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Improving Sales and Declines in Funding Painted a Murky Picture for Proteomics in '06

Mergers, divestitures, frustration, and a slowdown in federal funding helped to define 2006 as a mixed year for proteomics and protein analysis.
On the plus side, instrument vendors cited strong growth in their proteomics businesses for the year and projected strong revenue flow in that segment to continue in 2007.
In addition, research remained vigorous as scientists steamed ahead in their quest to characterize the human proteome, identify more proteins, and search for disease biomarkers.
But conversely, there was also a growing sense of frustration that despite all the work being done, results have been lagging and that improvements needed to advance the science have not kept pace with the demands.
On the business side, while industry players say that proteomics is becoming an increasingly important revenue driver, it is still far from being a mature segment. At the same time, government funding for proteomics research dipped sharply during the year.
While no single event in 2006 had the effect of realigning the proteomics constellation, several developments caused some stars to shine more brightly and others to dim.
No one entity did more to increase the size of its footprint in the proteomics marketplace than Bio-Rad. Toward the end of 2005, Bio-Rad’s main proteomics product, aside from consumables, was its Bio-Plex system for quantitative peptide and protein analysis.
But by the end of 2006 the company had purchased ProteOptics and, most significantly, Ciphergen’s proteomics tools business [See PM 08/17/06]. Bio-Rad paid Ciphergen $20 million in cash as part of the transaction and made a $3 million investment in Ciphergen. In return, Bio-Rad received the Surface Enhanced Laser Desorption/Ionization technology platform, ProteinChips and accompanying software.
Even before that purchase, the company’s CEO Norman Schwartz had hinted at a shift in the company’s focus when, during a conference call with analysts accompanying the release of its second-quarter earnings results, he said, “We’ve been investing more in the protein side of the business where we see opportunities and have been quite successful there. A lot more of the focus is being turned toward the proteins.”
Indeed, the improving financial outlook for proteomics tools was a theme voiced by several companies during the year. In the fall, Invitrogen’s CEO Greg Lucier — in the midst of telling analysts that wholesale changes may be imminent for the embattled company — all but promised that the division housing many of its proteomics consumables products, the BioDiscovery division, would not be touched [See PM 11/02/06].
In recent years, the company had gone on a buying spree, acquiring several companies that lengthened its reach in the proteomics space. Acknowledging that Invitrogen was having a hard time integrating those acquisitions, Lucier said that once all the consolidation was completed, BioDiscovery will be “a very robust business.”
Tools on the Rise
During the second half of 2006, all of the leading manufacturers of mass spectrometers said revenue growth in their mass spec lines — especially in new instruments introduced during the year — was robust.
In October, as Applied Biosystems reported a 19-percent rise in revenues for its mass spec products for the quarter ended Sept. 30, ABI’s interim president, Tony White, said, “Overall, the past two-and-a-half years, we have refreshed all our mass spectrometry product lines to target high-growth areas such as biomarker discovery and applied markets applications. We believe that this breadth of [our] portfolio has enabled us to deliver growth above the overall market despite what we still believe to be a mixed environment for global pharma and CRO spending.”
Waters’ CFO John Ornell also told analysts in the fall that after years of lying dormant, the company’s mass spec business reawakened in 2006 and fueled expectations that full-year 2006 would end with double-digit percentage growth in sales of the instruments. It is a trend that the company expects to continue into 2007, company officials said.
Meanwhile, Agilent Technologies CEO William Sullivan said in November that demand for its newest mass specs, introduced in 2006, was outpacing manufacturing capacity. And Thermo Fisher Scientific President and CEO Marijn Dekkers sounded a bullish note throughout the year on the future of the mass spec market, saying that a thriving demand for better instruments would fuel innovation.
“To put it very simply, our customers have a tremendous need for more accuracy in these analyses,” Dekkers said in July. “The question is: ‘To what extent can the suppliers truly come [up] with meaningful, innovative technology to allow our customers to do a better job analyzing samples?’ And that’s the race that we are in.”
Competition in the liquid chromatography market also began to heat up during the past year. Waters continues to be the leader in the segment, and in 2006 its Acquity Ultra Performance Liquid Chromatography system, introduced in 2004, was a main driver of the company’s overall revenue growth. Its importance to Waters’ bottom line was emphasized by a series of collaborations it made with competitors Thermo, Bruker Daltonics, and ABI, integrating the Acquity UPLC with those companies’ mass specs in order to maintain market share [See PM 09/07/06 and 03/09/06]
In addition, Agilent and Thermo introduced high performance liquid chromatography systems during the year though analysts said that it was still too early for those products to have much of `a substantial effect on Waters’ lead in the LC market [See PM 11/22/06].
Overseas business provided a boost to tools companies in 2006, with sales particularly strong in India and China as companies reported double-digit percentage growth in their businesses there, a trend they said is expected to continue in 2007 [See PM 03/30/06].
And after changes in government funding in Japan led to a slowdown in spending on tools and instruments in recent years, researchers there began to show greater willingness to open their wallets again this year, companies said, while Eastern Europe was also becoming a growth area.
The year also saw faint signs of renewed interest in proteomics services as a business venture. In July, BioMachines signed a deal with the University of Massachusetts Proteomic Fractionation Group to form a new division offering protein analysis services [See PM 07/20/06]. Four months later, UK-based protein services firm, NextGen Group purchased Proteomic Research Services [See PM 11/09/06].

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While two transactions do not a trend make, the deals do offer the possibility that businesses based on proteomic services still have a pulse after the harsh reality of turning a complex science into a viable commercial entity forced many of these kinds of shops in recent years to shutter their doors or drastically alter their business models.
The Bad and the Ugly
But the proteomics field also had its share of lumps, bumps, and bruises in 2006. The decision by PepMetric Technologies in Vancouver, British Columbia, last fall to abandon its protein-analysis service was a stark reminder that proteomics remains a risky foundation for a business. During the summer, citing anemic sales, PepMetric stopped offering the service and arranged for the Brain Research Center in Vancouver to step in and fill the void [See PM 10/05/06].
Also in 2006, Ciphergen threw in the towel on some of its proteomic goals when it sold its proteomics tools outfit to Bio-Rad. Ciphergen once had great ambitions for its SELDI platform, but questions about the accuracy of the instruments and the reproducibility of experiments conducted on the platform severely hurt sales. That, in turn, led to a flatlining of Ciphergen’s business.
The divestiture of its SELDI line turned Ciphergen from a proteomics player into a specialty diagnostics firm. With a share price that’s dropped about 30 percent during 2006 and a workforce that’s been cut to 50 from about 160 since the start of that year, Ciphergen is in overdrive to keep afloat.
In December, the company announced a series of moves meant to push its ovarian cancer test onto the US and European market as an in vitro diagnostic test [See PM 12/21/06]. And early in 2007 the company disclosed it has begun the second phase of a three-part deal with reference lab giant Quest to develop an molecular diagnostic.
Meanwhile, slow pharma spending throughout the first half of 2006 restrained the overall sales of many tools companies. In discussing his company’s second-quarter earnings results, Waters CEO Douglas Berthiaume called pharmaceutical spending “a depressant to our overall sales growth rate.”
But during the second half of the year, there were signals that the tide was beginning to slowly turn, and Berthiaume said freer spending by pharmaceutical companies was leading to improved sales of its instruments including its liquid chromatography and mass spec systems.
“Our larger pharmaceutical accounts began to release capital budgets and started to buy instrumentation at a faster pace in the United States,” he said in October.
Most ominous for the proteomic research community was a 22-percent reduction in National Institutes of Health funding for proteomic research during 2006 [See PM 12/14/06]. In addition to a drop in total funding to $102.4 million for 2006 compared to $131 million in 2005, the average amount of each NIH grant dipped 12 percent to $363,233 in 2006 from $413,232 the year before.

“To put it very simply, our customers have a tremendous need for more accuracy in these analyses. The question is: to what extent can the suppliers truly come [up] with meaningful, innovative technology to allow our customers to do a better job analyzing samples. And that’s the race that we are in.”

Getting funding in 2007 may be even more challenging. Awaiting President Bush’s signature is a bill that would change how the NIH receives money from the federal government, how the agency would spend it, and how its activities would be monitored.
The NIH Reform Act of 2006 would strengthen the power of the agency’s director and create greater transparency at the agency. In addition it would give the director the power to suggest changes in research to correct areas that he determines to be over- or underemphasized, and would authorize a five percent annual increase to NIH’s budget for fiscal years 2007-2009.
The NIH has also said that it will cap the amount of total grants it awards this year at the 2006 level although the agency did not announce a limit on the total dollar amount it will award. Grants that are being renewed during the year will not be adjusted for inflation, however.
Standards, Mergers, and Short Good-Byes
In other developments, standardization initiatives chugged along in 2006. In late October, Sigma-Aldrich released the first protein standard mixture while the Human Proteome Organization continued to develop its own standard mixture [See PM 11/02/06] as part of its wider initiative to create standards for researchers.
Commercially, the merger of Thermo Electron with Fisher Scientific sent shockwaves through the life science industry though its effect on the proteomics space was more muted since Fisher Scientific was not a major player in the field [See PM 05/11/06 and   11/16/06]. GE Healthcare also increased its presence in the protein-analysis market by purchasing Biacore for $390 million [See PM 06/22/06].
Meanwhile, over at ABI, Cathy Burzik’s abrupt departure as president in October, and the company’s scant mention of the incident during an earnings results call less than a week later, created an air of mystery [See PM 10/26/06].
On the scientific front, the search for biomarkers for cancer, neurodegenerative diseases, mental illnesses, and a host of other ailments continued to drive much of the research. While some of the work provided promising results, whether any of it will lead to a better understanding of the diseases or to therapies is still uncertain at best.
In the meantime, researchers increasingly voiced frustration over what they see as a lack of technological innovation and acknowledged that the results of their work have fallen short of expectations [See PM 10/19/06].
In an effort to encourage greater dialogue between researchers and industry players, HUPO formed a group with a goal to improve proteomic technologies and tools [See PM 11/02/06]. The group is scheduled to have its first meeting in March.

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