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Life Tech’s Mass-Spec Revenue Falls 12 Percent in Q2; Total Receipts Rise 2 Percent

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This story originally ran on July 29.

By Tony Fong

Life Technologies reported Tuesday that revenue for its mass-spectrometry business fell 12 percent to $129 million, excluding currency impacts — the steepest decline among the company’s four divisions.

Including currency effects, revenues slid 15 percent to $152 million.

The revenues for the year-ago period reflect receipts recorded when Life Tech unit Applied Biosystems was a stand-alone business before the merger closed in November 2008. ABI still runs the business as a joint-venture with MDS.

Life Tech’s mass spec division contributed $14.5 million in other income during the second quarter, Life Tech said.

Revenue included $6.8 million associated with mass-spec consumables on discontinued mass spec systems.

Of the four divisions that make up the company, the decline in the mass spec division was the steepest. By comparison, Molecular Biology Systems’ revenues grew 3 percent year over year to $399 million; Genetic Systems’ increased 5.5 percent to $233 million; and Cell Systems’ shrank 2 percent to $201 million.

Total instrument sales grew in the mid-teens during the quarter, according to Greg Lucier, CEO of Life Tech, partly due to sales of systems related to the swine flu outbreak during the spring. The firm recorded revenues of $15 million for H1N1-related products during the quarter.

Company officials shed little light on the mass spec business during a conference call accompanying the earnings release, but attributed the drop-off to a relatively brighter year-ago period.

"Recall Q2 2008 was a high-volume quarter for mass spec and therefore created a difficult comparison period," said David Hoffmeister, chief financial officer of Life Tech. He added that the end markets for the division "appear to be stabilizing, [and] in fact we saw good growth outside the United States, especially in Europe and China."

Return to Form

The results were not unexpected since MDS reported a 26-percent decline year over year in its Analytical Technologies division, which houses its mass-spec business for its fiscal second-quarter last month. Its mass spec end-user revenue fell 11 percent compared to a year ago [see PM 06/11/09].

For Life Tech, though, the results were yet again a dark spot for a business that has been generally lumpy during the last two years. In April, reporting its first-quarter results, the company said mass-spec receipts were down 5 percent from the year-ago period, and down 1 percent organically.

However, despite the decline, at the time company officials said the results exceeded expectations, and Lucier called it "a very good quarter for our mass-spec business." [see PM 04/30/09]

But before then, ABI had a stretch of six consecutive quarters when its mass-spec sales either decreased or were flat.

And last quarter, company officials also suggested that going forward, 2009 could remain a challenge for its mass specs, forecasting that the business would either remain flat or contract 10 percent year over year. Life Tech officials reiterated that projection this week.

For the first six months of the year, mass-spec revenue were down 6.8 percent organically, Hoffmeister said this week, and added that the impact from National Institutes of Health stimulus funds on that business is expected to be "modest" during the fourth quarter of 2009 as full benefits may not be felt until 2010.

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As MDS struggles to deal with its own issues, a swirl of uncertainty continues to surround the mass-spec joint venture and its effect on Life Tech. In February, facing a slumping stock price and possible shareholder revolt, the Canadian company created a special committee to explore ways to raise shareholder value.

In the past, Life Tech officials have expressed support for MDS tinged with a degree of uncertainty about where it is heading, though no mention was made of the joint venture this week.

At last month's annual conference of the American Society for Mass Spectrometry, Laura Lauman, president of Life Tech's Mass Spec division, said that the state of flux at MDS has no effect on ABI's R&D for the instruments. But it may be telling that Lucier this week said that moving ahead, R&D investments will focus on areas that "will drive even further growth" for the company. While he specifically cited "acceleration of our sequencing roadmap [and] a ramping up of our synthetic biology tool set to support biofuels research" as areas of interest, he made no mention of mass specs.

In a research note earlier this month, Isaac Ro, an analyst at investment firm Leerink Swann, also sounded a doubtful note, saying, "We think the future of the Life/MDS JV is uncertain."

Money Stream

For the second quarter, Life Tech said revenues rose 2 percent to $839 million from $822 million in Q2 2008. The $822 million is a non-GAAP figure that treats Invitrogen and ABI as if operated as one company a year ago.

Excluding revenues from the mass spec joint venture, organic revenue grew 6 percent in both the Americas and Europe. Asia Pacific increased 30 percent, and Japan was up 1 percent.

Company wide, consumables and services grew in the mid-single digits, Lucier said.

Non-GAAP operating income for the quarter was $228 million, up 20 percent from $190 million a year ago. The company did not report a net income figure treating Invitrogen and ABI as one company in the year ago period.

On a GAAP basis, though, Life Tech reported net income of $39 million on Tuesday. During the year-ago period, Invitrogen posted $47 million in net income and ABI reported a profit of $86.4 million for the comparable year-ago quarter.

R&D spending was $81 million, down about 5 percent year over year on a non-GAAP basis. SG&A spending shrank also by about 5 percent to $251 million.

As of June 30, Life Tech said it had $582 million in cash and short-term investments.

On Tuesday, the company also said that it had repaid $200 million of its Secured Term Loan B. The debt is priced at LIBOR plus 300 basis points with a LIBOR floor of 300 basis points and has a remaining balance of about $800 million.

The company also raised its synergy realization target for the year, saying it now expects $95 million in synergies for 2009, up from an earlier guidance of $80 million as "we executed so effectively on our original target [that] we were able to accelerate a number of actions that we had originally planned for 2010," Lucier said.

The firm raised its revenue forecast for full-year 2009 to increase in the mid-single digits, "including a small impact from NIH stimulus funds." Last quarter, Life Tech forecast organic revs to be up in the low single-digits.

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