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Overall, 2004 was a good year for the laboratory analytical and life science instrument industry. A rebound in industrial demand, steady increases in life science spending, and strong growth in Asia and North America drove instrument systems and aftermarket sales. Similar to last year, 2005 should bring healthy sales growth as many of the end-market and regional drivers of last year continue to fuel demand.
According to Instrument Business Outlook (IBO), a publication of Strategic Directions International, Inc. (SDI, Los Angeles, CA), a consulting and market intelligence firm specializing in this market, the total worldwide market for analytical and life science instrumentation and related aftermarket and service revenues slightly exceeded $26 billion in 2004, increasing revenues about 6.6% from levels in 2003. As with the situation in 2004, some uncertainty still persists. Fears of terrorism and the adverse affects of high oil prices delayed some business spending in 2004. However, the impact of these factors appears to be lessening. What could be challenging this year, especially for the instrument industry, is Europe's slower growth, the pharmaceutical industry's regulatory and pipeline problems, and the expected slowdown in growth of the Chinese market. New product introductions continue to stimulate sales, and while many instrument makers did well in 2004, some major companies stumbled. Given these countervailing factors, SDI predicts a slightly lower overall industry revenue increase in 2005 of about 6.2%.
Table I. Spectroscopy product growth prospects for 2005
Last year was characterized by a number of important trends and developments that affected the instrumentation marketplace. Perhaps most significant was the realization of the importance of China as both a major market and a manufacturing base. China's growth was evident particularly in 2004. As Chinese factories pumped out products of every type for its growing domestic market and for export, especially to North America and Europe, instrument demand increased proportionately. Local manufacturing of instruments also grew significantly, mostly the result of foreign direct investments. The year also saw the return of heavy industry investment, especially for metals production, as well as for chemicals and petroleum refining. Only in Europe was the climate somewhat muted, but even there, US-based firms did reasonably well because of favorable exchange rates, putting European-based manufacturers at a disadvantage.
SDI disaggregates the spectroscopy market into three distinct sectors: molecular spectroscopy, atomic spectroscopy, and mass spectrometry. The applications of the techniques included in each sector and their prospects differ significantly, even within each sector. Overall worldwide revenues in the spectroscopy area totaled about $5.7 billion in 2004, or about 22% of the total laboratory analytical and life science instrument market. The overall spectroscopy market is estimated to have grown about 5.9% in 2004, an improvement over the previous year's growth. SDI predicts that the market will expand slightly faster in 2005, growing at about 6.1%, which is a continuation of a three-year trend.
Figure 1. Spectroscopy market by product segment.
Molecular spectroscopy techniques account for about 45% of the spectroscopy market, although many diverse techniques are represented that address a wide range of applications in every industry category. Atomic spectroscopy is the second largest sector at almost 35%, while mass spectrometry represents 20% of spectroscopy revenues. Please note, however, that general purpose liquid chromatography-mass spectrometry (LC-MS) and gas chromatography-mass spectrometry (GC-MS) — both major mass spectrometry techniques — are not included here because they are considered to be part of the chromatography market. Revenues of these hyphenated techniques would increase the significance of the mass spectrometry figures by about 50% if the MS portion of those systems were included. Mass spectrometry would then approach the size of the atomic spectroscopy sector.
The market for molecular spectroscopy is estimated at well over $2.5 billion for 2004. There was, however, considerable variance in growth by product technique, led by the hard charging nuclear magnetic resonance (NMR) segment. Overall, the total revenues for all categories grew 5.4% in 2004, a somewhat slower expansion than seen in 2003. No single technique dominates this market, but three segments — NMR, UV/Vis, and infrared (IR) — account for almost 75% of the overall molecular spectroscopy market.
Figure 2. 2004 spectroscopy market by sector ($5.7 billion).
The primary demand for molecular spectroscopy comes from the vibrant life science industries, including the pharmaceutical, biotechnology, and the agriculture, and food and beverage industries, which account for about 35% of the market. Organic chemicals, academia, and government sectors account for another 30% of revenues, much of which also are life science-oriented. But molecular spectroscopy techniques have an enormous range of applications, so they can be found in every other industry, some of which continue to be depressed, such as environmental testing and semiconductor manufacturing, which are experiencing lower demand.
As in recent years, NMR spectrometry represents the most dynamic molecular spectroscopy technique, with growth for 2004 estimated at almost 10%. NMR is an important technique that provides information on the structural analysis of organic molecules, particularly proteins. Recent growth trends could be described as an "arms race" as vendors develop, and researchers demand, ever more powerful superconducting magnets to improve upon already very high analytical performance. The availability of newly designed probes and enhanced software also stimulates the large aftermarket segment. Electron paramagnetic resonance (EPR) instruments also are included in this category and are experiencing renewed growth because of their usefulness in analyzing organic compounds with free radicals. Based upon its performance in 2004, the NMR market has overtaken UV/Vis to become the largest segment of molecular spectroscopy. We expect NMR to do equally well in 2005 although delayed purchases from government labs may depress growth slightly.
Figure 3. Estimated growth for spectroscopy sectors in 2005.
UV/Vis spectrophotometers comprise the second largest portion of the molecular spectroscopy market, but also one of the slowest growing segments. Unit sales of visible-only and nonscanning instruments continue to decline, except for environmental testing where such instruments are tied to prepackaged reagents and kits. Scanning UV/Vis and diode instruments, which are faster and more powerful instruments with marginally higher prices, offer the best prospects and frequently replace older lower performing instruments as they are retired.
The Raman spectroscopy market continues to experience strong demand, with 2005 growth expected to reach 10%. Dispersive Raman systems with microscope interfaces currently are receiving the most attention from scientists. Likewise, dispersive systems significantly exceed the demand for Fourier transform (FT)-Raman systems. Raman often is used to inspect for purity and composition of plastics, rubbers, and resins. Raman also is an important technique for the characterization of pharmaceutical excipients. Fiber-optic probes give dispersive Raman systems a degree of portability, which enhances at-line use.
Infrared and near-infrared (NIR) instruments represent about 27% of the molecular spectroscopy market, and both are experiencing moderate growth in the 5-6% range. Pharmaceutical and biotech applications represent growth opportunities, but food analysis, especially milk and grains, forensics, plastic recycling, and cellular analysis are the most important application areas. Color measurement instrument demand improved in 2004 and should grow at around 5% in 2005. Major industrial users such as paints, textiles, and printing have rebounded, while prospects in Asia, especially China, are burgeoning.
Spectrofluorometers and luminometers are expected to grow only marginally (about 3%) because they compete unsuccessfully with microplate readers, which can handle much higher sample throughputs. Some manufacturers have tried to counter this trend by introducing microplate reader accessories for users with occasional large sample requirements, but this is seen only as a delaying action. Filter fluorometers are faring even worse and are experiencing unit declines as lower-cost spectrofluorometers offer a reasonably priced better alternative. Biosensors and calorimetry instruments also are competing successfully with fluorescence in applications dealing with molecular interactions, an important growth segment.
The atomic spectroscopy market faired reasonably well in 2004, and continues to improve as compared to the situation a few years back. In fact, if it were not for the minimal prospects for atomic absorption (AA) and inductively coupled plasma (ICP), which account for about 35% of the atomic spectroscopy market, and combined are growing only 2% per year, atomic spectroscopy might be considered a genuine growth market. The important semiconductor industry revived somewhat in 2004, but still cannot match its demand for instrumentation of the boom years from 1999 to 2001. Many observers expect steady improvements during the next few years, but no real significant jump in capital investment. The story in the metals industry is sharply more upbeat. Led by China, the metals industry experienced a fantastic year in terms of production and profits, and instrument purchases have increased, with arc/spark, elemental analyzers and X-ray techniques being the greatest benefactors.
Prospects for atomic spectroscopy have brightened, and growth rates are expected to hold steady or slightly increase during the next few years. In 2004, the overall growth rate for atomic spectroscopy was 4.8%, more than a full percentage point better than in the previous two years. However, it is expected that this market will expand at more than 5% this year, and in 2006. These gains are due to a combination of factors, including the generally good economic conditions around the world, especially in Asia. Increased environmental concerns also are encouraging moderate investments for instrumentation for environmental monitoring and testing worldwide, in industrialized nations as well as developing countries. The life sciences area, including food and beverage processing, also can be expected to offer increased opportunities for manufacturers of atomic spectroscopy instruments.
The X-ray category of instruments, X-ray diffraction (XRD) and X-ray fluorescence (XRF) represent about one-third of the worldwide market for atomic spectroscopy and are expected to exhibit good growth in 2005, each increasing in the 6-7% range. Both powder and single-crystal X-ray techniques should be in strong demand in 2005. The single-crystal segment is now showing renewed strength as the pharmaceutical industry attempts to improve its success rate in developing target compounds into viable drug prospects. Still, XRD is indispensable to proteomics research, and its continued importance is assured, although NMR and MS are strong alternative techniques for structural analysis. Powder XRD, the larger segment, has broader industrial applications, including some in life sciences, especially for pharmaceutical quality control. The market for XRF instruments is benefiting from increased capital investments in the metals, petroleum, and semiconductor industries, which account for more than 60% of worldwide applications.
Increasing semiconductor, pharmaceutical, and environmental applications will drive ICP-MS and elemental analyzer demand with increases of 8.8% and 6.8% respectively. Total organic carbon (TOC) and mercury analyzers will outpace all other elemental analyzer products because of the improving prospects in the semiconductor industry, continued growth in pharmaceutical and food processing, and demand for pure water and ultrapure water testing. The ICP market has slowed somewhat because of state and local governmental budget constraints, especially in the United States. This is offset somewhat by purchases of ICP-MS instruments that offer increased sensitivity and fast analysis.
Arc-spark optical emission spectroscopy is enjoying a renaissance of popularity as the metals industry copes with high demand worldwide. This is true especially for the rapidly expanding markets in China and India. North America and European prospects also are peaking as primary metals producers reap high profits at maximum capacity production levels. This, coupled with global interest in recycling, bodes well for a very mature technology although growth still likely will be only around 4%. AA spectroscopy, an even more mature technology, likely will see only minimal growth (less than 2%), with system sales declining slightly. AA benefits minimally from the resurgence in metals production and is much more dependent upon the environmental analysis market where other techniques such as ICP vie for the modest opportunities. Aftermarket purchases of accessories, consumables, and software, as well as service, really provide most of the growth that is expected.
Mass spectrometry continues to be the growth engine of spectroscopy. If it were not for the declining sector MS market, MS would be growing overall at almost 9% per year. Even so, the market still is expected to turn in growth at about 7.5% for 2005. Although the important pharmaceutical and biotechnology industries have re-evaluated their appetite for capital investment, including sophisticated instrumentation, mass spectroscopists cannot seem to resist buying the latest products with enhanced sensitivity. Sensing this, MS suppliers have introduced a host of new high-resolution mass spectrometers to meet the pent-up demand. However, interest is not promotion driven, rather the technical challenges facing many scientists are daunting and mass spectrometry appears to offer near term solutions.
Quadrupole time-of-flight (Q-TOF) MS is one of the strongest performing techniques within the field, and for that matter the entire analytical instrument industry. Q-TOF sales increased at more than 10% in 2004 and should do about the same in 2005. Pharmaceutical and biotech users cannot have enough of these expensive but ultra-performance instruments. Attributes including exact mass, and high mass range and sensitivity make it a strong competitor to FT-MS instruments. New instrument offerings and a lifting of the cloud of patent infringement litigation further set the stage for a robust purchasing environment. Q-TOF's now are available in a wide variety of configurations, all with improved capabilities, and some are available at more affordable prices. Q-TOF mass spectrometry is well suited for applications such as structural analysis — thus competing with NMR and XRD techniques — metabolism studies, and protein-protein and protein-ligand interaction studies. The technique's high sensitivity and mass resolution are ideal qualities for research and development laboratories.
New product introductions of a wide variety of high-resolution LC-MS instruments continue to generate excitement in this large and important market. However, the market is steadily reaching saturation, and must also compete with other mass spectrometry techniques such as Q-TOF and FT-MS. The largest category, triple-quadrupole systems, is expected to exhibit the slowest growth — about 5% for 2005. Ion trap instruments likely will grow at twice that rate. Likewise, both Q-trap LC-MS and LC-TOF instruments represent the most dynamic segments of this instrument group and are expected to expand at mid-double digit levels. So the entire high-resolution LC-MS segment should grow at more than 7% in 2005 on the heels of an 11% increase in 2004. Drug discovery and protein research in pharmaceutical and contract research labs is the main driving force behind this growth.
The market for matrix-assisted laser desorption ionization time-of-flight (MALDI-TOF) has been reinvigorated during the last year or two with the introduction of a number of new high-resolution instruments, including several tandem mass spec units. It is expected that the segment will grow slightly faster than the high-resolution LC-MS segment at around 7.5% in 2005. Product innovation is a great "cure all" for slumping markets. Some users, especially European researchers, prefer electrophoresis sample preparation to LC, so MALDI-TOF is a natural choice, although fully integrated proteomic systems combining electrophoresis, sample excising, and MS analysis are not necessarily the preferred approach at big pharmaceutical and biotech labs.
Without question the FT-MS segment was the "hot" market in 2004, and is slated to continue into 2005, despite the very high prices approaching $1 million. There are now a number of product types available to researchers, some at "down to earth" prices, for example, under $500,000. Technology innovation and more attention to user interfacing has brought down some of the barriers to purchase. The superlative sensitivity and mass resolution of these instruments is the envy of many scientists as a solution to their most difficult analytical challenges. Suppliers continue to focus on higher performance at high cost, but buyers are still lining up. It is expected that growth for 2005 will be 20% or better. Because 2004 sales were slightly lower than anticipated due to manufacturing delays, a banner year is likely.
The success of FT-MS is one more "nail in the coffin" of magnetic sector mass spectrometry, which continues to slowly decline. Fortunately, its primary proponents in government labs around the world still prefer the flexibility of these very complex systems, so the technique will be around for many more years.
Yes, spectroscopy technology has been with us for many years, and some say it is a very mature market. Yet the suppliers of spectroscopy products do not all feel that way, as they continue to innovate and introduce new products every year. One has only to look at the AA field to appreciate this trend. A dozen or more new products have debuted in the last few years, some based upon unique and cost-effective approaches. The result has been much more dynamism in a well established market that also has resulted in better performance and lower prices for scientists. The AA suppliers are not philanthropists; rather they recognize the market opportunity that exists to replace an aging installed base of instruments, in addition to new demand from emerging economies.
At the same time, this marketplace is filled with relatively new techniques, which offer high performance and address the growing challenges that scientists and researchers face every day. From drug testing for designer drugs at the Olympics, to achieving the benefits of personalized medicine, spectroscopy instruments play a very important role. We can only hope that scientists continue to demand that suppliers develop new instruments to meet these needs and that suppliers are up to the challenge. It is a good bet that the trend will continue because so many segments of spectroscopy exhibit genuine high growth potential.
Lawrence S. Schmid is president and chief executive officer of Strategic Directions International, Inc. (Los Angeles, CA). Phone: (310) 641-4982; e-mail: email@example.com.