For only the second time in five years, median R&D spending for 22 major publicly held analytical instrument and lab product companies (see table, page 6) climbed at a faster rate than revenues. In 2014, the companies’ median R&D spending advanced 7.3%, while sales grew 5.2%. Consequently, total R&D spending as a percentage of sales expanded 38 basis points to 7.1%. A similar trend was evident in 2012 (see IBO 7/15/12).

Like in 2012, the variance in R&D spending compared to sales growth can be attributed to acquisitions, as well as reduced headcount, product introductions and clinical advancements. For some firms, R&D increases were partially offset by restructuring and cost savings. In total, all but 4 companies elevated R&D spending in 2014, including 10 in double digits.

IBO’s annual survey of R&D expenditures is based on calendar year 2014 results, with the exception of Agilent Technologies (fiscal year ending October 31, 2014) and Oxford Instruments (fiscal year ending March 31). Financial results for European companies are calculated at 2014 constant exchange rates.

Last year’s biggest R&D spenders were Illumina and Thermo Fisher Scientific. In 2014, both companies invested in the development of sequencing technologies for research and clinical applications. For Illumina, R&D spending soared 40.2%, but included $48.8 million in litigation expenses (see IBO 11/15/14) and stock-based compensation, which jumped 35.9% to $50.9 million. Excluding these outlays and other non-GAAP expenses, adjusted R&D costs rose 19.5% to $285.4 million to account for 15.3% of sales.

Over the last four years, Illumina has spent more than one billion dollars in R&D. Its HiSeq X 10 and MiSeq 500 sequencers were both introduced in 2014, and the company has steadily expanded its diagnostics franchise. Other developments included the new NeoPrep automated sample preparation system, target enrichment kits and bioinformatics products to provide a complete workflow. In addition, new funding was shifted to the array business to support the low-cost, high-volume markets. Illumina further leveraged its resources by funding various startups (see IBO 11/15/14).

Following the acquisition of Life Technologies early last year (see IBO 4/15/13), Thermo’s R&D expenses jumped 74.7% to $691.1 million. As a percentage of manufacturing sales, R&D spending expanded 120 basis points to 6.4%. The Life Sciences Solutions segment accounted for 45% of R&D expenditures. Resources were focused on genetic sciences, including the launch of the Ion PGM Dx NGS system for clinical markets as well as DNA kits for oncology. Development was also dedicated to flow cytometry products and cloud computing.

R&D expenses for Thermo’s Analytical Instruments segment, which accounted for 30% of total R&D expenses, were focused on the development of the Vanquish UHPLC, a clinical LC/MS system and expansion of the Orbitrap MS product line. R&D spending in the Specialty Diagnostics, and Laboratory Products and Services accounted for 18% and 7% of total R&D expenditures, respectively. Thermo also expanded its R&D facilities, opening its Innovation Center in China (see IBO 9/15/13) and the Niche Diagnostics Center of Excellence in California (see IBO 12/15/14), which added more than 60 scientists.

Similar to Illumina and Thermo, in 2014, QIAGEN accelerated R&D spending at a significantly faster pace than sales growth, at 12.0% and 3.3%, respectively. While it maintained development of its sequencing sample preparation products and NGS system, as well as companion diagnostics, funding increased significantly for bioinformatics. R&D headcount grew 16.0%. R&D as a percentage of sales climbed 95 basis points to 12.2% of sales.

Waters and Agilent Technologies recorded notable R&D changes due to increased product development. Waters’s MS investments included the Vion IMS Q-TOF MS and full spectrum molecular imaging system, part of the company’s Health Science Initiative. R&D investments in the Initiative also included development of the acquired Rapid Evaporative Ionization MS technology (see IBO 7/31/14). Over the last three years, increases in R&D spending for Waters have outpaced revenue growth, as the company has focused primarily on internal investments instead of sizable acquisitions. R&D expenses climbed 7.2% in 2014, and the number of R&D personnel grew 6.2%.

Agilent continued to invest in LC and LC/MS systems, and diagnostics in 2014. For genomics, it introduced new targeted resequencing kits and NGS cancer research panels. Applied market releases included a new ICP-MS. Despite a slower NMR business in fiscal 2014, Agilent’s R&D spending grew 7.5%. While R&D as a percentage of sales grew 28 basis points to 8.5%, the company expects this trend to decline due to restructuring measures and efficiency improvements.

R&D spending for several of the smaller firms in the table also climbed double digits in 2014. Abcam’s R&D expenditures rose 31.3% due to development of new immunoassay products. The company introduced 6,000 products in the second half of 2014. R&D spending for NanoString Technologies jumped 42.9% as a result of added personnel, development of a next generation nCounter Analysis system and diagnostics investments, including companion diagnostics. R&D headcount grew 53.3% to 69 employees.

Aside from Thermo, acquisitions also contributed to R&D growth for several companies in 2014. Fluidigm recorded the largest R&D percentage change among the companies in the table, climbing 117.6%, primarily due to the purchase of DVS Sciences (see IBO 1/31/14) and release of several new products. Headcount jumped 59.2% to 113. As a percentage of sales, R&D spending jumped 926 basis points to 37.3%. Oxford Instruments’ R&D expenditures climbed 22.7% as a result of the acquisition of Andor Technology (see IBO 12/15/13). Following an aggressive acquisition strategy in 2014, Bio-Techne’s R&D expanded 14.9%. Harvard Bioscience recorded a 17.5% increase in R&D expenses due to acquisitions and higher payroll-related costs.

Despite the acquisition of IBL International (see IBO 7/31/14), Tecan’s R&D spending declined in 2014 for the second consecutive year, falling 13.0%, as the company completed several diagnostic partnering projects and launched its next generation liquid handling platform. R&D headcount declined roughly 6%, and R&D expenses fell 13.0%.

R&D spending also declined last year for Bruker and PerkinElmer due in part to organizational changes. Bruker’s reduction in R&D spending for the last two years was primarily credited to efficiency and management process changes, including the selection of projects with a higher return on capital and in faster growing markets. R&D was also reduced due to downsizing of the former Chemical and Applied Markets, and Nano Surfaces units. R&D headcount fell 5.0%. As a percentage of sales, R&D contracted 73 basis points to 9.6% in 2014.

PerkinElmer’s R&D expenditures fell 8.9% in 2014. As a percentage of sales, R&D declined 71 basis points to 5.4%, the lowest level in 10 years. The company optimized operations and reduced expenditures through R&D consolidation. While PerkinElmer planned on expanding personnel for informatics development, it experienced difficulties in attaining qualified personnel. Nevertheless, the company continued to focus on the faster-growing genetic screening and medical imaging markets.