Q4 2016 Growth Decelerates
Absent any notable budget flushes, calendar year fourth quarter 2016 demand from large publicly held instrument and lab product companies remained healthy, driven by continued strength from biopharmaceutical and food markets, especially in Asia. Sales of analytical systems and related aftermarket products were sturdy, specifically for LC, MS and laboratory automation. However, sales growth from life science–related companies and businesses tapered during the quarter compared to the rest of the year due to diverse factors such as slower European academic funding, increased competition, reduced backlog and fewer selling days.
As such, combined calendar years fourth quarter sales for the 22 companies or business units in the IBO Life Science and Analytical Instrument Indexes (LSA Indexes) grew 3.4% organically year over year, compared to 4.9% in the third quarter and 5.4% in the first nine months. When adjusted for normalized selling days for certain companies, total LSA Indexes sales grew 3.8% organically. For calendar year 2016, LSA Indexes advanced 4.9% organically compared to 5.8% in 2015.
Quarterly estimates were calculated for companies that have not yet reported: Oxford Instruments, Merck KGaA Life Science and Tecan Life Sciences. Further financial reviews of the companies can be found in this issue and in the January 15 issue of IBO. All sales figures below are organic.
Organic growth in biopharmaceutical markets for the LSA Indexes slowed slightly from double digits in the third quarter to roughly 8% in the fourth quarter. Growth was again heavily affected by Thermo Fisher Scientific, for which sales increased roughly 9% based on normalized days due to strength in its Bioproduction and BioPharma Services businesses, as well as solid demand for chromatography and MS products. In addition, Agilent Technologies and Shimadzu Analytical & Measuring Instruments (AMI) reported roughly double-digit biopharmaceutical sales growth.
Alternatively, growth in this market was less robust for a number of companies in the LSA Indexes such as Biotage, Bruker, PerkinElmer and QIAGEN, for which sales grew in the low single digits each. Biopharmaceutical sales for Waters grew 6% but improved less than 3% excluded extra selling days. Consequently, average biopharmaceutical sales growth for the LSA Indexes advanced roughly 5%.
Similar to previous quarter, applied markets for the LSA Indexes grew roughly 4%, driven by regulatory measures in China, especially for food testing. Food sales climbed double digits for Agilent, PerkinElmer and Waters each, and were also healthy for Thermo Fisher. Food testing along with forensics applications also contributed to growth for QIAGEN and Shimadzu AMI.
Environmental sales were mixed, as solid demand for Thermo Fisher and Waters was partially offset by a sharp decline for PerkinElmer and roughly flat growth for Agilent due to slower analytical instrumentation demand.
Sales for clinical research applications showed accelerated growth in applied markets for Illumina, which reported strong microarrays sales. Conversely, Waters and Shimadzu AMI both recorded slower MS demand from healthcare customers in the US.
Academic and Government Markets
Academic and government sales for the LSA Indexes were again flat due to weak European academic funding and constrained spending in the US. A number of companies such as Agilent, Bio-Rad Laboratories, Bruker and QIAGEN, each reported sales declines in the low digits for this market.
In contrast, academic and government funding in Asia remained healthy as did sales in Western Europe for certain companies. PerkinElmer, Waters and Shimadzu AMI all reported academic and government sales growth in the 2%–4% range based on normalized days, while academic revenues grew 1% for Thermo Fisher.
Industrial sales for the LSA Indexes remained challenged in the fourth quarter, down 2%. Sales for this market declined sharply for PerkinElmer and contracted in the low- to mid-single digits for Biotage, Bruker, Spectris and Thermo Fisher. However, a number of companies expressed restrained enthusiasm as orders tracked higher, especially for Thermo Fisher and Waters. Furthermore, companies such as Shimadzu AMI and Agilent reported increased demand from chemical customers, resulting in industrial sales growth of 3% and 1%, respectively. Despite early indications of a possible cyclical recovery in the industrial markets, most companies do not expect a significant growth in 2017.
Geographically, Asia was again a highlight with sales climbing more than 10% for the LSA Indexes, including particular strength in China and India. Agilent, Bruker, PerkinElmer, Shimadzu AMI, Thermo Fisher and Waters each reported more than 10% sales growth in Asia Pacific. Specifically, growth in China was especially robust, as sales for the LSA Indexes advanced in the low teens, driven by demand for biopharmaceutical, environmental and food testing applications. Chinese sales grew more than 20% for both Bruker and Shimadzu, and expanded in the low- to mid-teens for Agilent, PerkinElmer and Waters. Japanese sales for the LSA Indexes expanded in the low single digits, led by regional demand for Shimadzu AMI and HORIBA, as well as 6% growth for Waters. However, Japanese sales for Agilent were roughly flat and declined in the mid-single digits for Bruker.
Sales growth in the Americas and Europe, which increased 1% and 2% for the LSA Indexes, respectively, remained constrained. Compared to the third quarter, sales growth in the Americas slowed modestly, while Europeans sales ticked slightly higher. Most large companies reported low single-digit sales growth in the Americas, with the exception of Bruker and PerkinElmer, for which sales declined 2% each in the region. Furthermore, Shimadzu AMI reported a 3% revenue decline in the Americas.
The European spending environment was mixed, as several companies, specifically QIAGEN, Waters and Thermo Fisher, reported revenue growth in the mid- to upper single-digit range, while sales for this region declined for Bio-Rad, Bruker and Shimadzu. European sales for Agilent improved less than 1% and were flat for PerkinElmer. Waters reported 9% sales growth in Europe, but they were boosted by timing of orders and extra selling days.
Life Science Index Sales
Fourth quarter IBO Life Science Index sales grew at its slowest quarterly pace since 2013, climbing 3.8% organically to $3,922.2 million. However, adjusting for normalized selling days for certain companies, Index sales improved 5.2% for the quarter. The slower sales growth was attributed to revenue declines for Becton, Dickinson’s BD Biosciences and Bio-Rad Laboratories due to strong comparisons. Fluidigm reported a sharp decline in genomics product revenues due to growing competition and slower uptake of new products. Furthermore, Illumina recorded its slowest quarterly growth in over four years because of lower high-throughput instrument demand. Biotage and QIAGEN also reported slower organic growth in the quarter. Thermo Fisher’s Life Science Solutions (LSS) segment grew 5% organically but was hampered by fewer selling days. Based on normalized days, LSS sales rose roughly 9% driven by strong consumables sales for genetic analysis, clinical and food applications. Index adjusted operating margin contracted 130 basis points to 21.7%. Full-year 2016 Life Science Index sales advanced 6.7% organically, compared to 7.6% in 2015.
Analytical Instrument Index Sales
Fourth quarter sales for the IBO Analytical Instrument Index grew 3.0% organically to $4,130.6 million. Demand was again strong for MS, LC and lab automation products from biopharmaceutical and applied markets. Combined LC and MS sales climbed roughly 10% for Shimadzu AMI and improved approximately 6% for Thermo Fisher. However, several companies experienced slower demand for analytical instruments from industrial as well as academic and government customers. In addition, materials characterization sales remained constrained by weak oil and energy markets. Index adjusted operating margin expanded 130 basis points to 22.7%, driven by restructuring activity and cost control measures. Full-year 2016 Analytical Instrument Index sales advanced 3.0% organically, compared to 4.2% in 2015.
Reported IBO Index sales growths exclude acquisitions and are based on constant exchange rates for international companies when converted into US dollars.
IBO Life Science Index businesses: Becton, Dickinson’s (BD Biosciences); Bio-Rad Laboratories (Life Science); Biotage AB; Bio-Techne (Biotechnology, ProteinSimple); Brooks Automation (Life Science Systems Products); Fluidigm (Product); Illumina; Merck (Life Science); NanoString Technologies; Pacific Biosciences (Products, Services); QIAGEN (Life Sciences); Tecan (Life Sciences) and Thermo Fisher Scientific (Life Science Solutions).
IBO Analytical Instrument Index businesses: Agilent Technologies (Life Sciences and Applied Markets, Agilent Crosslab); Bruker (Scientific Instruments); Horiba (Process and Environmental Instruments & Systems, Scientific Instruments & Systems); Oxford Instruments; PerkinElmer (Discovery & Analytical Solutions); Shimadzu (Analytical and Measuring Instruments); Spectris (Materials Analysis); Thermo Fisher Scientific (Analytical Technologies); Waters.