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Waters' Q1 Revenue Rises 10 Percent on Strength of Synapt G2, Acquity H-Class Uptake

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This story originally ran on April 27.

By Tony Fong

Despite US stimulus funding being a bust and a its pharmaceutical business being softer it had anticipated, Waters this week reported that first-quarter revenue rose 10 percent year over year on the strength of sales of its newest instrument launches.

The company did not break out sales figures for the Synapt G2 HDMS, launched almost a year ago, or the Acquity UPLC H-Class System, introduced in January. But during a conference call, Waters CEO Douglas Berthiaume said demand for both systems helped drive revenue for the three months ended April 3 to $368 million from $333 million a year ago.

For the quarter, Waters said companywide revenues increased 6 percent year over year organically, while profit rose 3 percent to $75.5 million, or $0.79 per diluted share, from $73.3 million, or $0.75 per share.

The results reported this week are in comparison to a difficult year-ago period when a global recession tamped down revenue 10 percent compared to Q1 2008.

Regardless, Waters continued to see strong demand for the Synapt G2 platform, and in the just-ended first quarter, "we successfully delivered and installed a record number of Synapt class mass spectrometers," Berthiaume said today.

Key application areas for the Synapt continued to be in proteomics and metabolite identification, he added, but the company is also seeing instrument uptake in organic synthesis applications and central analytical labs, as well as among pharmaceutical and academic customers.

The platform was introduced at the American Society for Mass Spectrometry conference last June. This week, Berthiaume said that Waters will again make noise at this year's conference, happening next month, where the company will launch "significant" new mass specs.

"You'll be seeing things … that kind of augment the high-end G2 Synapt," he said. "You'll be looking at multi-purpose capabilities, and … you'll also see us work … closer to the mid-line and the benchtop."

Meanwhile, the Acquity H-Class, which began shipping in February almost immediately after it was launched, was the prime driver in liquid chromatography sales growth, Berthiaume said, without providing specifics.

The system was introduced as a way to bridge the gap between UPLC and HPLC capabilities and to help drive more customers toward adoption of the full research-grade Acquity platform (PM 01/29/10).

The strategy has shown early success, according to Berthiaume, who said that overall interest in UPLC has "significantly increased" following the introduction of the H-Class instrument.

"Some of our largest Acquity users — companies that have globally deployed UPLC instruments through their development organizations — have told us that they are now more confident [in] transferring UPLC technology throughout their quality-control laboratories," he said.

While competitors have launched their own ultra-high performance LC systems, Waters has maintained that as the originator of the technology, the Acquity remains the archetype.

During the conference call, Art Caputo, president of the Waters division, said that it took almost five years after the Acquity was launched in 2004 for another UHPLC system to make it to market. During that time, Waters, through discussions with its customers, was able to determine "what [it takes] to move this technology downstream and for all intents and purposes replace the traditional HPLC marketplace."

The Acquity H-Class is the result. "It's hard to argue with something that you said, 'If you do this, we'll buy it,'" Caputo said.

He acknowledged, however, that adoption of the platform is not expected to lift sales of Waters' mass specs. If mass spectrometry ever becomes a routine laboratory instrument, H-Class sales may become more intertwined with Waters' mass-spec business. But currently, mass-spec sales at Waters are "oriented" toward the research-grade Acquity, Caputo said.

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"The technical attributes of the [Acquity] lend it very well to the extremely high speeds that mass spectrometry operates within," he said. "And while H-Class will work nicely with a mass spectrometer, for many applications, most mass spectrometrists are really looking at the attributes of a full research grade super-high performance UPLC system."

Like most mass spec firms, Waters had anticipated the full impact of stimulus funds from the National Institutes of Health to take effect in 2010 and continue into 2011. So far, however, the firm has seen little benefits from such funding, Berthiaume said.

"We keep hearing it, we keep tracking the quote activity, but the actual spending was really not material" in the first quarter in the US, he said. In China and Japan, Waters saw increased sales to academic institutions, though it's unclear how much of that can be traced back to stimulus programs there.

The company had previously said it expected a $20 million to $30 million bounce from NIH stimulus spending for 2010. Today, Berthiaume lowered the company's estimate by half.

Despite that cut, John Ornell, chief financial officer for Waters, said that its high-end instrument business would remain healthy for the year, regardless of how stimulus funding plays out.

"We're pretty confident that high-end mass specs are going to do well," he said.

During the first quarter, instrument sales in the Waters division climbed 7 percent year over year while recurring revenues grew 6 percent.

Waters' pharma business grew about 6 percent organically from a year ago, but company officials said that mergers in the sector affected sales, particularly in the US and Europe.

While sales to biotechs, contract research organizations, and generic drug manufacturers rose in the high-single digits, Waters' top 15 pharma accounts were down during the quarter. As the large drug firms continue working out the kinks in their merger activities and start spending again, "we're at this stage convinced that we're going to see better performance out of those accounts as we make our way through the year," Ornell said.

Added Berthiaume: "We are encouraged that recent feedback from some of our larger accounts indicated that an instrument replacement cycle — especially in light of their excitement [over] our Acquity H-Class UPLC launch — may be on the horizon."

Overall, he added that though he is not "totally prepared to believe that the economic conditions that have challenged industries since late-2008 are completely behind us, we are increasingly optimistic about our business prospects for 2010."

Rebound in Japan

During the quarter growth was greatest in Japan — up 22 percent year over year, factoring out currency effects — led by sales to academia, primarily of research mass specs. Outside of Japan, Asia grew 12 percent, helped by improvement in India where a depressed rupee a year ago stagnated demand for dollar-denominated laboratory instruments, Berthiaume said.

Sales in China grew in the mid-single digits, coming off strong results a year ago as a result of the melamine-tainted baby formula scandal there.

Sales in US and Europe grew 2 percent, mainly due to weak pharma sales in those regions.

Spending on R&D increased to $20.1 million in the quarter from $18.3 million a year ago. Waters said it had $692.2 million in cash, cash equivalents, and short-term investments as of April 3.

For the second quarter, Waters forecast sales to increase 7 percent to $388 million year over year.

For full-year 2010, Waters anticipates sales to grow between 5 percent and 7 percent on a currency-neutral basis, to between $1.575 billion and $1.605 billion.

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