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MS Sales Up 14 Percent at ABI, But CEO White Sees Increased Competition for All Segments

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Sales of Applied Biosystems’ mass spectrometry systems continued to grow at a double-digit clip, helping overall revenues climb 10 percent during its fiscal second quarter, the company reported last week.
 
Meantime, Tony White, CEO of Applera, parent company of ABI, told analysts and reporters last week that he will remain interim president of ABI for up to two years to set “the right course” for the company. White stepped in when Cathy Burzik abruptly left the company in October.
 
“As of now, the board of directors and I have no plans to conduct an external search,” White said during a conference call accompanying the earnings release. “Rather, we are focusing on further developing the high-potential leadership team within Applied Biosystems.”
 
For the three months ended Dec. 31, 2006, ABI said revenues from its suite of mass specs rose 14 percent to $135.9 million from $119.4 million a year ago, accounting for 26 percent of the $530 million in total revenues the company recorded for the quarter. During the year-ago period, ABI had total revenues of $481.9 million to which mass spec sales contributed 25 percent.
 
The period is the third quarter in a row that ABI reported double-digit percentage growth in its mass spec business, while for the first half of its fiscal 2007, sales of the instruments grew 16 percent year over year.
 
Laura Lauman, president of ABI’s proteomics and small molecules division, said mass spec sales grew across all application areas. “Clearly, it’s not one application area that’s really driving [the growth],” she said during a conference call accompanying the earnings release. “The strength of our total portfolio from a platform perspective plus growth in a host of new application areas and staying strong in our core markets has really led to the solid performance.”
 
The growth, she added, was “based on a very strong platform portfolio that we have in terms of new products that have been introduced over the last year, two years.”
 
In 2006, ABI launched the QSTAR Elite LC/MS/MS and the Midas QTRAP system, which includes a QTRAP 4000 or 3200 mass spec along with Midas software for biomarker validation. During the call, White said “significant uptake” of the QSTAR Elite and “notable demand” for the firm’s 4800 MALDI/TOF/TOF system were key revenue drivers.
 
Good Times for MS Sales in General
 
The uptick in ABI’s mass spec business reflects a positive sales trend industry-wide. In addition to ABI, Waters last week reported a 14-percent climb in mass-spec sales for the quarter ended Dec. 31, 2006. While other large mass-spec manufacturers such as Thermo Fisher Scientific and Agilent Technologies have yet to report their earnings for the quarter, they each reported robust sales of their instruments during the fall.
 
During the conference call, Lauman suggested that mass-spec sales growth at ABI was helped by broader uses for the instruments, particularly in applied markets, growth in international markets, and the normal replacement cycle for older equipment.
 
But while mass-spec companies report sanguine sales, competition for market share remains rigorous. At the JP Morgan Healthcare Conference in January, Thermo Fisher CEO Marijn Dekkers spoke of increasing competition in the market, specifically pointing to rival Agilent’s aggressive maneuvers to reposition itself in the space by launching several new devices in 2006 [See PM 03/16/06 and 06/01/06].
 
At the same conference, Agilent officials spoke of the company’s four-point growth strategy, spearheaded by a push to grow sales of instruments used for proteomic research, including mass specs [See PM 01/11/07].
 
From ABI’s perspective, Lauman said that mass specs have “always been and will continue to be a competitive business.” The company’s ability to maintain its leadership position in the space will depend on its ability to adapt to the needs of its users, she said.
 
“Really, what customers are looking for are integrated systems in key application areas, and I think companies that deliver that will do well in this space,” she said.
 

ABI has “a lot more competition … and [applications] that we’re trying to serve than we used to have. And I have this sense that if we don’t adjust to all of that … we might not be able to be as successful long-term as we had been.”

For the quarter, ABI said net income rose to $74.8 million, a 142-percent spike from $30.9 million posted during the year-ago period. Income from a year ago, however, included a pre-tax charge, severance expense, and amortization expense that suppressed profits by $3.7 million, the company said. The year-ago figures also included a tax charge of $28 million.
 
ABI said it spent $50.9 million on R&D during the quarter compared with $45.2 million in the year-ago period. As of Dec. 31, 2006, ABI said it had $343.7 million in cash and short term investments. 
 
Help Not Wanted, Yet
 
Last week, Applera CEO White updated investors on the company’s search for Burzik’s replacement as president of ABI after three months of being virtually mute on the subject. White said there will be no replacement for the near-term, and added that he will remain interim president for at least another year and possibly two.
 
In October, Burzik suddenly left the company after two years as ABI’s head to become CEO of Kinetic Concepts, a San Antonio-based medical device firm [See PM 10/26/06].
 
During the conference call, White said he was staying on in order to get closer to the business “without a filter” and to better evaluate where the company is now and where it will need to go.
 
“We’re going back and looking at our long-term, medium-term strategies, sort of the culture of the company toward development and innovation, how we’re going to address the new challenges we see in this business,” White said.
 
White, who is 60 years old, said that running the show at ABI for the next year or two will allow him to set “the right course” for the company and ensure “that I leave it in the hands of people who feel as passionately as I do about what we have to do to make a secure future for this business.
 
“I’d rather go that route than go outside and look for an unknown quantity right now,” he said. “We have a lot more competition now than we used to have, we have a lot more [applications] that we’re trying to serve than we used to have. And I have this sense that if we don’t adjust to all of that … we might not be able to be as successful long-term as we had been.”

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