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Waters CEO Hints at New Platform, 'Exciting' Year for Mass Spec Business in 2010

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This story originally ran on Jan. 26.

The CEO of Waters forecast an "exciting year" for mass spectrometry in the company this week in the midst of reporting a 3 percent climb in revenues for the fourth quarter of 2009.

For the three months ended Dec. 31, 2009, the company reported receipts of $428.8 million, up from $418.3 million a year ago. Profits rose to $104.1 million, or $1.08 per share, from $99.4 million, or $1.01 per share, from the year-ago period.

The earnings release comes on the heels of Waters' launch of its Acquity H-Class UPLC, a "bridge" technology to segue HPLC users to the Acquity UPLC platform [See related story this issue], and while company officials talked up the new instrument during a conference call, they also said that they anticipate 2010 shaping up to be a healthy one for the firm's mass spec product line.

Instrument sales for the quarter in the Waters division were flat, John Ornell, the company's chief financial officer, said. Nonetheless, Douglas Berthiaume, Waters' CEO, said that 2010 "should be an exciting year for Waters in mass spectrometry."

For one thing, during the fourth quarter, the company began shipping the Synapt G2, the second-generation iteration of its flagship Synapt HDMS instrument. Launched at the American Society for Mass Spectrometry conference in June, the instrument has had the strongest ramp-up of any high-end mass spec in the company's history [See PM 06/04/09].

This week, however, Berthiaume said that the G2 would not be "the last innovative mass spec that you're going to see from us in the next 12 months," and added that new instrument introductions "will push the performance envelope while broadening the attractiveness of MS technology to a wider base of customers."

In particular, Waters plans "some exciting things" around its quadrupole technology, which is the basis of Waters' Xevo Q-TOF and Xevo TQ mass specs. Earlier this month, the company announced that the Taiwan Bureau of Food and Drug Analysis had acquired nine Xevo TQ instruments, along with four Acquity UPLC systems, for food safety monitoring. Moving forward, the company continues to see that market as well as the applied markets as being especially robust, especially outside of the US.

In the US, though the prospect of creating new food-safety legislation is still up in the air, "we're hopeful that the conditions and the regulations [will] build momentum," which would open another sales channel for the Xevo technology.

While the general sense is that business in the mass spec space was down across the entire industry in 2009, it also survived the broader economic washout better than had been originally feared. In 2010, Waters anticipates the turnaround in the mass spec market to continue. For Waters, that rebound will be likely led by its G2, which Ornell said is "likely to move our mass spec growth a few points, perhaps, overall, as it continues to hopefully grow near double digits as we make our way across the quarter."

This year, a new player will be entering the space as Danaher moves to close on its proposed purchase of the Applied Biosystems/MDS mass spec joint venture. While others, including Thermo Fisher Scientific's CEO Marc Casper, have questioned the effect of the ownership change on the competitive landscape, Berthiaume said this week that it could create opportunities for his firm.

"As some industry participants work their way through new management structures and sort out new strategies, we plan to execute our established product-to-market plan," Berthiaume said.

"The technological playing field probably moves more attractively for us as we get through 2010. We've got a number of industry participants who are going through their own structural reassessments or merger activities [and] I think the competitive environment tilts in our favor a little bit more in 2010," he said.

And as stimulus funding from the National Institutes of Health begin reaching the vendors, that adds another reason for optimism in 2010, he said.

During the quarter, Waters saw no material effect from such funding, Berthiaume said, citing a number of reasons for the delay, such as administrative procedures that have resulted in some technologies getting funded while others have not.

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He added, however, that he has been told that reviews of stimulus fund applications for mass spec-based grants have "largely been completed and that those authorizations are in process. We should begin to see orders late in the first quarter, into the second quarter."

Acquity Overtakes HPLC

On the liquid chromatography front, Waters said that its Acquity is now its top selling LC instrument, surpassing its HPLC systems, though the company did not elaborate. In 2009, sales for the Acquity grew "nicely" in spite of the economy and a general reluctance on the part of customers to spend, Ornell said.

This week's launch of the H-Class seeks to tap into an audience that the Acquity has not been able to capture — researchers who want the capabilities of an Acquity system but are more comfortable with a traditional HPLC platform.

And in that respect, Ornell said, the new instrument "should expand the base against which we can grow our LC products." Some cannibalization of other LC instruments, in particular Waters' HPLC systems, is anticipated to occur, however, he said, but overall, Waters anticipates its LC business to grow in the mid-single digit range for 2010.

In a space where Waters and Agilent are the two top vendors, Berthiaume also commented this week that there may be less room for others moving forward.

"I think that it is becoming harder and harder in the separation industry, particularly liquid chromatography, for secondary and tertiary suppliers to keep up," he said. "It's very hard to imagine in the long run that they can invest the money to compete across this line on both the engineering required [for UPLC and] more and more, the data requirements, particularly [integrating] UPLC and HPLC data with massspectrometry data. … It does mean the strong does get stronger."

But Waters is not immune to stumbling. In 2008, the company introduced its Trizaic UPLC system for proteomics. Utilizing the company's NanoTile technology with its nanoAcquity UPLC system, the platform combined proprietary microfluidic separation technology with sub-2 micron chemicals to achieve nanoscale chromatographic separations.

This week, though, Art Caputo, president of the Waters division, acknowledged issues with the system and a hold-up in getting it into the hands of researchers.

"We did in fact run into some technical problems with the chemistry platform," he said. "Progress has actually been quite excellent in the last quarter and we fully anticipate to begin delivering products and actually exceeding the original claims on the product by ASMS this year." ASMS is scheduled for late May.

Final Figures

Regardless, the strength of its Acquity and high-end mass specs helped Waters' pharmaceutical business "improve modestly" during the fourth quarter, though the company still has not seen a return to "historical rates as instrument replacements," Berthiaume said. Also driving the uptick was a rebound in sales from its Indian pharma customers and a "small" increase in demand from contract research organizations and generic drug firms, Berthiaume said. Sales to its large pharmaceutical accounts shrank "modestly" in the fourth quarter.

Waters expects pharma sales to grow in the mid-single digits for full-year 2010. Its academic/government business is anticipated to expand near double digits, helped along by stimulus funding, Ornell said.

Overall, currency effects contributed 4 percentage points to Waters' total 3 percent revenue growth in the fourth quarter. Organically, sales slid 1 percent compared to a year ago.

Geographically, sales growth was strongest in Japan, 7 percent before currency effects, helped along by "reasonably good mass spec" sales, including sales of the G2, and a weak year-ago comparison.

Sales were up 1 percent in the US before currency effects, but down 5 percent in Europe and down 3 percent in Asia against a strong year-ago comparison.

For 2010, sales in the US, Europe, and Japan are anticipated to grow modestly as those regions emerge from the global recession, Ornell said. Asia is expected to provide "solid growth" in the coming year, he added.

R&D spending for the quarter totaled $19.8 million.

For full-year 2009, sales were down 5 percent to $1.50 billion from $1.58 billion in 2008. Profits rose to $323.3 million, or $3.37 per basic share, compared to $322.5 million, or $3.25 per basic share.

Waters spent $77.2 million on R&D in 2009. It said it had $630.3 million in cash, cash equivalents, and short-term investments as of Dec. 31.

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