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Top Instrument Firms

The big companies in C&EN’s ranking continued to get bigger in 2013 as they sought dominant positions in the analytical and lab instruments market

by Ann M. Thayer
April 28, 2014 | A version of this story appeared in Volume 92, Issue 17

Photo of Dave Sarraceno of Thermo Fisher Scientific’s Biomarkers Research Initiatives in Mass Spectrometry Center (BRIMS) in Cambridge, MA, adjusting a nanospray flex ion source on the Orbitrap Fusion Tribrid Mass Spectrometer.
Credit: Thermo Fisher Scientific
A scientist at Thermo Fisher’s Biomarkers Research Initiatives in Mass Spectrometry Center adjusts a Nanospray Flex ion source on the Orbitrap Fusion Tribrid MS.

Leading instrumentation companies believe bigger is better. Through a mix of acquisitions and internal growth, the top analytical and laboratory instrument makers have been growing into billion-dollar behemoths. Industry consolidation is creating a top-heavy lineup of companies.

Size can present challenges to speed and agility. Major instrument suppliers are bullish, however, about their ability to perform, especially as the instrumentation market seems to be improving. Smaller companies, meanwhile, are trying to grow in the shadow of the heavyweights, maybe only to become acquisition targets.

Companies in C&EN’s annual ranking of the top 25 instrumentation firms had 2013 instrument sales ranging between $162 million and $6.3 billion. For 2013, Danaher solidly held on to the top position it gained when it acquired Beckman Coulter in 2011 for $6.8 billion. Danaher’s sales figure does include the Radiometer acute care business, which falls outside the traditional lab instrumentation arena.

The most notable change between this year’s top 10 list and last year’s, which was based on 2012 sales, is the absence of Life Technologies, previously number four. Thermo Fisher Scientific acquired the company in early 2014.

Although Life Technologies’ sales were not included in Thermo Fisher’s reported 2013 results, the company kept the number-two slot. And new to the top 10 this year is Roche Diagnostics, which moved up to sixth place after a corporate reorganization altered how it reports sales.

Even looking back five years, not much has changed in the composition of the top 10 firms, except their sizes. In that time, Danaher has grown through acquisitions, such as that of AB Sciex in 2010, and moved from ninth to first place. Although Thermo Fisher has stayed in second place, it has nearly doubled in size, with major purchases including Dionex and Phadia in 2011. Buying Varian in 2010 and Dako in 2012, Agilent Technologies has grown by 75% and remains third.

Combined sales of the top 10 firms grew 65% between 2008 and 2013, while sales of the top 25 grew about 40%. As a result, the top 10 accounted for 78% of the group’s sales in 2013, compared with 66% in 2008. In 2013, the top four firms—Danaher, Thermo Fisher, Agilent, and Waters—together accounted for more than half of the market held by the top 25. In 2008, the top four had a 37% share.

Despite the growing concentration, the life sciences and diagnostic tools sector remains fragmented, especially compared with industries such as wireless and airlines, and could benefit from further consolidation, according to Isaac Ro, a Goldman Sachs stock analyst who covers the instrumentation industry. But acquisitions aren’t the only path to growth.

“Unlike mature industries where consolidation was a vehicle used to restore pricing power and margins, tools offers ample innovation and an expanding addressable market to support continued pricing power,” Ro told clients in a recent report.

For example, he calls Thermo Fisher “an underappreciated innovator.” Although the company’s R&D spending as a percentage of sales is toward the low end among its peers, Thermo Fisher has an R&D budget that is significantly larger than most. “Given the company’s now-increased scale, we see continued opportunity for Thermo Fisher to out-invest competition on a dollar basis and drive organic growth via innovation in select markets,” he said.

With a postmerger R&D budget exceeding $700 million per year, “clearly innovation will be important for us,” says Dan Shine, president of chromatography and mass spectrometry at Thermo Fisher. The Life Technologies merger “really does align perfectly with our growth strategy,” he argues. “It adds capabilities we didn’t have before, especially in the genomics and next-generation sequencing areas.”

Life Technologies is the bulk of Thermo Fisher’s new Life Sciences Solutions unit, which today accounts for about 26% of the firm’s sales. Its other segments are analytical instruments, 18% of sales; specialty diagnostics, 19%; and lab products and services, 37%. Notably, the acquisition expanded Thermo Fisher’s consumables and services side to the point that today nearly 75% of its revenues are derived from these recurring revenue streams, Shine adds.

Bar graph shows R&D spending of instrument makers in 2013.
Instrument makers reinvested in 2013 to grow their businesses.a Includes Life Technologies. b For life sciences and diagnostics business. c Excludes electronic measurement business. d For scientific and measurement instruments business. SOURCE: Company data

The right balance between equipment and consumables sales can help a company weather slow periods such as the one the industry endured in 2013. The market grew just 2.0%, lower than the 3.6% initially forecast, according to the Los Angeles-based market research firm Strategic Directions International (SDI). Overall, the market was worth about $46 billion.

“Widespread economic malaise and disruptive budgeting” contributed to uncertainty around equipment purchases, SDI notes.

The pharmaceutical and biotech sector is the largest end market. Worth about $11 billion, it has been growing 4–6% per year, according to Agilent’s annual assessment of the instrumentation market. Big pharma R&D budgets have been constrained in recent years, suppliers say, but smaller biotech and contract research firms have picked up some of the slack.

Academic and government research is the second-largest market, at about $10 billion, and is growing 3–5% annually, Agilent reports. In recent years, purchases by academic researchers in the U.S. and Europe have been crimped by government funding caps. But signs of improvement began appearing in late 2013 with the end of sequestration in the U.S., a rising National Institutes of Health budget, and greater government-funded R&D in Europe.

More challenging are the industrial and applied markets, which include chemicals and energy. Even so, a few positive areas stand out. Instruments for assessing food safety make up a $4 billion market that is growing 5–7% annually. And environmental testing, at about $5 billion, is growing up to 4% per year. Food safety, environmental testing, and health care are particularly strong outlets in developing countries.

The Japanese economy also slowly recovered in 2013, driven by government stimulus programs. Not only were sales stronger within the country, but depreciation of the yen helped Japanese firms sell overseas. Japanese companies such as Shimadzu, Nikon, Olympus, and Horiba posted healthy sales gains in 2013.

Overall, Goldman’s Ro pointed out, “the global macroeconomic outlook supports positive end-market trends.” Goldman’s economists expect the world’s economy to improve in 2014 versus 2013, led by the U.S. and Europe.

Although 2013 didn’t live up to expectations, Mike McMullen, president of Agi­lent’s chemical analysis group, remains bullish on the long-term outlook for the major instrumentation segments. “All these markets are being driven by key global macroeconomic trends,” he explains, including human health, quality of life, resource scarcity, and emerging-market growth.

“You will see some level of ups and downs, quarter to quarter,” McMullen says. “But I think it would be hard to argue against these macro trends as drivers for what will continue to be very attractive markets to be in.”


To sharpen its focus, Agilent decided last fall to split into two companies by November 2014. Its life sciences, diagnostics, and applied markets (LDA) businesses will keep the Agilent name, while its electronic measurement group (EMG) will become Keysight Technologies. The split makes sense, McMullen explains, because EMG is a highly cyclical, equipment-related business, whereas LDA, which also includes consumables, software, and services, is less cyclical and more growth-oriented.

“Over the last several years, capitalizing on the strength of our EMG business as a funding source, we have been able to grow a very sizable and credible LDA business,” McMullen says. In 2006, LDA had sales of $1.4 billion. Through a combination of acquisitions and organic growth, sales are almost $4 billion today. LDA “has the scale and scope to compete with anybody in a consolidating marketplace,” he adds.

When it comes to growth, Agilent is banking on its diagnostics business, which accounts for less than 20% of its total sales today. Agilent predicts the $7 billion clinical and diagnostics market to grow 8–10% per year. “Fully integrating the Dako diagnostic business into Agilent was a key milestone for us in 2013,” McMullen says. “Not only does it open up very attractive end markets, but our genomics technology could be applied directly in diagnostics.”

Indeed, Goldman’s Ro believes that a lucrative opportunity in the clinical market is unfolding. Diagnostics, particularly those targeting oncology and neonatal screening, will be a significant driver for the adoption of next-generation gene sequencing beyond academic and government research markets. Longer term, consumer genomics could be an even larger market.

Ro considers Illumina, number 20 in C&EN’s ranking, to be “uniquely suited to benefit from and drive the uptake of next-generation sequencing in the clinical and diagnostic fields.” As a result, he believes Illumina will likely remain the “unchallenged leader in the next-generation sequencing market for the next few years.”

Illumina has a long-standing strategy of focusing on technology development, explains Kirk Malloy, general manager of the company’s life sciences business. At nearly 20%, Illumina’s R&D spending as a percentage of company sales outranked all major instrument suppliers.

The firm’s instrument development programs can take up to two years. “We’re constantly planning out several years into the future and trying to anticipate what the market is going to need,” Malloy says.

At the same time, Illumina has been making an effort to branch out beyond its core customer base of the life sciences community, including academia and government labs. Revenues had been coming primarily from government-supported research, and “that’s not the diversified mix of customers we want,” Malloy says. Today, about half of the company’s instrument sales, which grew 20% in 2013, come from consumer, agriculture, applied, and clinical customers.

To help it access these markets, Illumina made a few recent acquisitions. In late 2012, it bought sequencing technology firm Moleculo. In early 2013, the company purchased clinical diagnostics provider Verinata Health. Midyear, Illumina purchased Advanced Liquid Logic, and this year it anticipates launching a sample preparation instrument based on the digital microfluidics technology it gained. Late in 2013, Illumnia also acquired clinical and genomic informatics firm NextBio.

Illumina generally acquires new technologies and extends them into markets it knows, Malloy explains. But some customers, such as the cancer genomics company Foundation Medicine, are creating completely new businesses around its technology.

“One of the bigger drivers of our business is the creation of small start-ups that are using the technology in a variety of ways that on our own we probably wouldn’t be able to address,” he says. This year, Illumina created a business accelerator program to help early-stage companies rapidly bring gene-sequencing applications to market.

In January, Illumina launched two instruments that are selling faster than expected. Its HiSeq X Ten, a $10 million system composed of 10 ultra-high-throughput sequencers, can sequence a human genome for about $1,000. The new NextSeq 500, meanwhile, addresses users wanting a less powerful system but more capability than Illumina’s workhorse desktop instruments. The company expects about 16% growth for its entire instrument and consumables business in 2014.

Illumina’s growth hasn’t gone unnoticed. Roche launched a hostile takeover attempt in 2012. It pursued Illumina for months, eventually raising its bid to $6.8 billion, but gave up when Illumina rejected that offer. The following year, Roche dissolved its applied science unit, cut about 170 jobs, and canceled two sequencing technology development programs.

Along with Illumina, other small players participated in industry consolidation in 2013. Malvern Instruments bought NanoSight, an England-based maker of nanoparticle characterization instruments, for $24 million. The Dutch firm Qiagen acquired Ingenuity Systems, a genomics data analysis software firm, for $105 million and the bioinformatics company CLC Bio for an undisclosed amount. Just recently, FEI acquired Lithicon, based in Norway and Australia, for $68 million.

Although 2013 didn’t bring any acquisitions for Xylem Analytics, the business is the product of more than a dozen of them over the past decade. As part of the water technology company Xylem, the analytics business, which is number 21 in C&EN’s ranking, sells field, lab, portable, and online instruments for water, environmental, food, and life sciences applications.


“Our strategy is to continue to grow organically as well as through acquisition,” says Ron Geis, vice president of Xylem Analytics Americas. Although the market environment was challenging in 2013, the group did launch several new products and is anticipating growth in 2014. “We are seeing a definite uptick,” Geis says about customer interest.

Small instrumentation businesses such as Xylem Analytics try to compete with large suppliers through tried-and-true strategies for technology development, customer service, and niche applications (see page 20).

The industry giant Thermo Fisher, in contrast, may still need to persuade the marketplace that its acquisition of Life Technologies makes sense, according to Goldman’s Ro. “Some competitors are not convinced the ‘supermarket’ approach of Thermo Fisher’s combined offerings will have a material impact on high-end equipment sales,” he wrote.

Other companies, Ro said, are focusing on strengthening leadership positions where Thermo Fisher still has less dominant franchises, such as high-performance liquid chromatography and applied markets.

Executives at small firms also believe they can compete because instrumentation users tend to show strong brand loyalty. “When we acquire companies, we want to maintain the customer relationships and provide the same level of technical support,” Xylem’s Geis says, suggesting that these aspects may get lost when a large company absorbs a smaller one.

At the same time, an acquired business can benefit from access to greater resources within Xylem. “We not only maintain the legacy brand, but can actually grow it through our internal capabilities and know-how,” he adds.

For their part, large companies maintain that their mergers benefit the customer as well. Agilent’s McMullen, for example, points to ease of service and better software connectivity across various instruments.

“There are multiple technologies used in laboratories,” he says, “and consolidation allows the customers to work with fewer vendors who are in much stronger positions to provide a broader suite of technologies to meet their application needs.”  


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