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As New Markets Boost Q2 Sequencing Revenue, ABI Officials See 'Fragmented' Field Ahead

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Applied Biosystems last week reported a 4 percent uptick in second-quarter revenues for its DNA sequencing business and company officials said they expect “modest growth” for this product category for the entire fiscal year 2007 — a more optimistic outlook than the company had six months ago.
 
ABI reiterated its plans to launch an early-access version of its next-generation sequencing platform by the middle of 2007. Officials, citing a “fragmented” marketplace in the years ahead, acknowledged that the firm will likely not dominate the post-Sanger market in the same way that it has the market for capillary electrophoresis sequencing.
 
For the quarter ended Dec. 31, 2006, ABI’s second fiscal 2007 quarter, the company reported $530 million in total net revenues, a 10 percent increase over the same quarter in 2005.
 
Of that, $146.8 million, or 28 percent, came from DNA sequencing products. During the comparable period of 2005, DNA sequencing accounted for $140.7 million, or 29 percent, of ABI’s total revenues.
 
At the end of its fiscal 2006 year, which ended June 31, ABI had predicted that DNA sequencing revenues would stay flat in fiscal 2007.
 
But recently, the company has seen its sequencers increasingly being used outside of basic research in what it calls “applied markets”, which include forensics, quality and safety testing, and biosecurity. “Our sequencing instruments continue to benefit from the ongoing expansion and adoption of DNA forensics, increased demand for quality assurance applications in pharma and healthcare companies, and clinical research customers performing medical sequencing and genotyping applications,” said Tony White, ABI’s interim president and CEO of ABI parent company Applera, during a conference call with investors and analysts last week.
 
White also pointed to revenues from sequencing consumables as a growth driver for the business segment. “We are seeing encouraging consumables growth driven by the increase of the total number of reactions performed on Applied Biosystems’ installed base of over 14,000 sequencers, primarily as a result of increased focus in applications such as re-sequencing and fragment analysis,” he said.
 
As a result, sequencing revenues are up five percent for the fiscal year to date, and the firm is updating its previous guidance. “We now believe that we will see modest growth in the product category for the fiscal year,” White said.
 
Mark Stevenson, president of ABI’s molecular and cell biology division, which includes DNA sequencing for research, explained later in the call that the company has seen “a series of applications beginning to drive the use of DNA sequencing that replace what was the major application, which was a de novo sequencing of the human genome in the genome centers.”
 
Among these applications, some of which use DNA sequencers to size DNA fragments but not to sequence them, are microsatellite genotyping in forensics and identifying microbes that contaminate processes in pharmaceutical, food, and public health laboratories.
 
Stevenson specifically mentioned ABI’s MicroSeq microbial identification system, an instrument and reagent kit for automated microbial sequencing. He also pointed to a recently published genotyping study in Nature Genetics, a collaboration between a number of German researchers and ABI, in which the scientists used ABI’s SNPlex genotyping system on the 3730xl sequencer to genotype almost 20,000 SNPs in 735 individuals. Stefan Schreiber, the senior author of that study and a professor at the Christian-Albrechts University in Kiel, will also be among the first early-access users of ABI’s Agencourt Advanced Genetic Analysis next-generation sequencer (see InSeq 01/02/07).
 
The company is still on track to provide its first Advanced Genetic Analysis sequencers to early-access customers by the middle of the calendar year, White said.
 
ABI has been spending money on getting the new technology to market. Agencourt Personal Genomics, which ABI acquired last May, along with Ambion, another recent acquisition, were primarily responsible for a 13-percent increase in research, development, and engineering costs for the quarter, officials said. The company spent $50.9 million on R&D in the second fiscal quarter, though it did not break out R&D spending for particular product segments.
 

“The DNA sequencing market is going to fragment into a number of different applications, and there will be different technologies that are best suited for some of those different applications.”

The Agencourt technology might help ABI’s sequencing business grow in step with its other product categories, most of which grew at a faster rate in the second quarter: real-time PCR and applied genomics products grew 18 percent over the second quarter of 2005, mass spectrometry products grew 14 percent, and core PCR and DNA synthesis products grew 4 percent.
 
Over the last few years, sequencing has contributed less and less to ABI’s overall revenues, declining steadily from around 40 percent of revenues at the beginning of fiscal year 2002 to less than 30 percent over the last few quarters (see charts below).
 
But in the face of mounting competition from 454 Life Sciences; Solexa, which last week became part of Illumina (see Briefs this issue); and other potential newcomers, White was cautious in making predictions about the impact of the new AGA platform on ABI’s sequencing business.
 
“We have always said that the future of DNA sequencing is not going to be like it was in the past, where you had kind of one company and one big application, and you had sort of the ability to kind of wrap yourself around that and own that market,” White said. “The DNA sequencing market is going to fragment into a number of different applications, and there will be different technologies that are best suited for some of those different applications.”
 


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White added that ABI has “chosen and invested in some very versatile and exciting technology, and we intend to bring that to market and we will see what happens.”
 
Recognizing the competitive nature of the next-generation market, ABI hopes customers will give all the new platforms — including its own — a fair chance. “I think you will see people holding off making any big decisions, like bringing in multiple platforms and performing big studies with these things,” White said. Instead, “there is actually grant money there to provide that opportunity for people to evaluate all these new schemes and technologies side-by-side.”
 


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“Everybody will sell something, that’s for sure. But I don’t think there is any indication that anybody has declared a kind of winner on any application right now that would cause people to say, ‘I’m going to retool my operation in favor of this technology,’ “ he said.
 
ABI is currently exploring applications that might benefit from its high-throughput Agencourt sequencing technology. “We intend to engage with our customers in these early test sites, run some samples, see how it emerges,” said Stevenson. “It is still a very early market, and we will see new and different applications emerge as we go over the next couple of years.”

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