Cellular analysis tools for drug discovery sell … but who’s buying?
According to the quarterly financial reports of several publicly traded companies marketing drug-discovery tools, the answer depends on who’s selling.
This year has thus far seen a remarkable amount of activity in the cell-based assay and high-content screening markets, as several publicly traded tool vendors have claimed their stake, either through merger and acquisition activity, licensing agreements, or internal development.
And while it may be too early to tell whether these investments in cellular analysis will pay off, receipts from drug-discovery tools in general may provide a good idea about prospects for the future.
Despite decent revenues and earnings across the board for companies such as Molecular Devices, PerkinElmer, Becton Dickinson, and Beckman Coulter, most of these companies indicated that their drug-discovery or pharmaceutical-research product lines fell a bit short of expectations for the three months ended Sept. 30. Even those that reported positively, such as Caliper Life Sciences and Invitrogen, conceded that big pharma remains cautious about purchasing new technologies — though the situation is improving.
“It’s a degree thing,” said Michelle Boudreau, Caliper’s director of corporate communications. “The general consensus is that 2004 spending for drug discovery has picked up, but it’s nowhere near the same level it was at a few years ago.”
Last week, Caliper reported a 22-percent jump in its third-quarter revenues along with a shrinking loss, most of which was directly attributable to pharmaceutical companies adopting its LabChip microfluidic screening platform.
Caliper’s revenues for the quarter increased to $20.2 million from $16.5 million during the same period last year. Caliper said that during the last three months, Merck, Johnson & Johnson, and Taisho Pharmaceutical had each purchased a LabChip 3000 for the first time. Furthermore, existing customers Aventis and Pfizer recently purchased additional systems, Caliper said.
In each of these cases, Boudreau said, the customers purchased LabChip units primarily for high-throughput screening using biochemical assays. But, she noted, the drive towards cell-based assays is still palpable, and Caliper continues to tweak its microfluidic platform for such applications.
“It’s hard to say how cell-based assays compare with biochemical, as pharma trends from one to another,” Boudreau said. “But we see the possibility of having major influence on the [cell-based] market.”
Currently, LabChip is only compatible with non-adherent cell lines. In May, Caliper purchased cell culture and other technology from Amphora that it expects will make LabChip compatible with popular adherent cell lines, as well (See Inside Bioassays, 5/18/2004). Boudreau said that Caliper expects this modification to be available at the beginning of 2005.
Molecular Devices may be one of the most accurate yardsticks for measuring big pharma’s spending on drug-discovery tools, as the Sunnyvale, Calif.-based company was one of the first publicly traded firms to focus almost exclusively on such products.
Two weeks ago, MDCC reported a 42-percent increase in revenue for the three months ended Sept. 30, to $41.5 million from $29.3 million year over year. The company attributed the increase to “continued ... growth in our core MDCC life sciences products due to the success of the SpectraMax M2 bench-top reader and Meta series of cellular imaging products,” Joseph Keegan, president and CEO, said in a statement.
“However, a number of our drug discovery product lines, including Discovery-1, IonWorks, and Analyst, did not meet our expectations for the quarter,” he said. “As a result of this unanticipated weakness, we have become more cautious about the state of the overall market.”
The company also reported a net loss of $1.3 million, which it attributed primarily to costs associated with this year’s purchase of Axon Instruments. The loss stood in contrast to a net income of $2.3 million for the company in the year-ago quarter.
Axon’s products for cellular, neuroscience, and genomics applications have been integrated into MD’s life sciences division, while Axon’s PatchXpress patch-clamp and ImageXpress cellular imaging products are now part of MD’s drug-discovery product line, which includes IonWorks, FLIPR, Analyst, and Discovery-1.
The drug-discovery product line will recover from a quarter that “fell well short of our plan,” Keegan said. “We continue to believe that high-throughput imaging and electrophysiology represent growth areas to us in drug discovery, and we remain committed to investing heavily in new product development in both areas. We now have a clear plan that we believe will leverage our expertise in both of these areas and will lead to a variety of product introductions in 2005.”
PerkinElmer, BC AND, BD
Meanwhile, PerkinElmer, Beckman Coulter, and Becton Dickinson each indicated that sales for drug discovery tools were sluggish last quarter, and throughout the year.
PerkinElmer said last week that it posted a 10-percent jump in third-quarter revenue, helped in part by increasing revenues in its Life and Analytical Sciences division. Revenues from this division, which offers products for genetic screening, service, and environment, grew by 4 percent, to $243.7 million from $235.1 million.
PerkinElmer also said, however, that the increased revenues in these areas of LAS “helped offset lower receipts in its biopharma business,” which includes the ImageTrak screening tool, UltraView confocal-based live cell imager, and EnVision HTS plate reader.
The company has made a couple of moves this year to shore up this category, including an August assay development deal with BioImage for the EnVision (see Inside Bioassays, 9/7/2004), and a May agreement with Australian biotech Bionomics involving the ImageTrak (see Inside Bioassays, 5/18/2004).
Perennial marketplace combatants Beckman Coulter and Becton Dickinson each reported strong sales in its legacy products divisions, such as immunocytometry, clinical diagnostics, specialty testing, and basic biomedical research.
Neither company discussed the status of its high-content cellular analysis systems — the IC 100 for Beckman and the Pathway HT imaging system for BD — perhaps because it is too early to provide meaningful numbers. Both of those platforms were adopted by the cytometry giants only early this year or late last year following the acquisition of smaller biotech firms.
“Biomedical research sales were a solid performance in a sluggish market,” Scott Garrett, president and COO of the Fullerton, Calif.-based company, told analysts on the company’s conference call two weeks ago.
John Wareham, Beckman’s chairman and CEO, said the overall economic environment for biomedical research is slow, but that the pharmaceutical and biotechnology markets are growing.
“Large pharma is starting to increase research and development spending, and more dollars are moving to early-stage drug research,” Wareham said. “On the other hand, while biotechnology funding has improved, it has not been as bullish as it appeared earlier in the year.”
Beckman continue to reap large returns from its flow cytometry business, but clearly has been locked in some one-upmanship competition with BD to join the high-content cellular analysis market. “We have many new products coming out, most of which are going into applications that BD is currently not participating in,” Wareham said. Some of those products include an upcoming flow-based cellular analysis system it will be integrating from NPE Systems (see Inside Bioassays, 8/17/2004), and the Biomek assay workstation for cell-based screening and ELISA applications in drug-discovery research.
“We expect to continue to have very good growth and we will be watching carefully the progress of some of BD’s new products.”
For BD, the pending sale of the Clontech business from its Biosciences division continues to hang over its head, as a $116 million charge related to the pending sale contributed to a nearly 60-percent decline in the company’s net income to $67 million for Q3 2004, as compared to $161 million in the year-ago quarter. It has not yet named a buyer for the division.
Although Clontech is rife with tools for drug discovery and molecular biology research — mostly reagents — the company stated in October that it felt its market position in this category was not strong enough to justify perennially decreasing revenues. In a statement, BD Chairman, President, and CEO Edward Ludwig said that the company is taking this step because it wants to “focus its strategy on cell analysis, discovery labware, and its new platforms of imaging and in vitro drug metabolism/toxicity testing,” and that the planned sale “also allows us to direct our resources toward higher-growth opportunities in the pharmaceutical drug discovery arena.”
A major component of that new shift in focus is the Pathway HT confocal-like imaging system that BD added to its portfolio with its July acquisition of Atto Bioscience (see Inside Bioassays, 7/6/2004). Although the integration of this platform and Atto’s employees have not yet completed, BD is in line to reap the approximately $3 million in sales the Pathway NT enjoyed last year.
The company that Clontech perhaps has perhaps aspired to match is Invitrogen, which reported nothing but good news to its investors on the cellular analysis reagent front. The company reported a 30-percent spike in its third-quarter revenues, to $256 million from $197 million, as well as a jump in net income, to $28.7 million from $13.7 million one year ago.
Although a large portion of Invitrogen’s success was due to a huge spike in BioProduction revenues, the recent $325 million acquisition of Molecular Probes has also driven growth in the company’s BioDiscovery unit, which contributed $146 million to Invitrogen’s total revenues for this past quarter, compared to $125.3 million for the year-ago period, the company said.
“BioDiscovery delivered at the top end of our expectation in the third quarter,” Lucier said. The unit’s revenue contribution grew 17 percent compared to the previous year’s quarter, including 5-percent organic growth, with 2 percent of that growth attributable to Molecular Probes.
Invitrogen said it is constructing a $20 million chemistry facility for Molecular Probes in Eugene, Ore.
“We are filling that with scores of new hires,” Lucier said. “It’s a business with an incredible runway, with lots of growth there.”