Applera-Applied Biosystems ( NYSE: ABI) is the molecular biology division of Applera Corporation, which consists of Applied Biosystems and the Celera Group (CRA) . Applied Biosystems sells equipment used in biopharmaceutical research, including research tools in genetic analysis, proteomics research, and cellular biology analysis. Applied Biosystems markets product systems similar to that of Affymetrix (AFFX), where the analysis instrument is a one-time purchase, while consumable products, including experimental reagents, and one-time disposable parts such as microarray chips are the main sources of sales revenue.
In addition to targeting traditional research institutions funded by NIH grants or private research labs at biopharma companies, Applied Biosystems also adapts and markets its products to alternative markets such as forensic testing, food and drug safety testing, and information management at laboratories. The use of Applied Biosystems' products in these alternative markets has been expanding both in the U.S. and globally, and Applied Biosystems plans to further explore these opportunities.
However, Applied Biosystems' profitability may be negatively affected by the losses incurred by its sister company, Celera (CRA), which researches and develops genetic diagnostics and operates at heavy losses. Revenues from Applied Biosystems are diverted to compensate for Celera's poor performance, and this unique sister-company setup by Applera generates potential risks for Applied Biosystems' performance.
[edit] Business Financials
[edit] Major Products
Applied Biosystems develops and sells a diverse portfolio of technologies and equipment for uses in biopharmaceutical research institutions. These technologies and systems are essential in key methods of genetic analysis, proteomics research, and cell biology analysis. Especially for product systems in the fields of genetic and protein analysis, measuring instruments in the product systems are interchangeable, while the consumable portions of the product system cannot be reused and are specialized for each system. This means that ABI's equipment sales operate at low margins or even losses, but it compensates and profits from sales in the consumable parts that are necessary in the equipment's operation.
Key systems manufactured and marketed by Applied Biosystems include:
- Polymerase Chain Reaction (PCR) System and Consumables: Applied Biosystems' PCR systems are responsible for a large portion of its sales revenues due to its highly consumable nature. PCR amplifies DNA to prepare it for further analysis and study in various experiments, and is an indispensable technique to almost all genetic analysis experiments. [1]
- DNA/RNA Analysis Instruments: These systems allow researchers to sequence and identify any part of the human DNA genome that they wish, and the instruments are used in genetic analysis as well as disease diagnosis. Products in this division include gene expression assays for messenger RNA content in cells, DNA microarray assays, and genotyping assays. [2]
- Mass Spectrometry: A key tool in the analysis of larger biologically important molecules such as proteins, mass spectrometry uses the combined power of imaging and software analysis to identify the complex structure of proteins. Mass spectrometry is an essential procedure in many studies involving key proteins, since it allows researchers to identify the molecular structure and chemical properties of large proteins. Applied Biosystems currently markets all components of the mass spectrometry system, including the instrument, reagents, and software. [3]
[4]
The following table shows a breakdown of sales revenue into different components of research systems. Notice that the category "other" includes revenue from software support, services, royalties, licenses, and contract research.
[5]
Total Sales and Sales Growth by Product (in $millions)
| Category
| Sales Revenue in 2006
| % Change (05-06)
| Sales Revenue in 2005
|
| Consumables
| $734.6
| 7.8%
| $681.5
|
| Instruments
| $836.3
| 4.1%
| $803.5
|
| Other
| $340.3
| 12.6%
| $302.1
|
| Total Product Sales
| $1,911.2
| 6.9%
| $1,787.1
|
The following breakdown shows the percentage of total sales revenue each product type generates:
[6]
Total Sales and Sales Growth by Product (in $millions)
| Category
| Sales Revenue in 2006
| % Change (05-06)
| Sales Revenue in 2005
|
| Genetic Sequencing
| $539.9
| -1%
| $544.2
|
| Real-Time PCR
| $600.4
| 17%
| $514.5
|
| Mass Spectrometry
| $465.3
| 9%
| $426.5
|
| Core PCR/DNA Synthesis
| $198.4
| 4%
| $191.2
|
| Other Products
| $107.2
| -3%
| $110.7
|
| Total Product Sales
| $1,911.2
| 6.9%
| $1,787.1
|
[7]
[edit] Alternative Markets
In an effort to expand its market outside of life science research, Applied Biosystems has established an Applied Markets division, which brings ABI's research tools to markets outside of traditional genetic research. These alternative markets for Applied Biosystems' products include:
- Forensic Testing: Applied Biosystems has had preliminary success in this market, providing a means of human identification through DNA information in forensic investigations. In 2007, Applied Biosystems filled 50 significant orders for forensic labs in China, and revenues are expected to grow in the future. Its main product line for the forensic market is AmpFISTR, which produces a genetic profile of a biological sample based on certain repeating patterns in the DNA extracted from the sample. [8]
- Quality and Safety Testing of Food and Drugs: In order to comply with FDA regulations on food and pharmaceutical products, laboratories at these companies require quality and safety testing procedures of their products. Applied Biosystems offers the MicroSeq system to identify and characterize fungus and bacteria, facilitating the rapid detection of pathogens in food as well as analysis of the genetic modification of foods. [9]
- Information Management Systems for Laboratories: Applied Biosystems has developed a line of software targeted at laboratory management tasks. This software system, known as LIMS, can help laboratories manage tasks such as sample tracking and prioritization, organization of laboratory work lists, generation of reports, etc. Applied Biosystems also offers a version of LIMS targeted for forensic laboratories. [10]
[edit] Trends and Forces
- ABI's Revenues Rely on Research Funding.: A large portion of Applied Biosystems' client base consists of researchers funded by the National Institute of Health (NIH). As a result, a decrease in federal funding of scientific research will cause a decrease in sales of research equipment and negatively impact ABI's performance. [11] Although the NIH grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3%, which could significantly limit in ABI's revenue growth.[12].
- International Sales are Affected by the Weakness of the Dollar. : Applied Biosystems markets its products heavily in Europe and Asia, and international revenues make up 57% of the company's total revenues. Therefore, fluctuations in foreign currency exchange rates, changes in trade regulations, and less adequate intellectual property rights protection mechanisms in foreign countries are all factors that could affect the company's overall profitability. [13]
- Profits are Diverted to Celera: Applied Biosystems is the more profitable division of Applera, whose other division, Celera, has been incurring losses in the last 2 years. Upper-level management for Applera may decide to divert profits from Applied Biosystems to cover the losses of Celera, which would prevent Applied Biosystems from benefiting from its revenue gains. [14]
- Increased Demand in Alternative Markets: Applied Biosystems has seen a continual growth of their forensics and applied market client base, especially in China and Europe. Increased demand from these alternative markets, and from international customers, would allow ABI to see significant growth in their sales revenue. [15]
- ABI's Manufacturing Ability is Restricted by Suppliers.: Although the manufacturing of Applied Biosystems products occurs at its own facilities, certain raw materials and components used in the synthesis of probe arrays are available only from single vendors. Delayed delivery or quality decreases of these materials from vendors would impair the company's ability to meet the needs of its clients. [16]
[edit] Competition and Market Share
Applied Biosystems faces significant competition from other biopharmaceutical companies that also specialize in the development and commercialization of genetic and protein analysis products. Notably, all the companies listed in the table below produce a variation of the DNA/RNA microarray assay, and all except Affymetrix (AFFX) have counterpart PCR systems.
- ↑ ABI 2006 SEC Filing 10-K, Item 1, Pg. 7
- ↑ ABI 2006 SEC Filing 10-K, Item 1, Pg. 9
- ↑ ABI 2007 SEC Filing 10-K, Item 1, Pg. 17.
- ↑ ABI 2007 SEC Filing 10-K, Item 8, Pg. 133.
- ↑ ABI 2006 SEC Filing 10-K, Item 8, Pg. 133
- ↑ ABI 2006 SEC Filing 10-K, Item 8, Pg. 133
- ↑ ABI 2006 SEC Filing 10-K, Item 8, Pg. 133
- ↑ ABI 2006 SEC Filing 10-K, Item 1, Pg. 20
- ↑ ABI 2006 SEC Filing 10-K, Item 1, Pg. 21
- ↑ ABI 2006 SEC Filing 10-K, Item 1, Pg. 22
- ↑ ABI 2006 SEC Filing 10-K, Item 1a, Pg. 48
- ↑ National Institute of Health FY08 Performance Detail, Pg. 4
- ↑ ABI 2006 SEC Filing 10-K, Item 1a, Pg. 50
- ↑ ABI 2006 SEC Filing 10-K, Item 1, pg. 10
- ↑ ABI 2006 SEC Filing 10-K, Item 1, Pg. 21
- ↑ ABI 2006 SEC Filing 10-K, Item 1a, Pg. 47
- ↑ ABI 2006 SEC 10-K Filing, Item 8, Pg. 133
- ↑ Agilent SEC 10-K Filing 2006, Item 7, Pg. 51
- ↑ ILMN 2006 SEC 10-K Filing, Item 6, Pg. 34
- ↑ BEC 2006 SEC 10-K Filing, Item 7, Pg. 33
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