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Bio-Rad CEO -- and Scion -- Norman Schwartz On Growth Strategies

Norman Schwartz has literally grown up in the executive suite of Bio-Rad Laboratories. He says he doesn’t remember, but there is a family story about his crib being in the back of the company’s offices.

Today, Schwartz, 54, the son of Bio-Rad Laboratories founders David and Alice Schwartz, is the CEO and president of the 4,800-employee company, which was founded in 1957.

BioCommerce Week spoke to Schwartz this week at the JPMorgan Healthcare Conference in San Francisco about his vision for Bio-Rad’s strategy for growth.

Bio-Rad is a public company, but it is very much your family’s business.

Well, most of the shares are out there in public, but because we have this two-class stock system, it is well controlled.

How does that control affect your strategies?

It allows us to take a longer-term approach to the market. And, at the end of the day, the kinds of investors that invest in Bio-Rad seem to be those that have a similar view. That is, investing and managing for the longer term, which we obviously feel is a better strategy. What we try to focus and concentrate on is our markets and our customers and growing faster than the competition. That’s our primary focus, not Wall Street. We measure growth against the markets that we are serving. Typically, we target the segments that are growing faster than 3 percent.

This week there are news reports that Canada has discovered another cow apparently testing positive for mad cow disease. It seems that every time there is such a report, it moves Bio-Rad stock price.

We have a 65 to 70 percent share of the BSE market. That [market share] is the result of a little bit of luck and being in the right place at the right time. I don’t know if it was luck or skill, but we have the most sensitive and most specific test and, because of our manufacturing capabilities, we were able to deliver and support the test.

The test is designed to be a screening test, and designed to be very sensitive. What you really want in a test like this is something that picks up everything. The worst thing you can have is what you might call a false negative. The test is designed so that you get initial reactives. Then, you have to run those to ground to then determine if they are positive or not.

Where is the growth in this specific market?

This started four years ago as testing started up and got established in different countries, and the market grew very rapidly. It went from zero to $100 million almost overnight. Today if you look at it, growth will come from new countries doing routine testing — Canada, the US, or Latin America or Australia. Those are the areas that are not doing routine testing. The American market starting up would have the most impact. It is a large part of the beef market. But, it really is hard to predict what will happen or how the government will respond.

It’s in the government’s hands. The control that we have over our destiny really has to do with the products and the support of our services.

Are you at capacity?

No, there is plenty of capacity. That is one of the advantages that we have as a diagnostic and life sciences company. There is a tremendous capacity for producing these ELISA tests.

You recently got approval from the FDA on your BioPlex 2200 platform, and for a rapid HIV test (see page 8). Will those products move the needle any time soon on your top line?

In the short term, probably not. Our kind of style of operating, with 8,000 products in our portfolio, is to have a base-hit approach. Not any one product moves the needle, it’s building brick-by-brick. It’s important to differentiate our BioPlex 2200 from our BioPlex product in our life science [business], a research tool. The 2200 is a large immunoassay platform utilizing the Luminex bead technology that allows us to multiplex the testing. It has been a very significant investment for our diagnostics business [to develop it] over the last five to seven years.

Have you had any placements of it?

There are no placements of the product yet, but we do have a lengthy list of potential placements. These units are typically placed in a laboratory, rather than sold, in a reagent-rental model. If the instrument were to sell, it would probably sell in the $150,000 to $200,000 range. As BioPlex starts, it will have a certain market potential as it has a limited menu of assays.

So in the first year, we wouldn’t expect a major sales impact from placing this system. But as we add more assays into the system that would expand the placements and the revenue that you would derive. It’s a long-term approach. The extent that you compete is based on the menu you have on a platform. The menus that competitors have tend to differentiate the products. Beckman Coulter is strong in the cardiac area while PPC is strong in the fertility area.

What is your view of the market, say in the next five years?

The company was founded with the idea of providing useful products to advance scientific discovery. That’s the same formula or ideal going forward. The last 10 to 15 years, the study of DNA has been a driver. There is a lot of talk now about proteins. We are well-positioned in the protein market.

You just launched the Experion product in life sciences. Is that part of your proteomics strategy?

Experion is the next-generation move in electrophoresis. It’s a lab technique that is very useful for separating proteins and DNA. Experion utilizes Caliper’s chip technologies. For certain applications, this could be a great advance. That will need to be proven out in the market, but we are quite excited about it.

Have the events that have occurred in Europe over the past few weeks in regard to the RT-PCR market, opened up this market? (See BCW, 12/23/2004 and 12/16/2004)

Certainly the events in Germany are, I think, a big change in real-time PCR.

The acquisition of MJ is certainly a signal of your intents in the RT-PCR market.

The combination of Bio-Rad and MJ really gives us a broader platform of technologies and products that we can build on. The amplification market is certainly a robust market, and these tools, especially real-time PCR, are gaining wider and wider acceptance.

You said in your last conference call that you were hoping that the litigation involving MJ would be settled by the end of the year. Has there been any movement toward a settlement?

We are in active discussions to try and settle the litigation. There is nothing to report as yet. I am optimistic.

You have two business units, clinical diagnostics and life sciences. How does the convergence of these two fields affect your strategies?

The way we look at it is that the technologies gestate over the years in the research environment. Then there is the opportunity to apply it in diagnostics. We look at diagnostics as more specific applications of these research tools. One very good example is taking the HPLC technology, which used to be a fundamental research tool, and we applied that in the diagnostics market in measuring long-term diabetic control, a fraction called hemoglobin A1C. Today, we have very good position in the diabetes monitoring market with that.

You just did a $200 million private placement. What are your plans with that funding?

The $200 million financing we did in December was really opportunistic for us. We have no specific short-term use for the money. The availability and the low cost gave us a chance to put in place some good long-term financing. The idea is that we would apply that to the business, investing in internal growth, and to a certain extent, acquisitions. Over time, about two-thirds of our growth has come from internal product development and the investments that we have made there, and one-third from acquisitions.

Is this a buyers’ market in terms of acquisitions?

There are some recent acquisitions where the buyers have paid quite handsome multiples of sales and others that to us seem more reasonable. There seems to be a combination. The cost of money is so low right now that I think it does help to fuel acquisition strategies. For me, anybody can buy something. The key is integrating it into your operation and making it a valuable part of what you do. It’s understanding the process of integration and the value of integration and spending the right amount of effort focused in that area.

What is your view of the emerging systems biology market?

The idea you need to extract information — studying DNA, proteins, cells, and putting together the information from all three to understand the whole organism. What I see for the foreseeable future is that there will be a piecemeal approach where a lab or an institution uses the best of class of each of those technologies to build whole pictures. You play in it by mastering certain areas — in particular, disease technologies or disease-focus-areas where you can make a difference.


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