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Mass Specs Sizzle as ABI, Thermo, and Waters See Strong Quarters; Q-TOF-UPLC to hit ASMS

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Mass specs are hot again, major vendors said this week, as pharma and biotech spending continued to pick up in the first quarter of 2004 and numbers for life sciences sales made a strong showing in quarterly earnings reports.

Applied Biosystems and Thermo Electron reported strong results in their mass spec businesses, with ABI’s mass spec revenues increasing 17 percent year-over-year, and Thermo’s Life and Laboratory Sciences division — which includes mass specs for proteomics — experiencing 22 percent growth compared with the fiscal third quarter of 2003. Thermo does not break out revenues for mass spec sales. The companies attributed the strength to continual increases in pharma and biotech spending, as well as to a return in spending by NIH-funded customers, following the passage of the federal FY 2004 NIH budget. Even Waters, which has been experiencing major lulls in mass spec sales in recent quarters (see PM 1-30-04), experienced something of a rebound this quarter, with mass spec sales down 19 percent year-over-year, but up 13 percent over the fourth quarter of 2003.

ABI was particularly enthusiastic about mass spec, noting that as of the company’s fiscal year 2004 third quarter (the quarter ended March 31), mass spec and applied genomics products together accounted for 50 percent of total revenues.

“During the past few years, we have made substantial R&D investments in these product categories, and as we move forward, we expect these dynamic areas to play an increasingly important role in our business,” ABI’s president Michael Hunkapiller said during the company’s quarterly earnings conference call this week. ABI spokeswoman Lori Murray later told ProteoMonitor, “we believe [the mass spec business] is hitting critical mass … so it becomes increasingly important for us to support that business and manage that business.” She added that she “wouldn’t want to rule out” new product announcements in mass spec in the coming months.

Much of the strength in ABI’s mass spec sales came from continuing strength in Q-TRAP 4000 sales, Hunkapiller said. He added that the manufacturing backlog problem reported in previous quarters had resolved itself. At this point, “it’s a normal backlog that you would see with any new product and we’ll be able to fulfill those within the quarter and address that,” Murray said.

ABI did experience a disappointing quarter in Asia, with revenues there declining 11 percent year-over-year, while revenues in the US and Europe increased. The company for the second quarter in a row blamed a volatile transition period in Japan’s governmental funding mechanism for much of the decline, citing the company’s dependence on government-funded, academic customers in Japan. Tony White, CEO of ABI’s parent company, Applera, said during the earnings call that the problem was not specific to any particular product line, and that in terms of dealing with the government funding issues, “I don’t think anyone’s doing it better than we are.” When an analyst asked why ABI’s competitors did not appear to be experiencing similar problems — Thermo reported that Asia was the company’s strongest geography during the quarter, for example — Hunkapiller replied that ABI might be in a worse situation than some competitors because “we’re heavily dependent in Japan … on government funding to universities … so in some ways, particularly [companies] who are more dealing with commercial customers, [they] might easily have seen less of an impact this year than a company like ours would have.”

White also cautioned that “we’ve seen some issues in South Korea and Taiwan” due to political instability in those regions. Dennis Winger, Applera’s chief financial officer, also said that ABI could see another slowdown in spending from NIH-funded customers in the coming months due to fears of a disappointing FY 2005 budget.

ABI’s overall revenues for the quarter were $439.6 million, up from $409.4 million during the same quarter last year. Revenues in mass spec were $109.4 million, up from $93.3 million in Q1 2003.

R&D spending decreased to $57.1 million, from $60 million during the year-ago period.

ABI’s net earnings for the quarter were $46 million, or $.22 per share, up from $40.1 million, or $.19 per share, during the same period last year. As of the end of the quarter, the company had cash and cash equivalents of $584.9 million.

Waters’ Comeback Continues

Waters continued to experience strong HPLC sales, even without taking into account its recently introduced UPLC system, CEO Douglas Berthiaume said during the company’s earnings call (see PM 3-12-04). The company’s HPLC business grew at 16 percent year-over-year. Berthiaume said that interest in UPLC — which the company touted during a product release at Pittcon last month as “the biggest breakthrough in separations technology in 25 years” — was strong and across the board. “I think it’s fair to say that when we initially laid out this product line, we thought that by far the initial response would be high value-added customers seeking ultra sensitivity,” Berthiaume said. “What we’re seeing is … interest across almost every application, from biomarkers and protein analysis applications, all the way to pharmaceutical QA/QC.”

Waters is gearing up to exploit this interest in the UPLC in order to give its new Q-TOF — which it will release at ASMS next month — and the rest of its mass spec products a boost. Berthiaume said during the company’s earnings call that at ASMS, Waters would not only release the Q-TOF, but would also release it as an integrated system for biomarker discovery and other proteomics applications with both a specially engineered UPLC and a software system built in. Gene Cassis, Waters’ vice president for investor relations, told ProteoMonitor that the UPLC system would differ in configuration from the original Acuity UPLC that was unveiled at Pittcon last month. “It will be a configuration optimized for biomarker discovery,” Cassis said.

Tim Riley, vice president of proteomics business development for Waters, told ProteoMonitor at Pittcon that the original Acuity could not handle volumes lower than the 100 µL scale. The UPLC that will be released with the Q-TOF at ASMS, however, will be more of a “nanoscale Acuity,” Berthiaume said. “This is kind of a daughter of UPLC, and combine it with new software, [and] we think we’ve got a system and an application that starts to compete with anything else in the marketplace,” he said. As a result, Berthiaume expects Waters “to be in a dramatically better position post-ASMS than we’ve been in for the last year and a half.”

The new Q-TOF will ship in the fourth quarter of this year.

Waters’ revenues for the first quarter of 2004 were $255 million, up from $221 million during the first quarter last year. R&D costs for the quarter increased to $16.1 million, up from $13.6 million during the first quarter last year. Net income was $40.8 million, or $.33 per share, up from $34 million, or $.26 per share, during the year-ago period. As of March 31, Waters had $408.6 million in cash and cash equivalents.

Thermo’s revenues for the quarter were $582 million, up from $500.2 million during the same period last year. The Life and Laboratory Sciences segment reported $365 million in revenues, up from $299 during the year-ago period. Thermo attributed the revenue growth in this segment mainly to strong sales of mass spectrometry and spectroscopy instruments.

R&D expenses climbed to $39.8 million, from $37.3 million during Q1 2003. Earnings for the quarter were $43.1 million, or $.26 per share, up from $36.4 million, or $.22 per share, during the year-ago period.

As of April 3, Thermo had $353 million in cash and cash equivalents, and $91 million in short-term investments.

— KAM

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