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Amid Debt Crisis, Life Science Firms Still See Vibrant European Market

By Tony Fong

NEW YORK (GenomeWeb News) – Despite forecasts that the European economic crisis would result in sharp slashes in life science research funding, many companies operating in the space say they are seeing no proof of such reductions.

As parts of Europe, especially countries in the south of the continent, continue to come to grips with a debt crisis that began at the start of the year, fears have arisen that budgets for scientific research would be cut, resulting in a downturn in European revenues for life science companies.

But in recent comments, the majority of companies in the space have downplayed any such ripple effect. And while other industries may be hurting, the life sciences in large part continue to be surviving nicely.

At this week's UBS Global Life Sciences Conference in New York, Life Technologies CEO Greg Lucier said that there have been plenty of dire predictions that the economic problems in Europe would drag down its life science market. However, those forecasts "are not correct," he said.

Certainly, that view is not unanimous, and during the most recent round of earnings releases during the summer, a handful of companies reported soft results in their European operations. For example, Affymetrix reported a 12 percent decline year-over-year for the quarter ended June 30 and blamed poor business in Europe as a major factor.

The sliding economy there led to a "general lengthening of the purchase cycle and delays for instrumentation that were expected to close in the second quarter," said CEO Kevin King during the company's earnings call, adding that he was both "disappointed and surprised" at how quickly its European business — which has historically been "relatively stable [and] relatively predictable" — depleted.

And this week at UBS, Caliper Life Sciences President and CEO Kevin Hrusovsky called Europe "the sickest of all regions" in his firm's business and added that governments are trying to make investments, but are reluctant to do so because of currency uncertainties.

A more prevalent view, however, has been the sentiment that whatever their economic challenges, governments in Europe would protect budgets targeting life science research.

In a Q2 earnings call, Bruker CEO and President Frank Laukien said that though budget cuts loom in many countries, "we believe that these reductions will primarily target other government expenditures, while public science and research funding will largely be protected as a key investment in the future."

As proof, he cited the €6.4 billion ($8.1 billion) budget for the European Union Seventh Framework Programme, a 12 percent increase over 2010 funding levels. "We are optimistic about future government research budgets in many key European countries," he said.

At UBS, Mike McMullen, president of Agilent's Chemical Analysis Group, agreed saying that "everyone continues to see strength" in Europe, and that "life science tends to be a priority" in government spending. Jay Flatley, President and CEO of Illumina, added that though cuts to the research market in Europe were anticipated, to date, "we haven't seen any evidence of that" happening.

Softening any ill-effects that the European economic chill may have had is the fact that the countries that have been most affected by the debt crisis are those where life science companies have not typically done as much business, such as Spain, Portugal, Italy, and Greece.

William Knight, CFO of Bruker, said at UBS that his firm does very little business in Spain and Italy, and he could not recall if the company has ever done any sales in Greece.

Meanwhile countries such as Switzerland, Germany, and the UK — where some of the leading life science research institutions are headquartered and the life sciences and 'omics spaces have long been vibrant — "continue to be very good for us," Knight said.

Caris Life Sciences in the spring, during the height of the debt crisis, opened its European office, and earlier this month expanded it by hiring Ian Walker as its vice president of strategic marketing for Europe and Ian Abercrombie as its VP of commercial operations for Europe.

That office now has about 15 people as Caris prepares the European launch of its Target Now molecular profiling service and the Carisomes technology platform, which detects and characterizes cells from circulation microvesibles that may be indicative of certain diseases, Dominic Moorhead, president of Caris' European business, told GenomeWeb Daily News.

In Europe, rather than the economy, which he said has not affected the life science industry in "any substantive way," it's the gyrations in the pharmaceutical industry and its continuing "struggle to find the right R&D model" that are challenging companies such as his.

"There's then less money flowing out from those big companies being invested in bets on the future, start-ups, et cetera," Moorhead said.

One advantage working in favor of the life sciences in Europe is that healthcare there is largely funded by government, he said. As a result, government is always looking for use of its healthcare dollars and is proactive in the development of new technologies that may result in cost benefits later on.

In the instance of cancer, for example, "government is now looking at high-cost oncology drugs … and they're saying 'Hey, we can't afford to have 100,000 patients on these drugs for $50,000 dollars a year,'" Moorhead said. "So governments are looking more toward … diagnostics and how they can pick out the people who really do have that disease, or will have a high response rate to that drug, and how they can focus on this rather than carry on with the same model."

However, having government in control of healthcare spending does not guarantee it will continue funding new technologies or research, according to Ron Hutton, treasurer for Bio-Rad Laboratories.

"At least some of the spending in the life science world is discretionary and motivated by governments, and they're having a difficult time in Europe," he told GWDN. While pockets of the continent are performing well, the funding slowdown is "largely across Europe."

For its Q2, Bio-Rad Laboratories reported a 1 percent increase in its Life Science segment, compared to a 9 percent improvement year over year companywide. During its earnings call, company officials noted weak government-sponsored research in parts of Europe.

"The economic challenges of the European research market continue to be a strong headwind for the tools business," CFO Christine Tsingos said on the company's earnings call.

At UBS this week, Affymetrix's King drew a parallel between what is happening now in Europe with what happened in the pharmaceutical sector a few years ago. Back then, Affymetrix similarly sounded a warning call that pharma was heading toward a downturn even as competitors were saying no such thing was taking place, King said.

Affymetrix's prediction turned out t be true, and pharma spending in the life sciences continues to be lumpy.

"Whether [Affymetrix's weak European results] is an indication of further trouble in Europe, we don't know. Whether this is only microarrays, we don't know," King said.

But even if Europe turns soft in the coming months, any weakness is expected to be mild, many company officials said this week.

Life Tech's Lucier said that over the past several years, his firm has seen 7 to 9 percent growth in Europe. While that may come down a notch, "it's not going to zero, it's not going to 1" percent growth, he said.

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