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Danaher Q2 Revenues Grow 6 Percent; MDx Product Line Shut Down

NEW YORK (GenomeWeb) – Danaher today reported a 6 percent year-over-year increase in sales for the second quarter, and said that it has shut down its Veris molecular diagnostics product line as a result of its acquisition of Cepheid in late 2016.

The Washington, DC-based conglomerate said that for the three months ended June 30, sales grew to $4.51 billion from $4.24 billion in the year-ago quarter, meeting the average Wall Street analyst estimate for revenues of $4.5 billion. Core revenues were up 2 percent year over year, while acquisitions added 6 percentage points of growth, Danaher said. The impact of currency translation trimmed sales by 1.5 percentage points.

Diagnostics, the firm's largest segment, grew 14 percent year over year to $1.44 billion from $1.26 billion. On a conference call following the release of the financial results, Danaher President and CEO Thomas Joyce said that core revenues in the segment rose nearly 3 percent year over year.

Joyce also disclosed that the firm had discontinued sales of its Beckman Coulter DxN Veris molecular diagnostics product line. The Veris line was once the incarnation of Beckman Coulter's molecular diagnostics ambitions, and was in development since at least 2007 — before Beckman Coulter was acquired by Danaher. The technology was finally launched in 2014 in Europe.

As Danaher carried out its due diligence on the Cepheid acquisition, however, it became clear that that firm's GeneXpert and GeneXpert Infinity technologies provided better growth opportunities for the company, Joyce said.

"As we came to understand the potential that was represented by the Cepheid platform and that unique architecture that they've developed, we then were able to really map that against the capabilities of the Veris platform, the runway in terms of menu expansion of Veris, and the associated process for [US Food and Drug Administration] clearance and other regulatory approvals," he added. "We found that not only did we have a tremendous opportunity in terms of scalability, throughput, and assay development, but it really accelerated our position beyond what we anticipated in due diligence."

"We are committed to providing the best solutions to our customers and we believe that Cepheid's molecular systems provide us a better long-term foundation for these efforts," he added.

Core Cepheid revenues grew in the double digits during the quarter, driven by broad-based strength across major geographies and product lines, Joyce said. He also updated the anticipated launch date for the Cepheid GeneXpert Omni point-of-care MDx system, which is now expected to become commercially available in the first half of 2018. Cepheid first unveiled the system in 2015, with plans to develop a line of rapid tests. In April 2016, Cepheid delayed the launch of the product to the third quarter of 2017.

Meanwhile, core revenues in Beckman Coulter diagnostics grew in the low-single digits, led by growth in the chemistry and immunoassay businesses, Joyce added.

Danaher's life sciences segment grew 4 percent year over year to $1.38 billion from $1.33 billion. Core revenues grew 3.5 percent.

Beckman Coulter's core revenues in the segment were up in the mid-single digits "with positive performance across all product lines," Joyce said. The firm's recently launched Biomek i-Series automated workstations are gaining traction in the market, he added, helped by "several key automation projects" in North America.

He added that Sciex, which houses Danaher's mass spectrometry business, saw core revenues grow in the mid-single digits year over year, boosted by strength in the pharmaceutical and food testing markets. Academic demand was stable across most major geographies.

Among Danaher's other segments, dental was down 2 percent year over year to $702.6 million from $714.6 million, and environmental and applied solutions increased 4 percent to $983.2 million from $941.4 million.

For Q2, Danaher reported a profit share in Q2 2016. On a non-GAAP basis, EPS was $.99, beating the analysts' average estimate of $.97 per share.

R&D spending rose 18 percent year over year to $283.3 million from $239.9 million, while SG&A costs grew 6 percent to $1.52 billion from $1.43 billion.

As of June 30, Danaher had $726.4 million in cash and cash equivalents.

For the third quarter Danaher estimated EPS in the range of $.74 to $.78. On a non-GAAP basis, EPS is estimated to be between $.92 and $.96. Analysts are expecting EPS of $.96 for Q3.

For full-year 2017, EPS is expected to be in the range of $3.16 and $3.23. The company raised its adjusted EPS guidance to a new range of $3.90 to $3.97. The previous guidance was a range of $3.85 to $3.95. Analysts are expecting full-year earnings of $3.93 per share.

On the call, Joyce said that core growth rate is anticipated to accelerate in the second half of the year compared to the first half, driven by improving order trends and acquisitions such as Cepheid and Phenomenex, which will become part of Danaher's core revenues.

As a result of the firm's anticipated improved free cash flow and balance sheet, "we feel well-positioned to actively pursue larger acquisition opportunities going forward," Joyce said. CFO Dan Comas pointed to the $4 billion buy of Cepheid as an example of such a larger deal.

Danaher's shares fell nearly 3 percent to $83.31 in morning trading on the New York Stock Exchange.