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At JPMorgan, Proteomics Tools Firms Lay Out Plans for Challenging 2009

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Surprise, it's the economy.

At the JPMorgan Healthcare Conference held in San Francisco this week, companies operating in the proteomics space had little to say about their proteomics businesses. Instead, if there was a general theme, it was how they planned to muddle through the economic downturn.

One firm, the freshly minted Life Technologies, put the emphasis on its genomics business, especially its next-generation sequencing technology, and expected improvements in government funding, while Agilent Technologies continued to put its eggs in the life sciences basket.

Waters said that it has implemented hiring and salary "controls," and Thermo Fisher Scientific is looking to expand its footprint in Asia. Meanwhile, Bruker's expansion of its mass spectrometry business beyond proteomics continued to pay dividends.

Below are highlights from webcasts of presentations given by company officials during the conference.

'Trying to follow the money'

Company officials reiterated Agilent's commitment to its Bio-Analytical Measurements business saying it is the growth engine that will help the firm weather the current economic downturn. And within that division, life science remains a fecund sector.

During its full-year fiscal 2008, Agilent's life science business captured $1 billion in revenues from a market that totaled $17 billion. The company's focus remains on growing its government/academic business, which represents about 4 percent of its total revenues, compared to pharma/biotech sales, which comprise about 14 percent of the firm's total revenues.

In his presentation, Nick Roelofs, vice president and general manager of Agilent's life-science solutions, said that "academic/government investment seems to be firming up," as governments globally are creating and adopting stimulus programs and Agilent is "trying to follow the money."

In addition, the company sees opportunities within pharma in spite of that industry's apocalyptic climate. As pharma now turns its attention to developing biologics, Agilent is entering that market with its high-end mass specs as part of the company's focus on driving up adoption of its new technologies, Roelofs said.

On the mass spec front, the company has focused over the past few years on becoming more than a proprietor of just lower-end single quadrupole instruments, and this week, Roelofs said that "we believe that we are now as sensitive and as high-performance as any instrument on the market, a huge leap for someone who wasn't in this market three years ago."

In late 2007, Agilent purchased Velocity 11 and while to date the acquisition has added to Agilent's genomics workflow solutions, Roelofs said "we intend to continue that aspect of this asset as well as [extend] the asset into other areas around proteomics and perhaps even diagnostics."

'Salary Controls … Hiring Controls'

During the conference, Waters further updated its revenue forecast for the fourth quarter of 2008 to approximately $418 million.

Last month, the company said revenue for the fourth quarter was expected to fall between $410 million and $420 million, down from a forecast of $454 million given in October, due to a "deterioration in global economic conditions," as well as constrained capital spending, and unfavorable foreign currency translation impacts.

At JPMorgan, Douglas Berthiaume, CEO of Waters, said that in addition to a slowdown in industrial chemical sales during the fourth quarter, pharma sales continued to decelerate. Also a "dramatic weakening" in local currencies in some countries, such as India and South Korea, resulted in capital spending delays that further ate into Waters' revenue stream.

For the first half of 2009, Berthiaume said he expects economic conditions to mirror the trends of the last months of 2008. While there may be some positive effects because "the financial system is still intact, and people's lending lines are more secure, and their ability to count on cash flow is a little bit better," than they were at the end of 2008, "clearly economic conditions are worse," he said.

The company is not directly affected by broader economic indicators such as gross domestic products — "We tend to be immune to that dynamic," Berthiaume said — but "needless to say, we're not totally immune to it," he added.

As part of its efforts at maximizing operation efficiency, the company has implemented "salary controls" and "hiring controls," he said, without elaborating.

Negative Exposure

Life Technologies' mass spec business has been one of the most exposed to the current challenges of the economy, company officials said during the question-and-answer session following their presentation.

Comparing its mass specs to its next-generation sequencing business, which Greg Lucier, CEO of the company, said has a "funding dynamic semi-removed from the general funding" and still receives "a lot" of funding and grants, the demand for new mass specs has slowed down.

"That's the part of the business that is certainly experiencing more of the current economic challenges that we see," Lucier said. Pharma spending "has definitely slowed down," he said, and if there was any hope that the end of 2008 would bring with it a sudden wave of spending by pharma trying to use up their annual budgets, it didn't happen with mass specs, Mark Stevenson, president and COO of Life Technologies, added.

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Like others, Life company officials expressed cautious optimism about a restoration of the National Institutes of Health budget by the new administration. While nothing is certain yet, a stimulus bill has been floating in Washington that would give NIH a funding increase of more than $1 billion for fiscal 2009, and "about 3,000 grants that were not funded [would] be funded using this stimulus," Lucier said.

For 2010, NIH funding could grow in the mid-single digits, translating to an increase of $1 billion to $2.2 billion, funding that would be used not for infrastructure costs such as buildings, but for research grants.

Asian Penetration

While Thermo Fisher does $1.3 billion in annual business in Asia, representing about 13 percent of the company's total revenue and up from 10 percent before the Thermo Electron-Fisher Scientific merger in 2006, company CEO Marijn Dekkers said the firm needs to do better.

On a dollar basis, Dekkers said Thermo Fisher is the largest player in Asia but the company remains "under-penetrated" in a market that represents about 20 percent of the total life science business.

The company's Achilles' heel isn't that it lacks the products and services necessary to expand its footprint, but that "we just traditionally haven't had the presence in Asia to take advantage of it and get our appropriate share," he said.

Thermo Fisher is aggressively trying to change that by investing heavily into the region, particularly in China and India. In China, the company now records more than $300 million in revenue and employs more than 1,000 workers, Dekkers said, while in India, revenue has reached $125 million and employee figures have climbed to 600.

The Chinese market has a balanced blend of life sciences with industrial applications. In the life sciences, universities and government laboratories are being built and larger pharma who are moving into the country are building space and infrastructure.

In India, the focus is more heavily tilted toward life sciences than industrial applications. Along with a major generic pharma presence, many contract research organizations are appearing "because a lot of the western pharma and biotech companies want to do more and more clinical trials with Indian patients … and as a result, there is a need for the supporting infrastructure for these clinical trials," Dekkers said.

'Fairly Reasonable'

Frank Laukien, president and CEO of Bruker, provided a preview of the company's fourth-quarter earnings, saying revenue will exceed $300 million, well above a year-ago figure of $242 million. Its net debt had also shrunk to less than $100 million and bookings were "relatively healthy," he added.

Final earnings results will be announced next month.

Business, he said, is "not booming, but overall it's fairly reasonable." One reason for optimism for the future is a trend he sees toward increased stimulus spending by governments as a way to jumpstart their economies.

"Just about every country has its stimulus program," Laukien said. "And these stimulus programs … traditionally benefit Bruker quite a bit because of our high percentage of direct government-customer spending, and then governments giving it to universities and medical schools."

The company's diversification of its mass spec portfolio also continued to pay off, Laukien said. A few years ago, as its proteomics mass spec business was softening, Bruker started broaching the small-molecule market. This week, Bruker announced a deal bearing the fruits of its labor: a $12 million contract with the Japanese National Police Agency for the placement of 51 of its micrOTOF-II mass spectrometers, which the agency will use for drug and metabolite testing, food safety analysis, forensic toxicology, and environmental testing.

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