Thermo Fisher Scientific has no short-term plans to dramatically change its newly combined sales force or product portfolio, a company executive told BioCommerce Week following European approval for the firms’ $10.6 billion merger last week.
As Thermo goes about the initial stages of the integration, customers should not expect many changes, according to Marc Casper, executive vice president and president of analytical technologies at Thermo Fisher. “It’s business as usual from an organizational approach,” he told BioCommerce Week.
The company, which has 30,000 employees, 7,500 sales people, and 350,000 customers worldwide, has been organized into three operating groups: Analytical Technologies, Laboratory Products, and Customer Channels. Marijn Dekkers, who was president and CEO of Thermo Electron, is now CEO of Thermo Fisher Scientific. Paul Meister, vice chairman of Fisher, is non-executive chairman of the combined company.
The merger combined Thermo's broad portfolio of mass spectrometers, chromatographs, sample prep instruments, and other lab equipment with Fisher's biochemicals, cell-culture media, RNAi, and diagnostic products, as well as its pharma services and global lab distribution network.
“We are very comfortable with our portfolio, [and] I don’t think you’re going to see dramatic changes from addition or deletion,” said Casper. “I think you’ll see us focus on innovation.
“Our commercial approach is going to look very similar to what it looks like today,” he said. “It can evolve in the long term as customers change their expectations, but I don’t see a lot of dramatic change in our commercial approach.”
Thermo Fisher, which will generate $9 billion in revenue this year, will trail only GE Healthcare, with revenues of just over $15 billion in 2005, among the BCW Index companies. After Thermo Fisher, the next biggest player by sales is Beckman Coulter, which anticipates 2006 revenue of $2.5 billion.
“One of the unique things that Thermo Fisher Scientific can offer because of both our scale and breadth of offering is really unique workflow solutions in the major disciplines in life science research,” said Casper. He said, for example, that the firm would develop new integrated tools based on the Pierce protein reagents from Fisher and Thermo’s mass spectrometers.
“I think the single biggest impact [of the merger] is that with the scale that we have, we have the ability to meet our customers’ needs and evolving needs,” said Casper. “We’ll be able to not only provide a complete range of solutions, but as new challenges come out we’ll have the resources and the R&D scope to develop new solutions for those workflows.”
He noted, however, that the merger did not bring with it a large untapped customer base. “I think the companies served similar customers, as we have complementary products,” he said. “In reality, we were calling on similar customers.”
According to Casper, the firm has not set a timeframe on the integration process. “Our first phase is going to be a roughly three- to six-month process of putting the companies together,” he said. “Then we’ll get into subsequent ways of work.”
Casper said the first phase is about branding, letting customers know about the combined company, and training employees. “As we get deeper into it, we’ll look at other areas as we integrate the business.”
New Customer Outlook?
Thermo has hinted in the past at how it would change the way it interacts with its customers once the merger has closed. Speaking at the Robert W. Baird Growth Stock Conference in Chicago earlier this year, Dekkers said Thermo will have to get accustomed to Fisher's method of selling through what he called a "routine standard contract basis."
He said that while Thermo has traditionally sold its products, especially big capital instruments, in a one-off fashion, Fisher, especially for mid-tier instruments and consumables, usually sets up dedicated and ongoing contracts (see BioCommerce Week 5/17/2006).
Dekkers said this strategy "is where we will have to adjust the way we sell," and it "could be an upside" of the merger. "There will be a refinement in the selling methodology" wherein Fisher's sales force will sell Thermo products in this way.
He said this sales method will enable Thermo's sales reps to gain access higher up the administrative chain at its customers, especially big pharma, which would embrace the strategy. Pharma "would like to be able to buy more things under contract," Dekkers said. "It would be more efficient [for them] … rather than having 200 scientists make 200 individual purchases."
Saving Cash, Eyeing New Markets
Thermo Fisher expects to realize $200 million in cost synergies from the combination. The firm anticipates that $150 million of the total will come from cost savings, including consolidating administrative activities, "rationalizing" manufacturing operations, and using the combined company's mass to get better purchasing deals.
The remaining $50 million will come from revenue opportunities, especially cross-selling; expanded geographic reach; and the ability to penetrate new, though undisclosed, markets.
Dekkers said earlier this year that Thermo Fisher expects to see $75 million of that $200 million in 2007, during which time he said the company will generate between $9.2 billion and $9.3 billion in total revenue. He added that Thermo Fisher's long-term financial goals are to grow organic revenue between 6 percent and 8 percent annually.
“We are very comfortable with our portfolio, [and] I don’t think you’re going to see dramatic changes from addition or deletion. I think you’ll see us focus on innovation.”
He also noted that 56 percent of the combined company's revenues will come from consumables, 28 percent from instruments, and 16 percent from software and services. On the market side, Dekkers said 45 percent of Thermo Fisher's customer base will be in life sciences, 36 percent will be from industrial/environmental segments, and 19 percent will be in health care.
He said markets with "attractive growth opportunities" include drug discovery, proteomics research, pharmaceutical services, molecular diagnostics, immunohistochemistry, and environmental regulatory compliance.
Although Casper suggested additions to the portfolio were not front and center in Thermo’s thinking, Dekkers said in a conference call last month that acquisitions are still a near-term possibility.
“With a billion dollars in cash flow after the Fisher merger, and a strong balance sheet, we will continue to be active on the acquisition front, especially considering the fact that our industry is still highly fragmented, and therefore will likely continue to undergo a fair amount of consolidation,” said Dekkers (see BioCommerce Week 10/25/2006).
“The majority of our divisions will not be involved in the Thermo-Fisher integration because this primarily affects our lab equipment and diagnostic product line,” he said. “So, those other divisions would be ready to take on an acquisition if there was a good opportunity.”
One question hanging over the molecular biology tools industry now that the merger has been consummated is whether other large competitors will aim for a merger with similar size and scope, or whether the smaller, piecemeal additions favored recently by firms such as Qiagen, Invitrogen, Bio-Rad Laboratories, and Applied Biosystems will remain the norm.
“It’s too early to say” whether other life science tool firms will follow Thermo Fisher’s lead, Casper said. “This is a transformative move from a company’s perspective, and really building a broad leader in terms of the technology one can offer to the customer, and I’m sure the other companies will look at their options and figure it out.”