Issue Date: August 17, 2009
Equipping The Science Agenda
Embedded in the $787 billion economic stimulus package that Congress passed this year are billions of dollars to support life sciences, environmental, and energy research. The R&D spending will help advance national agendas to improve health, cut pollution, and find new sources of energy. It also promises big bucks for makers of scientific instruments.
By one measure, the American Recovery & Reinvestment Act (ARRA) directs more than $21.5 billion to shore up President Barack Obama’s science agenda this year and into 2010. The estimate also takes into account educational aid to students and teachers. It comes from three academic interest groups: the Association of American Universities, the Association of Public & Land Grant Universities, and the Science Coalition.
Battelle Memorial Institute, a nonprofit R&D organization, measures the impact of ARRA funds on science research alone at $18.3 billion. About $14.7 billion of that amount is to advance new and existing R&D projects. The remaining $3.6 billion goes specifically to pay for R&D facilities and capital equipment, a category that includes scientific instruments.
“The importance of the stimulus effect on construction and capital expenditures cannot be overstated,” says Marty Grueber, one of the authors of a report on annual global R&D funding and a research leader at Battelle. “At $3.6 billion, the ARRA alone provides an amount equal to approximately 80% of recent years’ federal facilities and equipment budgets.”
And spending on scientific instruments could be even higher than Battelle’s construction and equipment number suggests. Plans for spending stimulus funds released by five big government agencies—the Department of Energy, the National Aeronautics & Space Administration, the National Institutes of Health, the National Institute of Standards & Technology, and the National Science Foundation—describe science-related projects valued at $14.8 billion. That amount includes funding for instruments as well as new building construction, overhead, salaries, and other expenses.
With so much money available to be spent by September 2010, scientists and the toolmakers who supply them are eager to get their share of the windfall.
One way researchers can get it is through NIH’s Challenge Grants, a new program designed to spur research in areas such as genomics, translational science, and regenerative medicine. According to Secretary of Health & Human Services Kathleen Sebelius, NIH has received 20,000 applications for Challenge Grants, its largest grant response ever.
ARRA will make $200 million available for the Challenge Grants program. The influx of funds means that the agency’s Center for Scientific Review will examine about 40,000 applications in the current reviewing round. That’s up from the 16,000 applications the center typically reviews in each of three annual rounds for all NIH programs. The agency expects to award about 400 Challenge Grants at the end of September.
There’s no question that some of the stimulus money will flow toward the instrumentation industry. But right now, the competition for funds set off by the Challenge Grants and other ARRA awards has had an unintended effect on scientific instrument makers. Researchers were so preoccupied with writing grant proposals through April and May this year that they had little time to actually buy equipment. At least through the first half of 2009, “I’d call the stimulus package more of a paralysis package,” says Brad Crutchfield, life sciences group vice president at instrument maker Bio-Rad Laboratories.
Other instrument makers agree. Mark Groudas, vice president of Waters’ Americas operations, reports “a huge influx of requests for quotes from researchers” but no substantial uptick in actual orders from ARRA funds. “Some projects have been delayed as scientists wait to receive stimulus money,” he says. Groudas expects that funds for instrument purchases will begin to show up in sales results for the July through September quarter.
Robert F. Friel, chief executive officer of PerkinElmer, said in a second-quarter earnings conference call last month that his firm experienced “stimulus-related order delays in the academic sector as our academic customers are redirecting their budgets in hopes of obtaining monies for larger instrument purchases.” The firm’s biodiscovery instrumentation business in particular saw a slowdown in orders because of the academic paralysis, he said.
Smaller firms also say they have yet to see stimulus dollars. “Several months ago, we were flooded with government and academic requests for quotes, but we haven’t seen many purchase orders yet,” says Clifford D. Wyatt, executive vice president of Wyatt Technology, a maker of laser light-scattering tools for macromolecular characterization. He is hopeful the family-owned firm will benefit in the months ahead. “We’ll keep doing our rain dance and hope to see some of the stimulus dollars rain down on us,” he says.
Mark Atlas, sales director for the start-up cellular analysis toolmaker Fluxion Biosciences, says he saw a 100% increase in requests for quotes early this year compared with the firm’s normal pace. But he adds that so far Fluxion has received no great influx of orders from stimulus spending, although he expects to see them by the end of this year and into 2010.
Delays in spending the stimulus funds are to be expected given the program’s size and the time needed to review and allocate funds. NIH has so far awarded $1.1 billion of $10.4 billion in stimulus dollars. However, NIH actually spent just $15.5 million by the end of July, according to data at recovery.gov, the Obama Administration website that tracks the flow of ARRA funds.
Similarly, information posted on DOE’s website notes that the agency has so far awarded $9.0 billion of the $38.7 billion it received in ARRA funds, but it has actually spent only about $282 million—just about 0.7% of its total allotment. DOE’s Office of Science, the steward of 10 national laboratories, has awarded $1.1 billion of the $1.6 billion in stimulus dollars it is authorized to use but has so far spent only $22 million.
But as the science funding floodgates open over the next 13 months, billions of dollars will flow to science projects, of which many millions, instrument makers anticipate, will trickle down to them. Just how much will find its way into instrument makers’ coffers is difficult to measure.
The stimulus program “will benefit us in a meaningful way in the range of $100 million to $200 million of revenue over a 12-month period once these funds start to flow,” Thermo Fisher Scientific CEO Marijn E. Dekkers told analysts during the firm’s second-quarter conference call. “We believe that most of the stimulus will start to come in the fourth quarter and then go through 2010,” he added.
Analyzing the potential effect of stimulus spending on Life Technologies’ bottom line, President Bernd Brust said during an earnings conference call that the company recently reviewed its academic and government customer accounts and estimates that the federal government funds between 15 and 20% of its business. Life Technologies was formed in November through the merger of mass spectrometer and genotyping expert Applied Biosystems and lab consumables supplier Invitrogen.
“Our rough estimate as of now indicates that the revenue opportunity provided by the NIH stimulus funding could be well over $100 million over the next 18 months,” Brust said. But he cautioned, “We do not expect the stimulus funds will start to have a material impact on our revenue until the fourth quarter.”
Stacey Desrochers, Bruker Corp.’s president, says she hopes new business coming in from stimulus dollars will make up for business lost because of the poor economy—and then some. The instrument company reported revenues of $483 million for the first six months of 2009, down 12% from the same period a year ago.
During Bruker’s recent earnings conference call, CEO Frank H. Laukien said stimulus dollars “may have a positive impact on 10%-plus of our business.” And special “supplementary budgets” in Japan, China, Germany, and France will add another 10% to Bruker’s business, he said. “So we believe that all global stimulus funding could have a positive effect on something like 20% or more of our revenue.”
Bruker has already received orders funded with stimulus dollars, according to the company. Earlier this month, the Boston University School of Medicine purchased a Fourier transform mass spectrometer from Bruker for glycomics and proteomics applications. The school used a shared instrumentation award from NIH to make the purchase.
Stimulus-generated orders have also come in from outside the U.S. Earlier this year, the Japanese National Police Agency ordered 51 Bruker mass spectrometers. To be used in forensic analysis, the spectrometers cost more than $12 million in all. And in July, the Helmholtz Center for Materials & Energy, a Berlin-based research institute, ordered a $2.2 million 263-GHz electron paramagnetic resonance spectrometer to advance solar energy and photovoltaic research with stimulus funds from the German government.
Many other instrument makers have no stimulus-related orders and can’t yet estimate the potential impact of the stimulus on their business. But, like cell-assay firm Fluxion, they remain hopeful. Fluxion sales director Atlas figures that 70–80% of his business is from academics in the life sciences, prime recipients of stimulus spending.
Alla Zilberman, marketing and sales director for Semba Biosciences, a Madison, Wis.-based start-up, says her firm launched its bench-scale simulated moving-bed chromatography instrument at the Pittcon scientific instrument show in March, too late to get much benefit before the first application deadlines in June. But she hopes the firm will catch a second wave of applications due soon at DOE, where researchers can use the instrument for biofuels research.
Isaac Ro, senior analyst at the investment banking firm Leerink Swann, says it is hard to measure the impact that stimulus spending will have on scientific instrument makers and the conduct of science. But many investors are betting that the federal stimulus dollars will benefit instrument makers.
Life sciences instrument makers’ stocks are up about 20% this year, even though sales and earnings results to date are less than stellar, Ro says. Will the stimulus dollars offset instrument makers’ economic woes? Ro says they will certainly help. A lot of stimulus money is quickly coming into the relatively small scientific instrument industry.
According to a recent Leerink Swann survey of 100 university lab managers with purchasing authority, interest in purchases of high-end capital equipment is on the rise. Ro chalks up that interest to the availability of stimulus funds specifically earmarked for expensive instrumentation. The survey, he says, noted heavy interest in mass spectrometers among lab managers, which could benefit a firm like Thermo Fisher, and in next-generation DNA sequencers, which could benefit Life Technologies.
To capitalize on researchers’ interest in new equipment, a number of firms have instituted marketing programs specifically aimed at those with stimulus dollars to spend. Companies such as Waters, Thermo Fisher, Illumina, and Sequenom have posted Web pages touting programs for taking advantage of government largess. Waters’ website even offers discounts to those paying for their purchases with federal dollars: “If you are purchasing your system using funds awarded through the American Recovery & Reinvestment Act, Waters will reduce your purchase price from $5,000 to $25,000 or more, depending on the system configuration.”
“We’ve offered a stimulus package of our own,” Waters’ Groudas says. About one-quarter of the firm’s $1.6 billion in annual revenues is tied to academia and the federal government, he points out. “We want to be competitive and help customers stretch their buck with an incremental discount.”
Thermo Fisher’s website offers “stimulus promotions” that “help stretch your budgets” for scientific instruments, lab equipment and consumables, and custom recombinant protein antibodies. Gregory J. Herrema, president of analytical instruments at Thermo Fisher, says the Web page is only one part of an effort to “maximize opportunities” offered by the impending flood of federal dollars.
Earlier this year, Thermo Fisher made its commercial organization aware of the stimulus package opportunities and has continued to track developments along the way, Herrema says. The website also offers customers help with writing grants.
Stimulus spending outside the U.S. has benefitted Thermo Fisher, Herrema says. Government labs in China have beefed up purchases of analytical instruments focused on food and food ingredient safety. European customers have used stimulus funds to buy instruments to advance alternative energy and biofuel agendas.
“We’ve actively worked with prospective customers by pointing them to our website tools to help craft grants,” says Mike McMullen, an Agilent vice president. Agilent is also poised to benefit from the interest in life sciences spending as it completes its recently announced acquisition of bioanalytics instrumentation specialist Varian (C&EN, Aug. 3, page 7).
Other customers are writing proposals for stimulus grants in areas such as biofuels and environmental research, McMullen notes. Customers are focusing on “fairly expensive” gas and liquid chromatography/mass spectrometry systems. He acknowledges fierce competition among instrument makers to attract stimulus spending. But unlike Waters, Agilent is not offering any discounts. “We are already competitively priced. Our approach highlights the equipment that can support our customers’ needs,” he says.
Shimadzu is not making a special Web-based pitch for stimulus cash, but the firm’s “Grow your lab” Web page offers information on discounts available to researchers regardless of funding source. Shimadzu is mining information that government agencies are posting about grant proposals to find out what customers are interested in researching. Scott Kuzdzal, biotechnology products marketing manager, says he’s noticed a high level of interest in proteomics and metabolomics, which will influence the development of the latest scientific gadgets.
PerkinElmer is also mining the application data for market intelligence, says Mary Duseau, vice president of PerkinElmer’s biodiscovery business. She’s noticing a lot of interest in stem cells and in imaging systems to study disease areas such as cancer and Alzheimer’s. The firm is positioning its cellular imaging and analysis systems to take advantage of those research interests.
Looking further ahead, many instrument makers wonder how they will sustain sales momentum when the stimulus cash is gone after 2010. Agilent’s McMullen says he hopes the stimulus spending is incremental and not just a replacement for state funding or corporate purchases.
“The practical side of me says it may not turn out that way,” McMullen says. State budget crunches, such as those in California and New York, are likely to limit those funding sources. But on the bright side, he adds, the stimulus spending may help bring about advances that will stimulate economic growth and revive corporate research expenditures.
Gregory T. Lucier, Life Technologies’ CEO, would like to see current federal research spending levels maintained. In a call with investors, he said his firm is talking to legislators in Washington, D.C., about sustaining NIH funding levels into 2011.
“The stimulus spending is a transitory event,” Bio-Rad’s Crutchfield says. “We welcome it for our customers; it will help them achieve what they want.” But for Bio-Rad and other instrument makers, the stimulus spending has only “a short-term upside.” For the long term, he wonders where the funding to support academic and government scientists will come from once the stimulus money is gone.
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