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Despite Dire Predictions, MS Businesses Surviving Through Economic Downturn

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This story originally ran on June 3.

PHILADELPHIA – Despite early predictions that the market for mass spectrometers could be among the hardest hit by the economic nosedive, sales of the instruments have been able to weather the topsy-turvy environment, and in some cases thrive.

And according to officials from several mass spec firms at this week's American Society for Mass Spectrometry meeting here, the outlook for the technology is much more promising than some had predicted — with proteomics and other life science applications looking like a particular bright spot.

As 2009 approaches its midway point, mass spec vendors may not be exactly celebrating sales results. Indeed, almost all the major manufacturers recently reported that first-quarter revenues for the instruments were down year over year. However, amid earlier reports that the cratering economy could significantly pull down that business, the effects of the downturn have been in actuality relatively mild.

For example, in the most recent round of earnings releases, Life Technologies division Applied Biosystems — who, along with its joint-venture partner MDS, forms the world's biggest mass spec vendor — reported a 5 percent decline year over year in mass-spec revenues during its first quarter ended in March, better than company executives had expected, they said [see PM 04/30/09].

Meanwhile, the CEO of its main competitor in mass specs, Marijn Dekkers of Thermo Fisher Scientific, said that though its mass spec and chromatography business remained under pressure, it still performed better than the rest of the company's instrument business, although the firm did not disclose any figures [see PM 04/23/09].

Officials from two other major vendors reported growth in their mass-spec businesses for the most recent earnings season: Bruker CEO Frank Laukien said that first-quarter mass spec sales increased by double digits, compared to a year ago [see PM 04/30/09], and Agilent Technologies' CEO Bill Sullivan reported that sales of the company's LC-MS platforms and microarrays were up 30 percent year over year even as company-wide revenues slid 25 percent [see PM 05/21/09].

Waters did not comment one way or the other on its mass spec sales for first quarter though it reported that total instrument sales were down 16 percent, compared to year-ago figures [see PM 04/30/09].

So why have the mass spec sales been able to stay ahead of the dire expectations?

Certainly, expectations may have been set so low that, short of an apocalyptic scenario, the actual results can't be interpreted as being anything but relatively bright. Investment firm Leerink Swann late last year and earlier this year forecast that mass spec vendors would be among the first casualties of the tanking economy and spending cuts in academia [see PM 12/18/08 and01/08/09].

And just two months ago, Thomas Weisel Partners, another investment company, reported that a survey it conducted indicated that researchers would not be using any economic stimulus funds to buy new equipment. Instead, the money would be used to hire new personnel [see PM 04/09/09].

But according to Greg Herrema, president of Thermo Scientific Instruments, a division of Thermo Fisher, the company felt from the start that mass specs would weather the downturn just fine.

"I'm not sure we saw it as … challenging or difficult as it was inferred [by others] to be," he told ProteoMonitor here this week during the annual conference of the American Society for Mass Spectrometry, where the major vendors have reported record or near-record attendance for their user meetings. "Clearly, there are some areas that are softer than others, but we remain very confident [for] the second half of this year and heading into next year."

In particular, Herrema and others said this week, the part of the market that appears to suffering the most is the large industrial end-markets where there is excess capacity. But in areas where the newest and most high-end technology could have the greatest impact, the demand for mass specs remains healthy.

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"Those things that are truly new technology — significant advances in technology allowing customers to see and analyze information that was difficult to do before because those capabilities weren't available — that sector of the market is, I think, the piece of the market that's driving the sustained performance of the MS market overall," said Gus Salem, vice president and general manager for Agilent's Biological Systems division.

"Whereas lower end equipment or more commoditized capital equipment — where it's generally replacement business that people are looking at — it's probably that which has struggled more because of the economy," he added.

And for the proteomics part of the business, that has meant a certain amount of protection from any shrinkage in demand. With the field moving increasingly toward targeted proteomics and validation, that has fueled a perpetual need for new platforms that improve in mass accuracy, resolution, and data acquisition speeds.

Said Laura Lauman, the president of ABI's mass spec division, "New technology certainly stimulates [the proteomics] market" adding that her firm is seeing "solid growth" in mass specs aimed at that market.

If that's true, the past few months have been the most stimulating time for proteomics in several years. While mass spec technology development has resulted in incremental improvements in prior recent years, the past year has seen significant leaps forward in the capabilities of the technology. Most notably, ABI provided a badly needed upgrade of its mass spec portfolio with the introductions of the Triple Quad 5500 and QTrap 5500 in the fall.

At ASMS this week, Waters and Thermo Fisher each launched platforms meant to set new standards, at least within their own mass spec portfolios [see accompanying story this issue].

Emerging Benefits

Some officials also said that that their mass-spec businesses have benefited from new applications of the instruments, including their use by biopharmaceutical firms in the development of biologics. While such applications are still nascent and account for a small percentage of mass-spec sales currently, they are expected to take off, especially if and when the US Food and Drug Administration releases guidelines for that market, several company officials said.

Darwin Asa, marketing manager for the Americas for Bruker Daltonics, said that the instruments have been traditionally used by biopharma as a "troubleshooter" — a device to help figure out why something may have gone wrong. But that is changing and mass specs are now increasingly being used as part of the new therapeutic discovery and development pipeline.

Brian Smith, vice president for MS business operations at Waters, said that his company is seeing greater interest by the biopharma and biotech business in mass specs. "And that's taken off really quickly for us and that pulls with it, obviously, quite a few of our mass spectrometry systems," he said.

Even with traditional pharma, which has reined in spending on capital equipment, if technology offers an improvement in their processes, then they will make the investment, some executives said. Recently, Schering-Plough placed an order for Bruker's solariX FTMS, which launched in mid-May, and the company has sold "a lot" of the maXis" instruments, introduced at last year's ASMS, to pharma, Laukien said.

"Supposedly [the pharma market] is weak, but they still have research budgets; they're just very selective and cautious in spending them," he said.

There is also guarded hope that the pharma market may have already bottomed out and is now back on a growth and spending trend. "There are some indications of some strength there," ABI's Lauman said, an assessment that Waters' Smith agreed with.

"There does seem to be a lot more interest again from traditional big pharmaceutical accounts," he said. "I think they realize there's a whole new wave of technology out there and they need to assess that technology and if that's going to make a discernible difference to their business, they'll need to start bringing that in later in the year."

As an indication of how quickly the outlook for the mass spec landscape has changed, Isaac Ro, an analyst at Leerink Swann who had predicted rough seas ahead for the industry when the year began, recently told ProteoMonitor that a survey the firm conducted in March suggests that there are in fact ripe opportunities again for makers of large capital equipment, including mass specs, largely due to the availability of economic stimulus funds from the National Institutes of Health.

As the NIH starts dispensing some of the stimulus funding, the anticipation is that the second half of the year will further improve upon the first half of 2009 as the funds reach down to the vendor level. The impact of that spending, however, is still expected not to be felt completely until early 2010, executives of the mass spec vendors said.

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