Applera Corp - Applied Biosystems

Reason for report:

Initiation

August 7, 2007

Outperform

Applera Corp - Applied Biosystems

Top Life Science Firm's Shares Should Benefit As

Fundamental Clarity Improves

Key Stats: (NYSE:ABI)

• We're initiating research coverage of top-tier life science tools

franchise Applied Biosystems (ABI) with an Outperform rating.

We're impressed with the growth profile and ABI's new products in the

Real-Time PCR area, we think its new SOLiD next-gen DNA sequencer will

settle investor nerves by reaching market on time in October, and ABI's

mass spectrometry (MS) offerings are positioned in front of what we think

of as the best opportunity in the MS industry.

• TaqMan Array cards proving a popular and useful product line

extension; single-SNP assays still growing well. We think ABI's largest

business area, Real-Time PCR/Applied Genomics, can grow at a CAGR of

10% over FY-07 to FY-10 due to new array cards of gene-based TaqMan

expression assays and its popular single-SNP genotyping assays.

• In DNA sequencing, a next-gen platform looks on track to us. We

expect ABI's SOLiD next-generation DNA sequencing system to see a

successful launch in the fourth calendar quarter of 2007, and put ABI's DNA

sequencing business area (its second-largest) on a meaningful growth track

in FY-09. Beased on product specifications but not direct use, MEDACorp

consultants with whom we've spoken foresee good lab researcher interest

in SOLiD.

• ABI's triple quadrupole mass spectrometry franchise is

well-positioned for pharma and CRO spending in drug

development. In mass spectrometry, we expect continued gains in ABI's

triple quad MS franchise as pharmas and CROs advance molecules into

clinical testing; the new FlashQuant should help ABI penetrate earlier-stage

research, where it has not been as strong.

• We expect $39 - $40 in a year on ABI shares. ABI shares have

underperformed the market and its life science tools peer group

significantly