Celera Genomics Restructures, Buys Out Celera Diagnostics

In an effort to stem losses from its flagging small-molecule business, Celera Genomics Group (Rockville, MD) has restructured its Celera Diagnostics (Alameda, CA) joint venture. Under the terms of the deal, Celera Genomics, which had equal ownership of the company with Applied Biosystems Group (Foster City, CA), has taken full control of Celera Diagnostics. The company also plans to sell or find partners for its drug-development programs.

In exchange for its share of the business, Applied Biosystems has gained the right to sell instrument platforms to diagnostics end-users. In addition, Celera Genomics will forgive royalties on certain Applied Biosystem products through 2017 and will pay the company $30 million in cash.

Celera and Applied Biosystems are subsidiaries of Applera Corp. (Foster City, CA). During a January earnings call, Applera CEO Tony White said, “Celera is now better positioned to execute its strategy to develop market-leading diagnostic products and make pharmacogenomics discoveries that should drive its vision of targeted medicine.” White cited the higher margins of in vitro diagnostics (IVDs) as an attractive alternative to drug discovery. “Clearly, if you've reduced your burn rate very substantially, if your principal product line and business is now diagnostics—which has lower risk and shorter development times—one can conclude that the pathway to profitability is not only a good bit safer, but faster,” he said.

Since it was formed in 2001, Celera Diagnostics has seen steady year-end revenue growth. However, during the same period, Celera Genomics has often faced steep losses. Although Celera Genomics has slashed its SG&A expenses by more than half over the last four years, its revenues have also declined (see Table I).

At the JP Morgan Healthcare conference earlier this year, Celera president Kathy Ordoñez laid out the company's new focus on targeted medicine. This includes developing tests that can screen at-risk patients for disease, as well as those that can help select proper drugs and monitor their effects. “The result is earlier intervention to delay onset and severity of disease, the right therapy at the optimal dosage for each patient, and better and more cost-effective health care,” she said.

In particular, Celera will be banking on a restructured profit-sharing alliance with Abbott (Abbott Park, IL) to boost profits. In fiscal 2005, revenues from products sold through the agreement totaled $61.7 million, a 34% jump from the previous year. For fiscal 2006, Celera estimates that the alliance will generate $75 million to $85 million in sales. Products marketed through the nearly four-year-old partnership include the HIV-1 ViroSeq genotyping system and analyte specific reagents used to detect cystic fibrosis mutations and hepatitis C (HCV).