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Selling Celera Dx Stake, ABI Hopes to Grow in Molecular Dx Space; Mass Spec Takes Front Row

SAN FRANCISICO — In a move designed to help it compete more effectively in the molecular diagnostics market, Applied Biosystems has sold its 50-percent stake in Celera Diagnostics to Celera Genomics in exchange for the right to sell instruments to end-user diagnostic customers.

The sale of its stake, disclosed by the Applera companies this week, is the latest in a series of steps ABI has taken as it focuses its business on higher growth applications and markets. In recent months, the firm has made several strategic moves to lighten its dependence on what have been its core research applications — mass spectrometry, gene expression, and DNA sequencing — and refocus on growing revenue.

ABI claims the new arrangement, in which it will also receive from Celera Genomics a "package of considerations" that includes $30 million in cash, will enable ABI to capitalize on its existing platforms and customer base, rather than starting from scratch in developing diagnostic instruments.

Terms of the transfer also call for Celera Genomics to provide certain R&D and regulatory support to ABI at cost, including assistance in developing new PCR reagents and clinical diagnostic instruments. Celera Genomics will also forgive future royalties due through 2017 on sales of select ABI products, the companies said.

Applera said that the deal, which took effect Jan. 1, is not expected to be material to ABI's 2006 financial results.

ABI is "not going to start necessarily selling to doctors, but they may start by selling to reference labs like LabCorp and Quest, and they have the partnership with Abbott, so [they'll be able to sell to] a lot of the big pharma companies."

When Celera Diagnostics was created in 2001 as a 50/50 joint venture between ABI and Celera Genomics, "all of ABI's intent in clinical diagnostics was through that venture," Applera chairman, president, and CEO Tony White said at the JPMorgan Healthcare conference, held here this week. "Today, they are doing very well but are focused in a narrow area, and there's a much broader base out there."

ABI President Cathy Burzik added during the conference: "We see this as an opportunity for almost every single type of instrument platform that Applied Biosystems has. The model here is [focused on] the platforms our customers use for discovery. We would like those same platforms to be utilized, or variances of those, for validation and then ultimately for commercialization.

Mass Spec a Key to Dx Strategy

As an example, Burzik said that researchers currently use ABI's mass spectrometers to make home-brew applications to develop diagnostic instruments for their own facilities. ABI's mass spec is not an FDA-approved instrument, but the Celera deal "will allow us to really be able to, if we develop one, to talk about that. … But it's not just mass spec. We see a very large opportunity … in the area of sequencing. We think the whole growth is in the area of commercial applications," such as diagnostic sequencing.

Burzik estimated it would take two to three years for the firm to gain US Food and Drug Administration clearance to use all of its instrument platforms in diagnostic applications. The company hasn't yet filed the instruments with the FDA.

Tycho Peterson, an analyst with JP Morgan Securities who covers the life sciences tools market, told BioCommerce Week on the sidelines of the conference, "I think given their leadership in mass spec, they will be able to leverage that pretty easily into biomarkers. That's one of the key areas."

Celera Diagnostics by the Numbers

In fiscal year 2005, which ended June 30, Celera Diagnostics' reported revenues decreased to $35.5 million from $36.7 million year over year, according to ABI. However, end-user sales for all products sold through the alliance between Celera Diagnostics and Abbott Labs increased 34 percent to $61.7 million from $45.9 million year over year. The increase was "primarily" due to increased sales of ASRs for HCV genotyping and viral load, HLA products, and Celera Diagnostics' ViroSeq product — an HIV-1 genotyping system that runs on ABI's genetic analyzers.

Additionally, pre-tax losses in fiscal 2005 decreased 29 percent to $29.9 million from $42 million year over year. Net cash used by Celera Diagnostics for the fiscal year was $32.1 million compared to $43.3 million in fiscal 2004.

For fiscal 2006, which began July 1, Celera Diagnostics expects total end-user sales for the alliance between Celera Diagnostics and Abbott Labs to be in the range of $80 million to $90 million, or between 30 percent and 46 percent.

The company also said it anticipates pre-tax losses to be in the range of $19 million to $23 million, and fiscal 2006 net cash use to be in the range of $25 million to $30 million.

Plus, Thermo Electron has said in the past, and had highlighted at the conference that it is looking at using its own mass spec instruments in biomarker development. "I think there is a lot of value there, [though ABI] is not unique," Peterson said. "We've seen other companies, like Waters, move in this direction."

The deal could also help ABI because of Celera Diagnostics' ongoing marketing and distribution alliance with Abbott Labs [see sidebar]. Celera Diagnostics and Abbott will continue to work together exclusively through a profit-sharing agreement in "most areas of molecular diagnostics," while separately working outside the alliance in other selected areas, Applera said

ABI is "not going to start necessarily selling to doctors, but they may start by selling to reference labs like LabCorp and Quest, and [Celera Diagnostics] has the partnership with Abbott, so [they'll be able to sell to] a lot of the big pharma companies," said Peterson.

The transfer of ownership is also aimed to provide investors with "a direct means to invest in the growing diagnostics business," White said in a statement.

JP Morgan's Peterson agreed. "Certainly, if you want to invest in the diagnostics business, you now know where to do it. It's much more transparent."

— Edward Winnick ([email protected])

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