The recall of a profitable heart testing kit has given Beckman Coulter Inc. pause in its outlook for the rest of the year.
Last week, Beckman, a Brea-based maker of instruments and chemicals used by medical laboratories and researchers, lowered its 2010 outlook in the wake of issues related to a heart disease test run on one of its machines.
Beckman recalled that test—which detects troponin, a protein released after heart damage—when the Food and Drug Administration said changes were made to it without regulatory clearances.
The company is working with regulators to get the test, which runs on its DxI testing machines, back in use.
For now sales of troponin test kits are on hold. That prompted Beckman to lower its 2010 profit forecast to $307 million to $321 million, down from a previous outlook of $314 million to $324 million.
Based on the new guidance, analysts on average expect Beckman to earn $312 million this year.
The company sees sales for the year at $3.75 billion to $3.85 billion, down from the $3.8 billion to $3.9 billion forecast earlier.
Wall Street expects $3.8 billion in 2010 sales.
Beckman braced investors for the lowered guidance in March when it disclosed the recall.
Shares of the company actually jumped late last week as analysts and investors viewed the troponin problem as temporary.
Beckman, which had a market value of $4 billion last week, also said it plans to pay about $13 million in dividends to shareholders later this month.
Diagnostic companies “go through quality issues from time to time but eventually refocus and fix them,” said Quintin Lai, an analyst with Milwaukee-based Robert W. Baird & Co., in a report.
Beckman’s “taking extra steps to keep customer loyalty, and its revised guidance assumes that customer retention will remain at normal rates,” he said.
The company’s riv-als “could see a near-term benefit from increased reagent sales,” said Isaac Ro of Leerink Swann LLC in Boston.
But that shouldn’t have a big impact, he said.
Beckman isn’t anticipating any significant customer losses stemming from the troponin recall, Chief Executive Scott Garrett said on a conference call last week.
“It’s hard for a customer to switch,” he said.
The recall could affect pending machine sales, said William Bonello, a Minneapolis-based analyst for Royal Bank of Canada’s RBC Capital Markets, in a report initiating coverage of Beckman.
“We believe that many customers will wait for resolution of the issues before purchasing new instruments,” he said. “Our concern is not so much with the possible reduction in troponin sales as it is with the potential spillover to instrument placements in general.”
Dealing with troponin issues could shave off $10.7 million to $17.8 million from Beckman’s 2010 earnings, according to the company.
Chief Financial Officer Charles Slacik said the company expects $10 million to $15 million of its $60 million in annual U.S. troponin revenue to be at risk in the recall, a situation he called “controllable.”
One analyst, Morgan Stanley’s David Lewis, asked whether the FDA will require a new clinical trial of the test before clearing Beckman to sell it again.
“I’d rather not speculate on what they might require or what they might say,” Garrett said.
In the meantime, Beckman said it could look to try to switch troponin customers to a different machine, something regulators would need to sign off on.
While troponin was the main focus of Beckman’s conference call, the company also talked about other parts of its business, including how its $800 million buy last year for Olympus Corp.’s medical diagnostic business is panning out.
Olympus revenue accounted for $115.7 million of Beckman’s $881 million in first-quarter revenue, the company said.
Beckman bought the Olympus business to boost its sales in Europe, where larger rivals Siemens AG of Germany and Roche Diagnostics, a unit of Switzerland’s Roche Holdings Ltd., dominate.
Beckman said it expects to gain $480 million to $500 million in yearly revenue from Olympus machines and supplies.
“The acquisition is on track,” Garrett said.
Weaker Euro
But another factor in Beckman’s revised forecast is the weakened euro, which is down about 7% against the dollar this year amid debt problems in Greece, Spain and other countries.
About half of the revenue generated by the Olympus acquisition is from Europe. About a quarter of Beckman’s total first-quarter sales came from Europe.
The weaker euro stands to shave off about $20 million in 2010 profits when converted to dollars, the company said.
Beckman usually hedges against currency fluctuations by buying options a year in advance. But it said it wasn’t able to do so with Olympus, which was acquired late last year.
“That whole business we bought wasn’t hedged this year,” Slacik said.
