It's getting ugly in the biotech research equipment sector.
warned that second-quarter sales and earnings would fall far short of Wall Street expectations, sending its shares plunging more than 30% Tuesday morning.
The warning comes a little more than week after biotech chipmaker
sent up its own
earnings flare for the second quarter. The reasons are eerily similar: Both companies say large pharmaceutical firms are holding off on orders, lengthening the equipment sales cycle and wreaking havoc on short-term sales goals.
The back-to-back warnings are casting a long shadow on the entire biotech equipment sector, leading investors to gird themselves for a cold summer.
Waters now expects to earn about 29 cents per share in the second quarter, down from its previous estimate, and the Wall Street consensus, of 33 cents per share. The problem is second-quarter sales are expected to grow 2% to 5%, instead of the previously expected 10% to 12%, the company said.
"Following a sustained period of dramatic growth, the company's mass spectrometry business is currently experiencing a slowdown in sales," Waters Chairman and CEO Douglas Berthiaume, said in a statement. "This slowdown is believed to be attributed partially to delayed purchases within large pharmaceutical customer accounts deciding between a multitude of new products recently introduced by the company and its competitors."
Shares of Waters recently were down $14.56, or 34%, to $28.01.
The bad news from Waters and Affymetrix, coupled with first-quarter shortfalls from
, is forcing analysts to rethink rosy assumptions about the short-term health of the biotech equipment makers. Development of new drugs, especially those with roots in genetic research, is stronger than ever. Ergo, sales of drug research equipment and other biotech "tools" sales should be soaring too, right?
Wrong. Drugmakers, it seems, don't have unlimited equipment budgets, or are at least holding off until the next generation of tools and equipment is ready.
"The reduction in near-term visibility generated by industry-leading firms certainly casts a shadow of doubt over the enabling technologies space,"
Dain Rauscher Wessels
analyst Todd Nelson says in a research note. "As such, we expect investor confidence to weaken during the near term, with renewed market strength contingent upon improvements in visibility." Nelson downgraded Waters to buy from strong buy and his firm hasn't done underwriting for the company.
David Zimbalist, an analyst at
, also downgraded Waters Tuesday, in his case to neutral from outperform. He warned investors that the company won't have much visibility for the next three months to six months.
"We believe this lack of visibility will limit the relative multiple investors will be willing to pay for the stock, and prefer to wait until the weather clears a bit before stepping back in," Zimbalist writes. "To put this in perspective, we expect the stock to trade in the low to mid-30s, and we do not expect it to sustain valuation in excess of $35 until visibility improves." (Zimbalist's firm hasn't done underwriting for Waters.)
Over the last several months, there has been an effort to differentiate the various biotech equipment makers as a way to figure out which were more vulnerable than others. Waters was one of those firms that was supposed to be relatively immune to any customer pullbacks.
Tuesday, investors let the Waters warning sink in and realized that none of the biotech equipment makers are entirely safe bets anymore.
recently was down $4.32, or 22%, to $15.63; Molecular Devices was off 38 cents, or 2%, to $18.82; Affymetrix was down $1.83, or 8%, to $20.56; and Applied Biosystems was off $1.03, or 4%, to $26.