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With VisiGen Deal Brewing, ABI Continues to Evaluate Next-generation Sequencing Techs

A day after announcing that it would make an equity investment in next-generation DNA sequencing technology firm VisiGen Biotechnologies, Applied Biosystems officials said last week that it continues to evaluate other alternative sequencing technologies.

ABI also surprised the market with a relatively strong fiscal 2006 first-quarter, reporting a 6.4-percent increase in revenue and a 55-percent jump in profits.

ABI, which is the long-time market leader in traditional capillary electrophoresis-based sequencing instruments, had been under scrutiny by analysts, industry observers, and investors over the past year as sequencing revenues had slumped and a collection of players in the next-generation sequencing market emerged.

Adding to that pressure was rival Beckman Coulter's purchase of Agencourt Bioscience (see BioCommerce Week 5/5/2005) and PCR patent partner Roche Diagnostics, which signed an exclusive agreement in May to sell 454 Life Sciences' new sequencing instrument (see BioCommerce Week 5/19/2005).


"We have a very active internal investment program in next-generation sequencing technologies, but I think it's wise for AB to be continuously surveying what's going on in the marketplace. We want to keep our fingers on all of these different technologies that are being developed. So, we are actively looking at those."

While ABI investors sent its shares up as high as 6.75 percent on the day the results were announced (see BCW Index), analysts on ABI's conference call seemed particularly interested in the company's strategy for the sequencing market, peppering ABI's executives with repeated questions about its plans.

"We have a very active internal investment program in next-generation sequencing technologies, but I think it's wise for AB to be continuously surveying what's going on in the marketplace," said Cathy Burzik, president of ABI, during the conference call. "We want to keep our fingers on all of these different technologies that are being developed. So, we are actively looking at those."

Just last week, ABI said that it would make an undisclosed equity investment in VisiGen Biotechnologies and begin collaborating with the firm (see BioCommerce Week 10/27/2005). Houston-based VisiGen is developing a real-time sequencing system in which polymerase and nucleotides act together as direct molecular sensors for DNA base identification.

The announcement regarding the collaboration with VisiGen was the first glimpse at ABI's plans for the next-generation sequencing market since acknowledging at an investors' conference in late September that it was working on its own alternative sequencing technologies (see BioCommerce Week 10/6/2005). But ABI executives stressed last week that the partnership with VisiGen was just the beginning.

"I can't predict over time exactly what action we are going to take, but we are not limited by the one action we have taken so far with VisiGen," Burzik said.

Tony White, CEO of ABI parent Applera, added, "What's apparent is that there are going to be a variety of applications in the future both in the applied markets and the research market, and sometimes in the clinical market, that are going to delineate the best [sequencing] platform for that application, and so I don't believe there's going to be one comprehensive platform for all the future applications. That may have been the case recently with CE Sanger-type technology that could be used for all of these, but in the future there may be different needs for different platforms."

Pressed by one analyst about when ABI expects to commercialize a product from the VisiGen collaboration, Burzik said, "It will be a long time. This is not something [where] you expect a product instantaneously. This is very early-term research."


"I can't predict over time exactly what action we are going to take, but we are not limited by the one action we have taken so far with VisiGen."

Sequencing Revenue Rises 8 Percent

While ABI is opening up about its future plans for the market, its DNA-sequencing business turned in a strong performance in the first fiscal quarter with revenue up 8 percent year over year to $124.9 million.

"We're proud of the performance we had in Q1 in sequencing, but it really was consistent with the expectation that we had," said Burzik. "Our first-quarter positive growth in sequencing was driven largely by placements of our low- to medium-throughput analyzers in directed, or medical, sequencing and forensics applications. However, for the full fiscal year we believe that our DNA sequencing product category will decline compared to FY '05."

Total receipts for the three months ended Sept. 30 increased to $415.5 million from $390.3 million year over year. While the DNA sequencing business performed well, ABI's real-time PCR/applied genomics and mass spectrometry segments also were major contributors to the firm's sales growth. Both of those segments reported revenue growth of 9 percent year over year to $121.8 million and $97.3 million, respectively.

ABI's core PCR and DNA-synthesis business declined .2 percent to $47.3 million, and revenue from all other products fell 7 percent to $24.2 million, according to the firm.

Overall sales increased 4 percent to $200 million in the US year over year, while sales in Europe grew a robust 12 percent to $129 million, and sales in the Asia Pacific region grew 2 percent to $73 million. ABI noted that sales in the Asia Pacific region were negatively affected 2 percent primarily by a declining yen.

"In general, I'm pleased with the performance of our European team," Burzik said, noting that growth there was led by forensics, as well as mass spectrometry sales in India, which is accounted for as part of Europe on ABI's balance sheet.

During his opening comments on the conference call, White called the results "strong," and added that the company's wide-ranging restructuring has been "delivering results." However, Burzik cautioned in a company statement, "We remain cautious about the growth rates in our end-user markets throughout the remainder of the fiscal year."

She added during the call, "While we are seeing modest signs of a recovery in pharma spending in the US, we remain cautious on the pharmaceutical spending industry as a whole, especially given what we perceive to be a difficult environment in Western Europe."

ABI's R&D spending in the quarter decreased 10 percent to $40.8 million from $45.7 million in the year-ago period, but White noted that was due to a change in accounting, as some mass spec R&D expenses were transferred to the firm's joint venture with MDS Sciex. If all of its R&D spending was attributed to ABI, the figure would have been basically flat from last year's first quarter, he said.

The firm's net profits increased 55 percent to $57.5 million, or $.29 per share, from $37.1 million, or $.18 per share, year over year. The EPS handily beat analysts' consensus estimate of $.21 for the quarter.

The company said certain items conspired to decrease fiscal first-quarter earnings by $4.2 million, including $3.3 million in pre-tax charges for outstanding litigation and $1.1 million for asset impairments. Also recorded during the period were $13.5 million in tax benefits related to the settlement of certain transfer pricing matters in Japan.

— Edward Winnick ([email protected])

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