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Pharmas, Newest Mass Specs and LCs Fuel 17-Percent Q3 Rev Growth at Waters

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Waters reported this week that healthy sales of its mass spectrometry and liquid chromatography systems as well as a continuing rebound in its large pharmaceutical business contributed to a 17-percent growth in third-quarter sales.
 
Trends reported by the company over the past few quarters continued to play themselves out during the three months ended Sept. 29 as CEO Douglas Berthiaume said: “In all from a product-line, customer-segment, and geographical point of view, there were no significant surprises with all these segments reporting solid results.”
 
For the quarter, the company reported sales of $352.6 million, up 17.1 percent from $301.2 million a year ago. Profits rose to $53.3 million, up 5.8 percent from $50.4 million a year ago.
 
The company’s two flagship products, the Acquity UPLC and the Synapt HDMS, continued a strong upward trend, company officials said, driving instrument sales up 12 percent year over year.
 
Sales of the Acquity, introduced three years ago, were up more than 30 percent over the same period last year, Berthiaume said, though he declined to elaborate. The instrument still lags far behind the HPLC market industrywide — in February, the company said that the number of installed Acquity systems represents about 1 percent of the total number of installed HPLC systems — but according to Berthiaume, feedback from customers on the system’s “performance, reliability, and broad applicability continues to be very favorable.”
 
During a conference call with analysts accompanying the earnings release, Berthiaume said that he has little doubt that Acquity is taking market share from competitors.
 
“We still don’t think that there’s really good, meaningful competition [for Acquity],” he said. “That’s what our customers continue to tell us.”
 
Acquity consumables and services sales have benefited from the burgeoning demand for the instrument, according to company officials. CFO John Ornell said this week that Acquity columns sales have nearly doubled on an annual basis.
 
Berthiaume added that during the quarter, recurring revenue from the company’s chromatography consumables and services grew at a double-digit clip as a result of the “strong uptake of Acquity columns by our expanding base of Acquity UPLC customers.”
 
About a year and a half ago, Waters integrated Acquity with competitors’ high-end mass spectrometers. Responding to an analyst’s question, Berthiaume called the strategy “unqualifiedly successful.”
 
Mass Appeal
 
He sounded similarly bullish about the company’s mass-spectrometry business. Though Berthiaume said Waters’ Q-TOF and triple-quadrupoles are strong performers, his brightest remarks were about the Synapt system, introduced at the American Society for Mass Spectrometry’s 2006 annual conference [See PM 06/01/06].
 
Just as he said that the sales growth of Acquity UPLC was outpacing the rest of the market, he said he believed the Synapt was taking market share away from competitors’ high-end mass spectrometers.
 
While the instrument is still in the early adoption stage, Berthiaume said the growth rate on the Synapt has been “very high” with applications primarily in protein structure analysis, and, to a lesser degree, metabolomics. The customer base for the system has been in academic research centers where the early adopters tend to be, he said.
 
“Synapt HDMS technology seems to be driving a revolution in mass spectrometry as customers explore new and exciting ways to utilize the technology and applications that range from protein structure and function studies to high sensitivity impurity profiling for biopharmaceuticals,” Berthiaume said.
 

“Through the first nine months of this year, it’s clear to us that there is healthy momentum for spending for mass spectrometry technology, and that we are increasingly well positioned with our recent … product launches to gain share in this market.”

At ASMS this summer, Waters introduced two new mass-spectrometry based systems with proteomic applications: the IdentityE high-definition proteomics system for protein identification and the MALDI Synapt HDMS system [See PM 06/07/07]. This week, company officials said those systems have been well received, especially the MALDI Synapt. 
 
“Through the first nine months of this year, it’s clear to us that there is healthy momentum for spending for mass spectrometry technology, and that we are increasingly well positioned with our recent … product launches to gain share in this market,” Berthiaume said, adding that he expects the upward trend to last through the balance of 2007.
 
Without going into details, he said that the company will be launching new mass spectrometry platforms at Pittcon and ASMS in 2008 that will take advantage of the Acquity UPLC in the front part of the system. As a result, “we also feel that the … new product launches that we have planned for 2008 will further strengthen our market position,” Berthiaume said.
 
Sanguine but Not Robust
 
For the most recent quarters, the company has cited freer and greater pharmaceutical spending as a major factor in its own improving finances. This week, Waters officials said that the company’s pharmaceutical accounts continued to show improvement year-over-year, but were “not totally robust.”
 
While sales to most of Waters’ large and smaller pharma and biotechnology accounts were strong, Ornell said that uncertainty with one unnamed large account weighed down overall growth in pharma and biotech sales.
 
Berthiaume, however, said that he believes that pharma sales will hold strong in the fourth quarter. “It’s the really largest pharmaceutical account that’s the most troubling right now, and we understand that particular account pretty well, and we think we understand what’s likely to come in the near term,” he said. “And that’s better than what we’ve seen in the past quarter.”
 
During the third quarter, sales grew 18 percent in the US as a result of strength in both pharma and biotech, as well as the academic sectors. Asia and Europe both saw sales grow 12 percent. Ornell said Waters projects sales to grow 12 percent during the fourth quarter companywide.
 
Waters spent $22 million on R&D, a 14.8-percent increase from a year ago. The company had cash, cash equivalents, and short-term investments of $626.5 million.