Bio-Rad Laboratories (NYSE:BIO) manufactures, develops, and markets laboratory and medical testing instruments through its two major arms, Clinical Diagnostics and Life Sciences. Bio-Rad's products in the Clinical Diagnostics division include instruments for diagnosing diabetes as well as testing for blood-based and genetic disorders. The Life Sciences division includes instruments used for research in functional genomics, proteomics, and food safety.
As a manufacturer of instruments for laboratory testing and research, Bio-Rad is dependent on government funding for scientific research. Its business model benefits, however, from recurring revenue that it earns from sale of the testing ingredients that are consumed with each test that a customer performs on Bio-Rad's instruments. Recurring revenue from consumable ingredients for the diverse array of testing instruments that Bio-Rad sells will help the consistency of the company's revenue over the years.
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In 2010, revenue growth was driven by organic growth in the Clinical Diagnostics and Life Sciences divisions as well as added revenue from Bio-Rad's acquisition of Biotest in January of 2010. The added revenue from Biotest accounted for approximately 40% of Bio-Rad's growth for the year, while strong growth in the Clinical Diagnostics division was driven by sales for blood typing, quality control testing, and the BioPlex 2200 product line.
In addition to manufacturing and selling instruments for laboratory testing and research, Bio-Rad sells the testing ingredients that are consumed with each test performed on these instruments. This sale of consumable testing ingredients provides Bio-Rad with a steady and recurring revenue stream that can drive consistent revenue growth. Bio-Rad's ability to sell consumables along with its instruments also heightens the focus on market adoption for its relatively new products, such as its BioPlex 2000, for which it is working on increasing market share. The more customers that Bio-Rad can get to adopt its new instruments, the greater its recurring revenue stream from consumables of that instrument will be.
Sales in the Life Sciences division have lagged in Europe and Japan due to the weak economic situations in those countries leading to decreased government funded research. While revenues in the US market have not been hit as hard due to the lagging economy, the suppressed revenue in the European and Japanese markets illustrate the dependence of Bio-Rad's Life Sciences products on government funded research. As governments world-wide change their attitudes toward funding basic science research, particularly in genetics, Bio-Rads revenue will be impacted.