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Continuing Rebound of Mass Spec Business Helps Waters Post 14-Percent Rise in Q1 Revs

Strong instrument sales, especially in its newly refreshed mass-spectrometry portfolio, fueled a 14-percent jump in total sales for the first quarter, Waters reported this week.
CEO Douglas Berthiaume also hinted that the company may make an acquisition sometime this year.
Shipments of the company’s mass specs rose 12 percent year-over-year, helping overall sales climb to $331 million for the three months ended March 31, compared to $290 million a year ago.
Net income for the quarter rose nearly 27 percent to $55.9 million from $44.2 million a year ago.
While Waters also said that increased pharmaceutical spending helped grow revenue in the period, Berthiaume singled out the company’s mass-spec business.
For several years, Waters has laid low in the mass-spec space after a series of patent disputes with Applied Biosystems and its joint-venture partner MDS Sciex, now called MDS Analytical Technologies, forced Waters to purge its mass-spec portfolio [See PM 03/09/04].
Last year, Waters dove back into the market with the launch of a new triple-quadrupole instrument, an updated single-quadrupole mass spec, and the introduction of the Synapt High Definition MS, featuring Triwave technology, which is designed to enable researchers to differentiate ions based on size and shape as well as mass.
Throughout the latter part of 2006, company officials repeatedly said that Waters’ rebuilt MS portfolio had reestablished its place in the space, and this week, they said the upward sales trend begun last year is expected to continue through 2007.
“This mass spec performance was highlighted by very impressive results for high-resolution mass spec systems,” Berthiaume said in a statement. “At the same time, sales of our new Acquity-based quadrupole mass spec system; SQD, the single quad; and TQD, the triple quad, also grew nicely in the quarter. This positive start in mass spec is very encouraging and fuels our confidence for achieving a very strong full-year result.”
According to Berthiaume, market acceptance of the Synapt has been “phenomenal” as early adopters become interested in using the technology to analyze whether proteins fold or unfold in certain applications.
In addition, large pharmaceutical companies are showing interest in the system, and metabolomics researchers have been installing the system, Berthiaume said. Small-molecule researchers also are expressing interest in the Syanpt, though it’s not clear whether that is in preparation of large molecule research they may be doing in the future, he said.
Switching LC Loyalties
Liquid chromatography also continued to be a revenue driver for Waters, with LC products and services growing 9 percent “versus a very strong prior year-ago,” said CFO John Ornell.
Company officials continued to hawk the Acquity UPLC, introduced in 2004. In February, Ornell said that about 2,000 Acquity systems had been installed, about 1 percent of the total number of all HPLC systems on the market [See PM 02/08/07]. While acknowledging that to date the Acquity has barely dented sales of HPLCs, Waters officials have said that loyalty to HPLC systems is now eroding and researchers are slowly switching to the Acquity platform [See PM 03/22/07].
Waters has never publicly disclosed the financial figures for the Acquity. In response to a question from an analyst during the conference call accompanying the release of its earnings results this week, however, Berthiaume said that Acquity sales for the quarter had ”greater than 20-percent growth [but] less than 100 percent.”                      
Ornell added that when the Acquity is fully ramped during the next few years, its gross margin will be comparable to that of the Alliance HPLC, which is above the company average.

“This positive start in mass spec is very encouraging and fuels our confidence for achieving a very strong full-year result.”

“You have to remember that the Alliance product has been out for a decade … and we’ve had a number of years to cost-reduce that product,” Ornell said. “I’d say that over the next 12 months or so, that we would get the [gross margin of the] Acquity close to the corporate average.”
The Acquity product line also includes chemistries for the instrument that will help improve margins as ramp-up continues, said Ornell. Because the Acquity has a higher captive rate than Waters’ HPLC, chemistry sales and instrument sales will move in tandem, the company has said in the past.
Berthiaume also said that an acquisition may be on the menu for 2007.
“If I were a betting man, I’d say we’ll probably get something done this year,” he said.
The company’s recent strategy has been to target small firms with annual sales of between $10 million to $50 million. Waters plans to stick with that plan.
“While not risk-free, they’re on the low side of the risk equation,” Berthiaume said. “They fit nicely with our existing management strength, and they’re almost all rapidly accreted.”
In addition to its instrument sales, Waters said that spending by its large pharmaceutical customers contributed to the company’s overall sales growth. In the quarter, Waters’ sales to the pharmaceutical sector rose by double digits, and for full-year 2007 the segment is expected to grow “markedly” compared to full-year 2006.
Geographically, sales in the US saw the biggest jump — 21 percent over last year, driven by pharmaceutical spending. Officials also said that industrial, government, and academic demand in the US contributed to the sharp increase.
Sales in Asia grew 11 percent while sales in Europe rose 7 percent. For the quarter, Waters spent $93.9 million on R&D. As of March 31, it had $503.7 million in cash and cash equivalents.
The company forecast that sales would grow 14 percent in the second quarter, 10 percent of that organic, and the rest resulting from M&A and currency effects. For full-year 2007, sales are expected to grow 12 percent with 8 percent of that organic.

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