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New Beckman CEO Presses On Business Development

Almost a month to the day after becoming the new CEO of Beckman Coulter, Scott Garrett last week targeted top-line revenue growth as the lynchpin for meeting the company's ambitious earnings targets.

"We have achieved double-digit earnings growth in nearly every year since the Coulter acquisition in 1997," Garrett said in a webcast of the company's annual business review meeting held in New York City last week. "We expect to continue that growth but we need to focus on double-digit sales growth.

"We will manage by gaining market share, entering new market segments — from a product and geographic standpoint, and by acquiring technology," he said.

Wall Street was mixed in its response as shares in Beckman closed down 2 percent to $67.99 Tuesday.

Garrett said Beckman hopes to improve its market share in molecular testing, remote AIDS monitoring, prion testing, and cell imaging. The company is on the lookout to acquire DNA and protein-based chemistries, create new immunoassay alliances, and buy smaller complementary technologies, said Garrett.

Geographically, Beckman is taking aim at China, where it had $100 million in sales in 2004. The company's initial thrust in its China growth program is achieving trading-nation status, said Garrett. That status is a new initiative under the World Trade Organization that seeks to level the playing field for foreign companies in China, he said.

"It's a new process that would allow us to do business there like we do in Western Europe and be able to have direct employees that represent us," Garrett said. "We might get that this year, and once we have that, we could become more aggressive and get a better return. It's a great opportunity and we think it is just the beginning."

Garrett said he plans "no big changes" for the company.

"As soon as I become more comfortable and get more involved with the [leaders], I will be looking at management processes and structures," he said. "I do think there are some things we can do to get the company leaning forward and with more focus on growth. The business development agenda can get accelerated. We are going to become more aggressive for things that can build faster on our tools-to-solutions strategy in biomedical sciences, and do tuck-in acquisitions in diagnostics. And, we can continue to maintain a highly capable and productive overall management system with minimization in cost."

Beckman is coming off a fourth quarter where sales grew 8.5 percent year-over-year to $693 million, while sales for the full year increased 9.8 percent to $2.4 billion. Meantime, earnings during the three-month period ended Dec. 31, 2004, fell 15 percent to $60 million. (See BCW 2/3/2005) However, annual net income grew 2 percent to $211 million from $207 million, year over year.

Garrett, who joined Beckman Coulter in 2002 as president and chief operating officer, said the company is attracted by the predictability of assay and reagent sales versus the "lumpy pieces" of instrument sales. It's the same tango that other companies that sell instruments and reagents dance to in the molecular budget tools market.

Within Beckman, the seasonality of instrument sales over the years is recorded in a chart Garrett described as a "heartbeat" chart because its peaks, typically appearing in the fourth quarter, resemble those on an EKG.

Indeed, in 2004, Beckman Coulter derived more than 64 percent of its revenues from after-market sales of operating supplies, chemistry kits, and service, while 36 percent of total revenue came from systems sales.

"We have a steady predictable growth in consumables, which gives us our cash flow, and consumables growth gives the best insight into health of our business," he said. "But we will be continuing our pipeline of new systems."

Garrett said that sales of consumables are more profitable than instruments and growth in that sector should provide Beckman Coulter with expanding profit margins, which, combined with lower operating costs, should lead to earnings growth.

He also said the average order size for clinical laboratory instruments that the company receives is getting larger.

"Where they were in the $100,000 to $200,000 range two years ago in the clinical lab, almost half now have orders of $900,000 to $1,000,000 or more," he said. "These are big capital decisions in the hospitals and there are more and more people involved within the hospital in making that decision. It's harder to determine when the order was made and when we obtain the purchase order. The selling cycle and the complexity are growing. We have lab automation packages now that are in the $4 million to $6 million range."

Perhaps the tension between the predictability of reagent and assay sales and instrument sales is best illustrated in the company's immunoassay business.

"This is a consumables business," said Mike Wheelan, vice president of the company's immunoassay segment. "We need the platforms to execute, but without the menu [of assays on the instrument], you can't execute the business."

The company expects to have more than 100 UniCel DxI 800 immunoassay systems installed by the end of the year. The product began shipping in June 2003.

The goal for the system, which can perform 400 tests in an hour, said Wheelan, is to consolidate a lab's workflow onto one machine.

"There are three to five [immunoassay] platforms in the average hospital lab, and two or three could be performing 70 percent of the work," he said. "If we could provide one device, that would be an attractive position. The opportunity for consolidation is great."

Since the platform began shipping in 2003, the company has signed collaborations with Bio-Rad and Hycor (now merged into Stratagene), among others, to supply assays for the platform.

The goal in immunoassays is to connect hematology, chemistry, immunoassays, automation, and offer a complete laboratory suite, he said.

The Market

Garrett described the markets in which Beckman operates as the "biomedical continuum," a set of customers that range from biologists doing discovery research, to the clinical labs that use Beckman reagents and automated platform instruments.

The company breaks down this "continuum" into six pieces — discovery research, drug research, clinical research, early-stage diagnostics, laboratory diagnostics, and point-of-care diagnostics.

Garrett told analysts that Beckman is the only company that operates at each segment of the continuum today. However, the 14 other companies that comprise the BioCommerce Week Index, share similar attributes: They operate across the biomedical spectrum and have portfolios of multiple technologies to address those segments and mitigate the risk of one technology becoming irrelevant.

Garrett's rationale is that being in touch with all aspects of the market allows the company to be in touch with the discoveries produced in academia and biopharma that may affect the diagnostics business. The company calls this process of being involved at all segments its "tools-to-solutions" strategy.

"We are going to realize the power of the biomedical continuum," said Garrett.

— Mo Krochmal ([email protected])

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