Issue Date: March 28, 2005
BRUKER COMPANIES GO THEIR OWN WAYS
The apples haven't fallen far from the tree. In 1960, physics professor Günther Laukien joined with colleagues to create Bruker Physik AG in Karlsruhe, Germany, and to capitalize on the emerging field of magnetic resonance. Laukien ultimately controlled the company, which grew to include other instrumentation areas, and after his death in 1997, his sons took over running the four major Bruker businesses. The companies still share a name and a family group of majority shareholders, but today they have distinct technology focuses and entrepreneurial outlooks.
Despite historical roots and opportunities for synergies today, the companies are "separate and parallel," Frank Laukien explains, without a common board or management. Bruker BioSpin and Bruker Optics also remain privately held, whereas the Daltonics and AXS businesses became separate publicly traded companies in 2000 and 2001, respectively. They were combined later to simplify the corporate structure and reduce operating expenses.
That merger to form Bruker BioSciences created a midsized public player that competes with companies such as Applied Biosystems; Waters; Thermo Electron; Agilent Technologies; and, in the X-ray market, Rigaku/MSC and PANalytical. Although AXS and Daltonics are under a common roof, Laukien emphasizes that the operating units "very much keep their entrepreneurial spirits, competing with their own marketing initiatives, new technology, and new business development."
Bruker BioSciences announced productivity initiatives late last year, targeting a combined $9 million in cost savings. They involved reorganizing production, R&D, sales, and administrative functions for greater cost efficiency and improved profitability. Manufacturing was consolidated from eight sites to six. In the first phase, about 60 jobs were cut through attrition, early retirements, and layoffs, while U.S. senior management took voluntary temporary pay cuts of 10 to 15% and Laukien took one of 20%.
REVENUE GROWTH has been strong, and the goal is to bring down costs gradually and improve margins. "Our financial plan is to reach 'industry-standard profitability' within the next three years," Laukien says, achieving operating margins--operating income as a percentage of revenues--of about 10%. Bruker BioSciences' revenues grew 9% to $285 million in 2004, with Daltonics contributing $153 million and AXS, $132 million. Positive factors were the realization of sales that had been delayed on the Daltonics side and strong demand for AXS products. The company expects to report a net loss, however, of $6 million to $8 million, but still an improvement from a loss of $17.6 million in 2003.
Revenues exceeded analyst expectations, due in part to currency translation effects. "Top-line results were better and reflected solid demand," wrote Derik De Bruin, an analyst with UBS Investment Research, earlier this month. "However, we still await evidence that recent cost-savings efforts will lead to improved profitability," he cautioned, in agreement with other analysts who follow the company.
Bookings for new instrument orders were up more than 10% last year, Laukien says, "which continues to show us that our end-user markets are healthy and our products and product lines continue to be competitive." Bruker therefore is anticipating revenue growth of 10 to 12% and an operating margin of 3 to 5% in 2005. First-quarter net income is expected to be near breakeven.
Because the company sells capital equipment that is subject to customer acceptance, results can fluctuate. "We believe the combination of our strong backlog and our numerous new product introductions will continue the recent momentum and drive double-digit top-line growth in 2005, while we continue to focus on significantly improving our profitability and cash flow," Chief Financial Officer William J. Knight told analysts and investors in a recent conference call.
Roughly 37% of Bruker BioSciences' revenues come from life sciences MS systems; 34%, from X-ray systems; 24%, from aftermarket sales; and 5%, from nuclear, biological, and chemical (NBC) detection units across a global customer base. Bioanalytical instrumentation markets, while still growing 8 to 12% per year, have cooled off from the explosive growth rates of 30 to 40% seen a few years ago. Meanwhile, the materials science and NBC markets have picked up.
"We've put a lot of our business development, R&D, and new product development into the life sciences without neglecting the materials science or elemental analysis altogether," Laukien says. "That emphasis has actually worked very nicely because in each of our markets we have been growing faster than the market and gaining market share."
At the recent Pittsburgh Conference (see page 39), Bruker AXS launched a new X-ray detection technology, called the Vantec-2000, and, working with Discovery Partners, a benchtop version of the Crystal Farm high-throughput protein crystallization system. AXS also debuted a new high-intensity X-ray source, called Microstar-H, for laboratory protein crystallography.
Bruker AXS is the newest company to use the Bruker name; the business was acquired from Siemens in 1997. In 2004, revenues for AXS grew 16%, with increases across all product lines, and it ranks second after Rigaku/MSC in the X-ray crystallography market. Industrial applications, including X-ray diffraction for advanced materials and nanotechnology, have been experiencing double-digit growth. Life sciences markets have grown more slowly, Laukein says, "but look very promising right now."
"The purse strings have been loosened a little bit, and pharmaceutical and large biotech companies are spending more," he continues. But they are spending quite selectively and "paying a lot more attention to whether new platforms or technologies really have value and provide them with more information and knowledge for their drug discovery or development processes."
Life sciences also make up about 71% of Bruker Daltonics' sales, with another 9% in substance detection systems and the remainder in aftermarket sales. Revenues increased just 4% in 2004 but picked up in the fourth quarter. Daltonics launched four new MS systems and two source technologies at Pittcon, including the MicrOTOF-Q benchtop quadrupole time-of-flight MS; the Microflex LT benchtop MALDI-TOF MS for routine protein analysis and clinical proteomics; the HCTUltra, a high-capacity ion trap MS system; and the Apollo II electrospray ionization source for improved sensitivity in proteomics and metabolomics.
Bruker Daltonics has grown since 1980 from an internal development program in Fourier transform (FT) ion cyclotron resonance MS and a small quadrupole MS acquisition to become the fourth largest MS company in an overall market growing about 7 to 8% per year. "Customers are looking for information-rich technologies and integrated systems," Laukien says. These trends favor Bruker's overall product mix, which offers detailed structural and functional information via MS, X-ray, and nuclear magnetic resonance (NMR) methods, coupled with complementary technologies, such as chromatography, from partners.
Bruker Optics, meanwhile, serves markets ranging from life sciences to forensics to process control. The company began as a small division of the original Bruker company in 1974 and was among the first to offer research FTIR systems. Its product line has expanded to include FTIR and Raman instruments for both analytical and research applications and ranks, Laukien says, about second in this market space.
Bruker BioSpin, Laukien says, is the technology and market leader in NMR and electron paramagnetic resonance (EPR) technologies. The progenitor company commercialized the first pulsed NMR spectrometer in 1963; the first multinuclear high-resolution instrument in 1967; and, in 1969, the first FTNMR system, despite Nobel Laureate Richard R. Ernst's pioneering of the technique at Varian. BioSpin competes primarily with Varian and JEOL, a Japanese instrumentation company. In 1992, BioSpin acquired GE's research NMR business, one of its three prime competitors at the time.
THE COMPANY has seen "healthy growth in the past five or six years," according to Laukien, with interest growing in NMR for structural biology work and in research magnetic resonance imaging systems for animal studies. Bruker BioSpin recently launched its Avance II NMR spectrometer and expanded its line of NMR probes. At the University of Illinois, Chicago, the company also installed the first actively shielded 900-MHz NMR magnet.
UBS's De Bruin believes that Bruker BioSciences' combination of mass spectrometry and X-ray crystallography gives it unique cross-selling opportunities and helps position it to become a "one-stop shop" for proteomics applications. "Bruker is making great strides in becoming a niche player in the biomarker discovery and clinical proteomics markets." But competition from well-established and sizable competitors in the MS market is fierce, he warns.
"We continue to seek performance leadership and price performance leadership," Laukien recently told analysts and investors. He added that he was proud that the companies' employees have met the challenge of "doing more with less" under the productivity initiatives. This has included beginning to balance the need to develop new products with cost-cutting goals.
R&D SPENDING as a percentage of revenues will gradually decline, perhaps to about 11 to 12% by 2007, Laukien tells C&EN, but will probably remain above the industry average. Larger competitors, such as Thermo and Waters, keep R&D spending near 6% of sales, whereas Bruker BioSciences spent about 15.5% in 2004. "We want to primarily drive our growth, market share gains, and access to new markets through internal innovation as opposed to acquisitions," Laukien explains, "and to do that you need a strong product innovation and R&D engine."
Laukien, 45, comes from a research background, with a B.S. degree in physics from Massachusetts Institute of Technology and a Ph.D. in chemical physics from Harvard University. He is a part-time professor at the University of Amsterdam's Swammerdam Institute for Life Sciences. During his graduate studies, he worked in mass spectrometry. Harkening back to his undergraduate thesis topic, he began an R&D project at Bruker in 1992 focused on developing cryogenically cooled NMR probes, or cryoprobes.
R&D efforts across the Bruker companies include applied physics or fundamental research into areas such as magnet technology, ion sources, and analyzers. There is also engineering and electronics work, and a great deal of software development. At the same time, applications-oriented R&D addresses market needs by integrating hardware capabilities, consumables development, and software and analysis.
Instrumentation R&D today "is quite different than 10 years ago when it was primarily creating hardware and some software to run it," Laukien notes.
"We probably spend a little bit more on long-term technological R&D and real innovation as opposed to regurgitating the next generation of something that exists," he continues. "Obviously, we work to keep our product lines young and to steadily improve them, but you have to have compelling new products to open up new markets."
The invention of cryoprobes was, for example, "a vision we developed internally," Laukien explains. "There was no demand for it, no customer collaboration, and it took four or five years until the first product came out." Since then, cryoprobes have offered the single largest increase in NMR sensitivity in the past few decades. Other times, the companies will work with or even license ideas from key customers.
"But on some things you have to internally place some bets," Laukien adds. "Some things you don't get out of market research, and some things customers are not yet asking for because it never occurred to them to ask. You need to bring out new technologies and try to leapfrog yourself or the rest of the market technologically every once in a while."
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