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Companies continue to cut back.

For many companies, the life science market is continuing to experience slower sales due to rising competition, shorter product life cycles and pharmaceutical and biotechnology customers' hesitance to either buy new products or commit to new investments. This slowdown is affecting the revenues and growth prospects of some of the companies that manufacture such products. In particular, companies that sell bioinformatics and research tools built around new techniques or applications for life science research have been affected. In order to lessen the effects of this slowdown, many companies, both large and small, are implementing cost-cutting measures.

One of the first signs of a conservation of resources is the elimination of staff positions. Smaller companies are capitalizing on this action as a means of cutting expenses. In January, Cellomics eliminated about 50 positions and Argonaut Technologies announced a reduction of its workforce by abofit 10%. Pyrosequencing AB eliminated 23 positions at its headquarters in Uppsala, Sweden this fall. In July of this year, Orchid Bioscience cut 30 more jobs, in addition to the 90 positions it eliminated in the first four months of this year. The company is reducing staff across all of its strategic business units (SBU), but is concentrating lay-offs in its Life Sciences SBU. Pharmacopeia announced plans in August of this year to decrease its workforce by 10% or about 80 employees. Through this reduction, it expects to save $8 million a year in operating expenses.

Larger companies are also trimming their personnel numbers. This summer, Bruker Daltonics initiated a program this year to reduce its total workforce by 10%, while Tecan decided in July to cut its global staff by 8% to 10%. Agilent, Thermo Electron and PerkinElmer have also made cuts in the past two years, with PerkinElmer announcing a new round this month (see page 2).

In addition to staff reductions, companies focused on saving money or reallocating resources in the current market environment are reorganizing or closing entire facilities or business divisions. Orchid has begun dividing the majority of its manufacturing and production operations at its facilities in Princeton between its facilities in Dayton, Ohio and Stamford, Connecticut. In addition to the consolidation of these facilities, Orchid intends to slowly eliminate its SNP genotyping instruments and related consumables segment, which is a part of its Life Sciences SBU (see page 2). The company also plans to close several specialized facilities.

Pyrosequencing aims to combine its Molecular Diagnostics Business with its core business unit in order to expand its opportunities for clinical applications as well as keep expenses to a minimum. Bioinformatics specialist LION bioscience, announced plans in September to close its iD3 drug discovery business by the end of the year (see IBO 9/ 15/02). The shut down of its two drug discovery facilities in Heidelberg and San Diego will result in the loss of 86 jobs. Savings from this move are expected to take effect in fiscal year 2004.

For many of the companies currently tightening their belts, changes in workforce and facilities are only pieces of a larger goal: changing the overall business model. Orchid's plan to eliminate its SNP genotyping segment is part of a larger scheme to refocusing its business on genoprofiling for the clinical industry. Orchid is also working to emphasize its service businesses, such as profiling genetic uniqueness, HLA testing for organ transplantation, and personalized healthcare. LION decided to close its iD3 drug discovery business not only to save money, but also to focus more on its informatics business for the life sciences. It is also changing its focus from a product-based business model to a solutions-based business model. Pyrosequencing is in the process of moving from an initial product development and introduction phase to expanding the clinical application of its technology. Finally, Aclara has shifted its focus to the production and marketing of its eTag assays, resulting in job cuts (see IBO 8/15/02).

While many companies rush to finalize new products in order to spark the interest of hesitant buyers in the life science industry, Cellomics is taking another pproach by postponing and even canceling some of its projects. The company is focusing on selling its already established products rather than spending valuable resources to develop new products in a poor market.

Conserving resources and restructuring the business model are, for some companies, part of an effort to accelerate their move towards profitability. Among these companies are Orchid, Pyrosequencing and Cellomics. Orchid expects to reach profitability by the end of 2003, while Cellomics intends to meet this goal by the end of 2002 or early 2003. LION had originally forecasted that it would achieve profitability by the fourth quarter of fiscal 2004 earlier this year, but since October it has revised this aspiration to breaking even by the fourth quarter of fiscal 2004.

Some revenue forecasts are changing along with these business model changes, while other are remaining the same. In its June forecast, LION expected its revenues to increase slightly during fiscal year 2003 ending March 2003. As of late October, however, LION revised its forecast, projecting a decrease in fiscal 2003 revenues of about 25% compared to fiscal 2002 earnings of 40.4 million [euro]. Bruker Daltonics, on the other hand, is holding onto its initial forecast of an 18%-22% revenue increase for fiscal 2002 compared to 2001. Orchid also maintains its guidance of achieving revenues of $65-$67 million in 2002. For calendar year 2002, Pharmacopeia expects to achieve revenue growth of between 5% and 10% in both its Software and Drug Discovery divisions.

Several companies are also thinking twice about their investments in other companies. LION, for example, has plans to conduct a review of its investments in private companies, hopefully to reduce its current investment of 10.6 million [euro] by about 8.5 million. [euro]

Although a slowdown in the market is never desirable, companies are taking advantage of the life science lull by cutting costs, refocusing their strategies and refining their objectives. Concerted efforts to restructure costs and change a business model can prolong survival for companies as well as open up other options.

For Informax, Genomic Solutions and Rheometric Scientific, which had all instituted cost cutting in response to lowered expectations and sinking stock prices, the end result was some form of acqusition by larger companies. In the case of Rheometric, it sold its rheology business to a competitor (see IBO 10/15/02), andwill now focus on life sciences. Informax and Genomics Solutions were acquired by companies which seek to access their technologies.
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Title Annotation:cost cutting
Publication:Instrument Business Outlook
Geographic Code:1USA
Date:Oct 31, 2002
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