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Applied Precision Hopes to Raise $50M in IPO; Cash to Help Grow Nascent High-Content Arm


Applied Precision, which counts among its businesses a small high-content cellular analysis arm, hopes to raise approximately $50 million in an initial public offering, according to a registration statement filed with the US Securities and Exchange Commission this week.

Based in the Seattle suburb of Issaquah, Applied Precision broadly sells automated metrology, inspection, imaging, and analysis equipment for the semiconductor and life sciences industries.

Although the company derives the majority of its revenues from its semiconductor analysis play, it intends to use the proceeds of the IPO to continue to grow its overall life sciences business, including its HCA arm, by increasing its presence in the pharmaceutical research and drug-discovery markets, a company official told CBA News this week.

"Through the IPO, one of the goals here is to grow life sciences … and to grow it in different areas, moving into diagnostic and other arenas," said Steve Reichenbach, Applied Precision's CFO. "I can't be too specific, but clearly, the long-term goal is to be more than just a supplier of high-end optical microscopes into the research arena, which is where we've pretty much played in the past."

Applied Precision's core technology is a proprietary nanometer-scale motion control system, and its core expertise is in the areas of electronics, mechanics, optics, and software. In the late 1980s the company originally applied these assets to develop instruments for inspecting semiconductors, and then quickly crossed over to life sciences imaging.The company, which generated $45.7 million in total receipts last year, has traditionally derived more revenues from its semiconductor business than its life sciences business, and that gap has widened over the past three years to the point where semiconductor analysis revenues constitute about two-thirds of its total revenues. The company's overall yearly revenues have steadily increased over the same period (see associated bar graph).

Applied Precision's life sciences offerings include the DeltaVision microscopy system for three-dimensional imaging of live cells; the ArrayWorx microarray scanner; the ArrayWorxMF for reading microarrays in formats other than traditional glass slides; and OEM products including the DIGE gel imaging system for GE Healthcare and an imaging system for TriPath Imaging.

Of its life sciences products, DeltaVision is by far the company's biggest moneymaker. DeltaVision generated approximately 23.3 percent of Applied Precision's overall revenues in 2003; 16 percent in 2004; and 19.6 percent in 2005, which translates to approximately 52 percent of the company's life sciences revenues each year. The company has not broken out the financial contributions from the other platforms, but may do so depending on analysts' needs, according to Reichenbach.

Applied Precision said that it has more than 250 DeltaVision systems installed worldwide and that there are more than 1,000 peer-reviewed papers that cite use of the system. DeltaVision, however, is sold primarily to basic life sciences researchers and is indicative of the traditional limitations of Applied Precision's overall life sciences business.

"We've been pretty much a research-based tool provider," Reichenbach told CBA News. "That's the point of CellWorx, ArrayWorx, and some of these other things — to expand more into the pharmaceutical industry and drug discovery. Conceptually, just being an equipment supplier into the research arm of the life sciences market — while we've done pretty well historically — the growth in that is limited."

The company has recently made some strides in growing its life sciences business with the introduction of ArrayWorx and CellWorx, and various deals surrounding the instrument platforms. In 2003, Applied Precision signed a distribution agreement with Amersham for ArrayWorx, which carried over to GE Healthcare after it subsequently acquired Amersham. GE Healthcare now exclusively distributes ArrayWorx in Asia and Europe.

In 2004, it introduced the multi-format ArrayWorx reader, and last year announced that the University of Washington purchased an ArrayWorx to support its genomics research efforts.

Later that year, the company launched CellWorx, based on the same core imaging technology (see CBA News, 9/21/2004); and last year signed an OEM and distribution agreement with Cellomics, which now co-markets and sells CellWorx to certain regions and markets (see CBA News, 10/31/2005).

As a result of some of these recent product launches and deals, Applied Precision's life sciences revenues increased 60 percent to $17 million in 2005 from $10.6 million in 2004, and the company shaved its net losses for the division from $1.8 million in 2004 to $550,000 last year.

"Through the IPO, one of the goals here is to grow life sciences to try and get it more 50-50 with semiconductor," Reichenbach said.

"Through the IPO, one of the goals here is to grow life sciences to try and get it more 50-50 with semiconductor."

In its SEC registration statement, Applied Precision cited an estimate from independent market research firm Strategic Directions International that the market for life sciences instrumentation equipment will grow from approximately $14.5 billion in 2005 to $19.8 billion in 2010. Applied Precision also cited estimates from Business Communications Company that the worldwide optical microscopy market was $527 million in 2004 and is expected to grow to $702 million in 2009; and from SDI that the market for high-content screening equipment will grow from about $128 million in 2005 to $190 million in 2010.

It remains to be seen whether going public will help Applied Precision compete on these landscapes. As it pointed out in its registration document, "many of our competitors in the life sciences market have more established relationships with pharmaceutical and biotechnology companies and research institutions; larger sales forces; broader product lines; and a larger installed base which makes it more difficult for us to penetrate these markets."

In the microscopy market, Applied Precision considers its competitors to be Carl Zeiss, Leica Microsystems, Nikon, Olympus, PerkinElmer, and Yokogowa Electric. "We believe the primary competitive factors in this market are live-cell viability, image resolution, and price, and that we compete favorably with respect to these factors, particularly with regard to live-cell viability," the SEC filing states.

On the high-content screening front, its competitors include BD Biosciences, Beckman Coulter, Evotec Technologies, Fisher Scientific's Cellomics business, GE Healthcare, and Molecular Devices. "We believe the primary competitive factors in this market are image quality, breadth of application, and price," the SEC document states. "We believe we compete favorably with respect to each of these factors."

Applied Precision hopes to raise approximately $50 million in the IPO, with a maximum of about $57.5 million, Reichenbach told CBA News. According to the SEC document, almost $20 million of those proceeds would go toward repaying various debts, while the company does "not have a specific plan with respect to the use of the net proceeds … and have not committed these proceeds to any particular purpose. Consequently, our management will have broad discretion as to how to spend the proceeds."

The company has not yet set a price range for its stock or number of shares to be offered. As of June 30, Applied Precision had 179 full-time employees between its Issaquah facility, and its European and Asian sales and service offices. The company has applied to have its common stock approved for quotation on Nasdaq under the symbol "APLI."

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