Celera reports net revenue of $34.9 million for fourth quarter of 2010

Mar 18 2011

Celera Corporation (NASDAQ:CRA) today reported net revenues of $34.9 million for the fourth quarter of 2010 that ended December 25, 2010, compared to $39.2 million for the prior year quarter. The prior year quarter figure has been restated, as discussed below under "Certain Accounting Matters." For the fourth quarter of 2010, Celera reported net income of $2.5 million, or $0.03 per share, compared to net income of $3.6 million (on a restated basis), or $0.04 per share, for the prior year quarter.

On a non-GAAP basis, excluding certain non-recurring and non-cash charges, net loss was $0.8 million, or $0.01 per share, for the fourth quarter of 2010, compared to net income of $1.7 million (on a restated basis), or $0.02 per share, for the prior year quarter. The non-recurring and non-cash charges that affect the comparability of results include: for the fourth quarter of 2010, a $5.5 million gain on the sale of investments and a $0.8 million legal settlement, net of non-cash amortization of intangibles and restructuring charges; and for the fourth quarter of 2009, discrete income tax benefits of $4.7 million. A reconciliation of the GAAP and non-GAAP results is attached to this press release.

For 2010, Celera reported net revenues of $128.2 million compared to $156.8 million (on a restated basis) for the prior year. Also for 2010, Celera reported a net loss of $24.6 million, or $0.30 per share, compared to a net loss of $25.0 million (on a restated basis), or $0.31 per share, for the prior year.

On a non-GAAP basis, excluding certain non-recurring and non-cash charges, net loss was $23.0 million, or $0.28 per share, for 2010, compared to a net loss of $5.2 million (on a restated basis), or $0.06 per share, for the prior year. A reconciliation of the GAAP and non-GAAP results is attached to this press release.

Financial Highlights

Celera operates through three reporting segments: a clinical laboratory testing service business conducted through Berkeley HeartLab, or BHL (Lab Services); a molecular diagnostic products business (Products); and a segment that includes other activities under corporate management (Corporate). Most of the Company's molecular diagnostic business is conducted through distribution and royalty agreements with Abbott Molecular, a subsidiary of Abbott Laboratories. The Corporate segment includes revenues from royalties, licenses, funded collaborations and milestones related to the licensing of intellectual property and from Celera's former small molecule and proteomic programs.

• Revenue by segment for the fourth quarter of 2010 was as follows:
  • Lab Services revenue was $22.2 million compared to $21.2 million (on a restated basis) in the prior year quarter, primarily due to a higher average price per sample as new higher value genetic tests were ordered by physicians, despite lower sample volume. During the fourth quarter, sample volumes declined 9.8% over the prior year quarter and were adversely impacted by competitive pressures and general economic conditions. Quarterly sample volume, however, increased 11.3% from the first to the fourth quarter of 2010;
  • Products revenue was $10.6 million compared to $11.3 million in the prior year quarter. The decline in revenue in the fourth quarter of 2010 was due to lower sales of Celera-manufactured products distributed by Abbott associated with the timing of orders in the quarter, partially offset by increased royalties from sales of RealTime™ assays used on the m2000™ system; and
  • Corporate revenue was $2.1 million compared to $6.7 million in the prior year quarter. The reduction in revenue was primarily due to lower licensing revenue, including the completion of payments from three licensees in the first quarter of 2010.
• SG&A expenses for the fourth quarter of 2010 were $19.2 million compared to $21.6 million (on a restated basis) in the prior year quarter. Allowance for doubtful accounts in the fourth quarter of 2010 was $0.8 million compared to $1.5 million (on a restated basis) in the prior year quarter. Excluding the allowance for doubtful accounts, SG&A expenses for the fourth quarter of 2010 were $18.4 million, or 53% of revenues, compared to $20.1 million (on a restated basis), or 51% of revenues in the prior year quarter.
• In the fourth quarter of 2010, days sales outstanding were 50 compared to 56 in the third quarter of 2010.
• R&D expenses for the fourth quarter of 2010 were $6.3 million compared to $6.5 million in the prior year quarter.
• At December 25, 2010, Celera's cash and short-term investments were approximately $327 million, compared to approximately $316 million at September 25, 2010. The increase was primarily due to proceeds of $6.2 million from the sale of investments and $4.7 million associated with a federal tax refund.

Business and Scientific Developments

• Business Developments
  • In December, Celera submitted a Premarket Approval Application to the U.S. Food and Drug Administration for its KIF6 Genotyping Assay, a new molecular in vitro diagnostic test designed to detect a marker for risk of coronary heart disease independent of traditional risk factors and aid clinical evaluation when statin treatment is being considered. This PMA submission is intended, after regulatory review and approval, to enable the introduction of a KIF6 test kit with diagnostic claims.
  • Celera exceeded its goal of doubling its Lab Services revenue derived from cardiovascular genetic tests in 2010. These revenues grew steadily during 2010 and were over $20 million for the full year. In addition to the KIF6 and LPA tests that were introduced in prior years, during 2010 Celera introduced two additional genetic tests. These were the 9p21 testing service to identify people at risk for early MI, and a laboratory developed test for CYP2C19 that identifies carriers of genetic variants that may impact the effectiveness of the anti-platelet drug, Plavix® (or clopidogrel). Both of these new tests contributed to the 2010 revenue result.
  • In December, Celera appointed Alfred Merriweather to the position of Senior Vice President and Chief Financial Officer of the Company.
• Scientific Developments
  • In January 2011, Celera and its collaborators published an article in the Journal of Human Genetics describing a detailed genetic mapping of the KIF6 region. This study was designed to investigate whether the association of the Trp719Arg form of the KIF6 gene variant with coronary event reduction from statin therapy could be better explained by other variants, or combinations of variants in the gene. A key finding was that no gene variant in the KIF6 gene was more strongly associated than was Trp719Arg with differential event reduction from statin therapy, further contributing to the understanding of KIF6 in the clinical setting and supporting the medical utility of BHL's KIF6 testing service, which identifies the Trp719Arg genotype.
  • In November 2010, Celera presented data from the Vienna Stroke Registry at the American Heart Association (AHA) Annual Scientific Session in Chicago, IL. The presentation reported the further validation of the association of a chromosome 4q25 variant with cardioembolic stroke. The 4q25 variant was previously reported to also be associated with atrial fibrillation. A test for the 4q25 gene variant is currently in development based on this work.

Certain Accounting Matters

Celera has filed a Current Report on Form 8-K with the Securities and Exchange Commission this morning disclosing that Celera's Board of Directors, based on the recommendation of the Audit and Finance Committee and in consultation with management, has concluded that the following previously issued consolidated financial statements must be restated and should no longer be relied upon because of accounting errors in those consolidated financial statements:

• audited consolidated financial statements for the year ended June 30, 2008, the six months ended December 27, 2008 and the year ended December 26, 2009;
• unaudited condensed consolidated financial statements for each quarter in the year ended December 26, 2009; and
• unaudited condensed consolidated financial statements for the first three quarters in the year ended December 25, 2010.

The restated financial statements correct the following errors:

Classification of Bad Debt Expense

As a result of applying FASB Accounting Standards Codification Topic 954, Health Care Entities (ASC 954), certain amounts that were previously included in bad debt expenses as a component of selling, general and administrative expenses, have now been correctly reflected as a reduction in revenues. The errors in classification resulted in an overstatement of consolidated revenues and of selling, general and administrative expenses. The effect of correcting these errors has been recorded in the applicable restated periods.

Recognition of Unreimbursed and Uncollectible Charges

Patient test revenues reimbursed by third-party payors are recorded based on the estimated receipts from such payors. Amounts that are determined to be unreimburseable or uncollectible are recorded as an adjustment to revenues. During the second quarter of 2009, certain BHL receivables were determined to be uncollectible. A bad debt charge for these receivables was recorded in the second quarter of 2009. The Company has subsequently determined that a portion of this charge related to prior periods. The effect of correcting this error, and the associated tax effect, has been recorded in the applicable restated periods.

The net result of these changes was a decrease in revenues (all in the Lab Services segment) of $5.7 million, $13.5 million, $10.3 million and $2.2 million for the year ended June 30, 2008, the six months ended December 27, 2008, the year ended December 26, 2009 and the three quarters ended September 25, 2010, respectively. Net loss increased by $1.9 million and $10.1 million in the year ended June 30, 2008 and the six months ended December 27, 2008, respectively, and decreased by $7.8 million in the year ended December 26, 2009.