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Life Tech Temporarily Stems qPCR Royalty Decline in Q3

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Life Technologies last week reported a 1 percent decrease in revenues for its Genetic Analysis unit and flat sales in its Applied Sciences unit in the third quarter, contributing to a 2 percent decline in overall company revenues year over year.

Life Tech also said that its qPCR royalties, which contribute to its Genetic Analysis business, did not decline as much as previously expected in the third quarter due to new licensing programs, but that this effect would likely not linger through the next quarter.

For the third quarter ended Sept. 30, Life Tech's Genetic Analysis unit – which includes the company's PCR and CE research instruments, associated consumables, and sequencing products – logged revenues of $353 million, a decrease of 1 percent compared to the year-ago period.

However, excluding foreign currency effects, genetic analysis revenues increased 2 percent, primarily as a result of increased sales of Ion Torrent sequencing products, which were offset by an expected decline in SOLiD instrument sales and lower sales of CE instruments.

The company did not detail the performance of its PCR-related products, but during a conference call last week discussing the company's financial results, CEO Greg Lucier noted that "we had expected qPCR royalties to decline by approximately $7 million to $8 million year over year," but that the actual decrease was about $3 million, "as our team was able to offset declines with additional royalty licensing programs."

Life Tech has reported an expected decline in qPCR royalties over the last several quarters, although in the past year it has made some efforts to shore up these royalties by looking for new ways to license its IP in this area.

During last week's call, CFO David Hoffmeister noted in response to an analyst's question that the company expects the qPCR royalty roll-off to resume as expected, saying that the firm expected royalties to decline by about $10 million in the fourth quarter compared to the prior-year period.

Further discussing the performance of Life Tech's Genetic Analysis business, Lucier said during the conference call that the "real driver of growth" in the business will be the company's Ion Proton sequencer.

"The rest of the GA portfolio, you'll see, we think, continued stability in our qPCR franchise, which we're the leader in and continue to innovate in." Lucier specifically noted the company's release of new products, including the QuantStudio 12K Flex instrument, at last year's American Society for Human Genetics conference (PCR Insider, 10/13/2011); and hinted that the company would unveil further qPCR innovations at this year's ASHG meeting, being held later this week in San Francisco.

Wrapping up the Genetic Analysis unit recap, Lucier noted that the company "continues to see, in the research side, modest decline in the CE part, offset by the continued use of CE in validation of clinical samples."

Also in Q3, Life Tech's Applied Sciences unit reported revenue of $174 million, flat compared to the same quarter last year. Excluding currency, however, Applied Sciences revenue grew 3 percent, driven primarily by higher forensic kit sales and qPCR instruments for applied markets.

In other business segment news, Life Tech's Research Consumables revenue was $384 million in Q3, a decrease of 3 percent compared to the prior year. Excluding the impact from currency, revenue for the RC group grew 1 percent, primarily as a result of growth in cell culture products, sample prep products, and benchtop instruments.

Life Tech's overall third-quarter revenues totaled $911.2 million, down from $928.2 million a year ago, but above the average analyst estimate of $908.5 million. Excluding currency effects, revenues rose a little more than 1 percent year over year.

Life Tech's R&D costs in Q3 decreased 18 percent to $84.8 million from $103.9 million, while its SG&A costs increased 7 percent to $270.6 million from $251.8 million.

The company's net income for the quarter was $65.6 million, or $.36 per share, compared to $96.0 million, or $.52 per share, a year ago. On an adjusted basis, EPS was $.92, beating the average Wall Street estimate of $.89.

The results include $48.6 million in damages from a jury verdict announced on Thursday against Life Tech related to a lawsuit filed by Enzo Biochem and Yale University in 2004 pertaining to the sale of CE sequencing products during 1998 to 2004. Life Tech said it plans to appeal the decision.

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