During the biotech craze last year, many viewed Applied Biosystems as a profitable, safer company with steady future growth the company estimated at 20% annually. But the company now warns that the 20% rate will slow in the short term, and the market appears to be deflating what tires remain.
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Applera Corp.'s Applied Biosystems (NYSE: ABI), sibling to Celera Genomics (NYSE: CRA), warned of slower near-term growth yesterday and this morning. President Mike Hunkapiller said in a prepared statement that over the next few quarters, the biotech equipment maker's "short-term growth rate may be one-half to two-thirds of our long-term target" of 20% compounded annual growth. The company's stock, which closed yesterday at $34.45 -- down 74% from its $133.31 52-week high --plummeted again almost 50% in trading this morning, prompting CEO Tony White to make unusually strong comments in a morning conference call. Three reasons for the slowdown The company said on the call that it would take steps to reduce capital expenses, but not reduce research and development. Hunkapiller said in a prepared statement that more than half of Applied Biosystems' revenues -- $1.4 billion in 2000 -- come from non-capital equipment, repeat-purchase items used with expensive equipment, software, service contracts, and royalties. He also pointed out that more than 50% of revenues are from government contracts, which are expected to grow about 13%. On the call, the company noted that government and big drug maker -- big pharma -- expenditures would be steady. That gave questioners the opening to ask whether the slowdown came from biotech customers. Execs responded that biotechs have two sources of funding: capital markets and partnerships with big pharma. With the stock market down, capital markets won't be providing the money for newer unprofitable biotechs to buy Applied Biosystems' products. In related news, Bloomberg reported this morning that Applied Biosystems' main competitor, privately-held AP Biotech, is considering delaying its IPO yet again. The U.K.'s Nycomed Amersham (NYSE: NYE), which owns AP Biotech with Pharmacia (NYSE: PHA), plans to sell 10% of its shares. It first filed to sell the shares last fall, but presumably adverse market conditions have caused the delay. Bloomberg reports that AP Biotech's diagnostics products help shield it from the same pain as Applied Biosystems, which in the last few months has increased resources devoted to molecular diagnostics research and development. CEO attacks stock price plunge He continued that his "management team created the market" for tools for genomics and proteomic research, and has become "the standard by which every company is measured in this field and will continue to be." He views Applied Biosystems as especially well-situated "in a field that's going to make a difference, be meaningful to the human condition, operating in markets that will be robust. We'll provide leading edge technology to this marketplace....We're a hard-nosed group of people determined to win in a tough market. If you believe that, you should be buying the stock. If you don't, someone will be buying the stock from you." This is amazingly frank talk about stock price from the head of a company with $1.4 billion in sales. Someone needs to tell him that just as his company commanded an absurd valuation at $133 a share -- a price-to-earnings ratio well over 100 -- things can swing the other way just as dramatically. Short-term market volatility works both on the way up and on the way down. While White is entitled to the same private exasperation that individual investors feel lately, his public attention to short-term swings suggests a greater concern with stock options than with business fundamentals. Tom Jacobs' (TMF Tom9) credentials as a non-molecular biologist are impeccable. He owns shares of Celera Genomics. To see his stock holdings, view his profile, and check out The Motley Fool's disclosure policy.
On the call, company execs ascribed the slowdown to three different issues. First, they singled out weaker customer spending for some of the company's most expensive products. (The company asserted that while variations in those purchases can have a big impact in a single quarter, it's less significant when spread out over a 12-month period.) Second, management said a stronger dollar hurts the company's foreign sales that are denominated in depreciating foreign currency. And third, some of the company's major products are in a life-cycle change, so sales slow while manufacturing and marketing efforts shift to new products. For example, the company announced yesterday the release of its new ABI 4000 mass spectrometer, designed for research on drug metabolism.
In forceful closing remarks, Applera Corp. Chairman and CEO Tony White said on the conference call that in his five years with the company he hasn't seen "anything as dramatic and violent," referring to the hammering of his company's stock. "It wouldn't have happened if confidence in the market were better," he said. "Companies such as ours that have commanded such high multiples are very ripe targets when confidence falls. The change in the stock price is not commensurate with our view of the outlook of the business. There is no meltdown in our business...[that merits the stock decrease]."
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