Thermo Fisher Scientific clocked strong revenue and earnings growth for the second quarter ended June 30, 2012. What is the contribution of the various regions (North America, Europe, APAC, ROW)?
| Marc Casper |
As of the end of our second quarter this year, (trailing 12 months through Q2’12) approximately 20 per cent of our revenues came from APAC and ROW. Europe accounted for 26 per cent, whereas North America comprised the remaining for 54 per cent.
Of the company’s three business segments, i.e. Analytical Technologies, Specialty Diagnostics and the Laboratory Products and Services, which is the fastest growing product/service segment?
We have a track record of growth and innovation in each of these segments. Our Lab Products and Services segment represents just under half of our revenues and is expected to grow steadily. This segment has an addressable market of about $29 billion, growing at 2- 4 per cent annually. Our annual (trailing 12 months through Q1’12) revenues of around $6 billion came from a balanced mix of everyday lab equipment, consumables and services. Our Analytical Technologies segment is a third of our revenues and is where the bulk of our product innovation occurs. This segment addresses a market of approximately $31 billion, growing between 4 and 6 per cent. Our annual (trailing 12 months through Q1’12) revenues of $ 4.1 billion came from our range of Chromatography and Mass Spectrometry Equipment & Consumables, Chemical Analysis Instruments, Environmental & Process Instruments and Biosciences portfolios.
The Speciality Diagnostics segment is just over 20 per cent of our revenue, and covers a broad spectrum of products such as Clinical Assays, Immunodiagnostics, Microbiology, Anatomical Pathology and our healthcare channel – all adding to annual (trailing 12 months through Q1’12) revenues of about $ 2.8 billion*. The addressable market for us is about $ 19 billion, growing at between 4 and 6 per cent annually.
Our recent acquisitions of Dionex, Phadia and One Lambda give us added capabilities in growing markets within the analytical and specialty diagnostics segments, adding to the unique value proposition we can bring to our customers.
What are the region-wise trends in these segments?
In Analytical Technologies, APAC and ROW contributed almost 32 per cent of our revenues, with North America representing 39 per cent and Europe 29 per cent. (trailing 12 months through Q1’12)
In Specialty Diagnostics, a high majority of revenue (trailing 12 months through Q1’12) (about 59 per cent) comes from North America. Europe represents 29 per cent of our revenue in this segment, whereas APAC and ROW total about 12 per cent. In Laboratory Products & Services, North America contributes 66 per cent of revenues, followed by Europe (21 per cent) and APAC & ROW (13 per cent). (trailing 12 months through Q1’12).
Analysts predict that since around two-thirds of revenue is generated from the sale of consumables and services, the company is insulated to some degree from the cyclic nature of the manufacturing industry. Is this observation bearing out?
Yes – it is correct that from a product mix perspective, about two-thirds of our revenue is from the sales of consumables and services. This ensures that many of our 13,000-strong customer-facing team interact with our customers every day. This puts us in a position to have a unique mindshare in this industry.
What are the other strategies put in place by Thermo Fisher Scientific to maintain strong growth?
Looking at the end markets, we are indeed very balanced as nearly a quarter of our revenues come from each of our major market segments – Pharmaceuticals & Biotechnology, Healthcare & Diagnostics, Industrial & Applied and Academic & Government. This, combined with our unique product mix spanning Instruments, Equipment, Consumables, Reagents & Chemicals, Software & Services gives us an industry-leading position in most markets that we serve.
An important part of our growth strategy is to increase our presence in Asia Pacific and Emerging Markets. At the time of our merger in 2006 that created Thermo Fisher Scientific, only 10 per cent of our revenue came from Asia Pacific and emerging markets. Today it is 20 per cent and in five years we expect it to be at least 25 per cent. Our tremendous success in China, India and other parts of these exciting markets has shown that we have a proven strategy.
How did the India market perform during this period?
For us, India is an approx $2.2 billion addressable market and we are very excited about the opportunities that exist in areas such as pharmaceuticals, healthcare, food safety and environment.
India is one of the leading countries of the world in the area of biotechnology development and manufacturing. Companies such as Biocon, Dr Reddy’s, Shantha Biotechnics (now a part of Sanofi) are introducing world-class vaccines and drugs not just for the India but also focusing on some of the South Asian and Southeast Asian countries.
We also see that the Indian government is showing more commitment to investing in innovation, science and technology. We understand that there will be some significant investments in infrastructure and food safety labs all across the country.
During the time of our merger, we had revenues of about $50 million from India and we have been averaging double-digit growth since then.
We have made significant investments in India since 2006, such as four acquisitions and augmenting the sales, service and supply chain infrastructure. We have set up a green-field, state-of-the-art clinical service facility at Ahmedabad.
What are the consumer trends driving the pharma and biotech markets which impact (in terms of evolving regulatory imperatives, financial constraints impacting companies, etc)?
The world is becoming a much more regulated space, which means more requirements for measurement, detection and monitoring. We are observing increased scrutiny by the FDA on new drug applications which may have arisen from studies on adverse drug reactions. Hence, we see a trend that major pharma companies are implementing companion diagnostics programmes as a part of their formal R & D process.
We have had customers approaching us in the late stages of product development and have worked together in record time to launch the drugs, introduce them hospital-by-hospital and monitor the diagnostic results in the lab.
The convergence of life sciences and diagnostics is a natural area for us to focus on, since we have the widest technology base in these applications, as well as support of our biopharma services.
For the pharma and biotech end markets, what is the focus of the company in the APAC region and India specifically, in terms of product focus areas, etc?
Many of our global customers are also investing in APAC regions, and specifically India. Our aim is to be there with them anywhere in the world, to offer them the same level of technology and application expertise for them to achieve their business objectives. There is a large generic pharma manufacturing sector in India that is also adopting global standards, SOPs and quality procedures. We have enjoyed helping our Indian pharma customers grow rapidly and compete on a global scale in Europe and North America. With several pharmaceuticals going off patent in these coming years, we are very optimistic about the investments planned by our customers in India.
Last year, we established an APAC Chromatography Center of Excellence here in Ahmedabad to support customers in India and APAC on method development and to provide faster solutions for their complex R&D and QC problems. Our demo centre in Mumbai and training center at Nasik are also accessed by our customers to help them chose the right technology.
For Biopharma product development, we focus on offering tailor-made solutions such as customised media to help our customers speed up their product development and also support them to scale-up from R&D to pilot and finally to bulk manufacturing. Our single-use technologies are also helping our customers reduce their time-to-market.
Our hand-held raw material analysers are proving to be a huge productivity improver for pharma operations. They support our customers to achieve 100 percent scanning of all incoming raw materials.
What are the channels used to service this clientèle?
While we collaborate very closely with our key pharma and biotech accounts here, India is a diverse market and customers are spread all across the country. To ensure accessibility to our customers, we operate through a combination of our own market channel and other business partners. These third-party partners offer various value-added services from installation, commissioning and after sales services for our instruments and equipment to offering quick deliveries of our chemicals and reagents.
Our Indian operations regularly invest in our channel partners capabilities through extensive training on our products.
The company has acquired specialty chemicals channel Doe & Ingalls this FY. What was the rationale behind this move?
Doe & Ingalls is a leading channel for the production environment. This acquisition creates significant cross-selling opportunities for our existing customer base and to move from a historically research laboratory environment to production environment for our biopharma customers.
Is the company mulling further acquisitions? In which areas?
Thermo Fisher looks at organic as well as inorganic routes to growth. We have been investing in acquisitions that help us to enhance our offering to our customers and increase our access to growing markets worldwide.
The company has acquired a fair number of smaller technology-focussed companies in the recent years. How has the integration process been, given the global depressed economic scenario?
Since 2009, we have deployed about $7 billion (closer to $8B with One Lambda) in acquisitions, including the larger Dionex, Phadia and One Lambda deals. Acquisitions and integrations are among our core competencies, regardless of the economic environment. Just to cite an example, we have successfully managed the Dionex integration, delivering operating income from revenue synergies, cost synergies and tax efficiencies. Some of the other acquisitions we have successfully completed in the recent past are Ahura Scientific, Fermentas, Finnzymes, BRAHMS, TREK Diagnostics and Doe & Ingalls. Each of these has also brought on board some great talent and have transformed our competitive position.
What is the guidance for this financial year for the pharma and biotech segment?
We do not give formal guidance by end market but we do expect the biopharma segment, worldwide, will continue to grow well above company average, which is approximately 3 per cent.
*All Revenue figures, addressable market sizes, regional shares based on LTM as of Q1 2012 and before inter-company eliminations