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Waters Expects Double-Digit Mass-Spec Sales Growth In '07, Touts LC Consumables Demand

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More than two years after it resolved its patent disputes with Applied Biosystems, Waters expects sales of its mass spectrometers to grow in double digits this year and become a key growth driver, according to a Waters official.
 
The official, CFO John Ornelll, also said that the company’s proteomics tools in general, including its liquid chromatography line, will continue to play an important role in Waters’ revenue stream going forward.
 
Speaking at the Merrill Lynch Global Pharmaceutical, Biotechnology and Medical Devices Conference in New York this week, Ornell acknowledged that the company’s mass-spec business suffered as a result of patent disputes with ABI beginning about five years ago.
 
Now that the skirmishes have ended, Waters is on track to regaining its place in the proteomic tools space, he added.
 
“We arefirst and foremost a technology company,” Ornell said. “We have significant investments in technology, and the Acquity [ultra-performance liquid chromatographer] and the Synapt [mass spec] probably are a couple of prime, relevant examples of technology that will drive Waters’ sales over the next few years.”
 
Ornell’s remarks reinforce the company’s claims made over the past few months that it is looking to reassert itself in the mass-spec arena after laying low for several years.
 
Three weeks ago in a conference call accompanying the release of Waters’ fourth-quarter and full-year 2006 earnings results, CEO Douglas Berthiaume took special note of the growing presence of the mass spec business on the company’s financial ledger [See PM 01/25/07].
 
In the fall, Ornell, speaking at another analyst conference, said 2006 was shaping up to be a turnaround year for the company’s mass spec business [See PM 09/28/06].
 
Patent Woes Over
 
While Waters is seen as the market leader in the liquid chromatography space, it has played a much more marginal role in the mass spec market, due largely in part to a series of disputes it and its former wholly owned subsidiary, Micromass, had with ABI and its mass-spec joint venture partner, MDS Sciex.
 
In 2004, Waters paid ABI/MDS Sciex $18.1 million plus licensing fees to settle patent suits targeting the front-end ion guide technology used in some of Waters’ mass specs [See PM 03/19/04].
 
Waters also paid an undisclosed amount to ABI to settle a separate suit filed by ABI/MDS Sciex for allegedly violating a MALDI ion source patent. And in 1993, Waters paid MDS Sciex and ABI parent Applera $56.2 million as part of a federal court decision that the company had infringed ABI/MDS Sciex’s patent covering a front-end ion tunnel technology used in some mass specs sold by Micromass.
 
In addition to the damages and fees, Micromass had to pull several mass-spec product lines off the US market. As a result, Waters’ mass-spec business was left hobbling.
 
“Certainly, we have been recovering from the past situation that occurred a few years ago,” Ornell told the audience of analysts and investors this week. “We had to … turn resources to getting us back into the market on the triple-quadrupole, Q-TOF side of the business. And after that, we needed to play catch-up in being able to apply those resources to the lower-end triple-quad and single-quadrupole products.”
 

“Certainly, we have been recovering from the past situation that occurred a few years ago. We had to … turn resources to getting us back into the market on the triple-quadrupole, Q-TOF side of the business. And after that, we needed to play catch-up in being able to apply those resources to the lower end triple-quad and single-quadrupole products.”

Mass-spec sales last year grew by a modest 6 percent, but instrument revenues in the fourth quarter grew 14 percent as Waters began shipping the Synapt high-definition mass spec and the Acquity QTD tandem quadrupole UPLC/MS/MS system, both of which launched last May.
 
“As we came into the second half of 2006, we were finally in a position where we had new technology available across all of the major instrument platforms that we sell,” Ornell said.
 
He said that “given a relatively easy basis for comparison and given the strength of the market acceptance of these new products,” Waters projects the mass-spec sales growth it saw at the end of 2006 to continue in 2007.
 
The Synapt system, he said “is probably going to supply some interesting growth opportunities that are really unique and well-suited, I think, to a number of different applications sets.”
 
Hungry for Acquity Consumables?
 
Among proteomic researchers, however, the Acquity UPLC is still seen as Waters’ lead product, and since its introduction in 2004, the company has championed it as the lead liquid chromatographer on the market.
 
In response to a question about Waters’ HPLC consumables revenue base versus its Acquity consumables revenue base, Ornell said Acquity consumables make up a “very small part” of Waters’ consumable sales. But, he added, the Acquity represents a new business model in LC consumables that offers the potential for significant growth in the future.
 
During the meeting, Ornell said there are around 2,000 installed Acquity systems on the market compared to a total of 200,000 HPLCs, regardless of manufacturer.
 
“One of the big differences with our UPLC technology is that it appears to us that we continue to have 90-plus-percent adoption of our consumables with our UPLC instrument,” he said. “And as we see the base of UPLC instruments expand, we also expect to see a very nice expansion of the UPLC consumable.
 
“The other thing is that as we begin to see UPLC migrate into regulated methods, where typically these instruments are used more on a 24/7 basis, we think that the rate of consumption of the consumables will also increase,” he said. “Having more of a captive consumable [customer] with the instrument does really hold tremendous advantages for growth going forward.”

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