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ABI Blames Soft Pharma Market for Weak Mass-Spec Sales in Fiscal Q3

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Applied Biosystems continued to see a slowdown in the sales of its mass spectrometers, saying last week that weak pharmaceutical demand caused sales of the instruments to rise less than 1 percent during its fiscal third quarter.
 
For the three months ended March 31, ABI’s mass-spec sales rose .94 percent to $128.5 million from $127.3 million during the year-ago period. By comparison, a year ago, ABI’s mass-spec business grew 12 percent. The flat results marked the sixth consecutive quarter in which growth in ABI’s mass-spec business either contracted or leveled off. (See accompanying table below for details)
 
For the first nine months of its current fiscal year, ABI said mass-spec sales rose 2 percent, compared to a 15-percent jump in the comparable period from a year ago.
 
“We fully recognize the need to reignite growth in this category,” Mark Stevenson, president and COO of ABI, said during a conference call accompanying the earning report.
 
Companywide, ABI posted receipts of $552.6 million for the quarter, up 4.3 percent from $529.9 million from a year ago. Foreign currency had a favorable impact of 4 percent compared to a year ago. Profits rose 9.8 percent to $82.9 million during the quarter from $75.5 million a year ago.
 
In prepared remarks during a conference call accompanying its earnings release, company officials said that while ABI’s overall instrument business had been hurt by a soft pharmaceutical environment, the company will need to take greater initiative on developing its mass spec-based technology to boost that part of its business.
 
For the past several quarters, company officials have warned that a tougher competitive environment as well as difficult year-over-year comparisons would result in a slower growth rate in its mass-spec business. For four quarters in a row, starting with its fiscal fourth quarter of 2006, ended June 30 of that year, through its fiscal third quarter of 2007, ended March 31 of that year, mass-spec sales grew in the double digits.
 
But Tony White, CEO of ABI parent company Applera, said the extent of the current mass-spec slowdown took the company for a loop.
 
“We were, I think, quite surprised … at how the weakness developed in the last few weeks of the quarter in that business,” he said. “And while I’d like to think it’s a temporary development, I don’t have any evidence.”
 
While ABI is still recognized as the market leader in mass-spec sales, particularly in the high-end market, competitors such as Thermo Fisher Scientific, Waters, and Agilent have aggressively pushed new tools and instruments into the space, while ABI has put much of its R&D muscle behind its genome-sequencing business, in particular its SOLiD next-generation sequencing platform.
 
This week, however, Stevenson said that ABI has not been sitting on its hands in the mass-spec space. The company, he said, recently released software packages to “improve ease-of-use and productivity” for mass-spec based researchers, particularly in the applied markets. Earlier this year, the company introduced Cliquid Drug Screen and Quant Software for forensic toxicology.
 

“We were, I think, quite surprised … at how the weakness developed in the last few weeks of the quarter in [the mass-spec] business. And while I’d like to think it’s a temporary development, I don’t have any evidence.”

In proteomics, ABI put out a new version of ProteinPilot software a year ago along with a new version of the 4800 MALDI TOF/TOF co-developed with MDS. Other recent proteomics-focused launches include the 8-plex iTRAQ labeling chemistry reagent in February [See PM 02/07/08], and three new services for mass-spec users in the fall [See PM 09/13/07].
  
Without elaborating, Stevenson said that ABI remains committed to further building its mass spec-instrument portfolio.
 
“We are focused on providing the required combination of new platforms, new software, and new workflows for the high-growth markets we are in,” he said. He and other company officials participating on the conference call declined to comment when an analyst asked about plans for new product launchings during the upcoming American Society for Mass Spectrometry conference.
 
Three months ago, ABI officials said the company was most vulnerable to competition in the low- to mid-range end of the mass spec market, but remained virile in the high-end [See PM 01/31/08]. They repeated those sentiments last week.
 
There still is “strong competition in the low end of the market, but that’s been ongoing quarter to quarter,” said Laura Lauman, president of ABI’s proteomics and small-molecule division.
 
Its high-end instruments, such as the QTRAP and triple-quadrupoles, performed well, particularly in the applied markets, Stevenson said, without elaborating.
 
Pharma Question Mark
 
During its conference call, ABI officials were quick to point to the slowing demand among pharma companies. “By and large, the business was really affected by the pharma slowdown in spending and, really, delays in funding,” Lauman said, though the shift to contract research organizations, where ABI has a “broad footprint and strong market position,” according to Stevenson, helped offset its pharma results.
 
The pharma market in Japan, Europe, and the US were particularly weak, ABI officials said. While its competitor Waters — who earlier also reported weak pharmaceutical business during the same period — said that it had already begun seeing a slow turnaround in its pharma business and expected greater capital outlays by pharma throughout the year, ABI officials were more cautious in their outlook.
 
“Right now, the pharma accounts are signaling delays. There are a few that have actually said there’s a loss in funding,” Lauman said. “I think it’s too uncertain right now to say … what’s going to happen …The pharmaceutical companies will start to purchase again, but the timing of that right now is unclear.”
 
ABI’s instruments business rose 1 percent for the quarter to $214.4 million while its consumables rose 7 percent to $237.3 million. Other sources of revenue, including services and support, royalties, licenses, and consulting, increased 8 percent to $100.9 million.
 
By product line, real-time PCR/applied genomics rose 9.6 percent to $200.9 million; core PCR and DNA synthesis rose 5.5 percent to $49.5 million year-over-year; DNA sequencing inched up 4.1 percent to $146.4 million; and other product lines dropped 13.9 percent to $27.3 million.
 
Geographically, the US remained the biggest market for ABI, though receipts were down 4 percent to $217.2 million compared to a year ago. ABI’s European business climbed 7 percent to $190.6 million with currency effects contributing 6 percent growth year-over-year. Japanese sales grew 7 percent to $62.2 million with favorable currency effects of about 10 percent, and business in Asia Pacific, excluding Japan, grew 24 percent to $49.3 million with currency effects contributing 4 percent growth year-over-year.
 
Revenues from India and other countries in West Asia are now included in its European figures, the company said.
 
During the quarter, ABI spent $48.6 million on R&D, down 10.7 percent due to lower employer-related costs and the termination of a contract with the US Department of Defense last June. As of March 31, the company said it had cash and short-term investments of $364.7 million.
 
For full fiscal year 2008, ending June 30, ABI anticipates growth in the mid single digits, assuming current exchange rates, and revenues for its instruments business are expected to be comparable to year-ago levels while its consumables business is expected to increase.
 
ABI and Applera are in the midst of separating themselves from Celera. The split is expected to be completed by the June 30, after which the Applera name will be dropped and ABI and Celera will operate as two independent, publicly traded companies.
 
 
ABI Mass Spec Sales Since Q2 '07
Quarter,
End Date
Sales in Millions
Prior-Year Sales in Millions
Percent Difference, Compared to Year-Ago
Q2 2007, ended Dec. 31, 2006
$135.9
$119.4
Up 13.8 percent
Q3 2007, ended March 31, 2007
$127.3
$113.9
Up 11.8 percent
Q4 2007, ended June 30, 2007
$146.2
$134.7
Up 8.5 percent
Q1 2008, ended Sept. 30, 2007
$121.1
$116.0
Up 4.4 percent
Q2 2008, ended Dec. 31, 2007
$137.6
$135.9
Up 1.3 percent
Q3 2008, ended March 31, 2008
$128.5
$127.3
Up .94 percent

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