In 2009, the world economic downturn exposed a fragile and unregulated global financial system. Virtually every economy was impacted by the collapse of the financial system, as the Morgan Stanley Capital International (MSCI) All-Country World Index fell 24.1% during the first quarter of 2009. However, a concerted effort by international governments to support the credit markets helped stabilize most economies. The MSCI All-Country World Index ended the year up 31.5%, benefiting from quick recoveries in emerging markets and China, as the MSCI Emerging Markets and Shanghai Composite Indexes gained 74.5% and 80.0%, respectively. As expected, all four IBO Stock Indexes reported significant gains, along with the rest of the world’s markets.

Following a challenging year in 2008, all four IBO Stock Indexes posted considerable gains in 2009. The Process/Metrology/Motion Instrumentation Stock Index gained 52.4% to lead all IBO Stock Indexes. The Laboratory Instrumentation, Diversified Instrumentation and Lab Consumables/Equipment Stock Indexes were not far behind.

The Process/Metrology/Motion Instrumentation Stock Index ended the year at 368.54. The Index holds Nanometrics and Veeco Instruments, two of the top five gainers for the year among the IBO Stock Indexes. Seven of the eight Index companies gained ground, while Zygo slipped 3%.

The Laboratory Instrumentation Stock Index finished the year up 45.0% at 565.94. Eighteen of the 22 companies were in positive territory, led by Starlims, Bruker and Helicos Biosciences, which were three of the top five gainers among the IBO Stock Indexes. Caliper Life Sciences also climbed in triple digits, gaining 162%. However, four Index companies were among the top five losers for the year among the IBO Stock Indexes.

The Diversified Instrumentation Stock Index rose 44.3% in 2009 to end the year at 101.70. Five of the six companies improved, with Agilent gaining the most ground, rising 99%. Teledyne Technologies fell 14%, making it the fourth largest decliner for the year among the IBO Stock Indexes.

The Lab Consumables/Equipment Stock Index ended 2009 at 501.18, up 37.6%. All eight companies advanced, led by Life Technologies, which improved 124%.

The only changes to the Stock Indexes in 2009 were the additions of Enzo Biochem and Helicos Biosciences, while CombiMatrix was removed. Among European companies, Scientific Digital Imaging was added, while Millbrook Scientific Instruments was removed (see IBO 11/30/09).

US Stock Indexes

This year was one of two extremes. In the first quarter, the global recession and financial meltdown led the major US stock markets to multi-year lows. As of March 9, the Dow Jones Industrial Average, S&P 500 and NASDAQ had fallen 25.4%, 19.6% and 25.1%, respectively. However, in the following three quarters, the equity markets experienced a dazzling recovery, sparked by government stimulus programs, better-than-expected earnings and a declining dollar. Following the March lows, the Dow, S&P 500 and NASDAQ soared 59.3%, 64.8% and 78.9% to end the year up 18.8%, 23.5% and 43.9%, respectively. Despite improving economic indicators, the market recovery was a jobless recovery. As such, in 2010, markets will face many of the same concerns, including instability in the housing and credit markets.

Gainers and Losers

This year’s list of the top five gainers and losers are chosen from the 44 companies in the four IBO Stock Indexes. After sharp declines in the previous year, a number of companies recorded significant gains in 2009. In fact, the top five gainers all recorded triple-digits returns. Meanwhile, only six companies in the Indexes traded in negative territory. Given the more volatile nature of smaller companies, the list of top five gainers and losers were all small cap companies (with a market capitalization between $300 million and $2 billion) or micro-caps (with a market capitalization between $50 million and $300 million).

Last year’s worst-performing stock, Nanometrics (see IBO 12/31/08), recorded the largest gain in 2009, climbing 894%. The second largest gainer was Veeco, which improved 421%. Both Nanometrics and Veeco benefited from diversification beyond their semiconductor businesses, as they both increased sales related to light emitting diodes and, respectively, to data storage and solar process equipment. In addition, both posted stronger-than-expected third-quarter EPS and robust sequential revenue growth.

Starlims, the third-highest gainer for the year, jumped 219%, primarily due to its planned acquisition by Abbott (see IBO 12/15/09). Bruker and Helicos Biosciences climbed 199% and 164%, respectively, following positive sales news and higher growth forecasts. Bruker consistently met or exceeded EPS expectations, while Helicos increased its revenue outlook and narrowed its adjusted EPS loss (see IBO 9/15/09). Helicos was also boosted by acquisition rumors.

Ironically, Sequenom, which was last year’s biggest gainer, recorded the largest decline this year, tumbling 79%. The company reported that its genetic test for Down syndrome was unreliable, triggering inquiries by the US Attorney’s Office, the SEC, and the FBI (see IBO 10/15/09), and reported slower sales growth. Luminex, another top five gainer last year, declined 30% in 2009. The decline was primarily related to its third-quarter operating loss and the lowering of its full-year revenue guidance (see IBO 11/15/09). The company’s high valuation resulted in a sharp sell off.

OI Corporation and Teledyne Technologies fell 17% and 14%, respectively, as revenues were negatively affected by lower capital expenditures by industrial markets. Rounding off the list of the top five decliners was Symyx Technologies, which slipped 7% due to slow demand for its High Productivity Research business (see IBO 10/31/09).

Three-Year Average Growth

Given the extreme market volatility over the last year and a half, a three-year average return can provide a more accurate measure of stock performance. Both Bruker and Veeco, which were among this year’s top five gainers, were also among the top five gainers over a three-year period, returning average growth of 25% and 20%, respectively. Life Technologies (formerly Invitrogen), Illumina and Kewaunee Scientific gained an average of 24%, 22% and 19%, respectively, during the same period due to consistently strong revenue and earnings growth.

Symyx was the only company among 2009’s list of top five worst-performing companies to also make the list of the largest decliners using a three-year average. Symyx declined by an average 25% over a three-year period. The other four firms to make the list of top five largest decliners over a three-year period were X-Rite, Affymetrix, RAE Systems and Strategic Diagnostics, which declined by averages of 27%, 25%, 22% and 21%, respectively.

Largest Companies’ Performance

This year, the five largest IBO stocks by market capitalization recorded strong returns. Listed in order of size, these companies were Danaher, Thermo Fisher Scientific, Agilent Technologies, Life Technologies and Sigma-Aldrich. The only new addition this year is Life Technologies, which replaced Roper Industries. The five companies gained an average of 63% in 2009.

Among this list, Life Technologies recorded the largest percentage gain, climbing 124%. The company consistently exceeded earnings expectations, following the successful acquisition of Applied Biosystems (see IBO 11/30/08), which helped boost the company’s market cap 137% to $9.6 billion. Agilent experienced a significant return in 2009, climbing 99%, following a 57% decline in 2008. The company’s market cap nearly doubled this year to $10.9 billion.

Despite the nearly triple-digit gains for Life Technologies and Agilent, Danaher clearly maintained its status quo as the largest market cap firm in the Indexes, with a value of $25.3 billion. The company climbed 33% in 2009 after declining 35% in 2008 due to significant exposure to industrial and consumer markets. Thermo Fisher, which lost 41% of its value in 2008, rebounded in 2009 to end the year up 40% with a market cap of $20.0 billion. Finally, Sigma-Aldrich, which sustained the smallest decline in 2008 among the five largest companies, grew a respectable 20% in 2009 to reach a market cap of $6.3 billion.

International

International stock markets recorded robust gains in 2009. In Asia, Singapore’s Straits Times Index jumped 64.5%, while Japan’s Nikkei 225 Index rose 19.0%. In Europe, Germany’s DAX climbed 23.8%, France’s CAC Index 40 gained 22.3%, Britain’s FTSE100 grew 22.1% and Sweden’s OMX 30 Index soared 43.7%. Outside the EU, Switzerland’s SMI Index improved 23.7.8%. Likewise, most international stocks in IBO’s stock table rebounded in 2009 to recover from their low prices in 2008. Sixteen of the 19 international companies in the table climbed by double digits and one rose by triple digits.

For the year, all Pacific Rim companies jumped by double digits, led by Horiba, which gained 82%. Despite a sharp recovery, the company remained nearly 40% below its high in 2008.

In 2009, 12 European companies in the IBO stock table traded higher, while two companies declined. Tecan led all European firms, climbing 100%, but experienced sharp fluctuations due to low trading volume. Analytik Jena and Genetix also returned strong results, climbing 74% and 67%, respectively. Analytik Jena recorded strong revenue growth, while Genetix is set to be acquired for nearly a 35% premium (see page 2). Exiqon declined 66% for the year due to declining sales and profits. Alpha MOS, the only other decliner, was down 4%.

Four international companies showed average gains over a three-year period. Genetix, Analytik Jena, Techcomp and Tecan rose by an average of 17%, 13%, 3% and 1%, respectively, over three years. Cybio and Robotic Technology Systems lost the most value on average over three years, with each reporting a negative average return of 26%. The remaining international firms making up the top five decliners over a three-year average were Sartorius, JEOL and Horiba, which were down by an average of 20%, 18% and 16%, respectively.

December

Once again, in December, US equity markets fluctuated to new yearly highs, spurred by better-than-expected consumer confidence, manufacturing and unemployment reports. On December 4, the Labor Department announced that the US unemployment rate shrank from 10.2% in October to 10% in November, despite a net loss in jobs. The growing optimism by economists resulted in a strong jump in the US dollar, leading commodities and equities lower on the final trading day of the year. Even with the abrupt sell off, the Dow improved 0.8% in December and finished the year up 18.8% at 10,428.05. The S&P 500 climbed 1.8% for the final month of the year and ended higher by 23.5% at 1,115.10. Finally, the NASDAQ rose 5.8% during the month and closed the year up 43.9% at 2,269.15.

All four IBO Stock Indexes traded higher in December. The Process/Metrology/Motion Instrumentation Stock Index recorded the largest gain, climbing 13.3%, while the Diversified Instrumentation, Laboratory Instrumentation and Lab Consumables/Equipment Stock Indexes improved 6.1%, 3.2% and 2.8%, respectively.

Laboratory Instrumentation Stock Index

In December, the Laboratory Instrumentation Stock Index climbed 3.2%. Eighteen companies traded higher, three companies declined and Harvard Bioscience was flat. Starlims led the Index, soaring 52%, while Helicos fell 32%.

Thomas Weisel Partners boosted its revenue and EPS estimates for Waters on December 8 due to stabilizing instrument demand, yet shares traded down 1.2%. On December 9, Symyx Technologies announced a collaborative partnership with the Royal Society of Chemistry to enhance access of public scientific databases. Shares climbed 5.7%. On the same day, Macquarie Research noted to clients that Affymetrix could be an attractive acquisition target based on valuation, leading shares up 13.5%. On December 14, Caliper sold Xenogen Biosciences to Taconic (see IBO 12/15/09), leading shares up 10.3%. On the same day, Abbott announced its offer to acquire Starlims Technologies for $14 a share. Starlims jumped 46.2% the following day. On December 15, Helicos Biosciences priced its registered direct offering of 6.4 million units at a $1 a unit. Shares fell 30.7% the following day. Thermo Fisher announced an aggregate cash tender offer of $586.6 million on December 17 for its convertible senior notes that are due in 2023. Shares traded marginally lower the following day. On the same day, Beckman Coulter reaffirmed its 2009 earnings outlook and forecasted 2010 EPS of $4.40–$4.55, which was 1.9% below analysts’ expectations. Shares declined 2.2% the following day. Affymetrix announced on December 21 FDA emergency approval for the RM-Flu swine flu test, which is based on its array technology. Shares climbed 4.0%.

On December 9, Auriga USA upgraded Sequenom to “Hold” from “Sell.” On December 15, JMP Securities downgraded Starlims to “Market Perform” from “Market Outperform,” while Oppenheimer downgraded shares to “Neutral” from “Buy.” On December 18, Maxim Group initiated coverage of Bio-Rad Laboratories with a “Buy” rating.

Process/Metrology/Motion Instrumentation Stock Index

The Process/Metrology/Motion Instrumentation Stock Index soared 13.3% in December. For the month, six companies improved, FEI Company declined 4% and Strategic Diagnostics was unchanged. ICx Technologies led all advancers, improving 90%.

On December 1, Veeco introduced two AFM scan modes and a scanning probe microscope, leading shares up 3.1% the following day. On December 10, UBS initiated coverage of Veeco with a “Buy” rating. On December 17, Nanometrics priced its offering of 675,000 shares at $11 a share, leading shares down 13.1%. Following the attempted US terrorist attack on Christmas day, ICx Technologies jumped 91.2% over the final four trading days of the year.

Laboratory Consumables/Equipment Stock Index

The Laboratory Consumables/Equipment Stock Index improved 2.8% in December with seven companies in positive territory and Sigma-Aldrich down 5%. Pall led the Index, climbing 14%.

Kewaunee Scientific reported fiscal second-quarter EPS of $0.53 on December 3, compared to $0.57 a year ago, due to increased pension expenses. However, the company reported record backlog orders, leading shares up 10.2%. On December 9, Pall announced fiscal first-quarter EPS of $0.40, in line with expectations, and forecasted 2010 EPS of $2.02–$2.19. Shares climbed 8.6% the following day. Pall affirmed its 2010 EPS forecast of $2.02–$2.19 on December 17, leading shares up 3.1%. On December 10, Enzo Biochem reported a fiscal first-quarter loss of $0.05, which was $0.05 narrower than expectations. Shares rose 1.9% the following day. On December 11, NASDAQ announced the addition of QIAGEN to the NASDAQ-100 Index, effective December 21.

Diversified Instrumentation Stock Index

The Diversified Instrumentation Stock Index climbed 6.1% for the month, with all six companies improving, led by Teledyne Technologies, which was up 14%.

Roper Industries completed the acquisition of medical device company Verathon on December 4, leading shares down 1.5%. The company announced a stock offering of 2.3 million shares at $53.15 a share on December 22 to help pay off debt from the acquisition. Shares declined 2.6%. On December 16, Danaher was announced as a new addition to the S&P 500 Index, leading shares up 3.3%. Also on December 16, after the market close, the company raised its fourth-quarter EPS by 3% to $1.05–$1.10 and increased its full-year EPS by 1% to $3.46–$3.51. Shares climbed 2.2% the following day.

International Shares

Three Pacific Rim companies traded higher in December, and two declined. Hitachi High-Technologies recorded the largest gain, rising 31%, while Techcomp slipped 3%.

This month, eight European companies were in positive territory, five declined and Alpha MOS was unchanged. Genetix led all gainers, improving 38%, while Exiqon lost 24%. On December 14, Cybio jumped 17.0% following the private placement of 1.8 million shares to Analytik Jena, which raised €1.8 million ($2.6 million). On December 18, Genetix announced its acquisition by Danaher (see page 2), leading shares up 29.6%.

Chart: IBO Stock Indexes’ Top Five Gainers and Losers of 2009

Nanometrics 894%

Veeco Instruments 421%

Starlims 219%

Bruker 199%

Helicos Biosciences 164%

Symyx Technologies -7%

Teledyne Technologies -14%

O.I. Corp -17%

Luminex -30%

Sequenom -79%

Chart: IBO Stock Indexes’ 2009 Annual Changes

DJIA 18.8%

S&P 500 23.5%

Lab Equip./Consumables 37.6%

NASDAQ 43.9%

Diversified Instrumentation 44.3%

Lab Instrumentation 45.0%

Process/Metrology/Motion 52.4%

Chart: IBO Instrument Industry Stock Index

Lab Instrument Stock Index S&P 500

Dec-07 656.46 352.05

Jan-08 583.13 330.52

Feb-08 607.77 319.03

Mar-08 600.29 317.13

Apr-08 600.29 332.20

May-08 622.99 335.75

Jun-08 602.24 306.89

Jul-08 639.07 303.86

Aug-08 643.46 307.57

Sep-08 590.45 279.64

Oct-08 456.82 232.26

Nov-08 416.63 214.88

Dec-08 390.29 216.56

Jan-09 397.41 198.01

Feb-09 376.99 176.24

Mar-09 393.81 191.29

Apr-09 428.75 209.26

May-09 446.23 220.37

Jun-09 479.85 220.41

Jul-09 522.15 236.75

Aug-09 528.47 244.70

Sep-09 543.19 253.44

Oct-09 535.42 248.43

Nov-09 548.41 262.68

Dec-09 565.94 267.35

Chart: Lab Instrumentation Stock Index’s Top Five Gainers and Losers Three-Year Avg. Growth

Bruker 20%

Illumina 19%

Transgenomic 18%

Cepheid 16%

Dionex 10%

Harvard Bioscience -10%

Caliper Life Sciences -19%

Symyx Technologies -25%

Affymetrix -25%

X-Rite -27%

Chart: Int’l Stocks’ Top Five Gainers and Losers, Three-Year Avg. Growth

Genetix 17%

Analytik Jena AG 13%

Techcomp 3%

Tecan 1%

Spectris -2%

Horiba -16%

JEOL -18%

Sartorius AG -20%

Robotic Tech. Systems -26%

Cybio AG -26%