The annual JP Morgan Healthcare Conference, held earlier this month in San Francisco, California, is a high-profile gathering for health care companies and investors. Among the 450 companies in the spotlight during the week were the largest analytical instrument and lab product companies, including PerkinElmer, Thermo Fisher Scientific and Waters. In this article, IBO examines some of the major themes among lab tool companies’ presentations at the conferences as well as major announcements.

Headlines

Several companies chose the occasion to preview fourth quarter 2018 and full-year financial results (see IBO 1/15/19). Also in financial news, 10x Genomics, a private firm that presented at the conference, announced a Series D funding of $35 million, bringing total financing to $243 million.

Other companies selected the event to preview or introduce new products. QIAGEN announced the QIAcube Connect, its next generation of its QIAcube automated sample processing system for QIAGEN spin columns, which will launch this quarter. Features include digital connections and new safety protocols. The company also announced the acquisition of N-on-One and Formulatrix’s digital PCR technology (see IBO 1/15/19). Quanterix introduced its third instrument platform, the Simoa SP-X Imaging and Detection System, designed for oncology applications, which will ship April 1, and the Corplex 10-plex assay. It features testing for 50 analytes at 10-plex, with a homebrew option.

Recurring Revenues

Many analytical instrument companies have succeeded in their efforts to become more reliant on recurring revenues as opposed to instrument sales, as evidenced by presentations at the conference. For Thermo Fisher Scientific, the largest analytical instrument and lab product company, recurring revenue accounted for 74% of total sales, consisting of 52% consumables sales and 22% software sales, through the third quarter of 2018. Thermo Fisher President and CEO Marc Casper told conference attendees, “The mix of that recurring nature, of services and consumables, continues to increase over time [as] a larger and larger portion of our business.” PerkinElmer announced 68% of its forecasted 2018 sales were recurring, defined as consumables, services and software. Waters’ recurring revenue for 2017 represented 60% of revenues in 2017, with service, chemistry and informatics accounting for 33%, 16% and 11% of total sales, respectively.

“Consumables revenue is a function of that strong installed base and yields normally anywhere from 2x to 5x that instrument revenue on an ongoing basis.”

In Danaher’s presentation, the company also emphasized its focus on recurring revenue. For the company as a whole, it now makes up 70% of total sales. Speaking at the conference, Danaher President and CEO Tom Joyce listed three types of recurring revenue for the company. “It starts with what you might consider to be the traditional razor/razor blade model, where consumables revenue is a function of that strong installed base and yields normally anywhere from 2x to 5x that instrument revenue on an ongoing basis.” Examples among the company’s analytical instrument businesses include Hach. He also listed the type of consumables specified into a process, such as FDA or validated processes, calling them “mission critical.” Business examples given here were Hach, IDT, Pall and Phenomenex. Finally, he listed service as a third part of Danaher’s consumables business, with examples being Beckman Coulter Life Sciences as well as SCIEX.

Even for less diversified businesses, consumables are becoming a larger share of revenues. For Bio-Rad Laboratories’ Life Science segment, consumables make up 48% of revenues. And for Tecan, recurring revenue accounts for 42% of sales, with 21% of revenue each from services and spare parts, and consumables and reagents.

New Markets

At the conference, company presentations demonstrated entry into new markets, whether technology or end-user markets, which can be accomplished by targeting established markets as well as participating early on in growth-stage markets. Bio-Rad Laboratories Life Sciences highlighted its successful expansion into cell biology, for which it now offers flow cytometers, cell sorters, cell imagers and counters, reagents, and antibodies. PerkinElmer highlighted its rise in the food testing market, which now accounts for 8% of sales, or over $200 million. Abcam charted its progress in establishing a partnership business with diagnostics and therapeutics companies for creating products such as companion diagnostics and point-of-care solutions. The company has completed 300 projects since the initiative’s launch two years ago, with fiscal 2018 sales of such partnerships increasing 24% to £16.4 million ($22.2 million at £0.74 = $1).

For smaller companies, entry into new markets also means diversification. NanoString Technologies discussed at the conference its move beyond the oncology market into neuroscience. In 2018, non-oncology applications represented about 40% of new system sales. For Quanterix, which has established itself in the neurodegenerative disease market, a new focus is the oncology market, which the Simoa SP-X addresses. The number of oncology research publications using Quanterix systems rose 35.1% last year to 50.

“Normally, we think of these new technologies as gestating for a long time in a research setting before finding other applications.”

Early entry into a small market has been an advantage for Bio-Rad Life Sciences and Bio-Techne. At the conference, Bio-Rad summarized its strength in the digital PCR business which now spans research, applied and clinical markets, such as liquid biopsies. “Normally, we think of these new technologies as gestating for a long time in a research setting before finding other applications, applied applications,” noted Bio-Rad Chairman, President and CEO Norman Schwartz in his presentation. “But, this one, in a few short years, has become a real crossover product, finding applications not only in research and biopharma, but also in diagnostics.” Bio-Techne discussed its investments in serving the emerging cell immune cell therapy market. This business includes participation in different application segments of the patient treatment workflow, from activation of patients’ T-cell ex vivo to monitoring of chemotherapy progress before T-cell reinfusion. Bio-Techne President and CEO Charles Kummeth stated, “We have a lot of positions in this workflow. We’re only really missing a couple and, stay tuned, we’re working on this strategy.”

Company Evolutions

At the conference, a number of lab tools companies also commented on recent organizational changes. For PerkinElmer, these changes have come as the company more closely integrates its Discovery & Analytical Solutions and Clinical Diagnostics businesses. PerkinElmer Chairman and CEO Robert Friel told the audience, “We’re increasingly seeing across our customer base the idea that there is convergence, particularly in the areas of diagnostics, life sciences and food…whether it’s the technology, whether it’s the use of analytics, whether it’s the need for service, whether it’s the need for a digital front end.” Examples of specific areas of synergies he gave are product management and R&D.

Changes in R&D have also been prominent at Waters, according to Waters Chairman and CEO Chris O’Connell’s presentation. “Since I came into the company a little more than three years ago, my number one focus has been to really drive the innovation engine to continue to develop and build upon the great legacy of innovation at Waters,” he stated. “In fact, over that time period, we’ve increased our spending as a percentage of product sales by a full percentage point.” This percentage now stands at 9%.

“We significantly changed the go-to-market strategy [and] improved the ability to translate innovation into commercial success.”

For QIAGEN, one change that has been pronounced at the company was at its Life Science business, which consists of its academic, pharmaceutical and applied end-markets. QIAGEN CEO Peer Schatz told conference attendees, “The Life Sciences, a $750 million revenue piece within QIAGEN, was a little bit under-illuminated in the last few years, and has undergone a considerable transformation in 2018. We significantly changed the go-to-market strategy [and] improved the ability to translate innovation into commercial success,” stating the advantages of the business as giving QIAGEN a foundation in research labs.

Bruker continues to make ongoing changes in many areas, following a restructuring period from 2013 to 2016. “There are things we continue to do in Operational Excellence—site consolidation and taking cost out and restructuring, that’s just part of our business system,” stated Chairman, President and CEO Frank Laukien, PhD. Future site consolidations are planned for BioSpin and Nano divisions as well as the creation of an EU shared services center this year in Warsaw, Poland.