R&D spending bounced back last year following the recession. In 2010, total R&D spending in US dollars for 18 major publicly held analytical and life science instrument and laboratory product companies grew 11.3% to $1.54 billion, compared with 2.3% growth for the same companies in 2009. R&D spending for these companies was accelerated by higher personnel-related expenses, acquisitions and strong sales growth.

Primarily, R&D budgets paralleled the strong revenue performance, which grew 9.5% for the 18 companies in 2010. As a percentage of sales, total R&D spending increased 11 basis points to 6.6%, but was heavily imbalanced by Thermo Fisher Scientific. Median R&D spending as a percentage of sales declined 120 basis points to 10.4% as revenue growth for 12 of the 18 companies outpaced R&D outflows. Median R&D costs increased 10.0%, and median sales grew 10.8% in 2010.

IBO’s annual survey of R&D expenditures is based on calendar-year 2010 results, with the exception of Oxford Instruments, for which fiscal year ending March 31 is included. Financial results for European companies are calculated at constant exchange rates.

Sixteen of the 18 companies increased R&D spending in 2010, including nine with double-digit increases. The most significant change in R&D expenses emerged from the larger corporations’ annual sales exceeding $900 million. For the six large-sized companies in the table, total R&D expenditures grew 14.1%, and revenues expanded 9.4%. Four of the six large-sized companies recorded double-digit R&D growth and had R&D budgets of more than $100 million.

Life Technologies recorded the largest R&D budget in 2010 among the 18 companies. The company’s R&D spending climbed 11.4%, or $38.2 million, to $375.5 million. These expenses included $20.8 million from compensation payments, of which $9.4 million was acquisition related, and $12.2 million that was attributed to the expansion of R&D facilities and infrastructure. On the product development side, the company devoted R&D resources to the launch of products for genomic analysis, cell biology, human identification, diagnostics and next-generation sequencing. As a percentage of sales, R&D expenses increased 19 basis points to 10.5%, which is within the company’s target range of roughly 10%.

Similarly, Illumina boosted its R&D budget by 26.5%, primarily due to higher share-based compensation, which jumped 27% to account for 14% of total R&D charges. The acquisition of Helixis (see IBO 7/31/10) also contributed to this increase. Other R&D costs were attributed to lab and production supply expenses. R&D outlays are expected to increase in 2011 as Illumina continues to focus on sequencing applications, especially in the diagnostics market. The company is also targeting the development of reagents and in vitro tests.

Thermo Fisher Scientific’s R&D expenses rose 16.7%, or $41.1 million. The company completed several acquisitions during the year and strengthened its development initiatives for MS and Biosciences, as well as for cancer diagnostics and genomics. For 2011, the company projected higher R&D spending. This included an expanded R&D infrastructure in China. The China Technology Center in Shanghai is aimed at developing products specifically for the region.

Bruker’s R&D expenses climbed 11.9% due in part to the acquisitions of various Varian (see IBO 3/15/10) and Veeco Instruments (see IBO 8/31/10) product lines. While the company increased R&D investments for its new Chemical Analysis business, Bruker also leveraged its R&D spending from other business units. As revenues grow, R&D spending for the Scientific Instruments business is expected to decline as a percentage of sales to roughly 10%.

The two remaining large companies, PerkinElmer and Waters, increased R&D expenditures by 5.1% and 9.2%, respectively. PerkinElmer focused primarily on growth initiatives for cellular and fluorescence systems, molecular diagnostics and consumables. R&D costs for Waters expanded due to financial-performance measures and the development of instrument systems and applications, especially for biologics. The company also increased R&D head count in emerging territories.

A number of the smaller companies experienced similar trends in R&D spending. Total R&D expenditures for the six companies with annual sales of less than $300 million rose 10.4%, and revenues climbed 10.9%. Three of the six companies increased R&D spending by double digits.

Much like Life Technologies and Illumina, Luminex boosted R&D spending as a result of higher personnel expenses and development of diagnostics product lines. R&D spending for Luminex climbed 12.8% due to a 23% increase in head count for its Assay and Related Products segment, as well as increased material expenses. The workforce increase was related to development of molecular diagnostic assays and the acquisition of BSD (see IBO 3/31/10). In addition, the company’s strong sales in 2010 drove stock-based compensation 20% higher to account for 7% of total R&D expenditures. The company anticipates R&D expenses to remain at 15%–18% of 2011 sales, but has a long-term target of 15%.

Sequenom and Biotage raised R&D spending by 16.0% and 16.2%, respectively. Sequenom’s costs were related to higher clinical expenses, additional hiring and increased licensing payments. The company is focused on the development of diagnostic testing, including its noninvasive test for trisomy 21 and macular degeneration. Biotage’s R&D spending was primarily boosted by acquisitions. However, the company expects to elevate R&D outlays to a ratio of roughly 10% of sales.

Caliper Life Sciences and Fluidigm also promoted development for molecular diagnostics applications. Caliper’s R&D budget grew 0.4% despite a 5.1% decline in sales. The company focused on the development of systems for next-generation sequencing, molecular and companion diagnostics, and imaging. Caliper’s R&D budget is expected to climb in 2011 following the acquisition of CRi (see IBO 12/15/10). Fluidigm’s R&D expenses rose 5.6%, led by the development of products for cell analysis and molecular diagnostics as well as improved manufacturing processes.

Analytik Jena also increased R&D spending due to acquisitions and product development. The company’s R&D costs grew 8.8% due to higher license payments and the launch of two real-time PCR products.

Total R&D growth for the six medium-sized companies (with annual sales of $300 million–$900 million) was more modest. Despite revenue growth of 10.3%, total R&D spending increased just 0.7%. This increase was largely attributed to Oxford Instruments and Tecan, which each recorded double-digit R&D growth.

R&D spending for Oxford Instruments R&D jumped 34.4% due to higher startup costs for its Superconducting Wire business. This was the largest percentage increase in R&D spending in 2010 among all 18 companies. Tecan’s R&D expenditures rose 10.7% as the company boosted head count for its OEM business. As a percentage of sales, R&D spending is projected to climb 200 basis points to 12% of Tecan’s sales in 2011.

For Dionex and Eppendorf, R&D expenses rose 7.5% and 0.3%, respectively. Dionex’s increased costs were primarily related to the ESA acquisition (see IBO 9/30/09).

Two medium-sized companies, Affymetrix and FEI, were the only companies in the table to reduce R&D expenditures in 2010. Affymetrix curtailed its R&D budget by 12.2%, or $9.4 million. R&D expenses were reduced $5.7 million as a result of lower personnel-related expenses and reduced head count and by $2.2 million due to supply cutbacks. Areas of focus are the cytogenetics, cancer testing and clinical validation markets. As a percentage of sales, R&D spending fell 179 basis points to 21.9%, which is above the company’s long-term target of 15%–18% of sales. FEI reduced R&D spending by 2.1%, but this was due to currency transactions and adjusted expenses.

                                                  2008                         2009                           2010

        Company                   Sales ($M)  R&D ($M)      %   Sales ($M) R&D ($M)       %  Sales ($M)   R&D ($M)       %

 Large  Thermo Fisher Scientific  $10,498.0    $249.1    2.4%   $10,109.7    $246.1    2.4%   $10,788.7     $287.2    2.7%

        Life Technologies          $3,144.6    $322.7   10.3%    $3,280.3    $337.1   10.3%    $3,588.1     $375.5   10.5%

        PerkinElmer                $1,659.7     $93.0    5.6%    $1,550.8     $90.8    5.9%    $1,704.3      $95.4    5.6%

        Waters                     $1,575.1     $81.6    5.2%    $1,498.7     $77.2    5.1%    $1,643.4      $84.3    5.1%

        Bruker                     $1,107.1    $133.8   12.1%    $1,114.5    $126.4   11.3%    $1,304.9     $141.4   10.8%

        Illumina                     $573.2    $100.0   17.4%      $666.3    $140.6   21.1%      $902.7     $177.9   19.7%

        Total Large               $18,557.7    $980.1    5.3%   $18,220.3  $1,018.2    5.6%   $19,932.2   $1,161.7    5.8%

 Medium Eppendorf                    $603.3     $35.5    5.9%      $601.7     $33.2    5.5%      $636.8      $31.5    4.9%

        FEI                          $599.2     $70.4   11.7%      $577.3     $67.7   11.7%      $634.2      $66.3   10.4%

        Dionex                       $393.6     $29.3    7.4%      $388.4     $29.3    7.5%      $446.8      $31.5    7.1%

        Oxford Instruments*          $350.0     $22.5    6.4%      $335.7     $20.8    6.2%      $409.8      $27.5    6.7%

        Tecan                        $366.7     $38.8   10.6%      $326.8     $31.0    9.5%      $356.3      $35.9   10.1%

        Affymetrix                   $320.2     $84.5   26.4%      $327.1     $77.4   23.7%      $310.7      $67.9   21.9%

        Total Medium               $2,633.0    $280.9   10.7%    $2,557.1    $259.3   10.1%    $2,794.7     $260.7    9.3%

 Small  Luminex                      $104.4     $18.6   17.8%      $120.6     $20.8   17.2%      $141.6      $23.4   16.5%

        Caliper Life Sciences        $134.1     $19.9   14.9%      $130.4     $17.9   13.7%      $123.7      $18.0   14.5%

        Analytik Jena (excl. Optical) $65.5      $7.4   11.3%       $89.6     $10.0   11.1%       $99.1      $10.3   10.4%

        Biotage                       $58.5      $5.3    9.0%       $51.4      $4.5    8.7%       $59.5       $5.5    9.2%

        Sequenom                      $47.1     $27.5   58.2%       $37.9     $37.5   98.9%       $47.5      $43.4   91.5%

        Fluidigm                      $15.3     $14.0   91.3%       $25.4     $12.3   48.5%       $33.6      $13.0   38.8%

        Total Small                  $425.0     $92.7   21.8%      $455.4    $102.8   22.6%      $504.9     $113.6   22.5%

        Total                     $21,615.7  $1,353.8    6.3%   $21,232.8  $1,380.3    6.5%   $23,231.7   $1,536.0    6.6%

           

  1 Fiscal year ending 3/31/11