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Applera Annual Report Sheds Light on Details of CDS, Knowledge Business

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When BioInform bit into the Apple(ra) 2002 annual report, which the company filed last week, some juicy details — and a few hard-to-chew seeds — emerged about the company’s Applied Biosystems Knowledge Business and other informatics-related operations.

The Knowledge Business, which combines the Celera Discovery System with ABI’s assays-on-demand, assays-by-design, forensics, and other reagent businesses, also shifts the responsibility for future sales, marketing, and renewals of CDS to the Applied Biosystems arm of Applera.

The report provided high-resolution detail on how this knowledge business and Celera will interact financially: As Applied Biosystems became the exclusive distributor of CDS on July 1, it will pay royalties to Celera Genomics for revenues that it generates between this date and the end of fiscal 2012. This royalty rate is to be structured like a hill, climbing up to a maximum of five percent through 2008, then being fixed in fiscal 2009, and declining yearly from fiscal 2010 through fiscal 2012. The royalties will include the assays, reagents, and database subscriptions.

However, the report said, Celera Genomics will still be responsible for meeting the obligations of contracts that it entered into before June 30 of this year for CDS and other “information products and services,” including renewals of contracts. These obligations will include updating the human and mouse assemblies, and the annotations for them.

Additionally, ABI will reimburse Celera if Celera’s total earnings related to the contracts for information products and services over the next four years total less than $62.5 million, and if this shortfall results from ABI’s own business activities.

What about so-called reach-through royalties? While Celera could receive milestone payments and royalties from customers who develop drugs or other products using CDS, “Celera Genomics group believes these arrangements are unlikely to produce any significant revenue from the group,” the report said.

On the upside, the careful sketch of the company’s financial latticework included the detail that Celera’s “Online/Information Business” contributed to narrowed net losses in fiscal 2002. The company is expecting nonetheless that development costs for the knowledge business will contribute to higher R&D costs for the first two quarters of its 2003 fiscal year (the months from July through December).

Additionally, the report laid out the continuing damage from Celera’s Paracel acquisition in 2000. The company recorded a $25.9 million charge related to Paracel during fiscal 2002, in addition to the $69.1 million charge it recorded in 2001. These additional charges included $12.7 million for asset impairments, $10.1 million for the cost of excess lease space, and $200,000 for severance costs.

The lease-related costs derive from the fact that the company leased space for Paracel through fiscal 2011, and had not yet recovered this cost with a sublease. The severance costs derived from the termination of 19 Paracel employees in fiscal 2002.

The company also incurred $700,000 in severance costs associated with the restructuring of Celera and layoff of 132 people in June, according to its report.

The full text of the report is available on Applera’s website at www.applera.com/invest/annualreports.html.

— MMJ

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