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PRESS RELEASES |
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Current | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 Applera Corporation Teleconference - October 27, 2005 - October 27, 2005 Peter Dworkin As in previous earnings calls, this morning we will discuss each of our businesses separately starting with Applied Biosystems, then Celera Diagnostics, and concluding with Celera Genomics. We estimate that the Celera Diagnostics portion of the call will begin at about 11:45 a.m. Eastern Time and the Celera Genomics portion at approximately 12:00 p.m. Eastern Time. But we will move from one business to the next without interruption. Present today are Tony White, Chief Executive Officer of Applera; Dennis Winger, Chief Financial Officer of Applera; Cathy Burzik, President of Applied Biosystems; and Kathy Ordoņez, President of Celera Genomics and Celera Diagnostics. Other business managers also are present to assist in answering your questions. During this call, we will be making forward-looking statements about Applera's businesses. These statements are subject to the risks and uncertainties relating to our businesses and corporate structure that are referred to in the releases issued this morning and in Applera's filings with the SEC. Please note that during this call, the text of these prepared remarks will be posted on the Investor Relations section of the Applera web site and on the separate Investor Relations sites within the Applied Biosystems and Celera Genomics web sites. Tony White will make opening remarks about Applied Biosystems and, later in the call, about Celera Genomics and Celera Diagnostics. Tony White As we've entered this new fiscal year, we are pleased to report another strong financial performance by Applied Biosystems. Under Cathy Burzik's leadership, over the past year, the Group has undertaken organizational improvements, best practices initiatives and other efforts that are creating substantial value. Excluding special items, the first quarter of fiscal 2006 marks the seventh consecutive quarter, compared to prior year periods, that the Group has generated double digit earnings growth. While we are pleased with the progress we are making operationally, growing the top line remains our number one priority. With ample cash reserves and an un-levered balance sheet, the Group is in a strong financial position as we continue to aggressively pursue both internal and external growth opportunities. Now Cathy will share her perspectives. Cathy Burzik I'd like to echo Tony's comments for what I believe was a very positive start to fiscal year 2006. Applied Biosystems' revenue growth was 6 percent in Q1 and non-GAAP earnings per share increased by 33% over the first quarter of fiscal 2005. I will now share with you some of the divisional highlights that contributed to these results. Within our largest division, Molecular Biology, our DNA sequencing business is in transition from de novo whole genome sequencing to directed sequencing applications. This transition creates some "lumpiness" in our results. Our first quarter positive growth in sequencing was driven largely by placements of our low to medium throughput analyzers in directed (or medical) sequencing and forensics applications. However, for the full fiscal year we believe that our DNA sequencing product category will decline compared to FY05. While we are forecasting growth in sales of our line of low to medium throughput systems, we believe that this growth in sales will be more than offset by a year over year decline in sales of high throughput sequencing instruments. As sequencing transitions from de novo whole genome sequencing to directed sequencing, we believe that AB's current capillary electrophoresis platform remains the "gold standard" and is well suited to address near term sequencing applications. With respect to next generation sequencing, AB continues to pursue two strategies: first, internal research and product development and second, evaluation of external technologies. AB is making considerable internal investments in promising next generation sequencing technologies. And in addition, yesterday we announced that we had signed a definitive agreement to make an equity investment and to enter into a scientific collaboration with VisiGen. VisiGen is a privately-held next-generation sequencing technology company that is developing a promising single molecule solution for sequencing. The Molecular Biology division also continues to build on our strong portfolio of Real-Time PCR instruments and consumables. This past quarter we introduced our TaqMan Drug Metabolism Genotyping Assays for the detection and study of polymorphisms in the drug metabolism pathway as well as our TaqMan microRNA Assays for the detection and quantitation of mature human microRNA expression levels for use in cancer and stem cell research. On the instrument side, we saw a significant increase in sales of our 7900 high throughput Real Time PCR platform compared to the prior year quarter in the face of added competition in the marketplace. We are also experiencing greater success positioning the combination of TaqMan and our 1700 Expression Array Systems as a seamless work flow for gene expression. Our Mass Spectrometry business delivered a strong quarter, delivering 9 % growth over the prior year period, as new product introductions from the second half of last year began to gain traction. We continue to make advances in small molecule quantitation through our line of API LC/MS/MS for both pharmaceutical and applied markets applications. Customers doing biomarker discovery and validation have responded well to the new 4800 MALDI TOF/TOF system and our iTRAQ chemistries through strong purchases of these products. In fact, we entered the second quarter with a backlog of 4800 orders as we continue to ramp up manufacturing capacity. While we are seeing modest signs of a recovery in pharma spending in the U.S., we remain cautious on the pharmaceutical industry as a whole, especially given what we perceive to be a difficult environment in Western Europe. The Applied Markets Division continues to leverage Applied Biosystems' technology platforms to generate robust growth. We are seeing strong demand for sequencing products for human identification in the forensics market, as well as TaqMan kits for BioSecurity and Quality and Safety. This quarter we announced an alliance with DuPont Qualicon to provide DNA detection tests using TaqMan assay chemistry and Real-Time PCR technology to assess quality and safety in the food processing industry. Just after the close of the quarter, we announced a large sale of API 4000 mass spectrometers to the Centers for Disease Control for purposes of identifying harmful chemical agents nationwide. Thank you and now I'd like to turn the call over to our next speaker, Dennis Winger, who will review financial highlights for the first quarter and provide an update to our financial outlook for fiscal 2006. Dennis Winger Applied Biosystems' first quarter fiscal 2006 financial results are detailed in the press release, so I am going to focus only on the highlights. During the first quarters of both fiscal 2006 and 2005, the Group recorded items that affected the comparability of results. These items, outlined in today's press release, included charges in the first quarter of fiscal 2006 that decreased income before taxes by $4.2 million but were offset by tax benefits of $13.5 million. Earnings per share on a non-GAAP basis for the first quarter of fiscal 2006 was $0.24, compared to $0.18 in the prior year quarter, a 33 percent increase. The Group demonstrated continued earnings leverage improvement as EPS for the first quarter grew at a rate significantly in excess of revenues. A reconciliation of GAAP and non-GAAP financials can be found in today's press release which is now posted on our website at www.appliedbiosystems.com in the Financial Reports page of the Investor Relations section. The net effect of foreign currency on fiscal 2006 first quarter EPS was negligible, compared to the prior year quarter. During the first quarter of fiscal 2006, cash flow from operations was $51 million, representing a 28 percent increase over the prior year quarter. Capital expenditures were $13 million for Q1. At the end of the quarter, accounts receivable were $324 million, representing 60 days sales outstanding, and inventory was $131 million, representing 3.2 months of inventory on hand. Last quarter we reported that the Board had authorized the repurchase of up to 10 percent of the outstanding shares of Applera's Applied Biosystems Group common stock. As of the close of the first quarter, we had reached approximately 50% of this goal, purchasing approximately 9.3 million shares for $201 million. As of September 30, 2005, cash and short-term investments were $618 million, down from $756 million as of June 30, 2005, largely due to the stock repurchase program, but up from $535 million at the end of first quarter fiscal 2005. Applied Biosystems had no debt. An update to our fiscal 2006 guidance can be found in this morning's press release so I will only reiterate the highlights:
The Group continues to develop a plan to repatriate cash balances held outside the U.S. during fiscal 2006 consistent with the repatriation provision of the American Jobs Creation Act of 2004. The Group believes this outlook and its fiscal year 2006 financial performance could be affected by a number of factors and other risks and uncertainties outlined in today's press release. These comments reflect management's current outlook. Applera does not have any current intention to update this outlook and plans to revisit the outlook for its businesses only once each quarter when financial results are announced. Thank you, we'll now take your questions about Applied Biosystems. Peter Dworkin Tony White Celera Genomics and Celera Diagnostics each made notable progress over the last quarter. Celera Genomics reached another milestone with the initiation of its second unpartnered clinical trial with its cathepsin S inhibitor compound for the treatment of psoriasis, and we're encouraged by the advances evident from the discoveries made in the proteomic programs. Celera Diagnostics had another solid quarter with impressive growth in end-user sales and exciting developments around new products addressing genetic predisposition to complex diseases like cancer and cardiovascular and liver diseases. We've seen substantial progress in the cardiovascular arena, and with these studies in the stages of demonstrating clinical utility, we see the development of a Genetic Risk Score as a significant step toward the practice of Targeted Medicine.Next, Kathy Ordoņez will discuss Celera Diagnostics in more detail. Kathy Ordoņez (Celera Diagnostics) This has been a strong quarter for Celera Diagnostics and we've started the year on a good note. Our end-user sales for all products sold through our alliance with Abbott increased 38% to $17.8 million in the first quarter of fiscal 2006 from $12.9 million in the same quarter last year. This was due to increased sales of Celera Diagnostics' sourced HCV genotyping and viral load analyte specific reagents and human leukocyte antigen products. Another important component of this quarter's growth in end-user sales was the HIV and HCV real-time tests that run on the new m2000 system that was launched in Europe with Abbott. We are pleased with the initial market acceptance of these real-time products since their launch over the summer. We have also had positive outcomes in our genetic studies and we continue to progress toward the development of our first Genetic Risk Score. We envision that our Genetic Risk Score will provide physicians a quantifiable means of determining a genetic component to predisposition to certain diseases. Regarding our work in cardiovascular diseases, two key papers were published recently to support these endeavors. In the first paper published in this month's American Journal of Human Genetics, we reported along with our collaborators novel findings linking genetic variations in four genes with an increased risk for heart attack. This week we also published a paper in the journal Stroke with our collaborators at Bristol Myers Squibb and Harvard University that described a study of genetic variation in a family of proteins that have an anti-oxidant effect on low density cholesterol. This paper reported on a variant in the PON1 gene that is associated with a 2.4-2.7 fold increase in risk for stroke that is independent of standard risk factors such as high blood pressure, diabetes and smoking. We're working with our collaborators and clinical partners to include these findings with others that have been published previously, and incorporate them into a number of broad population-based studies to demonstrate their utility. Once the findings of these studies are published, the goal will be the commercialization of a diagnostic procedure using the Genetic Risk Score for predisposition to heart attack. Celera Diagnostics and Laboratory Corporation of America (LabCorp) recently entered into a license agreement to support LabCorp's implementation of hormone responsiveness testing linked to breast cancer that will incorporate Celera Diagnostics' technology. Celera Diagnostics completed discovery and replication studies to identify novel genes associated with rheumatoid arthritis, psoriasis, multiple sclerosis and other autoimmune diseases. Celera Genomics is using this information in its drug discovery programs for inflammatory diseases. Turning to the financial performance for the first quarter for 2006, our pre-tax loss was $7.8 million and our net cash use was $14.8 million. In the prior year period, our loss was $9.3 million, and cash use was $10.3 million. The increased cash use was due to increased working capital requirements offset by lower pre-tax losses. Our team is focused on growing our business through sales of existing and new products as well as leveraging our intellectual property and discovery power. As we indicated at the start of our fiscal year in July, we plan to reduce our pre-tax losses for the year to be in a range of $19 to $23 million, and net cash use to be in a range of $25 to $30 million. Total end-user sales for the alliance between Celera Diagnostics and Abbott are anticipated to grow this year to a range of $80 to $90 million. Reported revenues are expected to include technology-related revenues from licensing and other agreements, including payments from Cepheid, Merck and potential new sources. We will now take your questions on Celera Diagnostics. Peter Dworkin Kathy Ordoņez (Celera Genomics) This morning I'd like to provide an update on the progress we've made during this last quarter in the expansion of our therapeutic pipeline, the initiation of additional proteomic discovery work and the validation of additional targets. Our small molecule program has made good progress over the last quarter. We advanced our cathepsin S inhibitor for the treatment of psoriasis into Phase I clinical testing in healthy volunteers. In our other unpartnered compound currently undergoing a Phase I clinical trial, our histone deacetylase inhibition program with CRA-024781 in cancer patients has been initiated and the first doses administered in humans. We have advanced our program directed to inhibition of Bruton's tyrosine kinase, or Btk, to lead optimization status for the treatment of rheumatoid arthritis. In animal models of RA, our scientists have established the role of Btk, demonstrated oral bioavailability of drug candidates, and discovered a pharmacodynamic marker for Btk inhibition. As we have said over the past few months, we think that these programs are now sufficiently mature to build further value through new partnerships. By partnering these assets, we can ensure our most valuable programs are adequately resourced, while managing our use of cash. We have validated 32 cancer targets through our proteomics studies, and we have another 182 targets currently in the validation process from our pancreatic, colon, breast, and lung cancer specimens. In this last quarter, Seattle Genetics selected one of these antigen targets for further investigation for therapeutic development pursuant to the collaboration agreement initiated last year, adding to the two that Abbott selected in April this year for further investigation. We continue to seek new partners to create therapies based on these targets while leveraging our proteomic and genomic power. We also recently initiated programs in obesity and diabetes, and comparisons between fat cells in obese and lean individuals have demonstrated a significant difference between subcutaneous and visceral fat in these groups. Moreover, we have identified proteins on the surface of fat cells based on their differential expression, and these may be implicated in the development of obesity. Now, Dennis Winger will make a few comments regarding the financial results for Celera Genomics and our financial outlook for fiscal 2006. Dennis Winger Celera Genomics ended the recent quarter with $635 million in cash and short-term investments, a decrease of approximately $33 million from the end of the prior quarter, June 30, 2005. For the first quarter of fiscal 2006, Celera Genomics reported a net loss of $16.7 million, or 23 cents per share, compared to a net loss of $20.3 million, or 28 cents per share, in the same quarter last year. The first quarter fiscal 2006 results included a $4.5 million pre-tax gain from the sale of an investment. The first quarter fiscal 2005 results included a $4.5 million pre-tax charge related to the discontinuation of most of the operations of Paracel. In the recent quarter, R&D expenses decreased by $1.8 million compared to the same quarter last year, due primarily to the discontinuation of essentially all operations of the Online/Information Business as of the end of fiscal 2005. The expiration of Online/Information Business customer agreements is the primary factor behind the $7.5 million year-over-year decrease in revenues. As we announced in our third quarter fiscal 2005 earnings release, these expirations were expected, and are consistent with Celera Genomics' strategic decision to focus on therapeutic discovery and development. Excluding the potential effects of Celera Genomics' partnering initiatives in fiscal 2006, we expect the fiscal 2006 net cash use to be approximately $90 to $100 million. This includes an anticipated $10 to $15 million in fiscal 2006 for Celera Genomics' portion of Celera Diagnostics' funding. R&D expenses for fiscal 2006 are anticipated to be in the range of $95 to $105 million, and SG&A expenses to be in the range of $25 to $30 million. Revenues are expected to be in the range of $5 to $10 million, which reflects the discontinuation of the Online/Information Business. Pre-tax losses related to the Celera Diagnostics joint venture are expected to be in the range of $19 to $23 million. The Group believes this outlook and its fiscal year 2006 financial performance could be affected by a number of factors and other risks and uncertainties outlined in today's press release. These comments reflect management's current outlook. Applera does not have any current intention to update this outlook and plans to revisit the outlook for its businesses only once each quarter when financial results are announced. We will now take your questions regarding Celera Genomics. Peter Dworkin Forward-Looking Statements The risks and uncertainties that may affect the operations, performance, development, and results of Applied Biosystems include but are not limited to: (1) rapidly changing technology could adversely affect demand for Applied Biosystems' products, and its business is dependent on development and customer acceptance of new products; (2) Applied Biosystems' sales are dependent on customers' capital spending policies and government-sponsored research; (3) Applied Biosystems' significant overseas operations, with attendant exposure to fluctuations in the value of foreign currencies; (4) risks associated with Applied Biosystems' growth strategy, including difficulties in integrating acquired operations or technologies; (5) potential liabilities related to the use of hazardous materials, (6) the risk of earthquakes, which could interrupt Applied Biosystems' or Celera Diagnostics' operations; (7) risks associated with lawsuits, arbitrations, investigations, and other legal actions with private parties and governmental entities, particularly involving claims for infringement of patents and other intellectual property rights, and the possibility that Applied Biosystems or Celera Diagnostics may need to license intellectual property from third parties to avoid or settle such claims; (8) Applied Biosystems' dependence on the operation of computer hardware, software, and Internet applications and related technology for its businesses, particularly those focused on the development and marketing of information-based products and services; (9) Celera Diagnostics' reliance on existing and future collaborations, including its strategic alliance with Abbott Laboratories, which may not be successful; (10) Celera Diagnostics' unproven ability to discover, develop, or commercialize proprietary diagnostic products; (11) the risk that clinical trials of products that Celera Diagnostics does discover and develop will not proceed as anticipated, may take several years and be very expensive, or may not be successful, or that such products will not receive required regulatory clearances or approvals; (12) the uncertainty that Celera Diagnostics' products will be accepted and adopted by the market, including the risks that these products will not be competitive with products offered by other companies, or that users will not be entitled to receive adequate reimbursement for these products from fourth party payors such as private insurance companies and government insurance plans; (13) Celera Diagnostics' reliance on access to biological materials and related clinical and other information, which may be in limited supply or access to which may be limited; (14) legal, ethical, and social issues which could affect demand for Celera Diagnostics' products; (15) Celera Diagnostics' limited commercial manufacturing experience and capabilities and its reliance on a single principal manufacturing facility; (16) Applied Biosystems' and Celera Diagnostics' reliance on a single supplier or a limited number of suppliers for key components of some of their products; (17) potential product liability or other claims against Celera Diagnostics as a result of the testing or use of its products; (18) intense competition in the industry in which Celera Diagnostics operates; and (19) other factors that might be described from time to time in Applera Corporation's filings with the Securities and Exchange Commission. All information in this press release is as of the date of the release, and Applera does not undertake any duty to update this information, including any forward-looking statements, unless required by law. The risks and uncertainties that may affect the operations, performance, development, and results of Celera Genomics' businesses include but are not limited to: (1) Celera Genomics expects operating losses for the foreseeable future; (2) the uncertainty that Applied Biosystems can successfully commercialize royalty-bearing products covered by the marketing and distribution agreement between Celera Genomics and Applied Biosystems, and therefore the uncertainty that the agreement will generate significant royalty payments to Celera Genomics; (3) Celera Genomics' and Celera Diagnostics' unproven ability to discover, develop, or commercialize proprietary therapeutic or diagnostic products; (4) the risk that clinical trials of products that Celera Genomics or Celera Diagnostics do discover and develop will not proceed as anticipated, may take several years and be very expensive, or may not be successful, (5) Celera Genomics' reliance on third parties for the raw materials used in, and manufacture of, compounds needed for some pre-clinical testing and clinical trials of therapeutic product candidates, (6) the risk that therapeutic products will not receive required regulatory clearances or approvals; (7) the uncertainty that Celera Genomics' or Celera Diagnostics' products will be accepted and adopted by the market, including the risk that these products will not be competitive with products offered by other companies, or that users will not be entitled to receive adequate reimbursement for these products from third party payors such as private insurance companies and government insurance plans; (8) reliance on existing and future collaborations with other companies, including, in the case of Celera Diagnostics, its strategic alliance with Abbott Laboratories, which may not be successful; (9) Celera Genomics' and Celera Diagnostics' reliance on access to biological materials and related clinical and other information, which may be in limited supply or access to which may be limited; (10) intense competition in the industries in which Celera Genomics and Celera Diagnostics operate; (11) potential product liability or other claims against Celera Genomics or Celera Diagnostics as a result of the testing or use of their products; (12) Celera Genomics' reliance on scientific and management personnel having the training and technical backgrounds necessary for Celera Genomics' business, and also on collaborations with scientific and clinical experts at academic and other institutions who may not be available to Celera Genomics or who may compromise the confidentiality of Celera Genomics' proprietary information; (13) potential liabilities related to the use of hazardous materials; (14) uncertainty of the availability to Celera Genomics and Celera Diagnostics of intellectual property protection, limitations on their ability to protect trade secrets, the risk to them of infringement claims, and the possibility that they may need to license intellectual property from third parties to avoid or settle such claims; (15) Celera Genomics' dependence on the operation of computer hardware, software, and Internet applications and related technology; (16) legal, ethical, and social issues which could affect demand for Celera Genomics' or Celera Diagnostics' products; (17) risks associated with future acquisitions by Celera Genomics, including that they may be unsuccessful; (18) uncertainty of the outcome of existing stockholder litigation; (19) Celera Diagnostics' limited commercial manufacturing experience and capabilities and its reliance on a single principal manufacturing facility; (20) Celera Diagnostics' reliance on a single supplier or a limited number of suppliers for key components of certain of its products; (21) the risk of earthquakes, which could interrupt Celera Diagnostics' and/or Celera Genomics' operations; and (22) other factors that might be described from time to time in Applera Corporation's filings with the Securities and Exchange Commission. All information in this press release is as of the date of the release, and Applera does not undertake any duty to update this information, including any forward-looking statements, unless required by law. Copyright 2005. Applera Corporation. All Rights Reserved. Applied Biosystems and Celera are registered trademarks, and AB (Design), Applera, Celera Diagnostics, and Celera Genomics are trademarks of Applera Corporation or its subsidiaries in the U. S. and/or certain other countries. TaqMan is a registered trademark of Roche Molecular Systems, Inc. Notice To Readers: Celera's press releases, presentations and printed remarks are included on this website for historical purposes only. The information contained in these documents should be considered accurate only as of the date of the relevant document. This information may change over time, and therefore visitors to this website should not assume that the information contained in these documents remains accurate at a later time. We do not have any current intention to update any of the information in these documents.
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