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Life Sciences a ‘Top Priority’ for Agilent As Firm Considers M&A Options, CEO Says

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Agilent Technologies will follow a mergers and acquisitions strategy to expand its proteomics portfolio, the company’s top executive said this week.
 
In the midst of a conference call reporting the company’s earnings for its fiscal second quarter, company president and CEO Bill Sullivan said that Agilent remains on the lookout for acquisition targets, and that the firm’s “top priority continues to be in the life-sciences area, and we will continue to look for opportunities that we believe will drive value for shareholders.”
 
He added that while Agilent is most interested in the genomics area, the company is also targeting the proteomics market as a way to grow through M&A activity.
 
“Our focus right now is to leverage our position in the whole nucleic-acid area around genomics,” Sullivan said during the conference call accompanying the release of Agilent’s earnings results, which showed a 10-percent increase in total revenue.
 
“The second [growth market] is all in the proteomics area. Of course, that’s where the whole investment in mass specs [has been]. We’ll be able to leverage our investment,” he noted, adding that the company is open to both small and large acquisitions.
 
Two years after his company made its initial foray into the high-end mass-spectrometry space, Sullivan could be hinting that the company is once again positioning itself for another aggressive move to expand its presence in the proteomics market.
 
In January 2006, Agilent launched its 6410 triple-quadrupole mass spec and its 6510 Q-TOF, officially making it a major player in the proteomic tools arena. Since then, while the company has made upgrades to its instruments, it has made no mention of looking outside itself to grow its proteomics business.
 
This week, however, Sullivan said that Agilent is “now in the strongest financial position in the history of the company … [and] in terms of our ability to make an acquisition that’s strategic to our plans, we have the full capability to do that now.”
 
He said the company is “committed to expanding the capabilities of our core platforms as well as [adding] on these workflow solutions both organically and through acquisitions.”
 
For proteomics, that translates into growing its mass-spec business. Discussing that business during the conference call, Sullivan said its strongest base is in its chemical-analysis applications. But “as we move more into the proteomics side, I believe that will continue to drive our LC-MS business in the traditional life-science market.”
 
Agilent did not break out sales figures for its instruments, but revenues for its Bio-Analytical division, which houses its proteomics business, grew 20 percent to $556 million during the quarter ended April 30 from $463 million during the year-ago period. Organic growth was 13 percent.
 

Agilent is “committed to expanding the capabilities of our core platforms as well as [adding] on these workflow solutions both organically and through acquisitions.”

Within the Bio-Analytical Measurement division, life-science revenues jumped 33 percent to $259 million compared to a year ago. Organic growth was 16 percent.
 
According to CFO Adrian Dillon, Agilent is seeing “strong sustained growth in our high-end LC-MS systems,” including its Q-TOF mass spec and the Q-TOF combined with the LC chip system for proteomics and biomarker-discovery applications.
 
Overall, he said the company saw “strong demand” in the quarter for its LC and LC-MS systems as well as its GC and GC-MS platforms. He did not elaborate.
 
As part of its strategy to grow its life-science revenues, Agilent is also in the midst of expanding its footprint in the academic and government markets [See PM 09/20/07]. While the company saw its life-science revenues in those markets skyrocket 74 percent during the quarter, 36 percent organically, they still represent only 4 percent of Agilent’s total business, according to Sullivan. This week, he reiterated Agilent’s belief that despite the dim outlook on federal funding for scientific research, those markets still represent fertile business opportunities.
 
The total life-science market is about $17 billion, Sullivan said, with about half in academic and government research. Though funding in those areas may be flat “the real issue is: where is the funding going?” he said. “And the funding … is targeted on where key strategic initiatives for life sciences. And right now that money is going into genomics and proteomics.”
 
While Agilent may have much ground to make up in the academic and government life-science research market, the company has a “robust channel” in those markets with its electronic measurements side of the company, Sullivan said.
 
“So our intent is to make sure that we have the appropriate solutions and to leverage the relationships with the top universities and government labs around the world,” he said. “We believe that if we can execute on the solutions, that we have a real opportunity to grow in the market regardless of the absolute funding level.”
 
Profits Jump 41 Percent
 
For the three months ended April 30, Agilent’s total revenues grew 10 percent to $1.46 billion from $1.32 billion one year earlier. Excluding the effects of currency exchange, revenues for the quarter were up 6 percent. The acquisitions of Stratagene and Velocity 11 contributed two percentage points to the growth.
 
Revenues grew 7 percent in the Americas and in Europe year over year, although the growth in Europe was due largely to the effects of the currency exchange, Dillon said. Asian revenues were up 16 percent year over year.
 
In its chemical-analysis segment, the other half of Agilent’s Bio-Analytical Measurement division, revenues rose 11 percent to $297 million. Receipts from its Electronic Measurement business rose 5 percent to $900 million.
 
Total profits rose 41 percent to $173 million from $123 million a year ago. Income from operations spiked 46 percent to $191 million from $131 million a year ago.
 
R&D spending was up 6 percent for the quarter to $183 million.
 
As of April 30, Agilent had $1.7 billion in cash and cash equivalents.
 
For its fiscal third quarter, the company is forecasting revenues to be in the range of $1.44 billion to $1.49 billion, which would represent a 5 percent to 9 percent increase year over year.
 
For the fiscal fourth quarter, revenues are forecast to increase 6 percent to 10 percent year over year to between $1.53 billion and $1.59 billion.

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