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Agilent Focuses on Workflows As It Eyes Benefits of Stratagene Buy, Revenue Growth

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Agilent Technologies intends to continue focusing on building workflows for customers rather than aiming to be a one-stop shop for life science researchers, company officials said last week during the firm’s Bio-Analytical Measurement Investor Forum, which was webcast live from its facilities in Wilmington, Del.
 
The firm has become increasingly focused on the life sciences sector since it decided to sell off its semiconductor and other non-core businesses two years ago (see BioCommerce Week 8/18/2005).
 
Agilent officials said the life sciences market represents a $14 billion opportunity for the firm’s instruments and reagents, and it expects to grow revenues in that market segment 12 percent to 14 percent annually over the next three years — a much higher clip than the overall market growth rate of 7 percent to 9 percent it predicted.
 
Bill Sullivan, president and CEO of Agilent, also used the opportunity to lavish praise on Chris van Ingen, president of the Bio-Analytical Measurement (formerly the Life Sciences and Chemical Analysis) unit, who is retiring on Oct. 31, the end of Agilent’s 2007 fiscal year.
 
“Chris has done a superb job of redefining LSCA inside the company,” said Sullivan. He noted that the firm’s LSCA business was growing only 5 percent annually under Hewlett-Packard, which spun out Agilent in June 2000, and “really wasn’t going anywhere.”
 
“The strategy that Chris has laid out and this team will continue is to really focus on being this workflow solutions provider,” said Sullivan. “Historically, we’ve made benchtop instruments … and what we want to do is continue to focus on having the visualization of insight, by us moving further into sample prep, being able to do more of the automation, to be able to provide more informatics,” he said.
 
Agilent has not announced who will run the Bio-Analytical Measurement unit, which consists of the Life Sciences Solutions and the Chemical Analysis Solutions businesses, after van Ingen retires.
 
Sullivan also said the firm intends to remain active in the merger and acquisition market. Over the past 12 months, Agilent has acquired eight companies that fit into its BAM unit.
 
“We have also continued to invest in acquisitions to supplement our organic growth,” said Sullivan. “I’ve been very clear on this. We have not taken a strategy to consolidate the industry. You never say never, but to date we have never done that. We continue to focus on technology companies that we can integrate and leverage through our existing sales channel.
 
“The number one priority for acquisitions is in the life sciences,” said Sullivan, and “the largest acquisition to date has been Stratagene.”
 
The $250 million acquisition of Stratagene a few months ago provided the firm with crucial workflow technologies that can be combined with its portfolio of instruments and chemistries, company officials said (see BioCommerce Week 6/13/2007).
  
Focus on Workflows
 
While the firm sees plenty of opportunities to grow revenues in the high single digits in the $6 billion chemical analysis market, it is particularly focused on the life sciences sector.
 
“This business has been engineered since Chris’ tenure to really drive towards the life science space,” Nick Roelofs, general manager of BAM’s Life Sciences Solutions Unit, said during his presentation. “Our strategy — the most critical comment I can make — [is to be the] leading workflow partner for life science solutions in the pharma, academic/government, and diagnostic markets.”
 
He added, “This is not the one-stop shop [model]. Do not confuse workflow solutions with Thermo Fisher’s attempts to sell everything to the customer,” said Roelofs, adding that that’s not a bad strategy, it’s just not the one Agilent is pursuing.
 
“We have to move all of the businesses in life sciences … to Agilent’s operating model,” said Roelofs. Company officials have previously stated that all business within the company must provide a 20 percent return on invested capital, which is a rate of return that surpasses many of its closest rivals, according to a slideshow that accompanied the presentations.
 
For example, Roelofs highlighted the firm’s microarray business, saying “it has been a wonderful peripheral vision tool to be in the microarray business for a decade. Eight of those 10 years, or nine of those 10 years, it was not a wonderful P&L exercise. We are moving that to be an acceptable to wonderful P&L exercise. We’re doing that across the portfolio of [the Life Sciences Solutions Unit].”
 
He added, however, that selling microarrays for gene expression research is a “poor business to be in.” The price point is coming down, and the number of tests is not rising fast enough, which he said has been Affymetrix’s fundamental problem recently in that market.
 
Roelofs noted, though, that the market for using microarrays for microRNA analysis and comparative genomic hybridization is emerging rapidly, and is where Agilent is focusing its efforts.
 
“We’ve turned that [microarray] business into a reasonable and emerging operating model, while we maintain very significant top-line double-digit growth,” said Roelofs. “But what we’ve added to that is microfluidic competence in DNA separation and RNA separation … and real-time PCR with the Stratagene acquisition. So, we’re suddenly positioned across the genomics portfolio to address the entire workflow.”
 
He said the Stratagene acquisition “does several things for us. First, in completing the workflow, it adds another component in sample prep. Second, it immediately accelerates our focus on the academic/government market — 85 percent of [Stratagene’s sales] channel is there. Third, they do not have the strength globally that we have in Asia and India,” thus there is a largely untapped market for Stratagene’s products.
 
“Stratagene has diagnostic elements in it,” Roelofs added. “It is a diagnostic provider, [and has] GMP manufacturing [and] competence with the FDA. It’s not a big thing. It’s a small piece of their business, but it gives us visibility in the best way for a company like Agilent to play in diagnostics. And, by the way, their diagnostic effort is very profitable.”
 

“This is not the one-stop shop [model]. Do not confuse workflow solutions with Thermo Fisher’s attempts to sell everything to the customer.”

He said the firm’s “aspirations here are modest,” and added that Stratagene’s PCR technologies can be applied to tools and reagents for food testing and other industrial applications.
 
Life Science Odds and Ends
 
Roelofs also highlighted the firm’s emphasis on its liquid chromatography technologies and the crossover that provides between the life sciences and chemical analysis businesses.
 
“We’re really pushing forward with the Chip-LC concept,” said Roelofs. “It’s nascent, but it’s a potential revolution for the chromatography market in terms of the way people think of columns and the way people think of chromatography.”
 
He said the Chip-LC is a small part of Agilent’s current revenues, but it is emerging. “What it has the potential to do is to transform [and] restate the steel-tube column market. It will not succeed in that full potential until such time as we have all of the applications worked out, all of the right packing materials,” he said.
 
Roelofs predicted it would take “five years or so to deliver that potential.”
 
He said the firm is also working on developing workflows for its GC-MS platform for metabolomics research and other industrial applications.
 
“I think there is a sweet spot in metabolomics,” said Roelofs. “I do not think there is a pure play. I think we are not only uniquely positioned by having GC-MS, but I think metabolomics is going to have to be GC- and LC-MS. We may be able to make a machine that does both, but right now we are the best positioned player to serve both.”
 
In other comments, Roelofs said that he believes Agilent’s mass-spec technologies are starting to take market share from competitor Applied Biosystems.
 
And he said Waters “may or may not” be seeing Agilent’s market penetration in India and China. The firms are primarily rivals in the liquid chromatography space, trying to capture business from the same pharma and biotech base.
 
“If you look at our position with Waters, we are on any given day, any given country, any given region, at parity with them — a couple points above, a couple points below,” said Roelofs. “I think if you looked in the emerging regions, in India and China, and maybe even to some extent Eastern Europe, I would … say that we’re taking some market share there.”
 
One analyst pointed out during the question and answer session that Agilent is not involved in the DNA sequencing market and asked if the firm was considering a play there, particularly with a next-generation technology.
 
“Certainly, there is a restatement happening” in the DNA sequencing market with the variety of high-throughput next-generation instruments that are starting to hit the market, said Roelofs.
 
“We’re going to watch that restatement and see if we can find a technology internally or externally that plays. But right now it’s pretty nascent,” he said, and doesn’t appear to fit in with Agilent’s operating model.
 

“I’m not going to tell you we won’t go there,” said Roelofs. “I acknowledge that it is a DNA-detection technology that we don’t have, and we certainly now have great peripheral vision into that space.”

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