Mergers, the recession, and pharma, oh my.
In 2008, these were the three overarching themes in the proteomics field. If 2007 was missing in the kind of dramatic turn of events that could alter the landscape, this past year was marked by continual change and sudden shifts that kept researchers and company executives on their toes.
Perhaps the single biggest event this past year was the merger of the top-selling mass spectrometer manufacturer, Applied Biosystems, with reagents and consumables firm Invitrogen to form Life Technologies, a company rivaled only by Thermo Fisher Scientific in terms of its size and the scope of offerings for proteomics researchers [See PM 06/12/08 and 06/19/08].
While the joining of the two firms caught many by surprise, ABI had sent signals earlier that it was looking for change when it announced during the summer of 2007 that it had hired an investment bank to look into strategic alternatives for it and its former sister firm, Celera, from whom ABI eventually split when parent company Applera was folded into ABI.
In announcing the ABI-Invitrogen deal, officials from both companies emphasized the potential it would have on the genomics side of the business, but acknowledged that ABI’s mass specs were not a natural fit for the new business model. Indeed, since the announcement of the deal, speculation has lingered that the mass spec business would be sold.
Life officials have steadfastly maintained that they have no plans to sell the mass spec business, and talk of any possible divestiture has died down. Recently, Isaac Ro, an analyst at Leerink Swann Research, told ProteoMonitor that while a sale of the business is possible, it wouldn’t happen soon, given the current economic climate and the fact that the mass spec business, generally, is not one exactly coveted by industry players. In a recent report on the life-science tools sector, Ro said that proteomics and mass specs are most likely to be among the most negatively impacted by the current economic crisis [See PM 12/18/08].
Otherwise, it was another quiet year on the mergers and acquisitions front for proteomics with the only other significant deal among the major industry players being Bruker BioSciences’ acquisition of Bruker BioSpin in February, creating Bruker.
Meanwhile, another soft year in the pharma market continued to challenge instrument vendors. While pharma spending did not hit the lows seen in 2004 and 2005, no one in the industry would describe 2008 as a banner year either.
At the start of the year, Waters provided a preview of how the year would turn out when company CEO Douglas Berthiaume said during a conference call accompanying the release of the firm’s 2007 fourth-quarter earnings results that a small number of its largest clients “depress[ed]” its entire pharma business.
No one was immune, either, as all the major instrument vendors reported lackluster pharma sales throughout the year, softened but not completely neutralized by increases in their contract research organization and biotech businesses.
“In all, pharmaceutical spending is at best a mixed bag, and we see no reason that the situation will materially change from where it is in the short term.”
By the third quarter of 2008, Waters was still reporting flat pharma sales, leading Berthiaume to say, “In all, pharmaceutical spending is at best a mixed bag, and we see no reason that the situation will materially change from where it is in the short term.”
Tight-fisted spending by drugmakers also hit ABI hard during the year as the company spent most of the year trying to reverse a slide in mass spec sales growth that had begun in 2007. Throughout the year, company officials blamed a soft pharma environment, and when mass spec sales fell 9.8 percent during the company’s fiscal 2009 first quarter, ended Sept. 30, pharma sales were again blamed.
Mark Stevenson, then the COO of ABI, who now holds the same title at Life, said at the time that though the company was sustaining its share of the pharma mass-spec market, “the tightening in the market had a significant impact” on the quarter’s results.
Also hurting the company’s sales performance for the instruments, however, was a technology drought that finally ended when it launched two new mass specs, the AB Sciex Triple Quad 5500 and AB Sciex QTrap 5500 in the fall [See PM 10/16/08]. The new instruments were ABI’s most significant mass spec launches in proteomics in more than three years and fueled guarded hope that they would jumpstart its mass spec business.
“Even in a down market for pharma, if you have a new product introduction that has compelling advantages in terms of their cost and quality in getting the clinical work done, they will find the money, because it’s cost analysis on the total project, and sometimes the cost of the upgrade is justified even in a tight capital market,” former ABI CEO, Tony White, said in October. “Certainly there are indicators from our experience that that’s something we’re going to watch for and could very well happen.”
But with the pharma sector still struggling with its own problems, tool vendors may be facing another lean year in 2009 with those accounts. Throughout 2008, the major drugmakers announced massive layoffs and job cuts, and just last month Bristol-Myers said it was cutting another 800 positions before the end of 2008, on top of the 4,300 announced a year earlier that would be eliminated through 2010.
In the fall, Merck also said it was reducing its work staff by 7,200 by 2011, and AstraZeneca and GlaxoSmithKline also announced plans for layoffs. In such an environment, analyst Ro said that consolidation among pharma in early 2009 could be possible. If that were to happen, instrument vendors would face an even rockier sales landscape.
Buckling Up for Rough Economic Ride
Beyond pharma, by the time 2008 ended the economic meltdown had taken hold of the proteomics community, despite earlier predictions that the life-science field would escape its effects with just minor scratches.
In addition to the report from Leerink Swann forecasting rough-and-tumble times ahead for almost all life-science companies, Waters and Agilent Technologies closed out 2008 by lowering their revenue estimates, citing deteriorating economic conditions. Agilent also said that while its Bio-Analytical Measurement division, which houses the company’s life sciences operations, remains a growth engine, it along with the rest of its business is expected to sequentially decline throughout 2009, and it wouldn’t be until the middle of 2010 before business returned to “normal.” [See PM 12/11/08]
In the meantime, the company embarked on a cost-cutting strategy that included the reduction of its full-time work staff by more than 300 positions, and its temporary work staff by about 500 positions. Salaries were reduced and employees were forced to take unpaid time off, as well.
Other firms similarly cut staff to reduce costs. Thermo Fisher Scientific laid off 267 workers from its Analytical Technologies division, which includes its mass spec business, through the first nine months of the year; and ABI laid off 32 employees, including 13 in its LC-MS product line, during the second half of the year as part of a "rebalancing" of the company's business to place more of a focus on its business in Asia, and particularly China. It also closed its corporate offices in Connecticut to reduce redundancy stemming from its merger with Invitrogen.
And Bruker last month said that some of its top executives, including President and CEO Frank Laukien, would take pay cuts in 2009 in order to reduce costs and the company’s exposure to currency fluctuations [See story in Briefs, this issue].
Amid the fallout from the broader markets, Young-Ki Paik, the new president of the Human Proteome Organization, expressed concern to ProteoMonitor about the potential effect on his organization’s finances as vendors may hedge on financial support of HUPO [See related story, this issue].
Smaller proteomics firms also struggled in 2009. If Plexera was an unfamiliar entity, it was because the Plexera name didn’t even last as long as a typical pregnancy. Spun out by Lumera in July 2007 as a proteomics subsidiary, the company was promptly shut down in late March when Lumera was sold to GigOptix. The move was made to conserve cash and allow it to focus on developing electro-optical polymer modulators and other devices for optical networks and systems [See PM 04/03/08].
Other firms fought to stay alive by changing their business models in an effort to generate revenue. Vermillion spent much of the year fending off delisting action by the Nasdaq to no effect. In September, the company’s shares began trading on the Pink Sheets. But Vermillion’s transformation into a diagnostic company took a step forward when its thrombotic thrombocytopenic purpura diagnostic test, co-developed with Ohio State University, began to bring is some much needed cash. The test is the company’s first to hit the market since it sold its SELDI business to Bio-Rad Laboratories in 2006.
Another early proteomics firm that has struggled to find an identity and footing in the marketplace, Proteome Systems, once again changed its business model late in 2008, leaving the therapeutics arena to become a biomarker discovery and diagnostics development business. In the process, it also changed its name to Tyrian Diagnostics.
Miraculins also turned to the diagnostics field when it abandoned it proteomics R&D focus in the summer, saying that after years of investing in disease-biomarker development, it still couldn’t see a reasonable return on the investments. And sample-preparation technology firm Pressure BioSciences went through a restructuring last month, laying off some workers and abandoning some R&D projects to cut costs, as it found equity funding needed to take the company to profitability hard to secure.
One Australian firm, Fluorotechnics, however, bucked the trend by becoming the first proteomics firm to go public in years [See PM 09/18/08]. When it completed its IPO the company had raised A$8 million [$5.4 million], surpassing its target goal of A$6 million.
On the research side, the biggest project that never quite lifted off was the proposed $1 billion, 10-year Human Proteome Project to provide a first draft of the human proteome. While not completely killed off, the project was put in limbo when during HUPO’s annual Congress during the summer, funding agencies said that such an ambitious effort would not get the money it wanted [See PM 08/21/08].
Nonetheless, its proponents said they would proceed with smaller projects linked to the HPP, and in South Korea, researchers are waiting for approval by the government to map chromosome 13, the second smallest in humans, as a pilot project for the HPP.