business. He said at the conference last week that a reason for the dip in pharma spending that hurt the growth rates for nearly all instrument vendors over the past year and a half “was the result of mergers in the pharma industry” that didn’t pan out as planned (see BioCommerce Week 9/27/2006).
In response to a question from an analyst, Keegan said he did not believe the firm’s performance could be attributed to sales team problems or overall weakness in the company’s sales and marketing force.
“It is too premature and unlikely to point at a flawed performance in this area,” he said, adding that the company’s first priority is to look at individual product lines to see which failed most to meet expectations.
“In life sciences, over time, it is possible that our sales team might be at capacity, as each individual goes out to market with seven or eight products,” he added. “We will be trying to increase the level of specialization within sales and marketing” to alleviate this potential problem, Keegan said.
Industry insiders had recently speculated that Molecular Devices’ imaging product line, which includes the ImageXpress high-throughput confocal HCS reader and ImageXpress Micro benchtop confocal reader, might be failing to meet expectations, particularly following the recent departure of the director of imaging products, Mike Sjaastad.
Investors brought up this possibility in the company’s Q2 earnings call earlier this year, and the question of whether imaging was a weakness was asked again at UBS.
In addition, Keegan said that the company recently filled the director of imaging role by promoting “someone who has been with the company for a while.” Follow-up e-mails to the company confirmed that the new director of imaging is Shawn Handran, former marketing manager for the IonWorks Quattro product line.
Banking on New Products to Drive Revenue Growth
Amid this recent struggle, Molecular Devices has pressed ahead with the launch of new products and said others were on the way.
At the recent Society for Biomolecular Sciences meeting in Seattle, Molecular Devices launched a new product, the FlexStation 3, a multi-detection benchtop microplate reader with integrated fluidics. Based on the company’s SpectraMax M5 multi-detection system, the new platform “will address more applications in different modes, particularly fast luminescence and absorbance assays,” Jennifer McKie, director of marketing at Molecular Devices, said in a statement. The company is targeting scientists conducting assay development and small-scale screening applications.
Having re-launched the company’s imaging platforms, Molecular Devices plans to develop newer versions of its microplate readers for cell-based assays, biochemical assays, and microarray detection and analysis. Keegan said that the company plans on introducing new products in every category next year, none of which would be considered “breakthrough.”
He advised investors to “watch for a new line of plate readers late this year and early next year.” According to Keegan, the SpectraMax product line is the company’s biggest and best-selling product area, and Molecular Devices owns a 15- to 20-percent share of the overall “significantly large” microplate market.
Molecular Devices “will reassess questions about specific instrument lines, but one of the first things we’ll do when we’ve seen the individual product performances is to get those groups together and decide what to do.”
Keegan added that the new product will be “in an area that we don’t currently compete in, and it’s truly a new platform. However, we don’t think we run the risk of cannibalizing sales of the current plate readers with the new product.”
In the company’s general presentation at UBS, Keegan noted that in 2005 Molecular Devices derived about 67 percent of its revenues from system sales; about 7 percent from software; 10 percent from services; and 16 percent from consumables. This is in stark contrast to many other tool vendors, which have increasingly sought to mitigate the vagaries of the capital equipment market by increasing their consumables and services offerings.
With such a large chunk of its revenues dependent upon instrumentation platforms, Molecular Devices plans to constantly refresh its product pipeline. Keegan said that the company believes 69 percent of its long-term revenues will derive from new products.
In any event, the company still has a cash cow with its FLIPR line of instruments and reagents for GPCR screening based on calcium dye detection. Molecular Devices is the undisputed market leader in this area, and bolstered its position further recently by signing a co-marketing agreement with Multispan, a company specializing in GPCR research.
According to a statement this week from Multispan, the two companies recently completed an “intensive evaluation” of Molecular Devices’ FLIPR Calcium 4 assay kit against competitor kits in their ability to detect calcium ion flux over 48 GPCR receptors expressed in Multispan’s GPCR-stable cell lines.
As a result of that evaluation, Multispan agreed to actively promote FLIPR Calcium 4 assay kits to its partners and customers, while Molecular Devices will promote Multispan’s GPCR compound profiling services and stable cell lines to its customers.
— Edward Winnick contributed to this article.