In 2013, R&D spending in US dollars for 21 major publicly held analytical instrument and lab product firms (see table, page 6) rose 4.5%, the slowest pace in IBO’s annual survey of R&D expenditures since 2009 (the companies included are changed annually). The primary reason for slower R&D growth was the lack of significant acquisitions. Using a more quantifiable measure, total R&D spending as a percentage of sales for the companies in the table slipped merely three basis points in 2013 to 6.5% of sales, as the average revenue growth for companies in the table grew 4.9%, or 6.6% excluding currency. As a percentage of sales, R&D spending for 12 of the 21 companies declined due to timing of projects, restructuring activity and cost-control initiatives.

IBO’s annual survey of R&D expenditures is based on calendar year 2013 results, with the exception of Agilent Technologies (fiscal year ending October 31, 2013) and Oxford Instruments (fiscal year ending March 31). Financial results for European companies are calculated at 2013 constant exchange rates.

R&D spending for the seven largest companies in the table, with annual sales above 1$ billion, was stable in 2013 as a result of strong R&D expenditures for Illumina and Agilent, increased personnel, and product development for clinical and diagnostic applications. Total R&D expenditure for these companies grew 5.9% in 2013, while sales expanded 5.2%.

Illumina recorded the largest nominal increase in R&D spending among companies in the table in 2013, with spending rising $45.7 million, or 19.8%. Excluding a $21.4 million impairment charge for acquired in-process R&D in 2012, R&D soared $67.1 million, or 32.0%. Illumina not only added engineering personnel for the development of new sequencing technologies but also expanded personnel and resources for the development of new chemistries, assay methodologies, automated sample preparation solution and informatics. The company continued to develop simplified sequencing workflow solutions and expand into the diagnostic markets, including reproductive health and oncology. R&D spending for Illumina was also elevated by the acquisitions of Verinata (see IBO 1/15/13) and Moleculo (see IBO 1/15/13) as well as higher stock-based compensation payments. Despite the increase, as percentage of sales, Illumina’s R&D slipped 64 basis points to 19.5%.

Agilent was the only other large company in the table to increase R&D spending by double digits. The R&D budget for the company’s Life Sciences, Diagnostics and Applied Markets division climbed 11.8% to $322.0 million in fiscal 2013. Life Science and Diagnostics R&D spending rose 16.9% to $228.0 million primarily due to the acquisition of Dako (see IBO 5/31/12) and development of target-enrichment products and microarrays for clinical applications as well as LC and LC/MS systems for drug discovery and diagnostics. In contrast, Chemical Analysis segment R&D increased only 1.1% to $94 million.

Despite Illumina and Agilent’s significant increases, Thermo Fisher Scientific maintained the largest R&D budget in 2013 among companies in the table. Thermo’s R&D spending increased 5.1% to $395.5 million and was roughly in line with its currency-neutral sales growth of 4.9%. As a percentage of manufacturing sales, it was similar to 2012 at 5.2%. In 2013, resources were devoted to expanding its core analytical technologies into new applications and markets, as it introduced the Orbitrap MS for proteomics, a portable analyzer for agriculture and the SureTect PCR system for food testing. Thermo also invested in R&D in China with the opening of an Innovation Center in Shanghai (see IBO 9/15/13). This facility is expected to add roughly 200–300 engineers over the next two to three years. Thermo also deepened investments in MS-based biomarker discovery research for biopharmaceutical markets. Including the acquisition of Life Technologies (see IBO 4/15/13), Thermo’s 2013 pro forma R&D totaled $730 million, of which 53% was for Life Sciences Solutions, 27% was for Analytical Instruments, 17% for Specialty Diagnostics and 6% was for Laboratory Products & Services.

Bruker, PerkinElmer and Merck Millipore recorded either lower or relatively flat R&D spending in 2013. Following a number of cost-savings initiatives due to slower revenue growth and to improve operating margins, Bruker reduced its R&D expenses for the first time in five years, as spending declined 2.5% in 2013. R&D headcount was cut by 7.3% as a result of facility consolidations and restructuring within the Bruker Materials, BioSpin and Chemical & Applied Markets businesses. These savings were partially offset by investments in its MALDI Biotyper system for diagnostic applications.

Similar to Bruker, PerkinElmer also restructured its overall operations in 2013 as a result of slower demand and to improve profitability. The firm consolidated R&D facilities in a new life science Center for Innovation in Hopkinton, Massachusetts (see IBO 8/15/12). R&D spending improved 0.3% due to developments for informatics and newborn-screening tests in China and other emerging markets.

Total R&D spending for the seven medium-sized companies with annual sales of $200 million–$1 billion fell 2.4% despite revenue growth of 2.0%. This decrease was largely attributed to the timing of projects for Affymetrix, Tecan and Sartorius, which each recorded double-digit R&D declines.

Affymetrix reduced R&D spending by 17.7% in 2013 to $47.7 million as it completed several projects, including FDA clearance for the CytoScan and the introduction of OncoScan. The company also lowered R&D headcount and variable compensation. R&D spending for eBioscience more than doubled to $8.8 million. Excluding eBioscience, R&D fell 28.1%. As a percentage of sales, R&D spending declined 516 basis points to 14.4%.

Tecan’s R&D spending fell 11.8% in 2013 due to the completion of two diagnostic partnering projects and the launch of a liquid-handling platform (see page 9). R&D spending focused on sample preparation for MS and eFluidics technology, an alternative to liquid-handling technology based on electrowetting, for both diagnostics and life science.

Luminex and FEI recorded the largest R&D increases among the medium-sized companies in the table, as spending expanded 4.8% and 7.4%, respectively. Luminex engaged in developing new products for molecular diagnostics, including its Project ARIES platform. Roughly 72% of the company’s R&D was attributed to the Assays and Related Products segment, which included expenses for FDA approval for the Gastrointestinal Pathogen Panel assay and expansion of its NeoPlex4 newborn-screening assay. FEI’s R&D budget was dedicated to the introduction of several new products, including three TEMs for biology research.

Total R&D expenditures in 2013 for the seven companies with annual sales of less than $200 million rose 6.6%, and revenues climbed 9.2%. R&D investments for these firms were accelerated due to product introductions and acquisitions. NanoString Technologies boosted R&D by 28.7% in 2013, the highest percentage increase among companies in the table. The company augmented its R&D personnel and boosted spending related to FDA approval of its Prosigna test.

Acquisitions also contributed to R&D growth for several smaller companies. R&D for Analytik Jena Life Science (LS) jumped 42.3% in 2013 due to the acquisitions of UVP (see IBO 4/30/13) and SIRS-Lab (see IBO 5/15/13). The LS unit was active in more than 30 research projects, including development of target-enrichment solutions to expand its diagnostics applications. Analytik’s Analytical Instrument R&D spending grew 6.7% due to the development of a new optical emission spectroscopy system. Abcam’s R&D expenditures rose 13.7% in 2013 primarily due to acquisitions, as well as the development of immunoassay products and higher amortization of the acquisition-related intangibles.