By Julia Karow
This article was originally published Aug. 1.
Buoyed by strong sales of the Ion Torrent PGM and the 5500 Series Genetic Analysis system, Life Technologies last week reported a 12 percent increase in non-GAAP second-quarter revenue for its genetic systems division, as overall revenue for the company grew at a slower rate than expected.
Non-GAAP revenue for genetic systems, which includes capillary electrophoresis as well as next-generation sequencing, totaled $265 million for the quarter compared to $235 million in the second quarter of 2010. The company did not report GAAP revenues for any of its divisions.
While sales of the Ion Torrent PGM and the 5500 Series Genetic Analysis System — formerly called 5500 SOLiD and the successor of the SOLiD 4 — were strong, Life Tech sold fewer CE instruments and SOLiD consumables during the quarter, compared to the same period last year.
5500 Production Delayed
Shipments of the 5500 were held back during the quarter due to a delay in the instrument's production caused by the March earthquake in Japan (IS 3/29/2011). According to Life Tech Chairman and CEO Greg Lucier, Life Tech's partner, Hitachi Japan, only returned to full production in June and shipped only about 170 5500 instruments during the quarter instead of the more than 200 originally planned. As a result, several million dollars in revenue from pending 5500 shipments will now be booked in the third quarter, Lucier said during a conference call to discuss the firm's second-quarter earnings.
The "vast majority" of existing SOLiD users have decided to upgrade their systems to the 5500, according to Life Tech President and Chief Operating Officer Mark Stevenson, and the company prioritized upgrades over new 5500 sales during the second quarter.
A Life Tech spokesperson told In Sequence that the company decided to remove the SOLiD name from the 5500 instrument in order to simplify its brand.
While the company still sees a place for the 5500, Stevenson said, it expects further growth in next-gen sequencing to come primarily from so-called desktop sequencers like the Ion Torrent PGM.
Concurrent with the delay in 5500 shipments, customers bought fewer next-gen sequencing consumables in the second quarter compared to last year, but according to Life Tech CFO David Hoffmeister, the company expects consumables sales to pick up over the next few quarters as more 5500 instruments get installed and go into production.
Ion Torrent sales totaled about $13 million during the second quarter, a 50 percent increase over the first quarter, according to Hoffmeister. "We are very pleased with these results, given the price point of $50,000 per unit and the limited consumables sales we have had so far," he said.
Assuming that the bulk of Ion Torrent revenues came from instrument sales, the company sold on the order of 250 PGMs during the quarter.
Life Tech expects Ion Torrent to fuel its future growth further through "new product introductions and expanded applications as read length and throughput continue to increase off those semiconductor chips," Lucier said. During the fourth quarter, the company plans to launch the Ion 318 chip, which will increase the instrument's throughput (IS 3/1/2011).
Sales of CE systems declined by an undisclosed amount in the second quarter, resulting from "slower growth in US and EU government-funded accounts," according to Hoffmeister.
CE consumables sales for research, however, were "very, very good," Lucier said, as scientists continue to use their Sanger sequencers to validate results from next-gen sequencing.
He added that CE instrument sales are still growing in applied markets, such as molecular diagnostics, forensics, and animal testing.
Q2 Results and Outlook
Overall, Life Tech booked $941 million in second-quarter revenues, a 4 percent increase over $903.7 million in the year-ago period. Analysts had expected revenues of $960.8 million.
Organically, revenues grew 3 percent, not considering currency effects, according to Lucier.
He attributed the weak growth to reduced or uncertain government funding for academic research, both in the US and Europe; the earthquake-related delays in 5500 shipments; and to an ongoing transition to direct sales channels the company is undergoing in China.
However, Life Tech believes it will benefit disproportionately from academic funding in the future because "more and more money is going toward next-generation sequencing," he said.
While the company predicts sales to academic customers to remain "flattish" in the longer term, Hoffmeister said that "within that sector, we are seeing a shift to genetic research" that is "benefitting these kinds of desktop sequencers that are very simple and low-cost to use."
Research and development expenses inched up to $91.1 million from $90.3 million during the same period last year. As sales are growing more slowly, the company will consider reducing its R&D spending, and Lucier pointed to further development of the SOLiD as one possible area for cuts. "Particularly as we have now completed the introduction of the 5500, there are opportunities for us to reallocate and reduce our R&D spending," he said.
Selling, general, and administrative expenses remained nearly flat at $254.8 million compared to $252.8 million during the year-ago quarter.
The company's net income declined nearly 14 percent, to $95.2 million, from $110.5 million during Q2 of 2010.
As of June 30, Life Technologies had $565.1 million in cash and short-term investments.
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