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ABI Grabs Bigger Piece of Mass Spec Market, While Waters Sales Suffer

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Both Waters and Applied Biosystems were bombarded with questions from analysts regarding their mass spectrometers when they reported their quarterly earnings last month. However, the reasons for this intense scrutiny differed: While ABI reported an “extraordinary increase in mass spectrometry revenue of more than 50 percent over the prior year period,” Waters stated that its mass spec business for the quarter was down by a percentage “in the double digits,” compared to last year’s quarter.

Moreover, Waters was the only company to report this precipitous drop in mass spec demand. Thermo Finnigan stated that it continued to see “strong orders for mass spectrometers,” without indicating growth, while Bruker, which is to release its earnings for the quarter on November 4, talked last month about a 22 percent growth in life-science systems orders during the third quarter, a reflection of future sales.

These data, while incomplete, paint a picture of a sector where Waters is losing out to ABI and others. The most obvious reason is the company’s patent-related problems in the US, besides a production problem that occured late in the quarter. After a US ruling in March that found Waters liable for infringing on a patent covering front-end ion tunnel technology co-owned by Applied Biosystems and MDS Sciex, Waters pulled its high-end quadrupole instruments from the market and has been selling Q-TOFs reengineered with older technology.

In its quarterly conference call, Applied Biosystems was reluctant to attribute its sales growth to this ruling. “I think to some degree it was certainly aided by the patent issues in the US, but…the [sales] strength was really across the entire mass spectrometry line that we have,” said Michael Hunkapiller, Applied Biosystems’ president, and included some models that don’t compete with Waters directly.

Also, ABI’s mass spec sales have grown outside the US, where the patent problem does not apply.

Waters, on the other hand, attributes most of its mass spec downturn to the patent issue. “While we continue to see growth outside the US, the deficit from lost Q-TOF and Quattro-Ultima sales in the US has proven to be a challenge,” the company said. Outside the US, Q-TOFs have remained its strongest product line, whereas triple quadrupole instruments did not perform as well as earlier in the year. “We expect the general dynamic to be a problem for the next several quarters, with weak US performance and good international results for mass spectrometry,” said Douglas Berthiaume, Waters’ chairman and CEO. The re-engineered Q-TOF launched in the US has done less well than the company had hoped, and “competitors are trying to obviously take advantage,” Berthiaume said. “Some of it could be market-related…some of it could be product-related; we probably need to see a little bit more what’s going on in the US before we can draw a clear conclusion.”

Return of the Triple-Quad

The company is planning a comeback of its high-end triple quadrupole and Q-TOF Global instruments, fitted with new technology that does not infringe, in the first half of 2003. The launch is planned at or near Pittcon in March or the ASMS conference in June, and the company is expecting to ship the first instruments two to three months afterwards.

However, adding to Waters’ mass spec sales shortfall was a production problem that led to a delay in shipments and therefore in sales for the quarter. This was due to a faulty component in the detector and led to extended final tests of the instruments. “We think we are beyond that,” said Berthiaume, adding that in the future, the company will try to identify this problem at an earlier production stage. Waters also said it is close to finishing the reorganization of its sales and engineering force, a move that it announced in July.

Applied Biosystems said its mass spec sales increase was not entirely due to proteomics, but was driven by its API 4000 LC-MS/MS instrument for drug metabolism and pharmacokinetics studies. It also saw “good demand” for its 4700 TOF/TOF and its QSTAR LC-MS/MS systems, which “serve the high-end discovery proteomics market,” ABI said, and has seen interest in its recently launched QTRAP system, which has applications in both drug metabolism and “some aspects of protein analysis” — the first instruments are likely to be shipped this quarter.

In terms of its market, ABI reported that overall, government and academic customers showed “firmness in their spending patterns,” with the exception of Japan, where it said the government has yet to pass supplementary budgets for the fiscal year ending next March. Revenues from commercial customers, on the other hand, were down from previous years, apart from mass spec sales for pharmacological applications. In the mass spec area, many customers tended to be “individual investigator labs in the academic world,” said Hunkapiller, whereas those once-expected “proteomics factories that were going to have 40 or 50 units…cranking away in tandem” are hard to come by.

Bruker, on the other hand, has had orders for more than 10 of its TOF/TOF instruments from Roche alone in the last quarter. It, too, noticed that pharma and biotech spending has been growing more slowly this year, which was made up by strong academic, hospital, and government sales, according to its CEO, Frank Laukien.

— JK

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