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Sales of New 'High-End' qPCR System Help Offset Flat Q3 Revenues for Life Tech's Molecular Bio Business

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By Ben Butkus

Life Technologies this week reported mixed third-quarter results for its PCR business, as a drop in year-over-year revenues for various H1N1 influenza testing products resulted in flat sales in the company's Molecular Biology Systems division, despite strong sales of its recently launched high-end real-time PCR platform.

In addition, Life Tech executives said that the new qPCR instrument platform, called the ViiA 7, is just one of several innovations planned over the next several months to overhaul its qPCR business, and that its recent acquisitions in the digital and high-throughput PCR space would play a large part in that overhaul.

For the third quarter ended Sept. 30, Molecular Biology Systems, the company's largest division by revenue, posted sales of $415 million on an adjusted basis, a 2 percent increase from a year ago. However, excluding the impact from currency and acquisitions, Q3 organic revenue for the division remained flat.

The company noted that while genomic assay products saw strong demand, PCR and molecular biology reagents sales "faced a difficult" year-over-year comparison due to strong H1N1 product sales in the same quarter last year. When not taking into account the H1N1 revenue dropoff, organic revenue for the division was 4 percent, Life Tech said.

The company's H1N1-related products include viral RNA isolation kits, qRT-PCR kits for viral RNA amplification, TaqMan influenza A detection kits, and the 7500 Fast and Fast Dx Real-Time PCR instruments. In 2008, the US Food and Drug Administration granted 510(k) clearance to the 7500 Fast Dx platform for use with the US Centers for Disease Control and Prevention's H5N1 flu panel.

Following that, in April 2009 the FDA issued an Emergency Use Authorization allowing clinical labs to use the CDC H1N1 flu panel in combination with the instrument, and in 2009 Life Tech sold about $45 million worth of instruments specifically for H1N1 testing. However, it also warned investors that this figure was expected to drop in 2010, and the flat Q3 2010 sales bear that prediction out.

However, helping to offset this decline were sales of Life Tech's new ViiA 7 real-time PCR system, of which the company placed more than 60 units in Q3. Life Tech unveiled the product in April of this year, calling it a higher end qPCR platform targeted at pharmaceutical or large academic laboratories, and saying that it was built from the ground up to be the first in line of a new generation of qPCR instruments (PCR Insider, 4/22/10).

The company has not publicly revealed a price for the ViiA 7, so how much revenue those placements generated is unclear. However, in a conference call this week discussing Life Tech's Q3 results, Chairman and CEO Greg Lucier noted that revenues for Molecular Biology Systems were buoyed in part by sales of the system. "Customer reaction to the ViiA 7 has been very positive, and this is the first of several innovations that will refresh our entire qPCR franchise," Lucier said.

In addition, in response to an investor's question during the conference call, Life Tech President and COO Mark Stevenson said that Life Tech is still seeing good growth in the qPCR market.

"It's really a breadth of portfolios," Stevenson said. "Now as we've introduced the ViiA 7, we have a refresh of the high end of our price points on the instrument side and all the way down to the lower price points." Stevenson also noted that Life Tech is "reinventing that game in terms of how we think about qPCR, both in terms of what you've seen us do in a couple of acquisitions in getting to higher throughput and also moving into the world of digital PCR, which we think is going to be really big going forward here."

The acquisitions to which Stevenson was referring include that of microfluidics firm Cytonix in July 2009; BioTrove in December; and Irish microfluidics startup Stokes Bio in April, all of which were designed to bolster Life Tech's technology and intellectual property in the qPCR and digital PCR space (PCR Insider, 7/8/10).

In other genomic assay and PCR news, Life Tech noted that during the quarter it also commercialized the AutoMate Express forensic DNA extractions system, which it says streamlines sample preparation and improves downstream DNA profile quality in forensics applications; and its MicroSEQ E. coli O157:H7 assay, which uses real-time PCR to detect the strain of E. coli most commonly implicated in food-borne illnesses.

The Big Picture

Overall, Life Tech reported revenues of $867.1 million for the third quarter, an 8 percent increase over the third quarter of 2009. On a non-GAAP basis, revenues increased to $868.7 million for the quarter, compared to $805.1 million in Q3 2009, beating analysts' consensus estimate of $856.5 million.

Life Tech said that organic revenues grew 6 percent year-over-year, and that excluding sales of H1N1 products and a large Japanese forensics order from a year ago, revenues grew 9 percent.

Lucier said during the conference call that these figures were "driven by strong demand for instruments and consumables across all customers and end markets," noting that 20 percent of the company's revenue is derived from instrument sales and 80 percent from high-margin consumables.

"The consumables portion of our portfolio provides stability and adds to the resilience of the company over time," Lucier said. "In addition, [with] specific investments we have refreshed certain aspects of our portfolio, such as PCR; and laid the groundwork for Life Technology to build leading positions in areas such as synthetic biology and genomic medicine."

For the quarter, Life Tech posted a profit of $105.5 million, or $0.56 per share, on a GAAP basis. On an adjusted basis, net income for the quarter was $164.9 million, or $0.87 per share, beating analysts' consensus estimate of $0.78 per share. In Q3 2009, Life Tech had net income of $41.1 million, $0.22 per share, on a GAAP basis, or $134.6 million, $0.73 per share on a non-GAAP basis.

Life Tech's Genetic Systems division recorded non-GAAP revenues of $227 million, a year-over-year increase of 12 percent, driven by growth in both its capillary electrophoresis business and next-generation sequencing sales. CE instruments and consumables grew 5 percent, driven by single-digit growth in consumables, and "high demand" for the 3500 Dx CE instrument.

Meantime, the company's next-gen sequencing business grew in the double-digits, driven by record sales of the SOLiD 4 system. Stevenson said during the conference call that "a lot of that traction" was in cancer applications where the emphasis is on accuracy.

Life Tech's third division, Cell Systems, posted a 15 percent spike in Q3 revenues to $221 million on a non-GAAP basis.

In other news, Lucier noted during the conference call that Life Tech's new Chief Medical Officer, Paul Billings, has officially joined the company, and provided some insight as to how Billings' addition fits into the company's long-term strategy.

"It's the first several moves you'll see from us … to continue to evolve the company to be not only very strong in research, but increasingly strong in medicine," Lucier said. "As I've said in the past, all of these molecular tools are getting pulled into the medical environment, and we have to get the company ready to become more hospital-oriented, more genomically medicine oriented, and this is the first of several announcements that you'll hear over the next year."