Higher investments in new product development and increased R&D personnel spending elevated R&D spending in 2011. Total R&D spending in US dollars for 18 major publicly held analytical and life science instrument and lab product companies grew 14.2% to $1.96 billion, compared with 12.1% growth for the same companies in 2010 (see table, page 6). R&D expenses for most companies in the table were elevated due to higher personnel-related expenses, increased material costs, higher investments in emerging markets and dedicated product development. R&D budgets were also closely aligned with 2011 revenue growth, which grew 12.8% for the 18 companies. Three companies lowered R&D spending; the same as in 2010. As a percentage of sales, total R&D spending increased nine basis points to 6.9%. Half the companies in the table recorded higher R&D as a percentage of sales.

IBO’s annual survey of R&D expenditures is based on calendar-year 2011 results, with the exception of Agilent Technologies (fiscal year end October 31, 2011) and Oxford Instruments (fiscal year end March 31) (see page 8). Financial results for European companies are calculated at 2011 constant exchange rates.

In 2011, 15 of the 18 companies in the table increased R&D spending, including 11 with double-digit increases. R&D expenses from the largest firms with annual sales exceeding $1.5 billion expanded 15.0%, and revenues expanded 12.8%. Four of the six largest companies recorded double-digit R&D growth.

The largest nominal increase in R&D spending among the companies in the table was for Agilent Technologies’ Chemical Analysis (CA) and Life Sciences (LS) segments. In fiscal 2011, R&D expenses for the combined segments climbed $56.0 million, or 26.7%. R&D costs for the LS and CA segments rose 22.5% and 35.3% to $174 million and $92 million, respectively, primarily due to acquisitions and the development of new NMR technology.

R&D costs for Thermo expanded 19.6%, or $55.8 million, as R&D personnel reached 1,700 employees. The company expanded its R&D infrastructure in China to focus on regional development of lab consumables products. Thermo’s R&D budget was only 2.9% of sales but 4.7% of manufacturing revenues. As of the second quarter of 2011, R&D costs for the last 12 months for the Analytical Technologies segment, which included Specialty Diagnostics, accounted for $245 million or 83% of total costs.

Bruker’s R&D budget climbed 25.3% in 2011, or $35.8 million, due to acquisitions, increased material costs and significant investments in its Chemical & Applied Markets (CAM) segment. R&D head count grew 8.7% to 1,000 people. CAM was active in the development of inductively coupled plasma–MS spectrometers and GC/MS. Overall, the company introduced 40 new products in 2011.

PerkinElmer’s R&D budget climbed 22.2%, or $21.0 million, following a string of acquisitions. The company devoted R&D resources to the research and diagnostics markets, including sequencing and analysis services.

R&D expenses for Waters grew 9.6%, as the company focused on applications for regulated bioanalysis, biological pharmaceutical development and quality control testing. The number of R&D personnel, which rose 6.3% to 741, further elevated R&D spending.

Rounding off the list of large companies was Life Technologies, which recorded a 0.6% increase in R&D spending to $375.5 million. Despite the marginal increase, Life Technologies sustained the highest level of R&D spending for the third consecutive year among the 18 companies in the table. Roughly one-third of Life Technologies’ R&D budget was dedicated to sequencing. Following the introduction of the Ion PGM system, which sold more than 700 units in 2011, the company began taking orders for the Benchtop Ion Proton sequencer in early 2012. R&D investments were also directed toward qPCR, digital PCR and gene expression. In 2011, 240 products were launched. However, excluding certain accounted adjustments, R&D expenses for Life Technologies would have declined modestly last year. The company reduced its R&D headcount by 4% to 1,200 and lowered its R&D share-based compensation expenses by 33% to $7.0 million. Additional cost measures were implemented, as the company opened an offshore R&D facility in India.

Compared with the largest firms, R&D spending for the table’s six medium-sized firms with annual sales of $250–$1,500 million grew slower. Total R&D spending for these companies grew 11.4%, and sales grew 12.5%.

Oxford Instruments recorded the largest percentage increase in R&D spending among companies in the table. The company’s R&D costs jumped 29.0%, or $9.2 million, due to acquisitions, higher R&D-related compensation expenses and investments in the Superconducting Wire business. The number of R&D personnel climbed 12.5% to 207 employees.

Tecan, FEI and Illumina also each recorded double-digit R&D growth in 2011. Tecan’s R&D costs rose 25.8% as it invested primarily in its liquid handling business. Notwithstanding the negative impact of currency, Tecan’s R&D costs as a percentage of sales increased 238 basis points to 12.5%, which was higher than historical levels of roughly 10% of sales. A similar level of R&D spending is expected for 2013 as liquid handling product development has been slower than expected and will require additional investments.

FEI elevated its R&D budget by 18.2% in 2011 due to increased spending in the Life Sciences and Natural Resources segments. The company’s R&D headcount grew 15.0% to 398 people, partially due to the acquisition of TILL Photonics (see IBO 11/15/11). For 2012, the company anticipates higher R&D spending, with a target of 11% of sales.

Similar to Life Technologies, Illumina focused on R&D for sequencing, diagnostics and qPCR products in 2011. The company introduced the HiSeq 2500 system at the beginning of this year. However, 2011 R&D costs, which climbed 10.7%, were also driven by higher share-based compensation expenses, expanded R&D head count and a $2.9 million increase in raw materials spending. Share-based compensation climbed 26.3% to make up 16% of R&D expenditures.

Affymetrix lowered R&D spending for the third consecutive year due to declining revenues. Affymetrix reorganized its R&D efforts, including a 20% reduction in head count and a focus on higher-growth markets. The company expects to lower R&D expenses by $5 million annually. R&D expenses as a percentage of sales are expected to be lowered to 20% by this year and to 15% in the longer term. Despite a 6.4% decline in R&D spending, the company incurred restructuring costs and increased spending for the Genetic Analysis unit, especially for cytogenetics, genotyping and cancer detection. R&D investment in the Expression business is roughly 10% of sales and is equally split between Panomics and microarrays.

Total R&D expenditures for the six smaller companies, which have annual sales of less than $250 million, rose 16.2% and revenues climbed 15.8%. However, the increase was mainly attributed to two companies, Luminex and Sequenom. Only three of the six smaller companies increased R&D spending by double digits.

Luminex’s R&D budget climbed 24.4% due to investments in diagnostic products, including the acquisition of EraGen Biosciences (see IBO 6/30/11). Sequenom raised R&D spending by 23.4% as a result of increased personnel-related expenses and higher materials costs due to the launch of the MaterniT21 test. The company also recorded a $3 million up-front license agreement expense with the Chinese University of Hong Kong. As a percentage of sales, Sequenom’s R&D budget jumped 433 basis points to 95.8% of sales to lead all companies in the table. SDIX’s R&D budget increased 23.1% due to a research program to determine the value of its genomic antibody technology–produced antibodies. Fluidigm grew R&D expenses by 7.1% because of increased spending on supplies. R&D expenses as a percentage of sales fell 625 basis points to 32.5%.

Analytik Jena and Biotage each recorded lower R&D expenditures. Analytik Jena’s R&D expenses declined 7.5% due to lower-cost developments. Biotage’s R&D budget fell 12.0%, but this was mainly due to currency.

 2009                             2010                           2011

        Company            Sales ($M)   R&D ($M)  %     Sales ($M)    R&D ($M)    %     Sales ($M)     R&D ($M)     %

        Large

 Thermo Fisher Scientific  $9,911.6    $243.8   2.5%   $10,570.2      $284.8    2.7%     $11,725.9      $340.6    2.9%

 Life Technologies         $3,280.3    $337.1   10.3%  $3,588.1       $375.5    10.5%    $3,775.7       $377.9    10.0%

 Agilent Tech.(LS & CA)    $2,063.0    $181.0   8.8%   $2,679.0       $210.0    7.8%     $3,310.0       $266.0     8.0%

 erkinElmer                $1,550.8    $90.5    5.8%   $1,704.3       $94.8     5.6%     $1,921.3       $115.8     6.0%

 Waters                    $1,498.7    $77.2    5.1%   $1,643.4       $84.3     5.1%     $1,851.2       $92.3      5.0%

 Bruker                    $1,114.5    $126.4   11.3%  $1,304.9       $141.4    10.8%    $1,651.7       $177.2    10.7%

 Total Large               $19,418.9   $1,055.9 5.4%   $21,489.9      $1,190.8  5.5%     $24,235.7      $1,369.9   5.7%

 Medium

 Illumina                  $666.3      $140.6   21.1%  $902.7         $177.9    19.7%    $1,055.5       $196.9    18.7%

 FEI                       $577.3      $67.7    11.7%  $634.2         $66.3     10.4%    $826.4         $78.3     9.5%

 Eppendorf                 $601.7      $33.2    5.5%   $672.2         $33.3     4.9%     $663.6         $34.5     5.2%

 Oxford Instruments        $335.7      $24.6    7.3%   $416.3         $31.7     7.6%     $535.4         $41.0     7.6%

 Tecan                     $400.3      $37.9    9.5%   $416.3         $42.0     10.1%    $423.6         $52.8     12.5%

 Affymetrix                $327.1      $77.4    23.7%  $310.7         $67.9     21.9%    $267.5         $63.6     23.8%

 Total Medium              $2,908.4    $381.4   13.1%  $3,352.6       $419.2    12.5%    $3,771.9       $467.1    12.4%

 Small 

 Luminex                   $120.6     $23.5    19.5%   $141.6         $26.8     19.0%    $184.3         $33.4     18.1%

 Analytik Jena (AI & LS)   $97.3      $10.0    10.3%   $107.4         $10.9     10.1%    $112.5         $10.0     8.9%

 Biotage                   $60.7      $5.3     8.7%    $66.1          $6.1      9.2%     $66.0          $5.4      8.1%

 Sequenom                  $37.9      $37.5    98.9%   $47.5          $43.4     91.5%    $55.9          $53.6     95.8%

 Fluidigm                  $25.4      $12.3    48.5%   $33.6          $13.0     38.8%    $42.9          $13.9     32.5%

 SDIX                      $22.3      $2.5     11.4%   $23.6          $3.0      12.9%    $24.2          $3.7      15.4%

 Total Small               $364.2     $91.1    25.0%   $419.7         $103.3    24.6%    $485.9         $120.1     24.7%

 Total                     $22,691.6  $1,528.4 6.7%    $25,262.2      $1,713.2  6.8%     $28,493.5      $1,957.0   6.9%