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Agilent Posts Dip in Q3 Bio-Analytical Sales; Will Make Life Sciences Separate Reporting Segment


This story originally ran on Aug. 18.

By Tony Fong

Agilent Technologies' Bio-Analytical Measurement segment continued to outperform the company as a whole as its fiscal third quarter was again clobbered by the general economy and continuing softness in its Electronics Measurement business.

After close of the market on Monday, the Santa Clara, Calif., firm reported a 27 percent drop in total revenues for the three months ended July 31, 2009, with receipts of $1.06 billion, compared to $1.44 billion in the year-ago period.

While Agilent's Electronics Measurement segment posted another sharp decline in revenues, down 36 percent year over year to $524 million from $814 million in Q3 2008, the Bio-Analytical business had a softer landing as revenues fell 8 percent in the quarter to $496 million from $540 million a year ago.

Within the Bio-Analytical segment, Life Sciences revenues were off 5 percent year over year to $234 million, while Chemical Analysis was down 11 percent from a year ago to $262 million.

The company also announced that it plans to break out Life Sciences as its own reporting segment starting in the company's 2010 fiscal year, as a result of "explosive growth" in that business.

Given the challenges of the worldwide economy, the overall drop in business was expected, company officials said, adding that signs point to a rebound on the horizon.

"My first major message today is that all evidence points to Q3 hitting the bottom of the economic downturn as we had predicted last quarter," William Sullivan, Agilent's CEO, said in a conference call accompanying the release of the company' earnings.

Similarly, company officials said they had expected the Bio-Analytical segment, which comprises 47 percent of Agilent's total business, to continue slipping during Q3 but that indications are that it may be headed for a turnaround. While orders were down 14 percent year over year to $493 million from $573 million, they were up 3 percent compared to orders during Agilent's fiscal second quarter.

Officials said that Agilent's LC-MS business continued to be healthy. According to Adrian Dillon, Agilent's CFO, "LC-MS is strong for Life Sciences" for both proteomics and metabolomics research. He did not elaborate.

Its LC systems did not fare as well, as sales of those instruments shrank in the double digits, Dillon said. But he and Sullivan also sounded bullish about the recently launched 1290 Infinity LC System, which began shipping last month [see PM 04/30/09].

"The launch of our 1290 Infinity LC has been extremely well received because of its performance and flexibility in operating in both the ultra high pressure mode and in conventional LC modes," Dillon said.

"[T]he types of successes we have had in the public feedback" on the instrument have been primarily from pharma, which in some cases have given the 1290 "raving reviews," Sullivan said. "We are excited about this product and with the successful launch," and Agilent's continued investment in and support of the instrument, as well as the accompanying column technology and informatics, "we believe that we have the best LC in the world."

Asked whether the platform would play a material role in driving the expected sequential improvement in the Bio-Analytical business, however, company officials conceded not yet.

"Not likely unless we are incredibly fortunate," Sullivan said. "But in terms of us being in a stronger position in a down market, I believe the 1290 is a real contribution."

The system was developed as a direct competitor to Waters' Acquity UPLC, which is seen as the gold standard in ultra-high performance LC instruments. In June, a Wall Street analyst said in a note that despite positive reviews for the 1290, it "will require a long ramp before gaining significant market share." [See PM 06/25/09]

This week, Sullivan disputed that. While calling Waters a "very competent, very credible" company, he said that Agilent has a long and successful history in the LC business and added that the 1290 could be a transformative player in recalibrating that market.

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"We are highly biased [but] we think it will shift back to us," Sullivan said.

Overall, in Life Sciences, Dillon said that business was hurt in the third quarter by a 6 percent slowdown in pharma and biotech spending due to the economy and recent merger activity that have delayed spending, though the company is seeing signs that the grip on budgets may be loosening.

Academic and government spending in Life Sciences was down 2 percent.

Despite that, the company announced that starting Nov. 1, the beginning of its fiscal 2010, it will be breaking out its earnings results into three segments, with the two sectors that now comprise Bio-Analytical Measurement — Life Sciences and Chemical Analysis — reporting as separate segments. The other reporting segment will remain Electronic Measurement.

The firm has been aggressively positioning itself as major player in the life science space for several years, and the change in its reporting segments reflects the success of that effort and the creation of a dedicated life science sales channel, according to a company spokesman.

In an e-mail to ProteoMonitor, the spokesman said Agilent had been considering dedicating a sales channel for Life Sciences for some time as a result of the unit's "explosive growth," which drove the company "to a critical mass that allows the scale to support its own channel.

"This new structure will help us accelerate our efforts to become an even more focused team for life science customers, resulting in the more consultative, solutions-based sales customers are looking for," he added. "The Life Sciences sales channel will be focused on the customers and countries that drive the majority of expenditures in the life science market.”

No Variation on Varian

Last month, Agilent announced its intent to acquire instrument and vacuum firm Varian for $1.5 billion [See PM 07/30/09]. Shortly afterward, a Varian investor filed a lawsuit challenging the proposed purchase [see PM 08/06/09].

The company this week declined update the pending acquisition or the lawsuit but said that it still anticipates closing on the deal by the end of the year.

The acquisition, the largest in Agilent's history, "is a major step in [its] transformation into a leading bio-analytical measurement company," Sullivan said. "We can build on our complementary technologies and we each bring expertise and experience across different geographies and applications.

"We just think Varian is a great franchise or we would not move forward," he continued. "There are lots of factors that go into [an acquisition] and we just think it is going to be a great fit for us as we go through the regulatory" process.

By the Numbers

For the quarter, Agilent posted a net loss of $19 million, compared to a profit of $169 million in Q3 2008.

During the quarter, the company took a charge of $81 million related to its restructuring and asset repairment. It also had a charge of $11 million for non-cash amortization. Agilent recognized a tax benefit of $36 million and had $16 million of other net charges.

Geographically, European revenues saw the biggest slide, 31 percent year over year. The Americas were down 28 percent and Asia-Pacific was off 22 percent.

In Bio-Analytical Measurement, Europe was down 22 percent year over year and the Americas were off 13 percent. Asia continued to grow, though, with China up 48 percent, fueling 19 percent growth in Asia outside of Japan where revenues rose 8 percent.

R&D spending for the quarter was down 10 percent year over year to $153 million while SG&A spending was down 7 percent to $387 million.

Starting in late 2008, the company started restructuring its business in order to bring down costs. Cumulatively $525 million in savings is expected to be achieved from the effort, which included a reduction in its workforce of about 3,800 employees, as well as cuts in the pay of existing employees and unpaid furloughs.

Yesterday, Sullivan announced that beginning Nov. 1 all remaining employees will be restored to full pay and full work weeks.

Agilent said that as of July 31, it had $1.48 billion in cash and cash equivalents.

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