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Mass Specs, M&A, and Pharma on the Rebound: Proteomics Outfits Speak at UBS Conference

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This week’s UBS Global Life Sciences Conference in New York served as a platform for some of the top proteomic tool vendors — including Waters, Thermo Fisher Scientific, Bruker BioSciences, Invitrogen, and Applied Biosystems — to showcase their businesses for the Wall Street community. Some spoke about the positive impact of a revitalized pharmaceutical market, while others provided an update on their mass spectrometry businesses and others outlined their acquisition strategies.
 
Below are recaps of what they said.
 
Waters Sees Continued Growth from Pharma
 
The story for Waters continued to be the rebound in its large pharmaceutical business, driving a projected 14 percent increase in full-year 2007 sales. During a question-and-answer session, John Ornell, Waters’ CFO, said that 12 of the company’s 15 largest drug firm accounts had increased their business with the company, with large pharma accounts in the US showing particular growth.
 
The rejuvenation of the pharma business has affected all proteomics tools firms, but because Waters is heavily leveraged in the pharma sector, its business is particularly sensitive to shifts in the spending habits of drug and biotech companies [See PM 08/09/07].
 
According to Gene Cassis, vice president of worldwide business development and investor relations, only about 1 percent of Water’s business is tied to government funding.
 
After a dip in sales during the prior year and a half, Waters’ pharma accounts began stirring to life again during the second half of 2006, and Ornell said this growth has continued to accelerate through the first half of this year. While the company’s pharmaceutical sales still fall short of levels reached in 2004, “We’re seeing sustained levels” of growth, Ornell said.
 
Speaking about the company’s biochemical and chemical analysis business, which includes sales of Waters’ mass spec and liquid chromatography instruments, the market has been growing at a rate of 6 percent to 8 percent during the past few years, Ornell said. But Waters believes that its new products can take away market share from competitors, and as a result its growth rate will be “a couple of points above” the market rate, he said.
 
In its second-quarter financial report, the company said that instrument system sales had climbed 18 percent year-over-year, and are expected to grow 12 percent for full-year 2007 [See PM 07/26/07].
 
This week, the company continued to hawk its Acquity UPLC and it Synapt HDMS platforms. Ornell said that since the launch of the Acquity in 2004, the instrument has ramped up “rather dramatically.” Early adopters, he said, have used it for discovery applications, and QA/QC applications represent a significant growth opportunity.
 
While Acquity sales remain a fraction of the total HPLC market, Ornell said that the product offers an “interesting upside” in terms of potential sales of columns. While regular HPLC columns can be used with the Acquity, columns manufactured specifically for the instrument are necessary for optimal performance. As a result, 90 percent of Acquity customers will end up buying Acquity columns to run their experiments, Ornell said.
 
By comparison, those with a Waters’ HPLC who will buy a Waters HPLC column are estimated to be in the mid-teens, percentage-wise, he said.
 
In the mass spec market, Cassis said that Waters is still playing catch-up in the high-end part of the sector, as a result of past patent litigation with Applied Biosystems [ See PM 04/01/02 and 3/19/04] as well as introductions by competitors.
 
However, Cassis added, “We’re beginning to see a nice pick-up in our Synapt technology” launched last year. He said the instrument has received “very favorable” comparisons with instruments from competitors.
 
Thermo Fisher Sees Orbitrap Dominating Market
 
Despite increased competition, Thermo Fisher Scientific maintains a strong presence in the high-end mass spec market, according to President and CEO Marijn Dekkers.
 
While acknowledging Agilent Technologies’ recent push into the mass spec market, Dekkers said that he is confident that Thermo Fisher’s Orbitrap instrument will ensure its leadership position in the space.
 
“We’re certainly still taking share … on the basis of the Orbitrap,” he told the UBS audience during a question-and-answer session. The LTQ Orbitrap was launched two years ago [See PM 06/10/05]. Earlier this year, Thermo Fisher launched the LTQ Orbitrap XL, combining the original Orbitrap technology with electron transfer dissociation capability, and the LTQ Orbitrap Discovery, a high-end Q-TOF. Both are meant to replace the original Orbitrap [See PM 06/07/07].
 
Asked how the Orbitrap has fared against other high-end instruments, especially Waters’ new mass specs, Dekkers cited more than 300 published papers that used the Orbitrap.
 
“Given how we’ve grown our Orbitrap, I would say it works in our favor,” he said.
 
On the M&A front, Dekkers reiterated his view that the industry remains fragmented so opportunities for acquisitions abound. But he also said that asking prices have been prohibitive.
 
“I can give you a list of 15 companies of significant size that would make sense” for Thermo Fisher to purchase if not for the prices, he said.
 
Bruker BioSciences Loses Market Share to Agilent
 
Like Dekkers, Bruker BioSciences CEO Frank Laukien gave a nod to Agilent’s aggressive strategy in the mass spec space, but unlike his Thermo Fisher counterpart, Laukien said his company has suffered from the competition.
 

“I personally feel a split is the right way to go.”

Agilent’s growing footprint in the industry “has certainly slowed down our presence,” he said, adding mass spec sales have been flat for the recent past, though he provided no further details. As a result, the company has looked outside of proteomics — where Bruker is one of the top-three mass spec firms, according to Laukien — to the small-molecule and applied markets for growing its Daltonics division, which houses Bruker’s mass spec business.
 
In particular, he cited clinical research and the in vitro diagnostic sectors as emerging markets for the Daltonics business.
 
For the second half of 2007 and into 2008, Laukien forecast mass spec sales to grow in the high single-digits to mid-teens, percentage-wise, year-over-year. In the applied markets, he expects this acceleration to last at least three to four years. In traditional research areas, including proteomics, mass spec growth isn’t as quick or strong, but is still accelerating, he said.
 
Invitrogen In Midst of Turnaround
 
“2006 was a difficult year” for Invitrogen as it took steps to consolidate a flurry of recent acquisitions, Chairman and CEO Greg Lucier told the UBS audience, but “2007 is turning out to be a terrific year.”
 
A year ago, some Wall Street analysts and shareholders were asking for the heads of Invitrogen’s management team, but after a tumultuous 2006 that saw losses at the company mount to $191 million, it is now in the midst of a turnaround focused on a three-pronged strategy to grow the company organically; improve operating efficiencies; and optimize the mix of product sales.
 
As painful as 2006 turned out to be, Lucier said, it set up the company to accelerate its organic growth rate and profits. While the Invitrogen that bought 15 companies over a three-and-a-half-year period may be a thing of the past, Lucier said that the company remains interested in tuck-in purchases.
 
Commenting on the current M&A market, he said, “I think valuation has gotten less crazy, but [is] still crazy.” With all its acquisitions over the recent past, Invitrogen has no glaring gaps in its technology portfolio, he said “so we’re not required to buy any companies per se.”
 
There are niche companies on the market that it finds interesting, however, including those with technologies dealing with protein work, cell separation, and cellular analysis.
 
One research area the company has targeted is stem cell research. Several states including California and Texas have taken steps to increase funding for stem cell research “and because of that … we’ve built up a very large stem cell team,” Lucier said.
 
White Favors Split for ABI and Celera
 
In early August, Applera, parent company of Applied Biosystems and Celera, said that it had retained Morgan Stanley to explore alternatives to its current corporate tracking stock structure, including possibly spinning out the two companies [See PM 08/09/07].
 
This week, Tony White, chairman, president, and CEO of Applera and interim president of ABI, made it clear which option he preferred.
 
“I personally feel a split is the right way to go,” he said. “It just feels like it’s time to reconsider whether this is the right structure.”
 
The crucial question is whether Celera can stand alone as a business, and White believes it can. While changing the corporate structure may not “unlock anything” new, he said that Celera is at an inflection point, having reached profitability and led by a management team that has had time to mature.
 
He put no time frame on when Morgan Stanley will return to Applera with its findings and recommendations, but said it will take more than “a few weeks.”