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Despite Weakness in Proteomics, ABI’s Mass Spec Business Grows 4 Percent in Fiscal Q4

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The good news: Applied Biosystems halted the slide in its mass spectrometry sales.
 
The bad news: proteomics was excluded from the reversal of fortune.
 
Last week the company, which is in the midst of being acquired by Invitrogen, announced 9.3-percent growth in total revenues for its fiscal fourth quarter, including a 4-percent rise in its mass-spec business. Revenues for the instruments climbed to $152 million during the three months ended June 30 from $146.2 million during the year-ago period.
 
But in a conference call accompanying the earnings release, Mark Stevenson, president and COO of ABI, said that as sales of the mass spec instrument to the applied markets segment grew at a double-digit clip and its small-molecules business grew “modestly, our proteomics business declined.”
 
The company did not break out figures for each segment separately.
 
To be sure, ABI’s overall mass-spec results ended an 18-month stretch of flat or contracting instrument sales. By its fiscal third quarter, ended March 31, sales of the tools grew by less than 1 percent [See PM 05/01/08]. 
 
In the past, company officials attributed the slowdown to tough year-ago comparisons. Last week, Stevenson said ongoing factors affecting its mass spec business include cautious spending by pharma, “which is not being offset entirely by strength” of contract research organizations, and competitive offerings in proteomics.
 
While ABI remains the largest mass-spec manufacturer, its spot at the top of the heap has been increasingly challenged by competitors, who armed with newer instruments and capabilities, aggressively increased their footprint in the space.
 
In the midst of Invitrogen’s proposed acquisition of ABI, announced in June, its mass-spec business has faced increased scrutiny and speculation abounds that the business may be sold off shortly after the acquisition closes [See PM 06/12/08 and 06/19/08].
 
Earlier this month MDS, ABI’s mass-spec joint venture partner, announced it would eliminate 210 jobs in its Pharma Services business and Analytical Technologies division, which houses the mass-spec operations, further raising questions about ABI’s mass spec business.
 
MDS has said, however, that most of the layoffs will occur in its Pharma Services business, and Stevenson said last week that the restructuring at MDS is not expected to impact mass specs.
 
“The goal [of the changes at MDS] was not to affect product-development activities or innovation,” Stevenson said. “Rather, they were focused on the size and restructure for their organization [for] higher productivity and to help accelerate new products into the growing markets.
 
“We work very closely with MDS on a day-to-day basis,” he added. “We don’t expect any impact of that on the flow of new products.”
 

“We’re being thoughtful about this and making sure that as we come forward to a Day One and potential coming-together of two companies here, it’s a trouble-free event and the integration process will then continue over several years.”

New instrument launches are seen as crucial to ABI’s mass-spec future and the paucity of new mass specs from the company recently has played a major role in tamping down instrument sales. In his remarks, Stevenson alluded to this weakness and reiterated plans to unveil new instruments before the end of 2008 and throughout fiscal 2009.
 
“And we expect mass-spec [sales] performance to improve with the introduction of new systems,” he said.
 
During the fiscal fourth quarter, sales of the company’s QTraps and triple quadrupole systems — used in quantitative proteomics, pharmaceutical, and applied markets applications — continued to be strong, Stevenson said, without elaborating. But “accurate mass products,” primarily used in proteomics research, continued to be weak.
 
A company spokesman this week declined to specify those products.
 
Geographically, the instruments saw “excellent growth” in Asia, particularly in China, where sales grew across all application areas. In Japan, ABI saw “modest” growth in its QTraps and triple-quads “for the first time in a while,” Stevenson said.
 
Sales in Asia-Pacific excluding Japan grew 42 percent to $57.8 million. The company’s Japanese business grew 10 percent to $55.3 million.
 
North American sales were “solid” but weak pharma business hurt mass spec sales in Europe, Stevenson said. ABI’s US sales inched up 3 percent to $239.2 million while its European business climbed 9 percent to $229.7 million.
 
The company had little to say about the progress of its deal with Invitrogen. While Stevenson acknowledged the complexity inherent in a $6.7 billion corporate marriage, he said that the integration is “progressing well. … We’re being thoughtful about this and making sure that as we come forward to a Day One and potential coming-together of two companies here, it’s a trouble-free event and the integration process will then continue over several years.”
 
In a conference call discussing its second-quarter earnings results last week, an Invitrogen official said a preliminary registration/proxy statement is expected to be filed with the US Securities and Exchange Commission by the end of the month, and the deal is anticipated to close in late October or early November.
 
This week, the two firms said that the waiting period under the Hart-Scot-Rodino Antitrust Act of 1976 has expired, clearing away one hurdle to the companies’ proposed merger. Invitrogen will soon contact the European Commission for a similar review process, the company said.
 
ABI’s total revenues for the fiscal fourth quarter improved to $609 million from $557.3 million a year ago. Currency exchange rates contributed 5 percentage points to the growth, the company said.
 
Speaking about ABI’s end-markets, Stevenson said that big pharma and the academic sector continued to be conservative in their spending. Government funding is directed in certain areas of disease such as cancer, and ABI’s strategy in that market is to focus on those “hot areas of research.”
 
Sales to the applied markets, including forensics, food and beverage safety, and environmental testing, are expected to remain strong, Stevenson said. 
 
Profits for the period receded 1.6 percent to $86.4 million from $87.8 million a year ago. During the quarter, ABI absorbed a pre-tax charge of $7.8 million for costs associated with the proposed merger with Invitrogen and $8.6 million for restructuring. It also recorded a pre-tax gain of $25 million related to the sale of Millennium Pharmaceuticals shares. In May, Takeda Pharmaceutical acquired Millennium.
 
Research and development spending slid 1.9 percent to $52.5 million from $53.5 million during the fourth quarter of fiscal 2007. The decrease was primarily due to lower employee costs and the termination in June 2007 of a contract with the US Department of Defense, ABI said in a statement.
 
The company reported cash and cash equivalents of $543.2 million as of June 30.
 
For full fiscal year 2008, ABI’s mass-spec revenues rose 3 percent to $539.2 million from $525.4 million in fiscal 2007. Mass spec’s share of total revenue in 2008 dipped to 24 percent from 25 percent in 2007.
 
Total revenues climbed 6.3 percent to $2.2 billion from $2.1 billion in 2007. Foreign currency contributed 4 percentage points to the growth.
 
Profits in 2008 spiked 76.5 percent to $316.6 million from $179.4 million a year ago. In 2007, ABI recorded pre-tax items that shrunk profits before taxes by $123.3 million, including a charge of $114.3 million related to its acquisition of Agencourt.

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