China’s New “Normal”

Chinese business improved for many analytical instrument and lab product companies in 2015 after a disappointing 2014. However, despite healthy spending in the food testing and pharmaceutical sectors, the country’s high double-digit sales growth of recent years for laboratory products and instruments due to industrialization and economic expansion is expected to abate slightly. The Chinese economic slowdown put pressure on domestic industrial firms’ investments and foreign manufacturers are increasingly relocating manufacturing operations to other Asian nations, affecting instrument purchases in selected sectors.

This March, the country will announce its latest Five-Year Plan, which is expected to be a windfall for genomic and environmental spending, among other areas. In addition, the country’s new food safety law is being implemented. However, the rapid growth that characterized the country’s economy over the last decade is unlikely to be repeated, affecting companies worldwide, and in turn reorienting instrument and lab product companies’ business in the country. Government investments are expected to be more resilient, suggesting better prospects for the country’s life science, environmental and food testing sectors.

Bioprocess

Bioprocess products continued to be a strong business for instrument and lab product companies in 2015, led by demand for single-use system. New market developments promise greater competition. Sartorius (see IBO 4/30/15, 7/15/15) and Thermo Fisher Scientific (see IBO 2/15/15) added to their bioprocess offerings through acquisitions. GE Healthcare Life Science, Merck KGaA, Sartorius and Thermo each reported strong growth for their bioprocess businesses throughout the year. For each company, the majority of their bioprocess offerings are not analytical instrument based, but rather manufacturing and processing systems, representing a non–analytical instrument segment in which many traditional instrument companies have flourished.

In addition, the market landscape changed as Danaher became a participant via its purchase of Pall (see IBO 5/15/15) and Merck KGaA completed its acquisition of Sigma-Aldrich (see IBO 11/30/15), combining capabilities to boost market presence. Increasing investment in biologics and biosimilars should sustain healthy market growth, ensuring diversification at certain companies and ties to the biopharmaceutical industry from development through manufacturing.

Pharma and Biotech Stay Strong

Despite pricing controversies and greater payer scrutiny, as well as a stream of acquisitions, pharmaceutical and biotechnology investments in instruments and lab products were strong in 2015, as reported by major publicly held instrument firms. In particular, Thermo Fisher Scientific and Waters detailed healthy demand in the pharmaceutical sector, led by specialty drug makers and CROs. Companies also benefited from the increased adoption of NGS, cellular analysis and informatics-based approaches to R&D and companion diagnostics.

China FDI

As Chinese firms increased their foreign direct investments, the instrument and lab products industry was no exception. Two US firms were acquired by Chinese companies in 2015, as Advion was purchased by Bohui Innovation Technology (see IBO 6/15/15) and MD Biochemicals was bought by Valiant (see IBO 10/31/15). This month, Haier Biomedical, part of Chinese publicly held appliance supplier Haier, purchased UK-based Labtec’s cold chain business to increase distribution opportunities for its lab refrigerators, freezers and biosafety cabinets.

Geographic and product line expansion were motivating factors for these purchases, indicating that China’s strong domestic instrument and lab product industry is increasing its presence outside China. The acquisitions bring new product lines and capabilities to Chinese firms, enhancing their ability to compete both at home and abroad.