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Life Tech's Molecular Bio Revenues Drop in Q4, FY2011 as qPCR Royalties Decline

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By Ben Butkus

Life Technologies this week reported that revenues from its Molecular Biology Systems division slid 2 percent in both the fourth quarter and full-year 2011, excluding foreign currency impact, amid company-wide revenue growth of 8 percent and 5 percent for Q4 and FY2011, respectively.

The lackluster MBS division revenues were due primarily to an expected decrease in qPCR royalties and continuing difficulties in government and academic markets, company executives said.

In addition, executives said they expected a $30 million decrease in qPCR royalties in 2012, part of an approximately $130 million "headwind" that Life Tech will need to overcome as it looks to achieve company-wide organic revenue growth of 2 percent to 4 percent this year.

However, despite the financial hit that Life Tech continues to take from decreasing qPCR royalties, company executives remained optimistic that 2012 would represent the final year of highly impactful qPCR royalty roll-offs, and noted that the company has begun to refresh its qPCR business with the recent launch of next-generation platforms.

Life Tech CFO David Hoffmeister and Chairman and CEO Greg Lucier discussed these business items, among others, during a conference call this week following release of the company's Q4 and FY2011 financial results.

For the fourth quarter ended Dec. 31, MBS, the company's largest division by revenue and home to the bulk of Life Tech's qPCR-related research products, logged revenues of $441 million, a 1 percent decrease from Q4 2011 when including foreign currency impacts, and a 2 percent decrease excluding these effects.

For the full year, MBS revenue growth was flat, and excluding currency it was down approximately 2 percent.

"For both the quarter and the full year, the decline in revenue was due to the expected decrease in qPCR royalty payments and the continued lower spending by government and academic customers," Hoffmeister said during the call. "To better understand the underlying results in this division, it might help you to know that the decline in qPCR royalties was a 1 percent headwind in both periods," Hoffmeister told analysts.

Life Tech has been battling a decline in PCR licensing royalties that it had expected since it was formed out of the merger of Invitrogen and acquired Applied Biosystems in 2008. In January 2010, Lucier noted that the company had developed new licensing strategies and put in place a new licensing team, which in 2009 helped the company generate around $10 million more in qPCR licensing revenue than originally expected that year (PCR Insider, 1/14/2010).

Similarly, in February 2011 the company reported that in 2010 MBS saw a 14 percent overall increase in royalty revenue due to the efforts of this new licensing strategy, which helped to drive 6 percent overall revenue growth in the division that year. At that time, however, the company also warned analysts that it expected overall MBS royalty revenue in 2011 to decline by $20 million as key patents expired throughout the year (PCR Insider, 2/10/11).

It appears that the company faces more of the same in 2012, although it remains cautiously optimistic that royalty revenues in subsequent years will show signs of recovery.

During the call this week, Hoffmeister said that Life Tech expects full-year company-wide organic revenue growth in 2012 to range between 2 percent and 4 percent, with most of this growth expected to be weighted to the back half of the year.

However, he added that "growth for [2012] includes overcoming approximately $130 million in headwinds made up of the following components: We're estimating a $30 million reduction in qPCR royalties, a $40 million reduction in US stimulus-related sales as those grants end, and a $60 million reduction of sales of 5500 [SOLiD sequencing] instruments as we continue to ramp up sales of Ion Torrent semiconductor sequencing products."

Later in the call, in response to an analyst request for more detail around the qPCR royalty decline in 2012 and beyond, Lucier noted that the company "had to overcome pretty substantial PCR royalties expiring over the last few years," but that 2012 is "really the last big year of the drop-off. And so what we face in 2013 is very manageable, much smaller. I think that removes a substantial headwind as we move through 2012."

Life Tech President and COO Mark Stevenson added that Life Tech "continues to see good strength in our assays business and the consumables pulling through" from a large installed base of qPCR instruments. Further, Stevenson noted that as Life Tech enters 2012, "we will see a refreshment [of] the higher end of our qPCR [platforms]. We launched the QuantStudio [12K Flex] and [will] start shipments in this first quarter. So we're excited about that getting traction in the high-throughput range."

Life Tech launched the QuantStudio 12K Flex in October, and is marketing the product as an all-in-one platform that will allow users to perform both low- and high-throughput quantitative and digital PCR on the same sample using the same software interface (PCR Insider, 10/13/2011).

Bottom Line

In other divisional results, Life Tech's Genetic Systems division, which includes its sequencing, capillary electrophoresis, and forensics products, among others, logged Q4 revenues of $278 million, a 13 percent increase over the same period last year. Excluding currency impacts, GS revenue increased 11 percent.

For the full year, Genetic Systems grew 8 percent with foreign currency effects and 7 percent without.

"Throughout the quarter and the full year, Ion Torrent continued to contribute to the growth in this division, driven by strong sequential sales of the PGM and associated products, which were partially offset by reduced sales of SOLiD products," Hoffmeister said. "We also continued to see good growth in our forensics business and low single-digit growth in our CE business overall."

The company's Cell Systems division revenues increased 3 percent to $244 million in Q4, or 1 percent excluding currency effects, driven by cell culture product sales and improved sales in the BioProduction business. Cell Systems reported full-year revenues of $969 million, up 7 percent over 2010, or 6 percent excluding currency effects.

Overall, Life Tech posted $1.01 billion in revenues in Q4, representing an 8 percent increase in the $932.3 million it reported in Q4 2010 and beating Wall Street estimates of $967.7 million. For full-year 2011 Life Tech revenues increased to $3.78 billion, up 5 percent from $3.59 billion in 2010 and beating Wall Street estimates of $3.74 billion.

Finally, Life Tech reported that beginning with first-quarter 2012 financial results, the company plans to make changes in its revenue reporting "to better align with some recent modifications we've made in our internal organization as well as the end markets we serve," Hoffmeister said. "These changes have no impact on our results of operations, financial condition or cash flows."

Life Tech currently reports its revenue under the three divisions of Molecular Biology Systems, Genetic Systems, and Cell Systems. However, it is reorganizing into three new business groups to be named Research Consumables, Genetic Analysis, and Applied Sciences.

Providing additional color on these changes, Lucier said during the call that the new groups are "better matched with how the business has evolved internally, and I think it also is a better match with our markets."

For example, Lucier said that Applied Sciences will contain businesses such as forensics and bioproduction "that are not research-focused, so that investors can see the results better tied to the end use markets."

"The other change that we're making is in Genetic Analysis where we're grouping all of the instruments … and associated consumables into that," Lucier added. "I think the internal organization has evolved to those kind of groupings and that this just better matches up the way we're looking at the business internally and from a market perspective with the way we're talking about it to investors."


Have topics you'd like to see covered in PCR Insider? Contact the editor at bbutkus [at] genomeweb [.] com.

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