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ABI Says Mass-Spec Business Slowing as Rivals in Low- to Mid-Range Space Catch Up

In the midst of a general slowdown in its mass spectrometry business, Applied Biosystems last week conceded that competitors have caught up with it in the low- and mid-range mass spec market, though the company remains on top of the high-end market and continues to command the lion’s share of the overall mass-spec market.
Last week, ABI reported that sales of its mass specs during its fiscal second quarter inched up 1 percent to $137.6 million from $135.9 million year over year — results it anticipated — continuing a recent trend of flat mass-spec growth.
As a percentage of total revenue, mass-spec sales for the quarter ended Dec. 31, 2007, declined to 24 percent from 26 percent from a year ago.
For the first six months of its fiscal year, mass-spec sales have risen 3 percent to $258.7 million.
“There are more competitors now,” Tony White, CEO of ABI’s parent company Applera, told analysts during a conference call accompanying the release of its earnings. “The … dynamic range of the competitors is stronger and it’s just a tougher market.”
A year ago, ABI’s mass-spec business was in full bloom and in the midst of four straight quarters of double-digit growth. During the second quarter of the company’s fiscal 2007, mass-spec sales swelled 14 percent over the prior year.
But more recently, the business has been gradually flattening: Growth slid from 8.5 percent during the three months ended June 30, 2007 — which marked the end of the double-digit growth streak — to 4 percent for the following quarter and winding down to 1 percent for the period reported last week.
The slide was expected as company officials had said months ago that they anticipated softer mass-spec results compared to a year ago. Last week, they said that while ABI continues to be the market leader, the slowing growth in the division reflects an increasingly crowded field.
According to President and COO Mark Stevenson, mass spectrometry is “one of the most competitive markets we participate in, with both new and established players strengthening and broadening their offerings in both product types and application areas,” he said during the conference call.
And Laura Lauman, president of ABI’s proteomics and small-molecule division, said the company is “seeing increased competitive pressure at the low- to mid-range of the market, there’s no doubt.”
For the quarter, total revenue increased 6 percent to $561.9 million from $530 million a year ago, and profits rose 15.4 percent to $86.3 million from $74.8 million.
Among other instrument systems, DNA sequencing revenues were flat compared to a year ago at $146.8 million; receipts from real-time PCR/applied genomics products rose 16 percent to $200.5 million; and core PCR and DNA synthesis systems posted a 2 percent rise in sales to $50.2 million. Sales from other product lines climbed 5 percent to $26.8 million.
Mass Crowding
To be sure, ABI is still widely regarded as being at the top of mass-spec food chain.
Jon Wood, an analyst at Bank of America, said in a research report last September that ABI commands 25 percent of the mass-spec market, compared with 17 percent for Thermo Fisher Scientific, 13 percent for Waters, and 10 percent for Agilent.
But while rivals have introduced new instruments during recent years, ABI has been suffering from technological constipation. During the last two years, for instance, Waters has repositioned itself in the market after a series of patent disputes with ABI forced it to purge its mass-spec line.
Since 2006, Waters has released new single- and triple-quadrupole instruments and its flagship Synapt High Definition Mass Spectrometer. And last week it introduced a Q-TOF version of the Synapt that can be upgraded to full HDMS mode [See PM 01/24/08].

Mass spectrometry is “one of the most competitive markets we participate in with both new and established players strengthening and broadening their offerings in both product types and application areas.”

During the same two-year period, Agilent upgraded its mass-spec portfolio with its first Q-TOF and triple-quad instruments and upgraded its ion trap, TOF, and single-quad mass specs [See PM 02/02/06]. In November, the company launched upgrades to its TOF and Q-TOF instruments [See PM 11/08/07].
Meanwhile, in 2005 Thermo Fisher introduced the LTQ Orbitrap, which is based on a new type of mass analyzer involving an ion trap; the LTQ XL in 2006, which is the first linear ion-trap mass spec with electron transfer dissociation capability; and last year debuted the LTQ Orbitrap Discovery and the LTQ Orbitrap XL, which combines both the Orbitrap and XL technologies [See PM 06/07/07].
During last week’s conference call, White said the company hadn’t introduced a new MS platform “in a while [and] I think that’s contributed some to the competitive nature” in the market.
In fact, in the spring ABI upgraded its 4800 MALDI TOF/TOF and introduced the FlashQuant MS platform for early drug discovery, but the point was made: ABI was letting its competitors take the lead in bringing new machines to the market.
Stevenson said that the company is “committed to innovating in this market and [is] working closely with our partners at MDS Sciex to develop new applications and technologies to meet our customers’ needs.” Company officials declined to comment when asked by an analyst about new instruments that may be coming down the pike.
Instead, according to Lauman,“there is no one that can compete at the same level as Applied Biosystems from a performance perspective.” She added that the growth potential in the high-end space remains “solid.”
Down in Japan
During their conference call, ABI officials attributed the slow mass-spec growth during the quarter to a tough climate in Japan, where downsizing and outsourcing by pharma has driven down demand for mass specs.
For the past five years, the Japanese market has proven to be particularly gnarly, White said. “This past quarter, though, was probably more acute than we’ve seen … the mass spec market was more difficult than we’ve seen.
“What little business was there was very competitive, more at the low end than at the high end, which doesn’t favor our mix, more in the applied markets than any place else, which was really basic applications, which doesn’t favor our product mix,” he said.
Some of the difficulties of the Japanese market, he said, were beyond ABI’s control, but some was also the result of “self-inflicted wounds,” a reference to mismatched managers. The company has replaced key people with “people [who] are more savvy to the technology curve that we’re on,” and retooled the company’s operations in Japan, White said. He did not elaborate.
Budget flushes at pharma anticipated to materialize during the end of 2007 did not appear, which also contributed to the flat mass-spec growth, company officials said.

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