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Fisher, Still Looking for Acquisitions, Expects to Expand Reagent Platform

Fisher Scientific customers and collaborators can expect the firm to continue to make acquisitions to bolster its life sciences portfolio — particularly its reagent play — as it aims to capitalize on a strong cash position.

Over the past two years, Fisher has entered the RNAi and cell-screening markets through its purchases of Dharmacon and Cellomics, respectively (see BioCommerce Week 8/11/2005).

These markets are relatively small for a firm that generated roughly $5.5 billion in 2004 annual revenue, but they followed its 2003 acquisition of Swedish proteomics shop Perbio for $714 million and its $3.7 billion merger in March 2004 with laboratory products firm Apogent — evidence of Fisher's willingness to splash cash in the M&A market.

Last week, Fisher reported free cash flow — which is cash from operations less capital expenditures — of $295.5 million for the nine months ended Sept. 30, up sharply from $185.4 million in the third quarter of 2004. In addition, Fisher finished the quarter with approximately $189.2 million in cash and cash investments.

How Fisher would use that cash was clearly on the minds of investors and analysts participating in the company's third-quarter conference call. Fisher executives were asked about the possibility of repurchasing shares, but that suggestion does not seem very high on the priority list for the firm.

"This is a highly
fragmented market …
and we see lots of opportunity out there."

"The real question being raised is, 'What is the priority for use of our free cash flow?'" said Paul Meister, Fisher's vice chairman, during the call. "This management team has created significant value for our long-term shareholders guided by a simple philosophy of reinvesting free cash flow to grow our business and drive long-term profitability, both organically and through acquisitions."

He added that management sees no reason to change that strategy. When pressed further about the firm's acquisition strategy, Meister added, "This is a highly fragmented market … and we see lots of opportunity out there," though he declined to be more specific about what areas the firm may be looking at for further purchases.

Fisher's acquisitions of Perbio and Dharmacon, in particular, gave the firm a foothold in the emerging proteomics and RNAi markets and provided it with the promise of a constant and predictable revenue stream from consumables. Such products are important to Fisher's growth — with consumables currently accounting for roughly 80 percent of the company's sales — and Meister noted that bioreagents are the fastest growing class of products in Fisher's business.

With the recent $49-million purchase of Cellomics, Fisher gained a high-content cell-screening platform, but the success of selling that product and increasing its customer base will partially depend on developing or acquiring accompanying reagents.

Cellomics "is a business where the longer-term growth really relates to our ability to develop a wide-ranging reagent platform to go with the instrument," Meister said. "As you would expect, that takes a little time. We're happy with it [thus far], but I don't expect big things out of Cellomics until some time next year."

However, a company spokesperson said in a follow-up interview with BioCommerce Week that in buying Cellomics, "one of the opportunities we immediately saw was to leverage our existing capabilities to develop reagents. Our Pierce Biotechnology company has a lot of expertise in that area, [and there are] synergies with Dharmacon."

Q3 Revenues Rise 12.7 Percent, Profit More Than Doubles

For the three months ended Sept. 30, Fisher Scientific reported revenue of $1.4 billion, a 12.7-percent increase over revenue of $1.26 billion for the third quarter of 2004. The firm said that its scientific products and services accounted for a little over $1 billion of that amount, with 6.7 percent organic growth year over year in the core scientific-research market.

"I don't expect big things out of Cellomics until some time next year."

Meister said that sales to research customers remained strong in the quarter and that there was "strong interest in outsourcing services to pharma. The whole environment for outsourced pharmaceutical services — whether that's supply chain management, whether that's laboratory testing, whether that's clinical trial supply management — I would say has improved considerably," he said.

Meister said that sales in Europe were a little better, though the company did not break out revenue figures by geographic region. However, he said the firm believes there are "structural issues" in Europe that will keep the growth rate below that of the US.

In addition, he noted that the firm did not encounter some of the difficulties selling to the pharmaceutical research market that was reported by competitors, such as Waters (see BioCommerce Week 10/20/2005). He said the diversity of Fisher's customer base and product portfolio insulated the firm from swings in specific market segments.

When asked about Dharmacon's performance during the quarter and the integration of that business, Meister responded, "It was very small when we bought it. The growth rate is very impressive, with the caveat that it's a small base, [but] we're very happy with the acquisition and very happy with the progress."

Fisher reported net income of $94 million, or $.77 per basic share, more than double the $36 million, or $.36 per basic share, reported for the comparable period a year ago.

The company does not report overall R&D expenditures, but Meister noted during the call that depending on the particular business unit, Fisher spends between 15 percent and 20 percent of its revenue on R&D, though some segments have zero R&D spending.

Fisher executives said they expect full-year 2005 revenue growth of 21 percent, and earnings per share of $3.52-$3.57.

— Edward Winnick ([email protected])

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