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As Q2 Revenues Rise 45 Percent, Caliper Sees New Patent Driving Future Imaging Sales, Pacts

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Caliper Life Sciences last week reported that its second-quarter revenues grew 45 percent, led by 25 percent growth for its IVIS imaging systems.
 
While company officials noted during a conference call that the results exceeded guidance, they focused on the recent issuance of a key imaging patent that they believe will drive future revenue growth. Caliper also announced that Novartis has taken a three-year license to its optical imaging patent estate.
 
The newly issued patent, No. 7,255,851, was published this week 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. The patent covers methods used in the firm’s IVIS Spectrum system, which was launched last fall and performs both bioluminescence and fluorescent conjugate experimentation while minimizing autofluorescence.
 
“The only thing that really happened in the quarter that is really noteworthy is the watershed patent allowance and the role that that might play in the future,” Caliper President and CEO Kevin Hrusovsky said during the conference call.
 
“We received the patent about a week ago, and what we’re doing now is informing our customers and our end users … what it represents for their discovery efforts,” he said. “We’ve already notified many of our current customers that already have licenses … that we are providing this to them as part of that overall agreement.”
 
Hrusovsky said that the firm also is informing other potential customers that don’t currently have licenses to Caliper’s patents about the technology and the new claims. “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.”
 
In a follow-up interview with BioCommerce Week, Hrusovsky said each deal would likely bring in between $150,000 and $200,000 annually.
 
“I think the opportunity here, however, is not just in the licensing revenue, but more importantly with the new Spectrum instrument that was commercially launched late last year … and what we’ve actually invented with this technology is a way to significantly reduce autofluorescence,” said Hrusovsky.
 
However, one potential roadblock in Caliper’s licensing strategy is a patent re-examination request filed this week by VisEn Medical. The firm believes Caliper’s claims are invalid, and it presented the USPTO with 15 published prior art references as the basis for its claim.
 
“While we generally respect the contributions of Caliper/Xenogen to the field of bioluminescence imaging, we believe it is clear, and also fundamentally understood in the industry, that the basic methods of fluorescence in vivo imaging were well known and in use before the priority date of the ‘851 patent, and therefore that the claims therein are clearly invalid,” VisEn President and CEO Kirtland Poss said in a statement.
 
In June, when Caliper received a notice of allowance for the ‘851 patent from the US PTO, Hrusovsky told BioCommerce Week, “We think with these claims we can now start to make our own significant investments and know that we will be moving into an area of extreme interest, and also to collaborate then with some of the other important market makers that we see in this landscape (see BioCommerce Week 6/6/2007). “We’ve probably not been as aggressive in making those investments until we knew for sure this was going to be an area that we would have these claims allowed in,” he said.
 
One of those market makers, pharmaceutical giant Novartis, this week licensed Caliper’s optical imaging patent suite, which includes the new patent.
 
Hrusovsky said that the Novartis deal is unique among the other pharma firms that have licensed Caliper’s optical imaging patents. “It’s the largest number of users that we have within Novartis — so, it’s our largest customer,” he told BioCommerce Week this week, adding that this is also a “longer-term agreement,” than its other pharma licensing deals.
 
He said Caliper has about 35 customers right now, of which roughly 90 percent are repeat licensors of the technology. “To have a long-term deal with a company of this magnitude on our patent estate further gives us encouragement to the impact that this patent estate has in the market and the value our customers see in it,” Hrusovsky said.
 
He said the deal with Novartis could signal that other similar, long-term deals could occur in the near term, though “it’s not something we’re actively pursuing.” Right now, Caliper is “actively looking for collaborators that would help us provide the complete solution for conjugate research,” he said.
 
Imaging Revenues Drive Q2 Growth
 
Last week, Caliper reported that a 25 percent increase in IVIS imaging sales helped the firm post a 45 percent rise in second-quarter revenue year over year. Sales from its microfluidics products were up 13 percent, while automation revenues were flat.
 
Overall, Caliper brought in revenue of $35.3 million for the quarter ended June 30, compared with $24.3 million in the second quarter last year. Company officials said the results exceeded the range of previous guidance for revenues, and the firm achieved double-digit organic growth for both products and services.
 
Caliper’s product sales contributed $21 million, a 71 percent increase year over year, while services rose 66 percent to $8.9 million, and licensing and contracts fell 20 percent to $5.3 million.
 
The IVIS product line, which the firm acquired along with Xenogen a year ago, has been “extremely productive,” Hrusovsky said during the call. “We’ve had very strong, 25 percent-plus growth of the top line since we acquired that asset,” he said.
 

“The biggest area of where we have customer usage [of the IVIS] today is in an area where we don’t actually collect licensing revenue, and that’s academia and government institutions.”

Caliper said it placed 32 IVIS imaging instruments in the quarter, which contributed a 31 percent increase for that product line compared to Xenogen's results from the second quarter of 2006 as a standalone firm.
 
“We do think the imaging area is probably where there is going to be the most interest from our customer base” going forward, said Hrusovsky.
 
However, he noted, “The biggest area of where we have customer usage [of the IVIS] today is in an area where we don’t actually collect licensing revenue, and that’s academia and government institutions.” The technology was invented at Stanford with funding from the NIH, “and as part of that we have been providing academia and government institutions a license to operate this technology without collecting revenues from it,” he said.
 
He said the primary revenue source for IVIS is the 30 to 35 pharmaceutical, biotech, and commercial customers that already license the technology.
 
“There are probably as many as 100 companies, minimum, that we think have the potential for this type of technology,” Hrusovsky said. “The ability for us to position this and secure not only an instrument sales but a license is something that we will be endeavoring to do.”
 
Caliper’s microfluidics revenues have been driven by collaborations with Canon Life Sciences, Agilent Technologies, and Wako Pure Chemical Industries, which are developing molecular diagnostic applications that use Caliper’s microfluidics platform. “We have collected over $25 million of revenue in licensing contracts over the past three years for molecular diagnostic deals, and expect that this will lead to longer-term product growth,” said Hrusovsky.
 
In automation, the firm is relying on its recently launched Zephyr instrument, a versatile, low-priced liquid handler, to help boost revenue. “We do see a nice new product offering in the Zephyr, and that’s just starting to gear up,” he said.
 
In addition, “we have revitalized our OEM collaboration organization to stimulate growth through OEM channels,” said Hrusovsky. “We have a strong pipeline of automation opportunities for the second half and expect high single-digit organic growth” for that segment of the business.
 
Hrusovsky noted that contracting and licensing revenue was disappointing year over year, but blamed the “inherent lumpiness” of that revenue stream, particularly in microfluidics. For example, last year’s second-quarter results included the licensing deal with Canon.
 
The firm’s net loss increased to $6.3 million, or $.13 per share, from $2.1 million, or $.06 per share, in the second quarter of 2006. Caliper said the wider loss reflects its “post-acquisition cost structure.”
 
Caliper’s R&D spending in the quarter increased to $6.6 million from $4.9 million year over year.
 
The company finished the quarter with around $11.5 million in cash and cash equivalents. It projects full-year 2007 revenue of between $137 million and $143 million, representing growth of between 27 percent and 33 percent over 2006 revenues.
 
Hrusovsky also said the company had taken several actions "that will result in approximately $2 million of annualized cost savings" in the coming quarter.
 

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