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Cystic Fibrosis ASR, ViroSeq, Drive Celera Diagnostics Revenue Train


At A Glance

Name: Kathy Ordoñez

Title: President, Celera Diagnostics

Education: BA, Chemistry, Hartwick College

Background: President and CEO of Roche Molecular Systems

Age: 52

The following are excerpts from the presentation made by Celera Diagnostics President Kathy Ordoñez during the company’s fourth-quarter and year-end conference call to investors late last month. See related article on page 1.

I am very pleased with the progress we made last year at Celera Diagnostics. During fiscal 2003, we achieved our key financial and discovery goals, and introduced several important new products. Our disease association studies are yielding promising results that could give rise to new diagnostic and therapeutic products and other future value.

Our diagnostics alliance partner, Abbott Laboratories, recently introduced new analyte specific reagents for measuring viral load and for genotyping the hepatitis C virus, which are manufactured by Celera Diagnostics. The opportunity for these products is significant; Abbott estimates annual demand for these products is over $300 million globally. This is an established and competitive market, and while our competitors won’t give up market share easily, we believe our new HCV products are competitive and should contribute to our future sales growth.

During the recent quarter, we also received our third FDA clearance for the ViroSeqT HIV-1 genotyping system, this time on the ABI PRISM 3700 DNA Analyzer platform, which is currently in use at the largest clinical reference laboratories in the US. The ViroSeq system is now cleared for three different analytical platforms with various throughputs, which facilitates the ViroSeq system’s use in clinical testing in laboratories with a variety of testing volume requirements.

End-user sales of products manufactured by Celera Diagnostics more than doubled for fiscal 2003, exceeding our primary financial goal for last year. We finished fiscal 2003 with $23.4 million in end-user sales of our products, compared to $11.6 million during fiscal 2002, exceeding our original outlook for fiscal 2003 of between $18 and $22 million. End-user sales for the fiscal fourth quarter were $8.7 million, a 50 percent increase compared to the third quarter and 140 percent over the prior year. This increase was primarily the result of continued growth in demand for cystic fibrosis ASRs, and to a lesser extent, a pick-up in sales of the ViroSeqT HIV-1 genotyping system.

Our pre-tax loss for the recent quarter was $15.4 million, compared to $14.5 million in the same period last year. Pre-tax losses for fiscal 2003 increased to $51.2 million from $44.7 million in the year-ago period. For the year, higher R&D expenses associated with our discovery programs and product development were partially offset by increases in revenue and gross margin. Net cash use for Celera Diagnostics was $16.1 million in the fourth quarter of fiscal 2003 compared to $15.2 million in the prior year period. Net cash use for the fiscal [year] 2003 was $59.4 million, compared to $45.9 million in fiscal 2002. We expect losses and cash use to decrease going forward, as revenue increases should exceed growth in expenses.

Just over a year ago, we announced that we had started our first disease association study. Today, our genotyping and gene expression platforms are operating at high capacity and we have nine studies in various disease areas and phases. In support of these studies, we have gained access to over 30,000 patient samples, and we have completed over 40 million genotypes. Most importantly, we are beginning to make and replicate discoveries. In four of the studies currently underway, we have discovered new associations between disease and single nucleotide polymorphisms, or SNPs, in multiple genes. Celera Diagnostics and Celera Genomics are aggressively evaluating the diagnostic and therapeutic value of the novel markers and potential targets we have found, and we are discussing the findings with our collaborators and preparing patent submissions and product plans. We are looking forward to sharing more details about our discoveries and our product plans in the coming months.

We believe our approach to conducting these studies is more rigorous than other groups working in this area in terms of both their scale and scope. We typically power our studies with over 1,000 well-characterized case and control samples. We can economically complete whole genome scans, interrogating for functional SNPs in most known genes. Depending on how the study is designed, our capacity for analysis can exceed one million genotypes per day. We also believe our focus on functional SNPs — including more than 40,000 novel SNPs identified through the Applera Genomics Initiative — is likely to identify associations that impact the amount, stability and/or function of proteins — and thus have the greatest biological and medical value. Once we identify potential markers, we continue to perform studies with additional sample sets from other sources, with the goal of replicating our findings. We believe that by using a large number of samples from different sources for both discovery and replication, focusing on functional SNPs and interrogating wide sections of the genome, our studies should be robust enough to provide new and valuable insight into the genetic component of many diseases.

In closing, I will comment briefly on Celera Diagnostics’ goals for fiscal 2004. We intend to maintain our focus on the same strategic issues that drove us during 2003: we would like to see end-user sales of products manufactured by Celera Diagnostics double again in fiscal 2004, while advancing our disease association studies to gain both diagnostic and therapeutic value from their findings.

Achievement of our sales objective depends in part on growth in sales of new products introduced during fiscal 2003, such as hepatitis C ASRs and the IVD version of the ViroSeq system, as well as preparation for the implementation of the IVD Directive in Europe in December of 2003. The anticipated increase in revenues should begin to reduce both our net losses and our use of cash. We expect to reduce our fiscal 2004 net losses by approximately 20 percent compared to fiscal 2003, and to reduce our net cash use to a range of $46 to $52 million, compared to $59.4 million for fiscal 2003. We are assessing options for expanding manufacturing capacity, which may impact total cash requirements for fiscal 2004.

We are optimistic that the strong momentum we have established at Celera Diagnostics can be maintained during 2004.

Editor’s note: The CFO Q&A will resume on Sept. 4 with Genaissance CFO Ben Kaplan. SNPtech Reporter will not publish next week.


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