Wednesday was eventful for Molecular Devices (NASDAQ:MDCC). Besides presenting at the UBS (NYSE:UBS) annual Global Life Sciences Conference (registration required), the company said it was lowering third-quarter guidance because of soft demand for its drug discovery and life science products. This sent the share price down more than 17% for the day. The sell-off is the second punishing one the company has experienced in the last three months; after Molecular Devices announced its second-quarter earnings in July, its share price dropped 21%. Overall, the stock is down more than 50% from its 52-week high.

Molecular Devices is a small-cap biotechnology toolmaker providing equipment to pharmaceutical, government, and university research laboratories. Its largest product line is fluorescent plate readers, which enable high-throughput biochemical assays routinely used in drug screening programs. The company has been growing its product lines and said that about 68% of its sales come from products introduced in the past three years. One of these products is instrumentation for patch-clamp assays, a pre-clinical cell-based test designed to evaluate the cardiovascular safety of drug candidates, and an important one in the post-Vioxx environment for drug development.

When evaluating instrument makers, I like to see the classic razor / blades model in operation: equipment needed with a large consumable product. Molecular Devices does not break out the revenue streams in its filings, but said in Wednesday's presentation that instrumentation is about 66% of revenues, with the rest coming from recurring sources such as service, software, and consumables. The lower consumable component can make revenues lumpy because issues like research grant approvals and government funding cycles can often hold up instrument sales. Competition for equipment sales comes from well-established companies Becton Dickinson (NYSE:BDX), PerkinElmer (NYSE:PKI), and others. And Invitrogen's (NASDAQ:IVGN) strong suit is consumable offerings for biotechnology equipment.

The recent weakness in Molecular Devices' effective forecasting and, consequently, its share price may well be attributable to the lumpy revenue streams known to afflict the instrumentation industry, or it may be evidence of management that doesn't have its fingers fully on the pulse of the market. The drop in market capitalization may also make Molecular Devices a more attractive takeover candidate for a larger company looking to expand its offerings in this area. At the current price, I'd be willing to nibble at Molecular Devices -- but only with a small portion of my speculative allotment of investment dollars -- and I would keep a sharp eye on management, expecting that it will hit its revised forecasts.

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Fool contributor Ralph Casale, known on the discussion boards as HelicalZz, is a biochemist by trade and holds no financial position in any of the firms mentioned. The Motley Fool has a disclosure policy.