Nearly seven months after the start of the US fiscal year (FY) 2024, the US federal government finally has a budget, with the second set of twelve appropriations bills signed into law by President Biden on March 23. These annual bills, which fund the government through September 30, 2024, provide $194.3 for research and development (R&D) funding, a cut of about $5 billion (2.7%) compared to last year, when a substantial increase of 10% had been appropriated. These cuts occurred following spending limits imposed by the Fiscal Responsibility Act of 2023.

In this context, most agencies conducting R&D had their budgets cut for fiscal year 2024. The National Science Foundation (NSF) and the National Institute of Standards and Technology (NIST) both saw their funding lowered by 8%, leaving NSF’s budget at $9.87 billion and NIST’s at $1.26 billion. These cuts follow big increases last year, however, when NSF’s budget went up 12% and NIST received a 23% increase, both largely driven by the CHIPS and Science Act, passed in 2022 to fund semiconductor manufacturing and research in the United States. 

Critically, support for the National Institutes of Health (NIH), the largest overall funder of US scientific research, is essentially flat, down less than 1%, to $48.5 billion. Most of the 27 institutes and centers within NIH have flat budgets for 2024, with exceptions for research on mental health and Alzheimer’s disease, up $75 million and $100 million, respectively. 

Within the NIH, the National Cancer Institute (NCI) gained $120 million for research grants. However, the additional $216 million that NCI was receiving from the Cancer Moonshot ended last year; the result is that the total NCI budget for FY2024 is down $96 million compared to 2023. The budget for National Institute of Allergy and Infectious Disease (NIAID) remains flat at $6.6 billion. 

The Advanced Research Projects Agency for Health (ARPA-H), created in March 2022 to support high-potential, high-impact biomedical and health research, was allocated $1.5 billion, the same as in 2023, although President Biden had requested a $1 billion increase. One exciting new initiative just launched by ARPA-H is the Lymphatic Imaging, Genomics, and pHenotyping Technologies (LIGHT) program, which will pursue comprehensive diagnostic tools for detecting lymphatic dysfunction.

Another bright note was the 1.7% increase Congress to the Department of Energy (DOE)’s Office of Science. With a 2024 budget of $8.24 billion, the Office, which stewards 10 of the country’s national laboratories, is the largest source of physical science research funding in the US. It is also the lead federal agency supporting fundamental energy production research—critical for the transition to green energy. 

The Science and Technology arm of the Environmental Protection Agency (EPA) had its budget reduced $44 million, or 5.5%, to $758 million, while funding for the EPA as a whole was slashed 10.3%—the largest cut to agencies conducting R&D. Nevertheless, the fight over the 2024 budget fended off Republican plans to roll back climate and clean energy programs created by the Inflation Reduction Act of 2022.

Smaller budgets for some US government agencies that fund science research will likely somewhat depress academic and government sector opportunities for analytical instrument companies this year. However, the massive investments championed by the Biden Administration through the 2022 Inflation Reduction Act and the CHIPS Act will continue, with much of the actual spending still to take place. Currently, for example, the Department of Commerce is working to establish the National Semiconductor Technology Center (NSTC), which will support semiconductor R&D and manufacturing and drive demand for instrumentation and tools for both research and industrial end uses. Similarly, the new CHIPS R&D Metrology Program, run through NIST, will seek to strengthen the US semiconductor industry through advanced measurement, standardization, modeling, and simulation. 

Likewise, ongoing strong funding for NIH also means that health and disease research will continue unabated, maintaining need for life sciences instrumentation and related tools, such as mass spectrometers, proteomics and multiomics tools, advanced software, laboratory automation, chromatographs, spectrometers, NMR, and microscopy. 

Facing a challenging macroeconomic environment, most leading international publicly held life science and analytical instrument companies reported sales declines in the mid-single digits for the fourth quarter of 2023 and drops in the low single-digits for the full year—all against tough comparisons of strong growth from the previous year. In short, 2023 was a year when the pandemic tailwinds became headwinds. 

Bruker stood out as an exception, reporting organic revenue gains around 15% for both the quarter and full year. The company saw organic growth in the mid teens in all divisions, with NMR growth across biopharma, academia and government, industrial research, and applied markets and mass spectrometry (MS) and optical spectroscopy gains driven by life sciences. 

Shimadzu was also an exception. Organic revenue grew 6% for the quarter for its analytical instrumentation business, with sales of “key models”—liquid and gas chromatography (LC and GC) and MS— up 12% in a fourth consecutive quarter of double-digit growth, driven mainly from pharmaceutical and academia for LC, by academia for MS, and by new energy development for GC. Shimadzu’s spectroscopy sales were down 1%, and the company felt the post-pandemic decline in MALDI and PCR.

Pharma/Biopharma and China—the Biggest Weights on Growth

The biggest sector drag on growth was the bio/pharmaceutical industry, with sales falling in the mid-single digits  as intense pandemic-era investments normalized following robust growth a year ago. 

Declines in China weighed the most heavily on this sector. For example, Agilent’s biopharmaceutical sales for the quarter fell 12%, versus 11% growth a year ago, but ex-China, the sector grew by low single digits. Similarly, full-year China revenues for Waters, heavily weighted in pharma, fell more than 20%, creating a 5% headwind to total growth; ex-China, Waters’s sales grew by high-single-digits. 

Shimadzu was able to balance pharma and CRO declines in China with MS sales for academic and clinical use. The company also sees positive future signs in traditional Chinese medicine, the preparation of the 2025 edition of the Chinese pharmacopeia, and new regulations requiring clinical use of MS in hospitals of a certain scale. 

On a positive note, stabilization and even signs of growth are seen in the emerging biotech sector, which has been facing a challenging funding market.

PFAS and Batteries Propel Applied Markets

Applied markets held steady in the quarter and overall for 2023, with companies expressing optimism for future growth driven by PFAS analysis and renewable energies, particularly batteries. Food and environmental applications account for about 11% of the laboratory instrumentation market, while industrial applications (chemicals, energy, plastics, metals/minerals, etc.) account for about 16%.

Shimadzu saw growth in both GC and non-destructive testing for new energy development, particularly in Japan and China. Battery applications revenues at Waters are now ten times above 2019 levels. Thermo Fisher, which showed low single-digit growth in industrial and applied markets for both the quarter and the year, opened a customer experience center for battery manufacturing in Seoul, Korea.

New regulations worldwide continue to drive PFAS testing, currently focused on water but expanding to food, tissue samples, soil, sewage, and industrial effluent streams. Waters expects PFAS testing to contribute an additional 30 basis points to revenue growth for the foreseeable future. 

Veralto, the environmental and applied solutions company spun out of Danaher last year, reported 2% core sales growth for its water quality business versus 9.5% a year ago, with Chinese municipal budgets continuing to be impacted by government funding cuts; full year sales were up 5%. 

Academic and government sales, which generally contribute about 30% of the lab market, were positive. The stability of academic funding and government laboratory activity were reflected in Agilent’s and Thermo Fisher’s growth in the low- to mid-single digits for the academic and government markets for the quarter and, in Thermo’s case, high-single digits for the full year. For Waters, this sector fell 9% in the quarter, dragged down by a 40% decline in China after government stimulus ended in the second quarter, but grew by mid-teens for the year.

Challenges in Life Sciences Research and Diagnostics

As in biopharma, producing growth in life sciences research and diagnostics compared to strong numbers from a year ago was also a challenge.

Core revenue for Agilent’s Diagnostics and Genomics Group fell 6% while the Life Sciences and Applied Markets Group dropped 11%, against 10% growth last year. At Thermo Fisher, fourth quarter revenue for diagnostics and healthcare declined in the high teens and was 30% lower for the full year. At Danaher, life sciences core revenue was down 4%, and the life sciences instruments business declined mid-single digits. 

Danaher’s clinical diagnostics business, however, delivered high-single-digit core revenue growth, led by Beckman Coulter Diagnostics with double-digit gains in both instruments and consumables.

Illumina also grew Q4 core revenue, at 4%, with 352 shipments of the new NovaSeq X high-throughput sequencing system. Annual revenues were flat, however, amid the general constraints affecting the laboratory space overall.

Bruker, as outlined above, stood out with large gains.

2024 Outlook: Expecting a Tough Year Ahead

Looking ahead to 2024, the industry expects another challenging year. Sales will start slowly as customers continue to exhibit spending caution, followed by slow normalization in the second half of the year as budgets open up and prior-year comparisons become easier, particularly in China, given high first-half growth numbers last year driven by the China loan program. Post-pandemic biopharma destocking conditions should improve, with the drawing down happening fastest in Western Europe and North America. 

Overall, companies are forecasting organic sales growth in 2024 in the very low-single digits, but it is unclear whether that will be on the negative or positive side. Bruker, an exception, anticipates organic growth of 5% to 7% for 2024.