Bio-Rad this week reported a 4 percent drop in second-quarter revenues for its Life Sciences segment, which includes its traditional endpoint and real-time PCR products as well as its digital PCR products acquired last year along with QuantaLife.
The company recorded a profit of $48.3 million, or $1.69 per share, in Q2 2012 compared to a profit of $40 million, or $1.41 per share in the year-ago period.
However, Bio-Rad also logged a one-time benefit of $8.1 million in the form of a consideration adjustment associated with its acquisition of QuantaLife, primarily due to slower-than-expected sales of QuantaLife's digital PCR products. Excluding this benefit and a reversal of bad debt reserves of $5 million, company executives noted that the estimated earnings per share in the quarter were $1.26.
"The current quarter [selling, general and administrative expense] included two significant one-time items that have the effect of lowering the reported expense and margins," CFO Christine Tsingos said during a conference call this week recapping the Q2 results.
"The first item relates to the purchase consideration for QuantaLife. A portion of the consideration was in the form of an earn-out that is tied to sales goals," Tsingos added. "We are required to review the valuation of the purchase consideration for the earn-out every quarter, and with sales running behind stated goals, we reduced the value by $8.1 million, which is booked to SG&A."
Bio-Rad acquired QuantaLife in October for $162 million primarily for its digital PCR platform, now called the QX100 Droplet Digital PCR system (PCR Insider, 10/6/2011). The system partitions nucleic acid samples into 20,000 or more individual nanoliter-scale droplets that can then be amplified and interrogated using qPCR for applications such as mutation analysis, rare event detection, copy number variation detection, and single-cell gene expression analysis.
In the first quarter of this year, Bio-Rad booked $1.7 million in revenues from QuantaLife products and predicted that the digital PCR business would likely generate $20 million in sales for full-year 2012, with the lion's share in the latter half of the year.
This week, the company said that digital PCR products contributed $2.3 million to overall revenues of $510.4 million, which was a 2 percent drop over the year-ago period. However, Tsingos noted during the call that excluding currency effects and the addition of QuantaLife, organic sales growth was 2.6 percent.
The Life Science segment reported Q2 sales of $162.4 million compared to $169.9 million in Q2 2011. On a currency-neutral basis, sales were down just under 1 percent, Tsingos said.
"The decline in our core life science business reflects the continued sluggishness in the European market as well as tough comparison to the second quarter of 2011, especially in North America, where life sciences posted 10 percent top-line growth in the year-ago period," she added.
Despite the slower-than-expected sales of digital PCR products and the need to reevaluate the QuantaLife deal to take those slower sales into consideration, executives remained upbeat about the market for digital PCR and the QX100's place in it.
"The global pipeline for our new digital PCR products is sizeable, and seems to indicate an acceleration of growth over the next several quarters," Tsingos said. "The sales ramp is a little slower than originally anticipated, and part of that is it’s a new technology, and part of it is the budget dollars required, so it's a longer sales cycle."
Brad Crutchfield, Bio-Rad's vice president and group manager for life sciences, added during the call that the company "sees commercial success with this product, we see an interest. It's certainly taking a little bit longer given this financial situation or budget situation, so it's more of a lag in sales. Overall, fundamentally, these products are being accepted, papers are being published, and there are things people are doing with them that they couldn't do before, so we're quite happy."
Tsingos warned that the valuation exercise from the QuantaLife purchase was tied to specific goals over eight individual quarters following the acquisition, and as such "every quarter we're going to need to review the contingent consideration on the QuantaLife valuation, and certainly if sales start to ramp rapidly, that could go the other way, and could end up being an expense that we add rather than a reduction in expense."
Bio-Rad did not break out sales figures for other products in its Life Sciences segment, although Crutchfield commented on the company's traditional endpoint PCR business in response to an analyst's question about its health, given that competitors have seen weakness in this area.
"The issue is that … our [endpoint PCR] market share is quite strong, but we're seeing a shift to lower priced models," he said. "Obviously that puts pressure on the top line. We were fortunate that we had responded with good designs in these ranges, but certainly it's impacting the top line."
Clinical Diagnostics, Bio-Rad's other business segment, logged a 1 percent year-over-year decline in sales to $344 million. On a currency-neutral basis sales were up 5 percent in that division, the company said.