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Leaving Struggles Behind, Waters Looks To Grow UPLC, Mass Specs in the Clinic

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Despite the rapid sales growth of Waters’ Acquity UPLC platform, company officials said this week that they believe they have just scratched the surface as the Acquity migrates into clinical applications.
 
Waters launched the Acquity UPLC nearly three years ago and market uptake was initially slow amid a constrained pharma spending market. But sales picked up rapidly last year, and the instrument became a primary revenue driver during the second half of 2006 and helped Waters post 16-percent revenue growth in the fourth quarter (see BioCommerce Week 1/24/2007).
 
Sales of the Acquity platform grew in the double digits in the fourth quarter, and CFO John Ornell, speaking this week at the Lehman Brothers Global Healthcare Conference in Miami, said the instrument is the fastest growing technology Waters has ever had.
 
Company officials also said they expect its rapid growth to continue as more HPLC users replace their instruments with UPLC, and the Acquity gets pushed into clinical applications.
 
“As you take a look at the HPLC [and UPLC] market, one can partition it between applications that are regulated, like pharmaceutical and QA/QC, and then applications that are more research applications,” Gene Cassis, vice president of investor relations, said at the conference.
 
“Where we’ve seen the greatest penetration of UPLC over the past couple of years has been in this drug discovery, basic research, drug development area. And it really has taken a significant part of that HPLC business in the discovery area,” said Cassis.
 
“Where we have yet to see penetration for our UPLC in a significant manner is in regulated testing, where you have laboratories that have methods that they’ve been running for a number of years and they typically replaced aged instruments with instruments that are updated but [are] essentially similar technology,” he said.
 
Cassis said Waters is confident that the regulated testing market will adopt UPLC technology “because those research applications that are using HPLC, when they finally result in products, we believe the technology will move with them.”
 
He noted that roughly half of Waters’ HPLC business is in regulated applications and the other half is in more research-oriented areas.
 
“One of the things that we’re really excited about is if you take a look at drugs in the pipeline, an increasing percentage of them are biologics,” said Cassis. “We feel there are particular advantages to UPLC technology for biologics because the reaction mixtures … are much more complicated than typical organically synthesized drugs, and the efficient separating power of the UPLC really conveys a lot of advantage for that type of application.”
 
Bullish on Mass Spec
 
Ornell also highlighted several new mass spec products Waters has released over the past year, which, like the UPLC, grew in the double digits in the fourth quarter.
 
He explained that the firm has been rebounding in the mass spec market after a patent dispute with Applied Biosystems and its mass spec partner MDS Sciex. In 2004, Waters paid ABI/MDS Sciex $18.1 million plus licensing fees to settle the patent suits targeting the front-end ion guide technology used in some of Waters’ mass specs.
 
Waters also paid an undisclosed amount to ABI to settle a separate suit filed by companies that claimed Waters violated a MALDI ion source patent. The year before, Waters paid MDS Sciex and ABI parent Applera $56.2 million after a federal court decided that it infringed an ABI/MDS Sciex patent covering a front-end ion tunnel technology used in some mass specs sold by Micromass.
 
In addition to the damages and fees, Waters’ Micromass subsidiary had to pull several mass-spec product lines off the US market, seriously damaging Waters’ ability to compete in that space.
 
But Waters officials believe three new mass spec instruments have put the firm back on track.
 
“It’s really only been since the second half of last year where we were able to get a new full product offering up and down the portfolio,” said Ornell. “We grew double digits in the fourth quarter in mass spectrometry, and expect to do double-digit growth in 2007 as well.”
 

“Where we have yet to see penetration for our UPLC in a significant manner is in regulated testing, where you have laboratories that have methods that they’ve been running for a number of years and they typically replaced aged instruments with instruments that are updated but [are] essentially similar technology.”

He cited the three new mass spec offerings that are the key to the firm’s re-emergence in the market: the low-end Acquity SQD, the mid-level Acquity TQD, and the high-end Synapt HDMS.
 
Company officials have previously said that the launch of the Synapt HDMS is the most important of the firm’s new product introductions because it offers the market a new ion separation ability — and at a price of $650,000, it targets the high end of the MS market, which the firm estimates at $250 million.
 
Waters introduced the Synapt at the American Society for Mass Spectrometry meeting in late May 2006, but didn’t begin shipments until later in the year (see BioCommerce Week 6/7/2006).
 
Waters officials see a major opportunity for the new mass spec systems in the clinical markets, similar to UPLC. “We’ve been expanding our growth into new areas of clinical testing, where mass spectrometry is being utilized for the first time,” said Ornell.
 
Investors at the conference asked the company officials if they were certain that the firm’s past pharma spending woes, which caused Waters to issue two earnings warnings in 2005, were behind it.
 
“We feel comfortable that large pharma is pretty contained in its impact on Waters going forward,” said Ornell. He reiterated earlier statements from the firm that there are significant growth opportunities in generics, CROs, and biotech, and there is sustainable growth in the emerging markets, such as China, India, and Eastern Europe.
 
“It’s really just large pharma that has probably been less than stellar … or stagnant as we look at that segment of demand,” said Ornell. “But generally the demand within the pharma industry, driven by biotech and the small pharma, has been very good.”
 
He also noted that there isn’t any single account that represents more than 2.5 percent of Waters’ overall sales.
 
Asked about Waters’ acquisition strategy, Ornell said that smaller acquisitions have been the focus of the company for the past few years and will continue to be the focus for the next few years. “We would hope that by bringing on small, low-risk types of acquisitions … we could put them in the Waters framework and look to grow them in the double-digit range on the top line,” he said.

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