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Applera Corporation Teleconference - April 27, 2004
Management Remarks for Third Quarter Fiscal 2004 Earnings Call

- April 27, 2004

Peter Dworkin

Good morning. Thanks for joining Applera management to discuss the third quarter fiscal 2004 financial results that we issued early this morning for Applera Corporation including its Applied Biosystems Group and Celera Genomics Group, as well as Celera Diagnostics, the 50/50 joint venture between Applied Biosystems and Celera Genomics.

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 am Eastern Time and the Celera Genomics portion at approximately 12:00 pm 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; Mike Hunkapiller, President of Applied Biosystems; Cathy Burzik, Executive Vice President, Applied Biosystems; and Kathy Ordoñez, President of Celera Genomics and Celera Diagnostics. Other business managers 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. Our first speaker is Tony White.

Tony White

Good morning.

I will make a few comments about Applied Biosystems before turning the call over to Mike Hunkapiller, and later I'll say a few words about Celera Diagnostics and Celera Genomics before Kathy Ordoñez reviews those businesses.

At Applied Biosystems, third quarter performance was consistent with our outlook when we last talked with the investment community in late January. Revenues and earnings increased modestly in the third quarter excluding the positive impact of foreign currency. We saw reasonable spending levels for mass spectrometry systems from our pharmaceutical customers and reasonable spending in general from our large biotech customers. Demand in our applied markets businesses was strong. As many of you know, human identification products used in forensics are the largest component of that business, but we also are expanding in the areas of food and environmental safety and biodefense.

On the other hand, the business climate remained challenging among our government-funded academic customers, particularly in Japan, and more recently in Taiwan, and Korea. Percentage growth was highest in Europe, followed by North America, where capital equipment spending by NIH-funded customers appears to have improved late in the quarter. These customers have started to receive their current-fiscal year funding for new grants, and we believe we will see more of the impact from the release of funding over the next two quarters.

As Mike will describe in a few minutes, our third quarter results underscore our continuing enthusiasm for the SDS/Other Applied Genomics product category as well as the Mass Spectrometry category. By contrast, the DNA Sequencing product category declined four percent compared to the prior year. Going forward, we expect the SDS and Mass Spec product categories - the first consisting of products for functional genomics, the second, products for protein and small molecule analysis - will continue to become a bigger and more influential part of our total product mix, even as we pursue new avenues for growth in sequencing.

Let me say a few words about the status of our in-depth business review. The project, directed by Cathy Burzik with the assistance of a third-party consulting firm, began in February. The first phase of the project, which has now been completed, was a rigorous fact-based analysis of our current product portfolio. In the second phase, we are evaluating our R&D investments in an attempt to achieve optimum alignment with future growth opportunities. In this phase, we are also examining our business processes with a goal to improving operational efficiency and productivity.

As a result of our business review, we also will be evaluating portfolio decisions that could change our product and business mix. Some people in the investment community have expressed interest in the output of this project. We have not decided what aspects of the work will be shared publicly. As we make those decisions, we will provide updates as appropriate. Despite challenges in the business environment, particularly in the outlook for government-funded life science research in the U.S. and abroad, we are committed to improving the performance of Applied Biosystems and to making Applied Biosystems an even stronger partner to our customers, helping to enable the vital work that they do.

Now, Mike will recap Applied Biosystems' results during the quarter.

Mike Hunkapiller

Thank you, Tony.

During the third quarter, net revenues increased 7 percent, including a positive impact of approximately 3 percent from foreign currency, compared to the prior year quarter.

Once again, the fastest growing product category in the quarter was SDS/Other Applied Genomics. During the third quarter, sales of these products increased approximately 29 percent over the prior year quarter, driven by the strength of TaqMan® consumables sales and, to a lesser degree, instrument sales. In the applied markets, sales of our products for human identification were strong and have now become a significant contributor to the overall growth of the SDS/Other Applied Genomics product category.

During the third quarter, we launched a number of new products in the SDS/Other Applied Genomics product category. Full commercial sales of the Applied Biosystems Expression Array System began in Japan in March and in the rest of the world in early April. Applied Biosystems now offers a fully integrated suite of products for gene expression analysis, including the ABI PRISM® 7900HT Sequence Detection System, TaqMan® Gene Expression Assays, and TaqMan® Low Density Arrays, which we previously referred to as the 7900HT Micro Fluidic Card. Feedback on the Expression Array System from our early customers has been positive, citing the system's superior sensitivity and specificity relative to existing technologies for whole genome analysis, as well as the benefits of a fully integrated platform for gene expression analysis.

In addition to the Expression Array System, we also began full commercial sales of our other major new functional genomics products, the SNPlex™ System for ultra high throughput genotyping and the VariantSEQr™ Resequencing System for discovery of genetic variations and their association with disease, as well as the 7300 and 7500 Real-Time PCR Systems. Initial customer response to each of these new products has been positive.

In Mass Spectrometry, revenues increased 17 percent, driven by the strength of sales of the 4000 Q TRAP® LC/MS/MS System. As expected, the Applied Biosystems/MDS Sciex Instruments joint venture [MDS Inc. (TSX: MDS; NYSE: MDZ)] manufacturing capacity for the 4000 Q TRAP System ramped-up during the third quarter. As a result, we were able to work through the second quarter backlog of orders for the system, fill a substantial number of new orders that came in during the quarter, and still finish the quarter with a healthy backlog in place.

As Tony mentioned, during the third quarter, DNA Sequencing revenues declined 4 percent as compared to the prior year quarter. Sales of DNA Sequencing instruments declined, primarily as a result of more modest sales of the Applied Biosystems 3730xl DNA Analyzer to large-scale genome centers, more than offsetting an increase in sales of DNA Sequencing consumables.

At Applied Biosystems, government funding of life science research remains an important issue. During the third quarter, revenues from Japan declined 14 percent compared to the prior year, net of a positive impact from foreign currency of approximately 2 percent. This decline resulted primarily from the transition of universities to Independent Administrative Agency status, which has altered the universities' traditional purchasing patterns. At this point, the impact and duration of this transition period remains uncertain; however, we expect it is likely to continue for at least a number of additional quarters. Elsewhere in Asia, political uncertainties in Taiwan and South Korea began to negatively impact our business. In Hong Kong, a resolution to reduce university funding led to some reduction in our customers' life science spending.

As Tony mentioned, in the U.S., following the passage of the fiscal 2004 budget, the National Institutes of Health (NIH) began to fund projects on a normal full-year basis. As a result, during the last few weeks of the quarter, our government-funded customers began to receive their full-year fiscal 2004 funding. Finally, in Europe, while government funding for life science research remains constrained in certain regions, funding levels appear to have at least stabilized.

From a geographic perspective, revenues in the United States, which accounted for approximately 44 percent of total third quarter revenues, increased 2 percent from the prior year quarter. Revenues in Europe, which accounted for approximately 33 percent of total revenues, increased 28 percent from the prior year quarter. This increase was driven by sales of the 4000 Q TRAP and SDS instruments and consumables. And finally, revenues in Asia Pacific, which accounted for approximately 19 percent of total revenues and which include revenues from Japan, declined 11 percent from the prior year quarter. The net effect of foreign currency increased revenues by approximately 7 percent in Europe and approximately 2 percent in Asia Pacific during the third quarter of fiscal 2004.

During the third quarter, SG&A expenses increased 21 percent from the prior year quarter. Approximately half of this increase was due to higher legal fees related to defending the Group's intellectual property assets. The Applied Biosystems/MDS Sciex Instruments joint venture settled patent infringement claims with Waters Technologies Corporation (NYSE: WAT) and entered into royalty-bearing license agreements cross licensing certain technology. As part of the settlement, Waters paid Applied Biosystems and MDS $18.1 million. On April 19, 2004, Applera and Roche Molecular Systems, Inc., a division of F. Hoffmann LaRoche Ltd. (OTC: RHHBY.PK), received a favorable decision in a patent infringement case against MJ Research, Inc. and its principals. The jury awarded damages in the amount of $19.8 million. Applied Biosystems and Roche Molecular Systems are pursuing an enhancement of damages and an injunction against MJ Research. MJ Research filed for bankruptcy court protection on March 29, 2004. The Court's decision concludes the first phase of the trial. The second phase, to consider MJ Research claims of anticompetitive conduct by Applera and Roche Molecular Systems, is scheduled to begin in late July 2004.

Now I would like to address the topic of our license income from our rights to PCR technology. The first of the PCR process patents expire in March 2005 in the U.S. and in March 2006 in Europe and some other jurisdictions. These expirations may result in reduced royalty payments to Applied Biosystems. However, we expect that a possible reduction in current PCR royalties would be offset to a substantial degree by income from real-time PCR and other PCR-related technologies. Moreover, we have rights to multiple other PCR-related patents that should support a healthy PCR-related royalty stream well beyond 2005 and 2006. Taken together, these factors should substantially mitigate the effects of the patent expirations. Finally, remember that Applied Biosystems royalty income comes from patented technologies other than PCR, including DNA sequencing and mass spectrometry.

The third quarter marked an important transition point for the business. During the quarter, our two fastest growing product categories, SDS/Other Applied Genomics and Mass Spectrometry reached the point where together they now account for 50 percent of our total revenue. During the past few years, we have made substantial R&D investments in these product categories, and as we move forward, we expect these dynamic areas to play an increasingly important role in our business.

Next, Dennis Winger will cover the financial performance and financial outlook for Applied Biosystems.

Dennis Winger

Thank you, Mike.

Third quarter fiscal 2004 financial results and the fiscal 2004 financial outlook for Applied Biosystems are detailed in the press release, so I am going to focus on providing additional color on a few of these details.

Earnings from continuing operations per diluted share were $0.22 for the third quarter of fiscal 2004 as compared to $0.19 in the prior year quarter. Included in the fiscal 2004 third quarter amount was a net gain of $0.02 from legal settlements, a gain of $0.01 from the sale of investments, and a charge of $0.02 for severance and related costs. The net effect of foreign currency increased earnings per share by approximately $0.01 during the third quarter of fiscal 2004.

During the third quarter of fiscal 2004, cash flow from operations was $71.0 million, and capital expenditures were $16.2 million. During the third quarter, strong cash flow generation, as well as Applied Biosystems' substantial cash position, allowed us to use $116.0 million to repurchase approximately 5.0 million shares of Applied Biosystems stock. On a fiscal year-to-date basis, we have used $200.0 million to repurchase approximately 8.9 million shares of Applied Biosystems stock. At the end of the quarter, cash and cash equivalents were $584.9 million, and Applied Biosystems has no debt. In early April, the Applera Board of Directors authorized the repurchase of up to $100 million in additional shares of Applied Biosystems stock.

As of the end of the third quarter, accounts receivable was $364.1 million, representing 66 days sales outstanding, versus $356.5 million, or 67 days outstanding, as of the end of the second quarter of fiscal 2004. Inventory was $140.4 million, representing 3.1 months of inventory on hand, versus $150.7 million, or 3.5 months, as of the end of the second quarter of fiscal 2004.

Consistent with prior guidance, the Group believes demand from commercial customers will remain healthy during the remainder of fiscal 2004. The Group continues to believe there are a number of issues relating to government funding for life science research in Japan, as well as new political uncertainties in South Korea and Taiwan, that have the potential to negatively impact fiscal 2004 fourth quarter financial results. Additionally, in the U.S., the Group believes there is a possibility that customer concern about the timing and level of future NIH funding could lead to more conservative purchase behavior by laboratories operated or funded by the NIH.

Consistent with prior guidance, the Group forecasts single-digit annual revenue growth for fiscal 2004. The Group expects this growth to be driven by sales increases in both the SDS/Other Applied Genomics and the Mass Spectrometry product categories, partially offset by declines in the DNA Sequencing product category. The Group expects fiscal 2004 annual earnings per share growth at a rate equal to or slightly above annual revenue growth.

The Group estimates that the fiscal 2004 annual gross margin will be slightly above that of fiscal 2003. The Group expects annual selling, general and administrative expense to increase as a percent of total revenues during fiscal 2004 due to a number of factors, including: increased litigation-related legal fees associated with Applera's patent litigation with MJ Research, Inc.; the unfavorable effects of foreign currency; costs associated with the development of, and enhancements to, the new Applied Biosystems Portal; and increased insurance and pension costs. The Group expects that the fiscal 2004 annual operating margin, excluding special items, as a percent of total revenues will be slightly below that of fiscal 2003.

The Group expects the effective tax rate for fiscal 2004 to be approximately 28 percent. Future tax legislation may repeal or replace the existing U.S. export tax regime, as well as significantly change other international tax provisions of the Internal Revenue Code. Such changes may result in a change in the effective tax rate for the Group.

Capital spending in fiscal 2004 is anticipated to be within the range of $60-70 million.

On April 5, 2004, the Group announced that the Applera Board of Directors authorized the repurchase of up to $100 million in additional shares of Applera-Applied Biosystems stock. This authorization supplements the Group's existing authority to repurchase shares issued under its employee stock benefit plans.

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

We will now turn to Celera Diagnostics, a 50/50 joint venture between Applied Biosystems and Celera Genomics. Tony White will make some introductory remarks, followed by Kathy Ordoñez.

Tony White

Thanks Peter.

Both Celera Diagnostics and Celera Genomics are steadily advancing their discovery programs while benefiting from their close relationship. Celera Genomics is moving its unpartnered small molecule programs forward and discovering additional potential antibody targets. To take advantage of this progress, Kathy's team is stepping up the assessment of potential deals, particularly around the development of therapeutic antibodies. Meanwhile, the flow of discoveries and communications from the association studies at Celera Diagnostics continues to build. Its alliance with Abbott Laboratories is expanding sales while broadening its product portfolio.

Applera's objective is to develop products that address unmet medical needs. We believe our complementary diagnostic and therapeutic research can support the development of differentiated products, which in turn can lead to value creation. For example, Celera Diagnostics and Celera Genomics are jointly conducting two association studies that should provide insight into the genetic and biological basis for selected inflammatory conditions. This effort could identify new drug targets and aid in the determination of therapeutic response patterns in patient populations. In addition, these studies could facilitate Celera Genomics' application of pharamacogenomics in future clinical trials, and create opportunities for partnering that take advantage of our knowledge.

Now I will turn it over to Kathy.

Kathy Ordoñez (CDx)

Thank you Tony and good morning everyone.

During the recent quarter, Celera Diagnostics grew end-user sales through its alliance with Abbott Laboratories and decreased its net loss and cash requirements on a year-over-year basis. We also advanced our association studies and started planning for the transfer of the first prototype assays from these studies to reference labs. Our scientists and collaborators communicated additional findings related to risk of myocardial infarction, and are preparing for a number of publications and events in the coming months that should further demonstrate the power of our approach to discovery. In addition, we obtained expanded claims related to the ViroSeq™ HIV-1 Genotyping System from the FDA, as well as CE mark certification in Europe.

For the fiscal third quarter 2004, end-user sales of products manufactured by Celera Diagnostics were $9.8 million, an increase of $4.0 million compared to the year-earlier quarter. More importantly, end-user sales for all products sold through the alliance by Abbott more than doubled to $12.7 million from $6.3 million in the same quarter last year. In the future, we plan to emphasize total alliance end-user sales, as the revenues generated by Abbott and other third-party sourced products are now becoming more relevant. The alliance allows us to share profits from all end-user sales, regardless of their source.

The pre-tax loss for the third quarter of fiscal 2004 decreased to $11.9 million, compared to $12.6 million in the same quarter last year. Net cash used was $9.2 million in the quarter, compared to $15.8 million in the third quarter of fiscal 2003. This decrease was primarily related to reduced working capital requirements and lower capital expenditures.

In March, we reported at the American College of Cardiology Meeting the discovery of novel markers in four genes associated with risk for myocardial infarction. None of these genes is in a previously recognized disease pathway associated with MI risk. The study demonstrated the breadth of our capabilities-a genome wide scan of 16,000 functional SNPs, replication and sample pooling. The markers were first identified in a set of approximately 1,600 samples and replicated in a second cardiovascular study of approximately 2,000 samples. The increased risk associated with each of these polymorphisms is comparable to traditional risk factors for MI, such as elevated blood pressure or cholesterol, family history of early heart disease, age, or smoking. We are planning a follow up presentation at the International Vascular Biology Meeting in Toronto during June.

Going forward, you should expect to see growth in end-user sales as described in the outlook section of today's press release, as well as additional scientific communications. For example, the results from seven laboratories that evaluated Celera Diagnostics' viral load and genotyping HCV analyte specific reagents in homebrew assays were accepted for presentation at the annual Clearwater Virology meeting taking place this week. Other communications will include additional findings related to risk of myocardial infarction and interferon responsiveness in hepatitis C patients. We also plan to share, for the first time, selected findings regarding risk of stroke. Our association studies are providing us with a better understanding of these diseases and we believe they can lead to new diagnostic products. Some studies are likely to provide therapeutic insights to Celera Genomics and other partners, and they form the basis for new prototype assays that could be transferred to reference labs for utility studies.

Now we will take your questions regarding Celera Diagnostics.

Peter Dworkin

In the third and final portion of our call today, Kathy Ordoñez will cover Celera Genomics.

For those who may have just joined us this morning, please note that during this call we will be making forward-looking statements about the Company'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 Securities & Exchange Commission.

Kathy Ordoñez (CRA)

Thank you, Peter.

First, I would like to provide some more information regarding our comment in today's press release about the partnered programs assumed with the Axys Pharmaceuticals acquisition. We previously stated that a partnered compound could enter clinical trials during fiscal 2004. However, we have consistently pointed out that our partners will make clinical development decisions with respect to these compounds. We now believe that the initiation of such trials is unlikely during the remainder of fiscal 2004 and, while the partnered programs could lead to clinical trials in the future, this is not a certainty. Since we don't have influence on these programs, we have decided not to attempt to predict their future development progress.

We have allocated a majority of our small molecule discovery and development resources to our four most advanced, unpartnered programs; histone deacetylase or HDAC, Factor VIIa, tryptase, and one other undisclosed program addressing an immune-mediated inflammatory disease. This focus has provided momentum within these projects and meaningful progress. Today I will update you regarding HDAC and Factor VIIa.

Inhibition of HDAC leads to an increase in gene expression in a number of genes, some of which are related to cell cycle arrest and apoptosis. Our medicinal chemists have applied structure based drug design to generate compounds that possess potent in vitro inhibition of enzyme and cellular activity, and significant in vivo efficacy in xenograft models of cancer. One of our compounds under investigation reduced tumor growth by approximately 90% in xenograft models compared to the untreated controls.

Our program in Factor VIIa inhibition is focused primarily on the identification of compounds for the treatment of deep vein thrombosis, with the goal of improved balance between bleeding time and therapeutic efficacy compared to existing therapies. We are seeking to optimize compounds for a variety of characteristics such as DMPK and ease of formulation.

Our proteomics programs to identify targets for therapeutic antibodies in cancer continue to move forward on all fronts. We are completing validation screens of 14 potential pancreatic cancer targets, and we have identified the next 30 differentially expressed proteins in pancreatic, lung and colon cancer we plan to evaluate. Validation includes immunohistological studies and the comparison of protein expression in normal tissue, tumor tissue for the primary cancer of interest, and in tumor tissue in nine other major cancers. These evaluations tell us whether a potential target is specific to a particular cancer, or generally associated with cancer. Based on our success to date, we believe our proteomics programs should provide us with enough targets to support more than one antibody collaboration.

We recently appointed Paulette Dillon as Celera's Chief Business Officer. Her appointment comes at a time when we are seeking to establish antibody partnerships to advance the targets emerging from proteomics. We have expanded our preclinical and clinical staff to support our leading small molecule programs by growing our DMPK team and adding formulation, toxicology and analytical expertise. Headcount in development is expected to exceed 50 at the end of fiscal 2004, versus sixteen at the end of calendar 2002.

We are pleased with the progress within the therapeutic programs, and remain optimistic about the future. We expect to move our unpartnered programs forward toward INDs. Based on the momentum we have in proteomics, we should continue to identify differentially expressed proteins, advance target validation, and establish relationships to develop therapeutic antibodies against our targets. We are also seeking one or more partners for our activities in Targeted Medicine.

Now, Dennis Winger will make a few comments regarding the financial results for Celera Genomics.

Dennis Winger

Thank you, Kathy.

Celera Genomics ended the recent quarter with $739 million in cash and short-term investments, a decrease of approximately $31 million from the prior quarter. Approximately $10 million of this change is attributable to the early repurchase of convertible notes that we assumed in connection with the acquisition of Axys Pharmaceuticals in November 2001. These notes had a maturity date of October 1, 2004, which is the same as that of the remaining $6 million of notes outstanding.

For the third quarter of fiscal 2004, Celera Genomics reported a net loss of $21.9 million, or 30 cents per share, compared to $26.7 million, or 37 cents per share, in the same quarter last year. Celera's expenses for the third quarter of fiscal 2003 included a $15.1 million non-cash charge associated with the equity method investment in Discovery Partners International. R&D expenses increased by $1.3 million compared to last year's quarter, and $3.1 million compared to the second quarter of fiscal 2004. This increase is primarily attributable to increased preclinical development activities and the hiring of therapeutics R&D personnel. The ongoing expiration of Online/Information Business customer agreements is the primary factor behind the $9.1 million year-over-year decrease in revenues. These expirations were expected, and are consistent with Celera Genomics' strategic decision to focus on therapeutic discovery and development. The remaining Online/Information Business customer agreements expire through fiscal 2006.

For the first nine months of fiscal 2004, Celera Genomics reported a net loss of $51.7 million, or 71 cents per share, compared to $62.5 million, or 88 cents per share, in the same period last year. Reduced R&D expenses offset most of the impact of lower revenues and interest income. Our R&D expenses for this period decreased to $75.2 million, compared to $92.3 million in the first nine months of fiscal 2003. Lower expenses related to the wind-down of the Applera Genomics Initiative and cost reductions in the Online/Information Business more than offset increased therapeutic R&D expenditures.

We expect therapeutic discovery spending to increase over the balance of the year as we continue to expand our R&D capabilities consistent with our goal of advancing our unpartnered programs. For fiscal 2004, we now anticipate R&D expenses will be in the range of $101 to $106 million, and we expect cash and short-term investments will decrease by approximately $85 to $90 million. Our cash outlook includes Celera Genomics' portion of the funding for the Celera Diagnostics joint venture which is expected to be in the range of $25 to $30 million for fiscal 2004. This outlook excludes approximately $10 million we used in the recent quarter to repurchase the convertible notes, and the net proceeds we may receive from the proposed sale of the 7.22 million shares of Discovery Partners common stock currently owned by Celera Genomics.

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

Thank you for participating in this call today. Management's remarks should now be posted on our websites. The audio replay will be available later today using the phone numbers listed in today's press releases.

Certain statements in this press release, including the Outlook sections, are forward-looking. These may be identified by the use of forward-looking words or phrases such as "believe," "expect," "should," "anticipate," and "planned," among others. These forward-looking statements are based on Applera Corporation's current expectations. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. In order to comply with the terms of the safe harbor, Applera Corporation notes that a variety of factors could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in such 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 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) the risk of earthquakes, which could interrupt Applied Biosystems' or Celera Diagnostics' operations; (6) uncertainty of the availability to Applied Biosystems or Celera Diagnostics of intellectual property protection, limitations on the ability of Celera Diagnostics to protect trade secrets, and the risk to Applied Biosystems and Celera Diagnostics of infringement claims; (7) 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; (8) Celera Diagnostics' reliance on existing and future collaborations, including its strategic alliance with Abbott Laboratories, which may not be successful; (9) Celera Diagnostics' unproven ability to discover, develop, or commercialize proprietary diagnostic products; (10) the risk that clinical trials of products that Celera Diagnostics does discover and develop will not proceed as anticipated or may not be successful, or that such products will not receive required regulatory clearances or approvals; (11) 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 third party payors such as private insurance companies and government insurance plans; (12) 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; (13) legal, ethical, and social issues which could affect demand for Celera Diagnostics' products; (14) Celera Diagnostics' limited commercial manufacturing experience and capabilities and its reliance on a single principal manufacturing facility; (15) Applied Biosystems' and Celera Diagnostics' reliance on a single supplier or a limited number of suppliers for key components of some of their products; (16) potential product liability or other claims against Celera Diagnostics as a result of the testing or use of its products; (17) intense competition in the industry in which Celera Diagnostics operates; and (18) 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) Celera Genomics' reliance on Applied Biosystems for incremental revenues to Celera Genomics from the Celera Discovery System and Celera Genomics' related information assets; (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 or may not be successful, or that such products will not receive required regulatory clearances or approvals; (5) the uncertainty that Celera Genomics' or Celera Diagnostics' products will be accepted and adopted by the market, including the risk that 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; (6) reliance on existing and future collaborations, including, in the case of Celera Diagnostics, its strategic alliance with Abbott Laboratories, which may not be successful; (7) 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; (8) intense competition in the industries in which Celera Genomics and Celera Diagnostics operate; (9) potential product liability or other claims against Celera Genomics or Celera Diagnostics as a result of the testing or use of their products; (10) Celera Genomics' reliance on scientific and management personnel having the training and technical backgrounds necessary for Celera Genomics' business; (11) potential liabilities of Celera Genomics related to use of hazardous materials; (12) uncertainty of the availability to Celera Genomics and Celera Diagnostics of intellectual property protection, limitations on their ability to protect trade secrets, and the risk to them of infringement claims; (13) Celera Genomics' dependence on the operation of computer hardware, software, and Internet applications and related technology; (14) legal, ethical, and social issues which could affect demand for Celera Genomics' or Celera Diagnostics' products; (15) risks associated with future acquisitions by Celera Genomics, including that they may be unsuccessful; (16) uncertainty of the outcome of existing stockholder litigation; (17) Celera Diagnostics' limited commercial manufacturing experience and capabilities and its reliance on a single principal manufacturing facility; (18) Celera Diagnostics' reliance on a single supplier or a limited number of suppliers for key components of certain of its products; (19) the risk of earthquakes, which could interrupt Celera Diagnostics' and/or Celera Genomics' operations; and (20) 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 2004. Applera Corporation. All Rights Reserved. AB (Design), Applera, Celera Diagnostics, Celera Discovery System, Celera Genomics, SNPlex, VariantSEQr, and ViroSeq are trademarks and Applied Biosystems and Celera are registered trademarks of Applera Corporation or its subsidiaries in the U. S. and/or certain other countries. Q TRAP is a registered trademark of Applied Biosystems/MDS SCIEX, which is a joint venture between Applera Corporation and MDS Inc.


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