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Agilent Pays Attention to Asia-Pacific, Prepares Gene Expression Road Show

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In interviews with local publications during a recent tour of Asia, Agilent Technologies' chief executive Ned Barnholt said the company plans to support its life sciences business by establishing research and development facilities and creating manufacturing capacity in Asia within "5 to 10 years."

That might be a conservative estimate. Judging from its first quarter financial reports last week, Asia appears firmly on Agilent's mind this year. The Palo Alto, Calif.-based instrument company, which is considered the No. 2 manufacturer of pre-printed microarrays, reported revenues of $1.7 billion for the quarter ending Jan. 31, up from $1.4 billion for the same quarter in 2002. Of this amount, some $810 million was attributed to the Asia-Pacific region, a 43 percent increase year-over-year that made the region the largest geographic contributor to the company's business.

Agilent, which operates on a fiscal year ending in October, organizes its microarray business within its life sciences and chemical analysis division. In its first-quarter report, the company said orders of $307 million for the life sciences unit were up 15 percent over the same quarter last year when it reported orders of $268 million. The unit had net revenue of $313 million, compared to $276 million for the year-ago period.

Agilent's interest in the Asia-Pacific market is part of an emerging trend in the microarray industry that extends, at the least, to 2002 when Affymetrix, regarded as the leader in the pre-printed array industry, opted to end co-marketing agreements and sell directly in Japan (See BAN, 9/13/2002).

Recently, Applied Biosystems, which is developing and preparing to release a new microarray platform, said it plans to first market the system in Asia in the current quarter, before a general release globally in the fiscal fourth quarter, which begins April 1 (see BAN 2/4/2004).

In terms of microarrays, Asia appears to be an unharvested field, one where potentially profitable purchasing decisions remain to be made (see BAN 12/3/2003).

Agilent is heading there later this year, preparing to showcase its gene-expression technologies with what it calls its Asia-Pacific Road Show, visiting Japan on April 21-22 in Tokyo and Osaka, followed by Taiwan, Australia, China, and Singapore on a visit stretching from May 23-June 4, the company told BioArray News (see additional story, page 4.)

The company had net income of $71 million, after a year-ago loss of $369 million. Excluding $32 million in one-time charges, Agilent earned $103 million, or 21 cents a share, in the quarter, missing analysts' earnings targets of 22 cents a share. The company spent $219 million on research and development in the quarter, compared to $273 million in the same quarter in 2003.

Admittedly, microarrays are only a small part of the company's business and one that has yet to reach break-even financially. The Hewlett-Packard spinoff began commercializing its line of microarrays in 2001, investing millions in licensing intellectual property from Oxford Gene Technology, building a chip fabrication facility in Silicon Valley, and seeding future products with investment in its research and development labs.

The company earlier this month released for full commercial availability its single-chip, whole-human-genome microarray, a technical milestone capping a year when the company announced that it had sold some 100,000 arrays, and doubled its customer base to 400.

Agilent has facilities in over 30 countries and develops products at manufacturing sites in the US, Germany, and the UK, as well as Asia-Pacific facilities in China, Japan, Malaysia, Singapore, and Australia. More than half of Agilent's revenue is generated from outside of the US with customers in more than 110 countries.

But just having a presence in Asia may not mean instant gratification for a company. The cultural component to operating in the Asian environment is not to be underestimated, as Agilent learned this year. The company pointed to the Chinese New Year celebration as a factor in its failure to meet analysts' expectations for the quarter.

"We had slightly softer activity in January because of the unusually early Chinese New Year, coming on January 22 instead of in February, which shut down much of Asia for the remainder of January," Adrian Dillon, the company's executive vice president and chief financial officer, said in the company conference call last week.

The company's life sciences and chemical analysis division came out of the quarter with "very nice growth," with the chemical analysis side of the division stronger, Barnholt said in the conference call.

"Both sides of the house are performing very well," he said. "Life sciences and chemical analysis had solid growth, year-over-year, across all geographies. Our large customers increased their [capital] spending, as the economy continued to recover. Also contributing were Asian requirements for food and water testing. Going forward, we expect the recovery to continue gradually, our customers are investing more in [capital expenditure], but selectively and cautiously.

"In life sciences, we saw a recovery in spending by a handful of the large pharma customers and a more general recovery by the mid and small life sciences companies. We saw growth across all geography with the largest increase in Asia."

-- MOK

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