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Life Science Sales Boost Bio-Rad Q1 Revenues; Firm Details Droplet-based Sequencing Tech Investment

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NEW YORK (GenomeWeb) — Bio-Rad this week reported a net sales increase of 3 percent in its Life Science segment in the first quarter versus the same period last year. Amounting to nearly 5 percent on a currency-neutral basis, the increase was due in part to increased sales of Droplet Digital PCR products.

In a conference call recapping Q1 earnings, representatives from the company discussed ddPCR sales, the recent acquisition of sequencing company GnuBio, and how that company's technology is expected to mesh with Bio-Rad's ddPCR technology and expertise.

During the call, Bio-Rad CFO Christine Tsingos called GnuBio's platform "an exciting new droplet-based technology for targeted sequencing in the clinical diagnostics market.

"GnuBio has developed an innovative desktop platform that incorporates all of the functions of DNA sequencing into a single integrated workflow," Tsingos said. "This new technology will leverage the tremendous knowledge base we are growing in droplet digital PCR.

"While it will likely take a few years to bring this product to market, we are excited about the prospects for this potentially game-changing technology," she added.

In a statement, CEO Norman Schwartz noted that "investments in acquired technologies and in systems will continue to moderate our profitability in the near term but should yield significant benefit to the company in the future."

During the call Tsingos also disclosed terms of the GnuBio acquisition, including a payment of $40 million at the April 10 closing date, and contingent consideration for a potential incremental $70 million related to development and sales milestones over the next three years.

The acquisition required Bio-Rad to modify its base business guidance laid out in Q4 of last year. At that time, it anticipated currency-neutral organic top-line growth of around 2.5 percent, full year gross margins in the 55 percent range, and an operating margin of 9 percent, reflecting continued investment in new technologies and systems, Tsingos said.

She added that Bio-Rad must now include the impact of the GnuBio acquisition to this base guidance, as the company will be investing heavily over the next few quarters to bring this technology to the diagnostic market.

"As such, we estimate an incremental spend in research and development of approximately $5 million per quarter, which will be recorded in our clinical diagnostics segment," Tsingos said. "With the inclusion of GnuBio in mind, we now estimate the 2014 full year operating margin to be somewhat lower, in the 8 percent range."

As reported last month in In Sequence, GnuBio's sequencing technology will be integrated into Bio-Rad's Digital Biology Center, which was seeded with ddPCR technology acquired along with QuantaLife in 2011.

In the conference call, Brad Crutchfield, president of Bio-Rad's Life Science group, said the company now has "a tremendous amount of capability in droplets." The GnuBio technology uses a picoinjector to inject into droplets. "What that really allows … is a lot more flexibility and a lot more multiplexing," Crutchfield said.

"Specifically it going to allow us to barcode droplets, and then … interrogate genes and sequences," Crutchfield said. He emphasized that this is not a discovery platform, but rather a targeted approach to sequencing for use in a clinical setting. The platform also uses "a standard hybridization chemistry versus single-base sequencing," he said.

"The great upside for us is we will integrate this into a single workflow, where you start with genomic DNA and you get an answer," Crutchfield said. "We're very excited about it. There's a lot of work to do to get that cartridge bullet-proof, and then obviously the regulatory parts of that as well. Certainly [it is] something we wish to do within two years," he said.

Bio-Rad's Life Science segment recorded net sales of $161.5 million in Q1 compared to $156.3 million in the year-ago period.

Tsingos said during the call that Life Science sales were particularly strong in Europe, China, and Latin America, growth that was partially offset by continued slowness in the US academic research market as well as the government austerity program in Japan. Tsingos also said that the Life Science growth margin improved more that 150 basis points compared to last year, and this was the result of "a shift in product mix towards higher margin instruments and consumables, as well as a decrease in royalty expense."

Overall, Bio-Rad's Q1 revenues increased 2 percent to $509.3 million from $499.7 million in the year-ago period. A full recap of Bio-Rad's earnings can be found here.

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