This article was originally published Nov. 2.
Life Technologies' Ion Torrent business is driving revenues in its Genetic Analysis unit, the company said this week in a conference call discussing its 2012 third-quarter earnings.
The company, which began shipping its Ion Proton system in September, said that it shipped more than 100 systems in the third quarter of this year, and that there has been "continued demand" for its PGM instrument as well.
"Looking at 2013, we see another phenomenal year of growth of this franchise," CEO Greg Lucier said on the call.
The company's total revenues dipped 2 percent year over year to $911.2 million from $928.2 million a year ago. Excluding currency effects, revenues inched up 1 percent.
Revenues for the Genetic Analysis business fell 1 percent year over year to $353 million, but increased 2 percent excluding currency effects. Officials said that growth in the Ion Torrent business was offset by the expected declined in sales of SOLiD instruments and lower capillary electrophoresis instrument sales, though they did not break out specific revenue numbers for any specific product lines.
Life Tech began shipping its Proton instrument in September. The sequencing system promises 10 gigabases of data per two- to four-hour run, generating between 60 million to 80 million filtered reads with lengths of 100 to 200 bases. The first chip for the system, PI, is geared toward exomes and transcriptomes and is expected to sequence two exomes per run (IS 9/18/2012).
During the third quarter, Life Tech shipped over 100 Proton systems to a mix of customers. Mark Stevenson, the company's chief operating officer, said the majority of customers were from smaller academic laboratories, with 20 percent to 30 percent of orders from clinical customers.
The company is now working on getting all of the systems installed and running.
"There's a large number of labs that we've shipped to and now we need to work through that backlog to get customers set up in their lab and running," said Stevenson. He said the company would work through that backlog in the next quarter.
Dan Leonard, an analyst with Leerink Swann, wrote in a memo that one Proton customer the firm has spoken to has had its Proton since the end of September, but that it has not yet been installed. Leonard wrote that while "field installation bottlenecks are not unusual for a new product launch," the firm had expected Life Tech to be "farther along."
"[W]hile this is only one datapoint, it dents our confidence a bit," he said.
On the conference call, Lucier said that the company's installation schedule has been very "methodical," and that it began first with a "focused strategy on a few customers," but that it is now "moving out to faster installation to all the customers."
The launch of the Proton has not had a negative impact on PGM sales and usage, Stevenson said. "In fact, what we're generally seeing is an increased uptake in the consumables," particularly because the company has made improvements to the system, including improved informatics, sample prep, and longer read lengths, he said.
The company has also seen increased demand for the AmpliSeq chemistry and panels for the PGM, which is "really a separate market to what people will run on their Proton, which will be exomes," Stevenson said.
On average, each PGM generates around $50,000 per year in revenue and Lucier said that he expects that to eventually "ramp up to $80,000," which would correspond to three runs per week using a $500 chip, he said.
Life Tech recently received an unfavorable ruling in litigation with Enzo Biochem and Yale University regarding patents related to CE sequencing.
Because the suit concerned a patent that expired in 2004, Lucier said that it would not impact the company's CE sequencing business going forward.
The court ruled in favor of Enzo Biochem, awarding the company $48.5 million, which was not accounted for in the third-quarter earnings reported this week.
Lucier said that the company "strongly disagrees with the Enzo verdict, and plans to vigorously defend it in appeal."
Additionally, Laboratory Corporation of America's wholly owned subsidiary Esoterix Genetic Labs and Johns Hopkins University this week sued Life Tech and its Ion Torrent business for infringing US Patents Nos., 6,440,706; 7,824,889; and 7,915,015.
The patents are each titled "Digital amplification" and relate to methods for determining a quantitative measure of the proportion of variant sequences within a DNA sample. According to the suit, one example of Life's infringement is in the use of the PGM to "detect ratios of genetic sequences or allelic imbalances in a biological sample."
One example cited is the use of its Ion AmpliSeq Cancer panel to "determine the amount of an allele or particular sequence in a patient sample and determine whether a mutation existed in the patient sample."
Lucier on the conference call this week said the suit was "baseless" and that the company plans to "defend [its] position vigorously."
The company reported that its third-quarter revenues of $911.2 million were higher than expected. Although still down 2 percent from $928.2 million in the year-ago quarter, revenues were above analyst estimates of $908.5 million.
Research consumables revenue decreased by 3 percent to $384 million from $395.9 million in the third quarter last year. Genetic analysis decreased 1 percent to $353 million from $356.6 million a year ago, and applied science revenues were flat at $174 million.
Life Tech's R&D costs in the quarter decreased 18 percent to $84.8 million from $103.9 million in the prior year period, while its SG&A costs increased 7 percent to $270.6 million from $251.8 million.
The firm's net income for the quarter came in at $97.1 million, compared to $96.0 million a year ago.
Life Tech finished the quarter with $299.3 million in cash and short-term investments.