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As Q4 Sales Climb 23 Percent, Luminex Expects Consumables, Royalties to Fuel Future Growth

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Luminex officials said last week that they expect consumables sales and royalties to increase this year and become a greater percentage of overall revenue.
 
However, a company official cautioned that royalty revenue could fluctuate significantly on a quarterly basis as the firm’s partners can report royalties on monthly, quarterly, semiannual, and sometimes annual basis. 
 
Investors welcomed the news that revenue from consumables and royalties would contribute more to overall revenue, pushing Luminex’s stock up 29 percent after the call.
 
During the call, the company reported a 23 percent spike in revenue year over year and a swing from a loss to a profit. Royalty revenues were up 50 percent over the fourth quarter last year and up 57 percent for the year, said Pat Balthrop, president and CEO of Luminex, during the call.
 
“We are especially pleased with the trend in royalty revenues, an important measure of the success of our technology in the marketplace,” he said.
 
Luminex has based its business on a partnership model, with collaborators developing assays on the firm’s xMAP multiplexing platform. Company officials believe the greater amount of royalties the firm is being paid reflects greater adoption of the technology in the research and diagnostics market.
 
“We now have over 4,100 systems placed and over 50 strategic partners,” said Balthrop. He also noted that the firm’s partners have 39 applications cleared by the US Food and Drug Administration.
 
Luminex reported fourth-quarter revenue of $14.2 million, a 23 percent increase over revenue of $11.6 million in the fourth quarter last year. The firm said systems sales were $5.9 million, while consumables brought in $3.7 million, revenue from royalties was $2.2 million, and “other” revenue, which includes training and service, was $2.4 million.
 
“Over the past two years, royalty revenues have continued to increase as more systems have been shipped,” said Balthrop. “Those royalty revenues for the fourth quarter of 2006 represent over $153 million in annualized end-user sales by our partners.”
 
Consumables and royalty revenue together accounted for roughly 42 percent of Luminex’s revenue in the quarter and 45 percent for the year, and company officials expect these two sources of income to increasingly become a greater share of total revenues.
 
The company reported net income of $600,000, or $.02 per share, compared with a net loss in the year-ago period of $1.3 million, or $.04 per share. It marked the fourth consecutive quarter of profitability for Luminex.
 
The firm’s R&D spending grew 44 percent to $2.3 million from $1.6 million, due primarily to assay development by the Luminex Bioscience Group. That unit introduced two products late in 2006: a pneumococcal panel and a microRNA assay.
 
For full-year 2006, Luminex reported revenue of $53 million, a 25 percent increase over revenue of $42.3 million in 2005. The firm sold 717 Luminex systems, which brought in revenue of $20.6 million. Consumables accounted for $15.7 million of total revenues, while royalties brought in $8.2 million, and other sources generated revenue of $8.5 million.
 
According to Luminex CFO Harriss Currie, instrument revenues were up 10 percent for the year, while consumables climbed 20 percent, and royalties increased 57 percent. He said that over the past few years, there has been a notable shift in Luminex’s revenue mix toward a higher percentage of consumables and royalties, which provides more consistent annual income and has a positive effect on the firm’s gross profit and gross margin.
 
However, Currie cautioned that royalty revenue could fluctuate significantly on a quarterly basis. “Because our partners, based on their contract, can report royalties on either a monthly basis, a quarterly basis, a semiannual basis, and sometimes on an annual basis, when they have minimal requirements and they haven’t yet commercialized, this can cause that number to increase on a relatively significant basis and sometimes flatten out in the short term,” he said. “So, it is important to look at that also on a little longer term and you look at our royalties year over year.”
 
Currie said that over the past couple of years, the mix between royalties and consumables has been improving in favor of royalties, and he expects that trend to continue. ”A couple of years ago, we were at about a four-to-one relationship between consumables and royalties, and then we moved to three to one,” he said. “Last year, we were two-and-a-half-to-one, and this year we are a little better than two-to-one.”
 

“We are especially pleased with the trend in royalty revenues, an important measure of the success of our technology in the marketplace.”

For fiscal 2006, Luminex reported net income of $1.5 million, or $.05 per share, marking the firm’s first full year of profitability. In 2005, Luminex posted a net loss of $2.7 million, or $.09 per share.
 
Luminex finished the year with $27.4 million in cash and cash equivalents.
 
Investors reacted positively to the firm’s financial results, sending Luminex’s shares up 29 percent to close at $16.44 last Thursday, the day the results were released. The stock has since receded slightly to close at $15.96 on Tuesday.
 
A Molecular Dx Future
 
Going forward, Luminex officials said that revenue growth would continue to be driven by its partnership model, but its pending acquisition of Tm Bioscience would enable it to develop its own assays for the molecular diagnostics market.
 
In December, Luminex announced an agreement to acquire Tm for approximately $44 million in a stock-for-stock deal (see BioCommerce Week 12/20/2006). Shareholders will vote on the acquisition later this month, and company officials expect to close the deal in the first quarter.
 
Last week, Luminex officials said that Tm would continue to operate as a separate molecular diagnostics unit at its base in Toronto with support from Luminex’s headquarters in Austin, Texas.
 
“Our market penetration is low [in molecular diagnostics], and we believe that it is important that we have more control over our destiny in this strategically important segment,” said Balthrop during the Q4 call. “The acquisition of Tm Bioscience gives us the ability to control our destiny and further drive [our] assay menu with a proven innovator.”
 
Tm sells a cystic fibrosis molecular diagnostic panel that has been cleared by both the US Food and Drug Administration and European regulatory authorities. It also has submitted a respiratory virus panel to the FDA and expects to receive clearance for that product in the first quarter of 2007.
 
In addition to the Tm acquisition, Luminex has prepared for its entry into the molecular diagnostics market with a distribution pact signed last month with Fisher HealthCare, a unit of Thermo Fisher Scientific. Under terms of that deal, Fisher gains access to Luminex’s xMAP technology, while Luminex will be able to take advantage of Fisher’s well-established sales and distribution network.
 
Balthrop said Fisher would begin distributing Luminex products once the acquisition of Tm is complete.

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