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Though Pharma Spending Continued to Slow in Q2 Proteomics Helps Waters and Thermo Sales Grow

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Proteomics-related business remained strong for Waters and Thermo Electron as they reported their second quarter earnings this week.
 
While the two manufacturers of medical and laboratory equipment continued to fuss about the effects of tightwad spending by drug companies, they sounded a positive note over the current state of their proteomic businesses and expressed optimism about the future of that sector.
 
In a conference call with analysts, Douglas Berthiaume, president, chairman, and CEO of Waters touted the performance of the company’s Acquity Ultra Performance Liquid Chromatography product and speculated that Waters’ newly launched mass spectrometry products could profoundly alter the mass spec market.
 
Meanwhile, Marijn Dekkers, president and CEO of Thermo brushed off an analyst’s suggestion that there may not be room for innovation in the mass spectrometry market. Demands from the scientific community for greater accuracy in spectrometers will only serve to grow that industry, he said.
 
Proteomics represents a small fraction of both companies’ operations, but at a time when drug company spending continues to slow­­­ - Berthiaume called it a “depressant to our overall sales growth rate” - it nonetheless remained a crucial component of their bottom lines.
 
Waters’ High Hopes for Acquity and Mass Specs
 
For the quarter ended July 1, Waters reported sales of $302 million, a 6 percent spike over sales of $285 million during the year-ago period. The company does not break out receipts for its proteomic tools which comprise less than 10 percent of the company’s total revenues.
 
Sales of liquid chromatography products in the quarter climbed 6 percent year over year and, in particular, sales of the Acquity system were be strong “across the wide array of applications and customer groups,” said Berthiaume. “At this point we appear to be on track to roughly double our UPLC system revenue this year in comparison to a very strong 2005 full-year result.”
 
Company officials also expressed high hopes for the recently launched Synapt HDMS system and Berthiaume went so far as to say the system “may significantly expand the application reach for mass spectrometry, particularly in the life sciences.” (See PM 06/01/06)
 
While other mass spectrometers distinguish molecules based on mass, the Synapt HDMS also differentiates molecules based on shape and size. 
 
“For people involved in structural biology work this is a new way to gather more high-definition information about their sample,” said Gene Cassis, Waters’ vice president of investor relations and worldwide development. “Because in fact you may have two molecules with the same molecular weight but have a very different three-dimensional shape. And the technology embodied within the HDMS system is able to discriminate between those two different forms of the same molecule.”
 
Cassis could not say whether any orders had been yet placed for the $600,000 system, saying it was still too early. The system is not scheduled to be shipped until the fourth quarter of this year.
 
Cassis said he expects the Synapt HDMS next year to sell “in the tens of units, not hundreds.” He added, “that’s reasonable in light of the process people have to go through to budget for these instruments.”
 
Overall, sales of mass spectrometers at Waters had an organic growth rate of 4 percent, Cassis said.
 

“To put it very simply, our customers have a tremendous need for more accuracy in these analyses. The question is to what extent can the suppliers truly come (up) with meaningful, innovative technology to allow our customers to do a better job analyzing samples.”

The company also cited strong business overseas, particularly in Asia, as a continuing trend. Sales in Asia, outside of Japan, rose 36 percent, said John Ornell, company CFO. Sales climbed 6 percent in Japan and 2 percent in Europe but dipped 2 percent in the US.
 
Waters’ net income for the second quarter was $47.8 million, $.46 per basic share, compared to $54.1 million, $.47 per basic share, during the year-ago period.
 
Diluted earnings per share include a $.05 per-share charge related to stock-based compensation and a $.02 per-share charge for restructuring. 
 
Waters spent $19.6 million on research and development for the quarter, up from $16.5 million during the second quarter of 2005. The company had $489.6 million in cash or cash equivalent as of July 1.
 
Thermo Bullish on MS business
 
For its second quarter ended July 1, Thermo reported that sales grew 9 percent to $713 million from $654 million. Net income for the quarter declined to $47.9 million, or $.30 per basic share, from $60.2 million, $.37 per basic share, from the second quarter of 2005.
 
CEO Dekkers said the company saw revenue growth across the board.
 
Diluted earnings per share reflect a $.03 per-share impact from stock option expense for rules that went into effect this year. Earnings in 2005 also included an $.11 per-share net gain from the sales of shares in two large investments.
 
Like Waters, the company is bullish on its mass spectrometry business.
 
Among the new mass spectrometers introduced by Thermo recently is the LTQ XL, an update to the company’s LTQ and LTQ FT. The LTQ XL can perform electron transfer dissociation and pulsed-Q dissociation in addition to collision-induced dissociation. (See PM 06/01/06) Orders for it and other new products are being placed already, said Dekkers.
 
He added that increasingly complicated scientific research will continue to drive demand for faster, better and more accurate mass spectrometers, citing serum biomarker research as an example. Currently, only about 3,000 of the estimated 10,000 proteins in blood are known with a reliability of 95 percent or higher, he said.
 
Responding to a question by an analyst whether there was any more room for innovation in the mass spec market, Dekkers said: “To put it very simply, our customers have a tremendous need for more accuracy in these analyses. The question is to what extent can the suppliers truly come (up) with meaningful, innovative technology to allow our customers to do a better job analyzing samples,” he said. “And that’s the race that we are in.”
 
Overall, revenue for Thermo’s Life and Laboratory Sciences segment, which contains the LTQ Orbitrap hybrid mass spectrometer, grew 11 percent to $539 million from $487 million during the second quarter of 2005.
 
Dekker said the company still expects to close its proposed $10.6 billion merger with Fisher Scientific in the fourth quarter. (See PM 5/11/06)  
 
For the quarter, Thermo spent $40.6 million on R&D, up from $39.4 million during the year-ago period. Through the first half of the year, the company had $189.7 million in cash or cash equivalent.
 
The company predicted 2006 revenue of $2.81 billion to $2.86 billion, a growth rate of 7 to 9 percent.