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As Customers Move From CE to Next-Gen, ABI’s DNA Business Stays Flat in Fiscal Q2

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Applied Biosystems said last week that while it has seen “strong interest” in its SOLiD sequencing platform, it is “purposefully constraining shipments” of new instruments until it has trained enough field personnel to serve the systems.
 
The company gave an update on its next-generation sequencing business as part of its fiscal second-quarter 2008 earnings release. ABI’s overall DNA sequencing business stayed flat during that quarter as instrument funding shifted from Sanger to next-generation sequencing platforms.
 
In addition, despite shipping the first SOLiD systems at the start of its fiscal second quarter, ABI said it won’t begin counting revenue from sales until the current quarter.
 
ABI did not mention how many SOLiD systems it sold since it began shipping them commercially in early October, but ABI President Mark Stevenson said during a conference call with investors last week that the company has been “very pleased with the market’s strong interest in the product offering.”
 
But it appears that ABI’s field force cannot keep up with demand for the system right now, and the company has decided to limit shipments to new customers for the moment in favor of supporting existing customers.
 
“The pace of placements is on our side, not the demand side,” ABI CFO Dennis Winger said during the call.
 
According to Stevenson, ABI is “purposefully constraining shipments to new customers until we know we have trained field personnel to help start and validate the units. Our priority is to support existing customers and ensure system robustness at the world-class level AB customers have come to expect.
 
“As we ramp up this new technology, we are making sure that we allocate sufficient resources to deliver to this expectation,” he added.
 
ABI employees and customers are still learning about the system, he acknowledged. “As with any new technology development, we are climbing an experience curve — along with our customers,” he said.
 
Back in July, Illumina mentioned similar challenges in keeping up with demand for its Genome Analyzer, which at the time had been on the market for about six months. Then, the company said it had to increase its manufacturing, marketing, sales, and technical support team to keep up with demand, and that it was “struggling a bit” to fill these positions quickly (see In Sequence 7/31/2007).
 
Despite shipping its first SOLiD systems in early October, which was the start of its second fiscal quarter, ABI only expects to book its first revenue from the system during the current quarter, which ends March 31. The company anticipated the delay, which it said was the result of having to complete validation runs at customer sites, according to Stevenson.
 
So far, customers have been “particularly pleased with” both the throughput and the accuracy of the instrument, according to Applera CEO Tony White. Customers also like that the platform can generate paired-end reads, he said during last week’s call.
 
ABI said SOLiD customers will present their first results at upcoming scientific meetings this year. In particular, Stevenson pointed out the Advances in Genome Biology and Technology meeting on Marco Island, Fla., next week, where both users and company representatives are expected to present data.
 
Asked what the main initial applications for the SOLiD are so far, Stevenson mentioned both human genome re-sequencing and gene-expression analysis.
 
In projects that involved “sequencing thousands of people,” he said, ABI’s mate-pair approach is particularly valuable to analyze structural variations such as deletions, insertions, and repeat sequences.
 
With regard to gene-expression analysis, the SOLiD system offers higher sensitivity than array-based approaches, Stevenson suggested. “We are increasingly seeing people study transcript levels that you can see on a TaqMan assay, and so you know it was there, but you could not [see it] when you tried to do a global survey on an array,” he said.
 
Stevenson also mentioned that ABI plans to incorporate improvements to the SOLiD system “in shipments to be made later in the fiscal year,” which ends June 30.
 
The company is working on “workflow improvements” for the platform and on shortening the run time, according to White.
 
DNA Sequencing ’In Transition’
 
During its call, ABI also addressed how next-generation sequencing has been impacting its overall DNA-sequencing business, which has so far entirely been based on Sanger capillary-electrophoresis instruments and consumables.
 
ABI’s total instrument sales were flat for the quarter compared to last year (see sidebar) and were “affected by the transition going on in the DNA sequencing market to next-generation sequencing” as well as weakness in some mass spectrometry markets, White said.
 

“As with any new technology development, we are climbing an experience curve — along with our customers.”

“DNA sequencing continues to be in transition,” said Stevenson. “CE instrument placements are declining in the research market as instrument funding priorities shift toward next-generation sequencing platforms.” Sales of consumables for capillary sequencers, however, have remained strong as customers continued to use their existing instruments.
 
“Even some of the high-throughput [centers], while they are decommissioning some of their CE-based systems, they continue to use CE for many different applications,” White said.
 
Stevenson added that the decline in the capillary electrophoresis sequencer business varied by market segment. For instance, in genome centers, “which used to be a very big part of our business and now are not as much, we think the transition there over time will be more dramatic, because the applications that they have are strictly high-throughput applications, where the new technology is a pretty good fit for what they want to do.”
 
However, he stressed that smaller labs will continue to use Sanger technology for the foreseeable future, especially lower-throughput sequencers like the 3130. In these labs, “CE, really, is the technology of choice,” Stevenson said, and while these customers “may take up and create new applications with next-gen, they are going to keep the CE machines running.”
 
The 3730 high-throughput sequencers were “already a fairly small proportion since they were mainly [targeted at] high-throughput customers,” Stevenson said. “But the 3130s we expect to continue to see demand in smaller labs and research, in the clinical labs … as well as [in] some of the applied markets like forensics and pharma manufacturing,” he said.
 
White added that the company has recently placed “a boatload” of 3130 sequencers in new forensics laboratories around the world. “Hopefully, now we will get those forensics labs up and running and we will see the corresponding throughput from the reagents,” he added. “The 3730 is the issue.”

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