Applied Biosystems reported a 9-percent increase in its DNA-sequencing business for the first 2009 fiscal year quarter last week as revenues from second-generation sequencing rose and capillary electrophoresis consumables revenues declined.
The company also said it expects its merger with Invitrogen to close by mid-November. Shareholders from both firms approved the merger this week.
ABI booked $140 million in revenue from DNA sequencing instruments and consumables for the quarter that ended Sept. 30, compared to $129 million during the same quarter last year.
According to ABI President and Chief Operating Officer Mark Stevenson, the growth resulted from both sales of SOLiD systems, which “grew strongly” during the quarter, and of CE systems, which “were up slightly” during the quarter, primarily in the area of forensics.
Stevenson, who spoke during the company’s first-quarter fiscal 2009 conference call, said growth was dampened somewhat by a decline in CE consumables sales as “high-throughput research customers,” in particular genome centers, continued to move to second-generation sequencing, especially for de novo sequencing and comparative sequencing applications (see In Sequence 10/7/2008).
SOLiD Exceeds Expectations
Stevenson did not comment on sales of SOLiD consumables, and did not give an update on the total number of SOLiD placements, though he said that placements during the quarter had “exceeded our expectations.” In July, ABI said that it had obtained orders for 100 SOLiD systems in total.
In response to questions from analysts, Stevenson commented on rumors that ABI was placing SOLiD systems free of charge.
He said that prospective customers ask the company to run test samples for them before they decide to place an order, and that instead of running demo projects, ABI places a demo instrument in their labs. “What we find the most effective way is if customers seeing the instrument come into their lab, get up and going, they place the purchase order with us.”
He also mentioned that “if someone places an order for multiple units, we are going to help them with those project costs.”
“It’s not about us trying to win on price,” according to Stevenson. “We think that what we win on is the throughput and accuracy and [how] that translates into the cost of a sequencing project.”
As revenue from the CE business declined over the quarter, yet overall DNA sequencing revenues grew, “clearly, we are recognizing revenues from [SOLiD] instruments,” he said. Before the company recognizes those revenues, the instrument must meet certain acceptance criteria after they have been installed at a customer’s site, which currently takes less than 60 days.
“It’s not about us trying to win on price.”
ABI has 70 service engineers for the SOLiD platform available, he said, who are currently being trained for the SOLiD 3 upgrade, as well as more than 40 field application support specialists who support customers.
ABI announced the SOLiD 3 upgrade earlier this month, which will be available to customers starting early next year (see In Sequence 9/30/2008). The upgrade is expected to increase and throughput of the system as well as to “streamline” certain workflows.
Stevenson said ABI expects all of its customers to purchase the upgrade, which involves changes in hardware, reagents, protocols, and software, over time. The cost for the upgrade will be $20,000.
In general, the company sees good demand for the SOLiD system both inside and outside of the US, and both from genome centers and from smaller labs. “Funding [for next-generation sequencing] is good, customers make available money for that,” said Stevenson.
For now, “the US is still the major focus for us in terms of orders,” he added, but “we expect we are going to do very well in our win rate outside the US.”
In terms of applications for the SOLiD, Stevenson said the company sees “good demand” for both sequencing and gene expression analysis applications.
Besides working on an upgrade of the SOLiD system, ABI has focused on new software for the platform. Stevenson mentioned that ABI’s SOLiD Software Development Community “has begun to accelerate deployment of application-centric software tools to enable even higher user productivity.”
On the CE side, ABI still sees demand for its 3730 high-throughput Sanger sequencers, and Stevenson said the company’s 3730 business “was actually stronger than we expected this quarter,” especially due to smaller labs using the instruments for smaller projects. The company has also observed “good demand” for pre-owned 3730 instruments, he added.
As capillary electrophoresis sequencers are increasingly used in areas outside of research, such as forensics, quality control, and microbial identification, more than half of the company’s CE business is now outside of core research laboratories, Stevenson said, “and we are continuing to invest in R&D, also, in CE as we see more applications that will run on those kind of platforms in the future.”
Both ABI and Invitrogen said during their respective earnings conference calls last week that they are on track to merge in mid-November.
Stockholders voted to approve the merger at a special meeting on Oct. 28.
In addition, the companies expect to gain approval for the merger from the European Commission by Nov. 11.
During Invitrogen’s call, Mark Smedley, who leads the companies’ integration team, said that 80 employees are focusing on the merger, and 250 employees at both companies are working on the transaction.
The company now plans to realize $80 million instead of $60 million in “synergies” during the first year, mostly from cost savings related to removing corporate overhead redundancies and to joint purchasing.
“Clearly, one of the growth areas for [the new company] will be next-generation sequencing,” Stevenson said. “We expect to be a leader in genetic analysis across all the technologies,” including CE-based sequencing, SOLiD technology, and single-molecule sequencing.
ABI reported $533.1 million in total revenues for the quarter, a 6-percent gain over last year’s revenues of $501.2 million during the same period.
DNA sequencing contributed $140 million, or 26 percent, to total receipts. That percentage was unchanged from a year ago.
R&D expenses for the quarter totaled $49.3 million, down slightly from $50.6 million during the year-ago period.
SG&A costs increased to $160.3 million, compared to $149.4 million in the same quarter last year.
The company had a net income of $77.2 million, a 25-percent increase from $61.7 million during last fiscal year’s first quarter.
As of Sept. 30, ABI had $368 million in cash and short-term investments, down from $543.2 million as of June 30. According to CFO Dennis Winger, the decrease resulted from a reclassification of two illiquid investments and loan repayments associated with an accelerated share repurchase program that was completed in fiscal 2008.