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Biotech / Medical : Immucor -- Ignore unavailable to you. Want to Upgrade?

To: Sidney Merle Foster who wrote (322)	5/17/1999 10:30:00 PM
From: Thomas Kirwin	Respond to of 422

Bringing Automation To Taxing Lab Testing Sidney, Mason, Stuart, et al.... Read the following while substituting Immucor for Ventana and Gamma for BioTechnology Tools. Do you see any correlation or similarities? Ventana Medical Systems, Inc By Philip Michaels Investor's Business Daily - 05/17/99 Walk into a histology lab today, and you won't see much change from 20 years ago. Unlike other labs that have undergone a wave of automation, histology work is still largely done by hand. In histology labs, technicians fix, cut and mount human tissue samples on a microscope slide. The samples are stained and read by pathologists to diagnose diseases such as cancer. The work can be tedious, time-consuming and subject to inconsistent results. Histology "is 10 to 15 years behind general chemistry labs in that automation hasn't been brought in yet," said analyst Scot Wilkin of Warburg Dillon Read. Ventana Medical systems, Inc. wants to change that. The company makes systems to automate the preparation and staining of tissue samples in the $1.3 billion global histology market. Ventana's goal is an ambitious one: to use its systems to establish a dominant position in automating histology labs. And so far, the company has made significant headway. Large players like Abbot Laboratories are focusing on other segments of the diagnostic market. That leaves Ventana to compete mostly with smaller, regional companies. "This is one of the last great opportunities for automation in in-vitro diagnostics," said Vice Chairman John Patience. "We don't think there are too many opportunities in diagnostics like it." It's an opportunity that Ventana has jumped on. Take immunohistochemistry tests, which pathologists use to identify types of cancer and assess a patient's outlook. Ventana made its first automated IHC system in 1991. Since then, it has placed $1,800 modules and carved out an 80% market share. "We've continued to increase the number of boxes," Patience said. We've invested a lot of money in expanding the size of our sales force, both in the U.S. and Europe. That's key, as each system becomes a source of recurring revenue for Ventana. Labs that purchase instruments from Ventana must also buy reagents to run IHC tests. Patience says the company gets about $30,000 a year in consumables revenue for each system it places. "This is a niche in the diagnostics universe these guys essentially control," said analysts Jeffrey Holmes of Tucker Cleary. "Every unit they place is a unit the competition doesn't, and there are a finite number of placements. And automation has a long way to go. Roughly 60% of all U.S. histology labs have switched to automated IHC tests. Only 25% of the European labs and 5% of Japanese labs have changed over. Ventana expanded its reach last fall when it rolled out an automated module for the specialized slide-staining segment of the market. Like IHC stains, the market for consumable special stains is potentially $300 million a year, Patience says. While recurring revenue in the special stains segment is smaller than IHC - about $21,000 per instrument per year - the market itself is much larger. And Ventana believes it will be easier to penetrate. "Once you've sold the automation concept, special stains leverage that concept," Holmes said. That's driving strong sales growth at Ventana. First-quarter sales rose 51% to $15.6 million. Earnings rose 50% to 9 cents a share. The company trades as VMSI near $24. Ventana isn't resting on its laurels. In the second half of the year, it plans to roll out a module for in-stu hybridization tests, a small market with plenty of growth potential. The company also hopes to capitalize on last year's purchase of BioTechnology Tools, which makes microtomes that cut processed tissue samples. BioTechnology was placing about five microtomes a month before the acquisition. With its direct sales force, Ventana has doubled that rate, Patience says. And the company hopes to develop a nest-generation processor that fits in with its systems. Look for a big jump in profits this year, analysts say. Earnings are expected to climb 106% to 70 cents a share this year and 44% to $1.01 in 2000. The picture isn't entirely rosy, though. Ventana grew so fast that its accounts receivable ballooned at the end of 1998. But it cut receivable-days outstanding to 91 in the first quarter from 104 at year's end. Th timing of instrument placements can affect Ventana's quarterly growth. If there's a delay in placements, it can cause the company to miss earnings estimates. "It's not a matter of demand," Wilken said, "It's just execution." Of less concern to analysts is Ventana's recent management change. Less than three months after joining Ventana, Chief Operating Officer Christopher Gleeson was named CEO May 6. He replaces Henry Pietraszek, who remains on Ventana's board. Chairman Jack Schuler had known Gleeson since the latter's stint as founder of Australian Diagnostics Corp. and general manager of U.S. operations for Chiron Diagnostics. So he came to Ventana as a known entity to key members of management. “He's very well thought of, and he brings very important skills to the company.” Wilkin said.