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UBS Analyst Cautions That Bigger Rivals Could Hurt Bruker's Mass Spec Business

Three weeks after Bruker Biosciences said a rebound in its mass spectrometry division helped the company post a 9-percent increase in total revenue during its second quarter, a research note by an investment bank analyst cautioned that the company’s mass-spec business could be hurt by bigger competitors.
The note by UBS analyst Derik De Bruin came as the investment firm downgraded Bruker’s stock to “neutral” from “buy” while maintaining a $7 target price on the shares.
De Bruin said that though Bruker “continue[s] to benefit from strong industrial and ex-US growth” in its AXS and recently acquired Optics divisions, “we believe Bruker Daltonics could lag due to increased competition from much larger spectrometry vendors, potentially limiting upside.”

“We believe Bruker Daltonics could lag due to increased competition from much larger spectrometry vendors, potentially limiting upside.”

The Daltonics division manufactures mass specs. De Bruin’s report did not name specific rivals, but competitors in the mass spec field include Thermo Electron, Applied Biosystems, and Waters.
The research note further said that Bruker’s AXS division competes with companies such as Philips and Rigaku, and this competition “requires [Bruker] to invest significantly in R&D to develop new products to ensure its technology portfolio remains competitive.
“These new products could fall short of expectations, damaging [Bruker’s] position in the proteomics market,” De Bruin said.
Michael Willett, a spokesman for Bruker, said that all new products have inherent risks, and that the company’s recent new launches have been well received by the marketplace. Bruker remains pleased by its product portfolio, he said.
“The investments we’ve been putting into R&D over the past two years have really been paying off across the product line.” Willett said.
He said De Bruin’s note “reinforces the risk involved here, that new products can fall short of expectations. It’s certainly true of us, it’s true of all the other competitors in the industry. But we’ve been funding a lot of money in R&D specifically to address that, and that’s why when we come out with new products, they’re the top of the technology.”
Mass-Spec Engine
De Bruin’s report follows remarks made three weeks ago by Bruker Chairman and CEO Frank Laukien that the company’s mass spec division had recovered from tepid sales and contributed to Bruker’s second-quarter revenue growth [See PM 08/03/06].
Earlier this month, the company reported revenues for the three months ended June 30 grew 9 percent to $77.8 million from $71.4 million a year ago. During a conference call with analysts, Laukien said that while Daltonics trailed AXS and Optics in the quarter, the division still grew in the “high single digits.”
He added that sales of Daltonics’ relatively new mass spec products, the micrOTOF ESI-TOF and the ultrOTOF-Q ESI Q-q-TOF, had taken off. Sales of Bruker’s FTMS and MALDI-TOF products, meantime, were moderate for the quarter, Laukien said, but FTMS sales were rebounding after experiencing a sharp decline in 2004 due to competition. That business, Laukien said, had once again become “a healthy business again.”
Willett told ProteoMonitor this week, “We’re competing very vigorously with the other mass spectrometry firms in the sector and they’re aware that we’re there also.”
Willett added that while the bigger players in the mass spec market could eat into Bruker Daltonics’ operations, being smaller also has its advantages, including having the ability to bring new innovations to market more quickly.
“An analogy would be the computer industry where smaller, faster computer companies have repeatedly beaten bureaucratic giants, like IBM, to market with more innovative, superior products,” Willett said by e-mail.
In addition to issuing caution about Bruker’s proteomic business, De Bruin said reductions in industry R&D spending and government funding for life sciences could hurt Bruker’s overall revenue growth.
For full-year 2006 Bruker estimates it will post $401 million in revenues, a 7.8-percent increase over revenues of $372 million in 2005, while De Bruin estimates the company will record $16 million in net income, a 167-percent increase over earnings of $6 million in 2005.
For full-year 2007, Bruker estimates it will record $431 million in revenues, which would be a 7.5-percent increase year-over-year. De Bruin estimates Bruker will post $20 million in net income, which would be a 25-percent increase year-over-year.

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