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Molecular Devices' Reduced Q3 Revenue Outlook Clouds Product Launch, Multispan GPCR Alliance

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Molecular Devices’ disclosure this week that soft pharma sales forced it to cut its third-quarter revenue outlook by between 8 percent and 12 percent overshadowed recent positive news about a new product, a co-marketing alliance, and the filling of a key management position.
 
At UBS’ Global Life Sciences conference in New York this week, president and CEO Joseph Keegan refused to blame weakness in any one product line, or in the company’s overall sales and marketing force. However, Keegan conceded that the company may have to reassess certain product lines if the flat sales continue, and that it would focus on increasing the level of specialization of a sales and marketing team that “might be at capacity.”
 
Keegan also said that the company hopes a new line of plate readers set to launch later this year and early next year will help buoy overall revenue.
 
In spite of a two-week stretch during which Molecular Devices launched a new plate reader for kinetic cell-based assays, announced a GPCR screening alliance with biotech firm Multispan, and filled a management position in its imaging division, Keegan found himself explaining Molecular Devices’ anticipated underwhelming Q3 performance to investors in a breakout session at the UBS conference.
 
Based on the renewed projections, Molecular Devices is slated to report between $44 million and $46 million in revenue for the third quarter, as much as 12 percent less than it had originally forecast in July. During the breakout session, investors asked Keegan whether this decline could be blamed on events such as recent mergers of large pharmaceutical companies in Europe or a diminished National Institutes of Health research grant budget.
 
“The mergers in pharma were not related to [our] performance this quarter,” Keegan said. “And although the increase in annual spending by the NIH has dropped from 15 percent to 2 percent in recent years, it is still a substantial budget.”
 
One analyst asked whether the performance could be attributed to sales team problems or overall weakness in the company’s sales and marketing force, and Keegan also responded no.
 
“It is too premature and unlikely to point at a flawed performance in this area,” he said, adding that the company’s first priority is to look at individual product lines to see which failed most to meet expectations.
 
“In life sciences, over time, it is possible that our sales team might be at capacity, as each individual goes out to market with seven or eight products,” he added. “We will be trying to increase the level of specialization within sales and marketing” to alleviate this potential problem, Keegan said.
 
Industry insiders had recently speculated that Molecular Devices’ imaging product line, which includes the ImageXpress high-throughput confocal HCS reader and ImageXpress Micro benchtop confocal reader, might be failing to meet expectations, particularly following the recent departure of the director of imaging products.
 
Investors brought this possibility up in the company’s Q2 earnings call earlier this year, and the question of whether imaging was a weakness was reiterated at UBS.
 
But Keegan said that Molecular Devices “will reassess questions about specific instrument lines, but one of the first things we’ll do when we’ve seen the individual product performances is to get those groups together and decide what to do.
 
“So far, we are not commenting on specific product performances, but I wouldn’t target imaging,” he added.
 
In addition, the Keegan said that the company recently filled the director of imaging role by promoting “someone who has been with the company for a while.” Follow-up e-mails to the company confirmed that the new director of imaging is Shawn Handran, former marketing manager for the IonWorks Quattro product line.
 
At SBS, Molecular Devices also launched a new product, the FlexStation 3, a multi-detection benchtop microplate reader with integrated fluidics. Based on the company’s SpectraMax M5 multi-detection system, the new platform “will address more applications in different modes, particularly fast luminescence and absorbance assays,” Jennifer McKie, director of marketing at Molecular Devices, said in a statement. The company is targeting scientists conducting assay development and small-scale screening applications.
 
With the recent re-launch of the company’s imaging platforms complete, Molecular Devices may very well turn to developing newer versions of its microplate readers for cell-based assays, biochemical assays, and microarray detection and analysis. Keegan said that the company plans on introducing new products in every category next year, none of which would be considered “breakthrough.”
 
However, he advised investors to “watch for a new line of plate readers late this year and early next year.” According to Keegan, the SpectraMax product line is the company’s biggest and best-selling product area, and Molecular Devices owns a 15- to 20-percent share of the overall “significantly large” microplate market.
 
Keegan added that the new product will be “in an area that we don’t currently compete in, and it’s truly a new platform. However, we don’t think we run the risk of cannibalizing sales of the current plate readers with the new product.”
 

“We will reassess questions about specific instrument lines, but one of the first things we’ll do when we’ve seen the individual product performances is to get those groups together and decide what to do.”

In the company’s general presentation at UBS, Keegan noted that in 2005 Molecular Devices derived about 67 percent of its revenues from system sales; about 7 percent from software; 10 percent from services; and 16 percent from consumables.
 
With such a large chunk of its revenues dependent upon instrumentation platforms, the company plans to constantly refresh its product pipeline. Keegan said that the company believes 69 percent of its long-term revenues will derive from new products.
 
In any event, the company still has a cash cow with its FLIPR line of instruments and reagents for GPCR screening based on calcium dye detection. Molecular Devices is the undisputed market leader in this area, and bolstered its position further recently by signing a co-marketing agreement with Multispan, a company specializing in GPCR research.
 
According to a statement this week from Multispan, the two companies recently completed an “intensive evaluation” of Molecular Devices’ FLIPR Calcium 4 assay kit against competitor kits in their ability to detect calcium ion flux over 48 GPCR receptors expressed in Multispan’s GPCR-stable cell lines.
 
“The results indicated that the FLIPR Calcium 4 assay kit had superior overall performance over the previous FLIPR Calcium and Calcium 3 assay kits and those from competitors,” Multispan said in a statement. As a result, Multispan has agreed to actively promote FLIPR Calcium 4 assay kits to its partners and customers, while Molecular Devices will promote Multispan’s GPCR compound profiling services and stable cell lines to its customers.

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