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New Products, Double-Digit Growth Pile Pressure on Bruker Sales Team

Bruker BioSciences has ended a two-month quiet spell that began Dec. 20, 2004, when it announced the second phase of a corporate restructuring that began with layoffs in the spring.

The company last week emerged from this apparently self-imposed quiet period when it released its fourth-quarter earnings report, followed by a string of product announcements — including three new mass spectrometers, three mass-spectrometry accessories, and a benchtop machine for high-throughput protein crystallization — at Pittcon in Orlando, Fla.

"We believe that these recent product introductions will enable us to continue our double-digit revenue growth and profitability improvement in 2005 and beyond," Frank Laukien, Bruker's CEO, told analysts in last week's conference call. "We're doing more with less," he said, referring to the cost-cutting restructuring, which included the layoff of 60 of the company's 1,300 employees, and the multiple-product launch.

Bruker's 10 sales representatives in the Americas, some of whom have additional areas to cover in territories redrawn for 2005, will quickly need to get up to speed on the new products between now and June, when the company plans to launch even more new products at the American Society for Mass Spectrometry meeting.

"Customers are expecting [new products at ASMS]," Mike Willett, Bruker's spokesman, told BioCommerce Week.

Can the sales force respond, or are more hands needed to deliver on the promise of double-digit revenue growth Laukien has promised?

"We have by and large the sales force, and the distribution, in place," Laukien said. "We have more capacity to handle higher volumes."

He said the company had incorporated in Spain, South Korea, and undisclosed Eastern European countries, in the last year in order to expand its ability to sell directly.

And, in the fourth quarter, new-order bookings by the company's life sciences sales force grew by 15 percent, while orders from the company's strategic partners — specifically Agilent and Sequenom — fell by 11 percent, Laukien said.

Last year at Pittcon, Bruker introduced at least seven new products with proteomics applications, but sales did not provide instant top-line benefits.

"It took some time [for the products] to ship and be recognized as revenue last year," Laukien said. "But, across the board, our product line just became more competitive throughout the year. It takes our customers a while to evaluate carefully."

And, it takes the sales team a while to learn the features and benefits of new products to be able to sell them. Bruker reps were briefed before the Pittcon product releases, then received training in the new products at the conference, and will soon have even more advanced training at company headquarters, said Willett.

Sales of the type of instruments that Bruker offers are not made with one phone call. A Bruker sales representative said the sales process for capital equipment is about creating relationships with customers, and often requires helping to write grant proposals for the equipment.

On the Pittcon show floor, the company displayed its Apex QE Fourier transform mass spectrometer, a floor model with a 7-tesla magnet — not the largest unit the company offers, but at a price of approximately $2 million, a sale that could make a salesperson's quota for the year.

Fourth Quarter Results

For the quarter ending Dec. 31, the company reported a 16-percent increase in revenues for a record $85.8 million for the period, with a 4-percent benefit from currency exchange, compared to $74.7 million, with a 3 percent currency-exchange benefit, in the year-ago period. Net income for the period was $0.8 million, compared to $0.3 million for Q4 2003.

The company is targeting first-quarter revenues ranging from $68 million to $74 million and "break-even" net income in what is "traditionally, the company's lowest quarter of the year," according to Bill Knight, Bruker's CFO. Bruker BioSciences reported $68 million in revenues in Q1 2004.

Bruker has struggled over the last two years as compared to other mass-spec toolmakers like Applied Biosystems and Thermo Electron. Bruker has now recorded two consecutive years of net losses. For 2004, the company had a net loss of $5.5 million on revenues of $284.6 million, compared to a net loss of $17.6 million on revenues of $260.7 million in 2003. Thermo recorded net income of $352 million in 2004, and $200 million in 2003. Applied Biosystems had net income of $183 million in both 2004 and 2003.

In September, Bruker announced the layoff of 60 employees in phase I of a program to save $6 million on an annual basis. In December, the company announced a second set of cost-cutting measures designed to carve an additional $3 million off the bottom line, as well as $1 million in voluntary reductions in pay by senior managers at the company's Billerica, Mass., headquarters (see BCW 12/23/2004).

Last week, the company said that it has added incentives to its executive compensation to reflect gross margin improvement goals and other operating metrics. The company had gross margins of 46.1 percent for the quarter, compared to 43.1 percent for the year-ago quarter.

On the Inside

Bruker's fourth-quarter revenue improvement was clearly driven by Bruker's AXS unit, which produces X-ray based systems for structural and elemental analysis for life sciences and industrial applications.

AXS revenues for the quarter increased 32 percent to $41.8 million for the period, compared to $31.7 million for the same quarter in 2003. The unit had gross margins of 40.1 percent for the period, compared to 39.7 percent for the same period in 2003. For the year, the unit's gross margins were flat at 39.7.

Growth in the unit was led by the application of X-ray diffraction of advanced materials, and strength in industrial sales.

"[The] life sciences market looks very promising, but through the year, was slower growing than the industrial side," Laukien said of the unit's performance.

Bruker Daltonics reported revenue growth of 7 percent, essentially flat when excluding foreign-exchange benefits, to $44.8 million for the quarter, compared to $42.0 million for the same period in 2003. The unit had gross margins of 50.8 percent, compared to 45.6 percent for the year-ago period.

"Although we have shown improvement in gross margins, we are not at industry-standard levels," said Knight. The company has implemented programs at its product design and quality operating units with the goal of bringing gross margins up "over the next several years," he said.

"The program we have put in place is not something that you would see results in a quarter or two," said Knight. "The real impact will come in 2006, 2007. We expect to get modest improvements but we are not doing little bits and pieces. We are looking for what we can do on possibly more efficient design and more effective manufacturing workflows. That takes a little bit of time and it will take a little bit of work."

For the fourth quarter, Bruker's overall sales and marketing, and general and administrative costs, were $34.7 million, or 29.1 percent of revenues, compared to $21.0 million, or 29.9 percent of revenues, in the year-ago period. R&D costs were $11.7 million, or 13.7 percent of product revenues, in the quarter, compared to $9.9 million, or 13.4 percent, in the same period a year ago.

"We expect our R&D expenditure to come down, and perhaps by 2007 be around the 11- to 12-percent range," Laukien said.

Bruker had $79 million in cash and short-term investments on hand as of Dec. 31. The company reduced its short-term debt to $12 million at the end of the quarter, from $18.5 million a year ago, but its long-term debt grew to $27.7 million from $26.3 million a year.

The public company — which emerged from Bruker BioSpin, which was established in 1960 by G nther Laukien and others — was launched as Bruker Daltonics in a 2000 IPO that raised $104 million. The company acquired Bruker AXS in July 2003 and the merged company, Bruker BioScience, forms the operating umbrella and tracking stock for the Bruker AXS and Bruker Daltonics entities, and is run by CEO Frank Laukien, the son of the co-founder. Other family members own a majority of shares.

— Mo Krochmal ([email protected])

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