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ABI to Debut New Tools to Revive Flagging Proteomics Unit; Thermo Hints at M&A Play

Will Applied Biosystems launch a new instrument in the coming months to boost its flagging mass-spec business? Does Thermo Fisher Scientific have its eyes on a big fish in the M&A waters?
These were among the disclosures made at this year’s Deutsche Bank 2008 Health Care Conference, held in Boston this week, where some of the biggest proteomic tool vendors pitched their shops to analysts and investors.
While no one would comment specifically about their plans for the future, a few left open the possibility that things may be brewing behind the scenes.
Below are highlights from the conference.
ABI: “[B]e assured we will be launching new [proteomic] platforms …”
With Applied Biosystems’ mass spectrometer business in the doldrums, could a turnaround come in the form of new instruments?
At the conference, Mark Stevenson, president and COO of ABI, addressed the company’s slowing mass spec sales and said growth spurts come with new product introductions.
“We’re very well aware you need to introduce new platforms,” he said. “We’re certainly not going to use this conference to announce new platforms, but you can be assured we will be launching new platforms, and that’s part of what we think will fuel growth in mass spectrometry.”
Two weeks ago, ABI announced it mass spec business had grown less than 1 percent to $128.5 million during its fiscal third quarter, which ended March 31. It was the sixth consecutive quarter that growth in that business had declined, which the company blamed on delays in pharma spending [See PM 05/01/08]. Those delays in the fiscal first quarter, particularly late in the period, took the company by surprise, Stevenson said this week.
A growth area in mass specs cited by Stevenson was applied markets, a new market for ABI.

“I would say from a management capacity point of view we are … now two years into the deal, so I think management is comfortable enough that we could do a larger deal when it would become available.”

On the corporate front, Dennis Winger, CFO of ABI parent Applera, said the company’s goal remains to separate ABI and Applera from Celera by the end of the company’s fiscal year, which wraps up in June.
Thermo: “[M]anagement is comfortable enough [to] do a larger deal … “
Thermo Fisher CEO Marijn Dekkers reaffirmed that his company’s M&A strategy is still to pursue tuck-in acquisitions, but he hinted that the company could be open to seeking larger deals, explaining that with the dust settled from the merger between Thermo Electron and Fisher Scientific, the company’s management has reached a new comfort level.
“I would say from a management capacity point of view we are … now two years into the deal, so I think management is comfortable enough that we could do a larger deal when it would become available, so that’s not a factor anymore,” he said during his presentation.
But forging such deals is complicated and not entirely under the control of Thermo Fisher. “There [are] obviously quite a few companies that would make a logical combination with us, but whether or not that happens, the stars have to be aligned,” he said. He did not elaborate.
Dekkers estimated that Thermo Fisher spent approximately $500 million on around 10 acquisitions in 2007, which added about $250 million to its top line. He said any purchases made this year would follow the same trend.
“That’s just what goes on in our industry, and we’ll continue to do so and create value,” he said.
Waters: “We’re still a little cautious with [our] top-15” pharma customers.
During its first-quarter earnings release two weeks ago, Waters said that a soft pharma market hurt its overall business [See PM 04/24/08]. This week at the conference, company officials provided some color about that finding.
While overall pharma sales rose 6 percent for the three months ended March 31, sales to Waters’ top-15 accounts declined year over year, CFO John Ornell said during his company’s webcast of its presentation. Water’s European business was most affected by the trend, he added.
While large pharma accounted for 25 percent of the company’s total sales a few years ago, diversification of its accounts into contract research organizations, generic drug firms, and biotech companies has reduced that intake to about 15 percent.
“We’re still a little cautious with the top-15 accounts,” Ornell told conference attendees. “We all understand that these accounts aren’t thriving. They all face different pressures in their businesses, so we do not believe overall we’re going to see significant growth in these accounts during 2008.”
On the instrument front, Gene Cassis, vice president of investor relations at Waters, said that the company’s Acquity UPLC, which has had strong uptake in research applications since its introduction in 2004, is poised to move into “more regulated methods.
“It’s been a more lengthy process than we envisioned in getting this technology adopted into some quality-control type applications,” he said. Some movement has been observed with generic drug firms, he said, adding that this year and next the company expects large, multinational companies to adopt the platform.
Meanwhile, the company has seen sharp growth with near-triple-digit growth in Acquity-related chemistries.
“As we look at the Acquity placements and look at the uptake of the consumables with Acquity, it’s indicative of almost complete utilization of our consumables on that hardware platform,” Cassis said.
Regarding M&A, though the company would consider an acquisition that is “a bit larger than what we’ve seen historically, there isn’t anything on the M&A front now that I would say is transformational,” Ornell said. “There isn’t another technology area that we’re looking to bring on board.”
He said Waters plans to deploy between $50 million and $100 million on average annually for potential purchases, though it’s “unlikely” the company will be spending toward the high end of that range this year. Any funds left over from the allotment will be used to buy back shares, Cassis added.

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