Financial Crisis

As with firms worldwide, analytical and life science instrument companies found themselves at the mercy of the credit crisis, failing stock markets and lower industrial demand at year-end. Some of the strongest markets for instrumentation in recent years—the petrochemical, metals and chemical industries—abruptly slowed operations in late 2008 and announced cost cuts for 2009 (see page 13). Other industries also curtailed spending in the face of uncertainty about global economic conditions and a more difficult funding environment. Third-quarter results from major instrument and life science product companies only hinted at the potential disruption (see IBO 11/30/08), but all indications are that industrial markets and even some academic and government markets will be impacted in 2009. By reducing expenses and taking advantage of a broad product range and worldwide presence, larger instrument companies should be able to adjust. However, smaller companies, depending on their end-user markets, will be more hard pressed to maintain sales growth and to reduce costs. Funding sources have also become tighter for smaller companies, as investors remain cautious. However, firms with technologies for certain end-markets, such as life science and nanotechnology, may find funding easier to obtain, leading to consolidation. Waters (see page 2, IBO 12/31/08), Symyx Technologies (see IBO 12/15/08) and STARLIMS (see IBO 10/15/08) all revised their sales forecasts downward due to the economic crisis, while Pressure BioSciences and Helicos Biosciences (see IBO 12/15/08) have restructured in order to preserve cash in a tight financing environment. In December, Sartorius announced cost cutting for its Mechatronics division and a reduction in employee work-hours.

Product Safety

In 2008, the melamine scare returned and toy safety remained an issue, drawing further government and public attention to the safety of consumer and food products. Instrument sales for these applications, particularly LC-MS-MS and X-ray fluorescence spectroscopy, benefited, especially in Asia. Product safety also raised the profile of analytical instruments, which were championed by the press and legislators as effective solutions. Governments worldwide passed new laws requiring testing and lowering detection limits for contaminants in both food and toys. Companies such as Oxford Instruments and Waters expanded their instrument solutions tailored for the product safety market, while other companies, such as Bruker, entered the market. This market shows no indications of slowing growth, making it an larger opportunity for instrument companies in the depressed economic environment.

Commodities Downturn

The record commodity prices for metals and oil have propelled instrument sales for a number of techniques, expanding these end-markets for many companies and resulting in company acquisitions, as well as expansion in emerging economies, such as Russia and Latin America. In mid-2008, the commodities engine suddenly and rapidly decelerated (see page 13). Metals and mining, as well as oil and chemical companies, announced major restructurings and cost-cutting initiatives in late 2008, impacting capital spending and new projects. As a result, instrument sales growth to these industries is likely to decline, impacting revenues and, perhaps, profitability. Instrument companies will also have to recalibrate spending to accommodate the slower demand, as well as look to other markets, such as basic research and government, to maintain sales growth.

Diagnostics

Diagnostics became a larger part of the businesses of a number of instrument and lab product companies in 2008, furthering a crossover that may drive companies’ growth, diversify their product range or, in a more adverse scenario, distract companies from their core businesses. Luminex Molecular Diagnostics introduced its first diagnostic assay, the xTAG Respiratory Viral Panel, in January 2008, and announced a partnership with Abbott for distribution. Invitrogen (now Life Technologies) received its first FDA 510K approval for a Class II IVD Medical Device system for the DynaChip Antibody Analysis System, a protein chip-based system for human leukocyte antigen antibody detection. The company also received its first FDA premarket approval (which is for a Class III medical devices) for the SPOT-Light HER2 Chromogenic In Situ Hybridization Kit for the assessment of Herceptin treatment for breast cancer patients. Most evident was Sequenom’s development of prenatal diagnostic tests, which led to its acquisition of a clinical reference lab (see IBO 9/30/08). Expansion into the diagnostic market was also a factor in Sequenom and Luminex’s stock market gains last year (see IBO 12/31/08). With a diagnostic product introduction likely this year, Illumina refined its strategy for the market in 2008 and added resources (see IBO 5/15/08). Also last year, Affymetrix, PerkinElmer and QIAGEN expanded their diagnostic franchises with new products and partnerships.

More Pharma Pain

Last year was yet another tough year for the pharmaceutical industry. Major overhauls at leading drug companies were indicative of the dramatic changes in business models. Outsourcing, biotech acquisitions and investments, and partnerships with universities accelerated. For instrument and lab product companies, these changes reshaped end-user markets, further shrinking large pharma’s historically significant role in the instrument marketplace. The changes affected not only who is developing drugs, but what drugs are developed. Pfizer and Wyeth narrowed their therapeutic areas of focus, and Merck announced that it will pursue the development of generic biologics. Lab closures and layoffs of R&D employees were evidence of a more difficult marketplace. Meanwhile, areas of emphasis such as biomarker studies, stem cell research and pharmacogenomics, repositioned certain lab product companies and instrument markers for growth, while public-private ventures for drug discovery and collaboration, promised new approaches to drug development and technology development.