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Luminex Corporation’s (LMNX - Analyst Report) first-quarter 2013 adjusted earnings per share of 14 cents beat the Zacks Consensus Estimate of 8 cents per share by 75%. It also exceeded the year-ago earnings by 75%. Adjusted earnings exclude one-time charges such as the amortization, severance and legal costs along with expenses associated with the termination of molecular diagnostic distribution agreements.

However, the company reported net loss (including one-time expenses) of $2.5 million (or a loss of 6 cents per share) in the first quarter compared with a net income of $3.5 million (or 8 cents per share). The loss was mainly due to a charge of $7 million related to settlement of distribution agreements with prior molecular diagnostic assay distributors.

Revenues

Revenues increased 9% in the reported quarter to $53.2 million, marginally surpassing the Zacks Consensus Estimate of $53 million. Revenues were driven by double digit growth in royalty revenues and higher shipment of multiplexing analyzers, reflecting strong demand for Luminex products.

For the first quarter, Assay sales grew 6% to $18.3 million, led by strong sales in the infectious disease product line as well as higher gastrointestinal pathogen panel (GPP) and lab-developed tests (LDT) assay sales.

Revenues from the System segment dropped 6% year over year to $6.6 million, mainly due to the ongoing transition from the LX system to the MAGPIX system, which has a lower price point. The company shipped 205 multiplexing analyzers during the quarter, resulting in total life-to-date dispatches of 9,865 analyzers, up 11% year over year.

Consumable sales remained flat at $11.9 million, led by stabilization of purchase volume of Luminex’s largest customer. Royalty and All Other revenues jumped 23% and 47% to $10.1 million and $6.3 million, respectively.

Margins

Gross margin in the quarter was 71% versus 69% in the prior-year quarter, reflecting a strong mix shift toward higher margin products and contribution from a milestone payment related to a development agreement with Merck.

Selling, general and administrative expenses (as a percentage of sales) were 48.5% versus 34.7% in the year-ago quarter. Research and development expenses were 23.9% of sales compared with 20.7% in the previous-year quarter due to expenses related to development of the Aries project.

Operating expenses were up 40% to $39.5 million due to costs associated with the settlement of the distributor agreement and pipeline development expenses. Operating loss was $1.6 million in the quarter versus an operating income of $5.6 million in the year-ago quarter.

Balance Sheet

Luminex ended first quarter 2013 with cash and cash equivalents of $54.3 million, up 4.8% year over year. Long-term debt was $1.4 million, down 42%.

Guidance  

Moving ahead, Luminex reiterated its expected revenues for fiscal 2013 in the range of $220 million to $230 million, up 9%–14% year over year.  The current Zacks Consensus Estimate is pegged at $224 million.

Recent Developments

In April 2013, Luminex won clearance from the U.S. Food and Drug Administration (FDA) for its MAGPIX instrument, with its xTAG Gastrointestinal Pathogen Panel (xTAG GPP). Earlier, in Jan 2013, it had received FDA clearance for the GPP on the LX200 system. The expansion of the company’s infectious disease and genetic testing product lines is encouraging.

Luminex has also entered into a collaboration and license agreement with Merck & Co. (MRK - Analyst Report) in the quarter. As per the agreement, the company will develop a companion diagnostic device that will assist in screening patients into Merck’s pivotal study for Alzheimer's disease.

Our View

Luminex possesses an extensive product portfolio and a healthy pipeline of novel assays, which are expected to support growth going ahead. Moreover, Luminex is developing innovative platforms by combining resources from its latest acquisitions. The company’s initiative to establish a direct sales force for its molecular diagnostics customers will likely improve operating efficiency.

However, Luminex operates in a highly competitive life sciences industry. Sluggish growth in its core markets as well as the ongoing global austerity measures are challenges faced by the company. Also, the loss of its assay distributors is affecting the bottom line.

The stock carries a Zacks Rank #3 (Hold). Medical instrument companies, such as Accuray (ARAY - Analyst Report) and Abiomed (ABMD - Analyst Report) with Zacks Rank #2 (Buy), are expected to do well.

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