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New Mass Specs, Other Proteomic Tools Help Waters' Q4 Revenue Grow 16 Percent

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Sales of proteomic tools, especially its new mass spectrometers, continued to drive overall revenue growth for Waters as the company this week reported a 16.5-percent jump in overall sales during the fourth quarter.
 
For the three months ended Dec. 31, 2006, Waters’ revenue increased to $387 million from $332 million during the year-ago period. Meantime, net income increased 5.7 percent to $79.9 million from $75.6 million a year ago.
 
Saying the results were stronger than the company had anticipated, CEO Douglas Berthiaume said a number of factors contributed to the growth, including improved pharmaceutical spending and growth in overseas markets.
 
He also pointed to the company’s portfolio of proteomic tools and instruments as key revenue drivers.
 
In the past, Berthiaume had lauded the financial contribution of its Acquity ultra performance liquid chromatographers. But this week he directed attention to the company’s mass spectrometry systems, in particular instruments introduced last year.
 
“The strong momentum from growth associated with Acquity UPLC throughout the year was augmented by new mass spec capability,” Berthiaume said in a conference call accompanying the release of its earnings results.
 
The remarks follow a year in which Waters took steps to reinvigorate its presence in the mass spectrometry space by launching a number of new instruments. During the first half of 2006, the firm rolled out a new triple-quadrupole instrument, an updated version of its single-quadrupole device, and its Synapt high-density mass spec, featuring the company’s Triwave technology.
 
Those releases prompted Waters CFO John Ornell to tell Wall Street analysts in the fall that after years of watching competitors speed ahead of Waters in the mass spectrometry space, the company expected sales of its mass spectrometers to grow at a double-digit rate, percentage-wise, by the end of 2006 [See PM 09/28/06].
 
For the quarter, sales of the company’s mass spectrometers rose 14 percent, spurred on by sales of its new instruments, Ornell said during the conference call. In total, mass spectrometers make up about 20 percent of Water’s business, he said.
 
The Synapt Factor and Dx Designs
 
Key to Waters’ fleet of new mass spectrometers is the Synapt system, which the company introduced during the spring and began delivering and installing in the fourth quarter [See PM 06/06/06]. This week, Berthiaume said response from researchers to it has been strong. He said early Synapt adopters have been scientists working with large molecules, such as those doing proteomics and biomarker research. But more recently, small-molecule investigators are expressing interest as well, he said.
 
Berthiaume estimated the market for high-end mass spectrometry systems at $225 million to $250 million. While Synapt has a “minute share” of that market and predictions about the instrument’s future would be premature, Berthiaume said, “We’re very encouraged about the future prospects for Synapt and have confidence that the new scientific findings enabled by this … technology will result in increased demand for this system in 2007 and beyond.”
 
On the liquid chromatography front, fourth-quarter sales of Waters’ entire LC line rose 12 percent year over year, Ornell said. Its HPLC/UPLC business makes up about 70 percent of the company’s total business.
 
Berthiaume said sales of the Acquity UPLC system remained strong and the company’s “leadership position in liquid chromatography appeared secure.” In 2007, he said, the company will try to expand in the LC space by fitting out the Acquity with “advanced detection modules and a wider range of column chemistries that raise the performance bar in terms of resolution, sensitivity, and speed.”
 
Waters said sales of the company’s high-performance liquid chromatographers also grew in the fourth quarter, but the firm did not elaborate. Sales of Waters’ liquid chromatography consumables rose in the double digits, largely driven by demand for the Acquity system.
 
Berthiaume also said that Waters expects its LC/MS systems to move deeper into the clinical diagnostics market.
 
“To that end, we will continue to develop new systems for these applications and investigate internal and external investment opportunities to position Waters as a preferred supplier in this marketplace,” he said.
 
Pharmas Continue to Thaw
 
After lamenting about tight-fisted drug-maker spending over the first half of 2006, Berthiaume, during a conference call in October, said signs in the third quarter last year suggested that big pharma’s frozen budgets were starting to thaw.  
 

A number of factors contributed to the growth, including improved pharmaceutical spending and growth in overseas markets. Douglas Berthiaume also pointed to the company’s portfolio of proteomic tools and instruments as key revenue drivers.

That trend continued into the fourth quarter, and Berthiaume said this week that “the release of [pharma] capital at year’s end allowed us to grow our large account sales over last year’s level.”
 
Adding in demand from generic drug companies, biotechs, and contract labs, he said, “it appears to us that our larger pharmaceutical accounts are outsourcing more of their research and development, and that we are, as a result, capturing more business from these smaller firms.”
 
The company’s overall pharmaceutical market segment saw “strong” double-digit growth during the quarter, Berthiaume said.
 
Geographically, results were mixed during the period. Before the effects of foreign exchange, sales in India and China grew 28 percent during the fourth quarter, while Europe saw a 6 percent gain, and US sales rose 9 percent. For full-year 2006, sales rose 4 percent in the US, 10 percent in Europe, 34 percent in Asia, and 7 percent in Japan, Ornell said.
 
Looking ahead, Ornell said Waters expects sales to grow 10 percent during the first quarter of the current year with 7 percent of that organic, 1 percent the result of acquisitions, and 2 percent due to currency effects. He said Waters also projects full-year sales to rise 10 percent.
 
For full-year 2006, Waters posted a 10.3 percent increase in revenues to $1.28 billion from $1.16 billion in 2005. Net income rose 10 percent to $222.2 million from $202 million a year ago.
 
Waters spent $19.5 million in R&D during the fourth quarter and $77.3 million for full-year 2006. It had $514.2 million in cash equivalents at the end of the year.
 
Waters also said that during the fourth quarter it took an impairment charge of $5.8 million related to an investment it originally had made in 2000 in Caprion, a Montreal-based company that recently announced it was merging with Ecopia, based in Saint-Laurent, Quebec, and selling its proteomic business [See PM 1/11/07].

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