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Leerink Swann Downgrades Life Science Tool Firms

NEW YORK (GenomeWeb News) – Citing a survey that said that university-based researchers are seeing reductions in their budgets, investment bank Leerink Swann today downgraded several life science tool firms that it covers.
Among the firms it downgraded from “outperform” to “market perform” is Waters, which said last night that it expects lower revenues for its fourth quarter than it had previously predicted. The other firms downgraded to “market perform” are Varian, Bruker, and Luminex.
Leerink Swann also lowered its revenue estimates for Thermo Fisher Scientific, Millipore, PerkinElmer, and Sigma-Aldrich.
The investment bank said that a survey of 117 university-based life science researchers found that 68 percent of them are seeing reductions in their budgets. “While improved NIH funding looks to be a silver lining, we are particularly cautious on capital equipment trends,” Leerink Swann analyst Isaac Ro wrote in the report.
The bank said that based on its Washington contacts, consultants, and a panel it co-hosted earlier this week that included industry representatives and university researchers, current drafts of the stimulus bill call for a $1.2 billion to $1.7 billion increase in NIH funding for fiscal year 2009. That would represent a 4 percent to 6 percent increase year over year.
However, while NIH funding provides a vast majority of the funding for university-based research — around 75 percent by some estimates — Leerink Swann pointed to other pressures on life science tool makers. For example, university endowments, which provide the bulk of the remaining funding for academic labs, are likely seeing declines that would impact funding. In addition, private funding sources are likely facing similar cuts.
“Unfortunately, tighter budgets mean that certain research tools, even those that add value, will go by the wayside,” according to the report. “Not surprisingly, capital equipment was most often cited as the first thing to go. While we believe transformative technologies such as [next-generation sequencing] and genotyping arrays will continue to see good adoption, we believe basic lab equipment and high-end instrumentation will be challenged in the current environment.”
Among the researchers surveyed, 45 percent said that DNA sequencing products were a high priority, which benefits firms such as Illumina, said Leerink Swann. The bank also cautioned that “high price tag” of the next-generation sequencing instruments “could pose a barrier for some new customers.”
Leerink Swann said that it now expects Thermo Fisher Scientific to post a 2 percent decline in revenues for fiscal 2009 compared to fiscal 2008. It also expects Millipore to report a drop in revenue of 2 percent for 2009, PerkinElmer to report 1 percent revenue growth in 2009, and Sigma-Aldrich to report a revenue decline of 3 percent in FY2009. In all of these cases, it expects currency translation to have a negative effect.

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