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PerkinElmer Banks on New Products to Drive 2006 Growth; Focus on Cell Analysis, Protein Biomarkers

PerkinElmer is hoping that a variety of life science research instruments it launched in 2005 will drive revenue in 2006 and help the firm meet its forecast of 5-percent to 7-percent organic growth this year.

Company officials said during a conference call last week that they expect the shift in the firm's product mix in 2005 to match the market's "migration of applications." Specifically, they believe PerkinElmer's growing focus on cell analysis and protein biomarkers should fuel revenue growth.

"We're seeing a migration of applications," said Rob Friel, the newly appointed president of PerkinElmer's life and analytical sciences business (see People item in this week's issue). "In drug discovery, it's really moving from biochemical and radioactive assay to cellular and non-radioactive. In proteomics, we're seeing a move from analytical and 2D gels, where we're looking at the structure of the protein, to biomarkers and trying to determine the pathological outcome.

"The challenge for us has been to migrate our products and our portfolio to match this migration of the applications," said Friel. "It's been a challenge to do that quicker than the deterioration in the market. In '05, we had some good things that came out late in the year that set us up nicely for '06, but we just didn't see a lot of traction at the end of the year."

"In drug discovery, it's really moving from biochemical and radioactive assay to cellular and non-radioactive. In proteomics, we're seeing a move from analytical and 2D gels, where we're looking at the structure of the protein, to biomarkers and trying to determine the pathological outcome."

During 2005, PerkinElmer launched its BioXpression platform for protein biomarker discovery, its LumiLux platform for ion channel screening, and its line of Spectrum 100 spectrometers. The firm also inked an alliance in the third quarter to combine Invitrogen's Voltage Sensor Probes brand of ion channel reagents with its CellLux fluorescence cellular screening platform.

Just last week, the firm launched a new Janus automated workstation for high-throughput liquid handling. According to Friel, the launch signals PerkinElmer's shift from the large, high-throughput instruments to more flexible and benchtop systems.

In addition to shifting its product mix, the life sciences business also has undergone a management shakeup, with Friel moving from his post as CFO to president of the LAS division. The firm also recently hired Aaron Geist, a former investment bank analyst who covered PerkinElmer and many of its competitors, as vice president of business development, and former Invitrogen employee Karl Hecker to oversee its R&D efforts in molecular medicine.

Q4 Revenues Drop 8 Percent

The product introductions and management appointments come amid an 8-percent drop in fourth-quarter revenue, which fell to $286.5 million year over year for the LAS business unit.

PerkinElmer's overall revenues were $387.7 million for the quarter, down 6 percent year over year. "This seems surprising, but as we discussed at the end of last quarter and the end of Q4 last year, 2004 had an additional week in the fourth quarter," CEO Greg Summe said during the conference call.

"An average week is 7 percent of the quarter's activity. If you adjust for the additional week, the impact of foreign exchange and acquisitions, our organic revenue was up 4 percent for both the fourth quarter and the full year," he said.

He cited strong results for the firm's genetic neonatal screening, medical imaging, and service businesses.

According to Summe, organic revenue growth was strongest in Asia, with a 9-percent gain in the fourth quarter year over year. Organic revenue was up 3 percent in the Americas, and up 2 percent in Europe for the quarter.

Asked during the conference call about the spending environment and sales in Europe, Friel said, "Europe has generally been OK for us. We have not seen as sharp a drop as some of the other competitors, [and] I think part of that is our product mix — genetic screening does well in Europe."

For the quarter, PerkinElmer reported net income of $187.8 million, or $1.45 per share, versus $37.9 million, or $.29 per share, in the fourth quarter of 2004. The company said the 2005 fourth-quarter earnings include net divestiture gains of $1.47 per share and charges of $.35 per share. Adjusted earnings per share were $.36, a 29-percent increase over adjusted EPS for the fourth quarter of 2004, the firm said.

During the quarter, PerkinElmer sold its Aerospace and Fluid Testing divisions and its lithography product line for cash proceeds of $360 million, which resulted in an after-tax gain of $191 million. The company expects to complete the divestiture of its semiconductor business during the first quarter of 2006.

Following the sales and divestitures, which were announced in October 2005, health sciences sales will account for roughly 82 percent of PerkinElmer's revenue, according to Friel (see BioCommerce Week 10/13/2005). The company is using the proceeds primarily to pay down debt.

For full-year 2005, PerkinElmer posted revenue of $1.47 billion, a 3-percent increase over 2004 revenue of $1.43 billion. Its net income for the year was $268.3 million, or $2.05 per share, compared with net income of $96 million, or $.74 per share, for 2004. Adjusted earnings per share for 2005 were $.95, a 30-percent increase over 2004.

During the call, company officials reaffirmed their forecast of organic revenue growth of 5 percent to 7 percent for 2006, and earnings per share of $1.00 to $1.25. They noted that the forecast does not include stock option expenses or the financial impact from the planned divestiture of its semiconductor business.

As of Jan. 1, PerkinElmer had cash and cash equivalents of $502.3 million, and long-term debt of $243.3 million.

"Our investment priorities [for 2006] follow the overall growth prospects of our individual businesses," said Summe. "From an investment standpoint, we're doing a fair amount of internal investment. Our R&D spending will be up in 2006."

PerkinElmer spent $87.3 million on R&D in 2005, a 6-percent increase over R&D spending of $82.4 million in 2004.

He reiterated earlier statements that the firm is "looking at selective acquisitions principally around technology additions to the product lines that we think have the best growth prospects. We would look at potential acquisitions that would help us consolidate an application if we think there are significant synergies around it, but that is a secondary priority to us investing to accelerate top-line growth and really build the scale of our growth platforms."

Friel added that PerkinElmer will look to sign more alliances as well. He cited the deal with Luminex in the fourth quarter as an example of the type of partnership PerkinElmer might pursue. Under the terms of the pact, PerkinElmer will standardize its multiplex assay development on Luminex's xMAP platform. It plans to use the technology in biomarker panels for pharmaceutical development and ADME/Tox applications, and to develop in vitro diagnostics for maternal, neonatal, and prenatal health screening.

"We don't feel we have to own all of the technology," Friel said. "I think in a number of instances, particularly in some of these emerging areas, it may make sense to license."

— Edward Winnick ([email protected])

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