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Battling qPCR Royalty Decline, Life Tech Reports 2 Percent Uptick in Q4 Genetic Analysis Revenues

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Life Technologies this week reported a 2 percent increase in fourth-quarter revenues amid flat full-year revenues for its Genetic Analysis business unit, which includes the company's PCR and CE research instruments, sequencing products, and associated consumables.

The company said that growth in the Genetic Analysis unit was driven primarily by its Ion Torrent sequencing products, overcoming an expected decline in its SOLiD sequencing product line and in qPCR royalty payments.

During a conference call this week, executives from the company recapped earnings for these and other business units, and provided investors with an update on various business matters, including its efforts to continue growing its qPCR-based product portfolio.

"During the quarter, we continued to execute on our development pipeline with two … introductions in our leading qPCR business," CEO Greg Lucier said during the call.

First, Lucier highlighted the company's launch of the QuantStudio 3D at November's American Society of Human Genetics conference in San Francisco. QuantStudio 3D is a scalable, chip-based digital PCR system designed to offer a simple workflow with minimal hands-on time (PCR Insider, 11/8/2012).

"This benchtop platform is disruptively priced at $30,000, enabling access to a broad community, and will compete in a global market that is expected to grow to $250 million by 2016," Lucier said during the call this week.

In Q4 Life Tech also launched its QuantStudio Dx real-time PCR instrument with CE-IVD marking for use in Europe. The QuantStudio Dx is essentially an in vitro diagnostic version of Life Tech's QuantStudio 12K Flex instrument, which the company launched for research use only in October 2011.

Upon the launch of the QuantStudio Dx, Life Tech said it was introducing for use on the platform a CE-marked assay for Clostridium difficile, developed with partner Quidel, and said that the companies plan to introduce assays for several other infectious diseases in 2013.

QuantStudio Dx represents "a significant extension of Life's product offerings in the diagnostics arena," Lucier said this week. "Molecular testing is the fastest-growing segment of the diagnostics market, and QuantStudio has unique features to meet the needs of this market, including pathogen detection, gene detection, gene expression analysis, SNP genotyping, microRNA, and high-resolution melt analysis.

Lucier added that through its partnership with Quidel and others, Life Tech plans to launch a menu of infectious disease and oncology tests that will be CE-IVD marked for the European and Asian markets throughout the coming year. Lucier did not provide further detail on the company's other partners for test menu development.

"Bringing a high-value menu to … platforms such as QuantStudio Dx allows us to further penetrate the clinical markets outside the US and begin the democratization of our platforms," Lucier said.

Revenue for the Genetic Analysis unit increased 2 percent to $401 million for the fourth quarter compared to the prior year. Excluding currency, revenue increased by 4 percent in Q4. Full-year revenue for Genetic Analysis was flat at approximately $1.5 billion. Excluding the impact from currency, revenue grew 1 percent.

"Revenue growth for the quarter and the full year was primarily due to substantial growth in our Ion Torrent business, with continued strong demand for the PGM and the Ion Proton systems," CFO David Hoffmeister said during the call. "Offsetting some of this revenue growth was the expected headwind from the decline in SOLiD instrument sales and qPCR royalty payments."

Life Tech has been battling declining qPCR royalty payments for the better part of two years but has made efforts to stem this decline by seeking new ways to outlicense its IP in this area.

"While we had expected an approximate $10 million decline in qPCR royalties in the fourth quarter, we were able to partially offset those declines with additional royalty licensing programs," Hoffmeister said. "For the full year, our qPCR royalty decline was about $20 million — $10 million less than the $30 million we had anticipated at the beginning of the year."

Life Tech has not specifically disclosed the nature of its new qPCR licensing programs.

Hoffmeister noted during the call that the company expects qPCR royalties to decline by around $15 million in 2013.

In other Life Tech business units, revenues for the company's Applied Markets unit increased 8 percent to $190 million for the fourth quarter compared to the prior year. Excluding currency, Applied Sciences grew 10 percent in Q4.

This unit includes, but is not limited to, qPCR-based products for forensics, food safety testing, and bioproduction, among other markets, and Life Tech noted that the increase in Q4 revenues was driven primarily by increased sales in bioproduction.

For the full year, Applied Sciences revenue grew 7 percent to $719 million, or 8 percent excluding currency, primarily due to growth in forensics and bioproduction.

Meantime, the company's Research Consumables revenue increased 2 percent to $409 million, or 4 percent excluding currency effects, in Q4. Full-year revenue increased 1 percent to $1.6 billion, or 2 percent excluding currency effects. Revenue growth in the quarter and full year were driven by growth in cell culture products, sample prep products, and benchtop instruments, Life Tech said.

Overall, Life Tech reported revenues of $998.9 million for the three months ended Dec. 31, compared to $1.01 billion in the year-ago period — a 1 percent decline on a GAAP basis. On a non-GAAP basis, Q4 revenues rose 3 percent from $970.3 million. Excluding currency effects, the company's Q4 revenues were up 4.5 percent.

For full-year 2012, Life Tech reported revenues of $3.80 billion, up 1 percent from $3.76 billion in 2011. On a non-GAAP basis its revenues were $3.8 billion versus $3.7 billion the previous year.

For 2013, Life Tech said that it expects revenue growth of between 3 percent and 5 percent excluding the effects of currency translation. It noted that if sequestration cuts are implemented in the US, that would reduce its revenue by around 1 percent and would place the firm at the low end of its guidance range. The company also said it expects first-quarter revenues of between $950 million and $965 million, assuming sequestration may be implemented on March 1.

In response to an analyst's query during the call, Lucier declined to provide additional detail on revenue guidance for its Genetic Analysis and Applied Markets business units in 2013.

However, he noted that in Genetic Analysis, "the CE business … will continue to be flattish … but on a fairly large franchise we think that's pretty good, given that more and more customers on the diagnostics side see that as the gold standard for confirming next-generation results. So [we see] continued resiliency of that business … staying in place through 2013."

On the Applied Markets side, Lucier said that the company expects to have "another good year for our bioproduction business. It's a very well-run organization with a very good management team. And then our forensics business and farm-to-fork [testing] are going to have, we think, record years, particularly … food safety, where we'll grow at very high double digits again this year. We see these franchises as being areas we want to invest in … not only in organic development, but acquisitions. And I think that's where you'll see more of our tuck-ins take place."

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