2016 Instrument and Lab Product Industry Trends and Developments

Uncertainty Reigns

Instrument and laboratory product companies, just like other industries, felt the effects of 2016’s high degree of uncertainty. Political developments, such as Brexit and the US election, as well as economic questions, including growth expectations for China and the possibility of higher US interest rates, complicated demand forecasts and planning.

In December 2016, the Conference Board reported that US business capital spending declined 0.7% in 2016. Experts indicate that for many companies capital spending was put on hold due to the US election and macroeconomic uncertainty. This suggests that in certain markets some instrument purchases may have been delayed.

In particular, the outlook for industrial markets and Western Europe proved to be unpredictable. Agilent Technologies reported disappointment with continued weakness in the oil market, while PerkinElmer anticipates industrial end-market sales for the year to miss initial expectations. Bruker faced an unexpected slump in Europe early in the year, and Illumina revised revenue guidance due to disappointing European demand. On the positive side, biopharmaceutical spending and Chinese government spending surpassed expectations for a number of major companies.

Even with the election over and faster global GDP growth anticipated (see Regional Forecast: India Drives Sales Growth in Life Science Market), uncertainty persists. Although some industrial markets, most notably oil, are expected to have a stronger year, the pace and extent of the recovery is unclear. Regionally, the EU’s economic outlook remains precarious due to Brexit and 2017 national elections, as well as continued weak economic growth. In the US, the Trump administration’s pro-business policies is likely to stimulate spending, but any cutback in government spending and regulation could curtail testing demand.

Turbulent Year for NGS

Once the standout of the life science instrument and consumables market, the NGS market confronted new hurdles last year. Illlumina, long the face of the NGS instrument market, missed sales guidance, saw its stock price crumble and overhauled its executive roster under a new CEO  (see IBO 3/15/16). Pacific Biosciences missed sales projections for its new Sequel system and, at year end, faced a new setback when Roche dropped its commercialized plans for a Sequel-based diagnostics system (see IBO 12/15/16). QIAGEN rolled out its first NGS system, seeking to broaden the clinical market, only to be hit with a legal injunction mid-year for US sales (see IBO 9/15/16) that was later lifted (see IBO 9/30/16).

The developments played out against a background of market adjustment, as questions regarding reimbursement, US LTD regulations and standardization issues appeared to hamper broader adoption for clinical diagnostics applications. In the research market, NGS continued to fuel genomics testing and key applications, such as single-cell analysis and translational medicine.

Eyeing both application areas, instrument and lab product companies as well as investors continued to want a piece of the market. Agilent Technologies announced an agreement with LaserGen to develop an NGS workflow, including a system (see IBO 3/15/16); PerkinElmer purchased NGS library prep company Bioo Scientific (see IBO 8/15/16); and Oxford Nanopore raised $126 million in new financing (see IBO 12/15/16) and continued to shake up the market with low-cost NGS systems. It was also another rich year for M&A of NGS specialists, including Rubicon Genomics (see IBO 12/31/16), Tute Genomics (see IBO 10/15/16) and Bioo Scientific.

The Race for the Aftermarket

The focus of instrument companies on aftermarket products (consumables, software and service) was not a new trend last year, but it appeared to gain further momentum, shaping strategy and guiding investment. This was especially clear with acquisitions, as Danaher, PerkinElmer and Thermo Fisher Scientific further pursue larger consumables businesses with the acquisitions of Phenomenex (see IBO 10/15/16), Bioo Scientific (see IBO 8/15/16) and Affymetrix (see IBO1/15/16), respectively.

Once again, strong consumables sales were a highlight for Agilent Technologies, Illumina and Waters, despite highly competitive market environments. Each company attributed margin growth in part to consumables sales growth and consumables’ reliable revenue stream, which balanced more unpredictable instrument demand.

To take advantage of consumables, these companies, as well as other firms, such as Thermo Fisher, continued to refine their solutions-based product development and marketing. With new product launches, as in the case of Agilent’s Intuvo GC and BD Biosciences’ flow cytometers, vendors more tightly coupled instrumentation and consumables.

And in several key markets, such as NGS, a consumables play was far preferable to an instrument launch for companies such as PerkinElmer and Roche. For other companies, including Bruker, which rolled out new service offerings, and Miltenyi, which debuted a new line of antibodies, the aftermarket was a stronger focus than ever.

Industrial Blues Continue

As the industrial market downturn for instrument sales completed its fourth year, instrument and lab product companies serving the market continued to feel the pinch. The extended malaise may have, in part, contributed to organizational changes at PerkinElmer (see IBO 9/30/16) and Spectris (see IBO 12/15/16).

Among the companies noting the continued impact in 2016 were Bruker, Oxford Instruments, PerkinElmer and Thermo Fisher Scientific. Overcapacity in commodities such as steel and oil limited production output and, consequently, new investments. Nonetheless, companies noted strength in consumables and service demand due to extended product cycles.

In addressing industrial markets, companies balanced investments in new, higher-margin products with cost controls and productivity enhancements. Agilent Technologies, PerkinElmer, SPECTRO Analytical Instruments (AMETEK) and Waters TA Instruments each unveiled major new product lines for cornerstone franchises serving industrial markets, indicating their commitment to these markets.

However, other investments appear to have been more restrained. M&A activity related to the sector remained sparse, and companies with businesses in both industrial and life science market highlighted investments in the latter.

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