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PerkinElmer to Focus on Applications, Small Acquisitions as Friel Prepares to Take Helm

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
As Rob Friel prepares to take over as CEO of PerkinElmer early next year, he told investors this week that he will continue to focus the company on specific applications rather than on specific technologies and that the firm is likely to proceed with its strategy of making smaller acquisitions.
 
Friel and Chairman Greg Summe answered questions from analysts and investors about a variety of issues at the Thomas Weisel Partners Healthcare Conference, which was webcast from Boston. Summe reflected on the transition of PerkinElmer during his tenure as CEO over the past decade, while Friel discussed growth drivers for the firm.
 
Friel, who had been president of the Life and Analytical Sciences business since last year, became president and chief operating officer of PerkinElmer on Aug. 1. The firm expects him to be elected CEO in February. At that time, Summe will become executive chairman of the board, a title he will retain through the annual shareholders meeting in April 2009.
 
Friel joined the company in 1999 as chief financial officer and was appointed vice chairman, director, and president of the LAS business in 2006. In his new role, Friel will be responsible for both LAS and the smaller Optoelectronics business.
 
As PerkinElmer gets ready for the transition, Summe was asked during the conference to reflect on the changes for the company during his time at the helm.
 
“We started a transition of PerkinElmer, which was EG&G, in 1998,” he said. “What we wanted to do with that business is [to] go from a large number of businesses to” a smaller business focused on high-growth opportunities.
 
Summe said that since that time the firm has done 37 acquisitions and divestitures to realign its portfolio. Today, 85 percent of the business is focused on health sciences and the rest on the photonics business. Before the realignment, health sciences sales accounted for less than 10 percent of the firm’s revenue.
 
A major part of PerkinElmer’s shift in focus came just two years ago, when the firm sold its aerospace, semiconductor, and fluid testing businesses for roughly $400 million (see BioCommerce Week 10/13/2005).
 
“One of the things I’ve tried to focus on is to get away from a product and technology [focus] and more on an application focus,” said Friel. “And I think going forward that’s going to be the driver within PerkinElmer, to really focus on those specific applications where we think we have differentiated products, [and] that really gets us more aligned with the customer.”
 
Cell Analysis and Services
 
PerkinElmer has increasingly focused its growth initiatives in the health sciences area, with particular strengths in genetic screening and recent emphasis on the cellular analysis field. It has made a few acquisitions this past year aimed at expanding its base in the cell analysis and cell-based assay areas.
 
In January, PerkinElmer purchased Euroscreen Products and Evotec Technologies (see BioCommerce Week 1/3/2007 and 12/6/2006.)
 
It followed those acquisitions with the purchase of cell-imaging software maker Improvision in April (see BioCommerce Week 4/4/2007). And just last month, the firm launched a new cell-based assay development service (see BioCommerce Week 8/15/2007).
 
“We think the cellular science and cellular imaging area is an area of increased investment, and so that’s why we’re emphasizing that area,” said Friel.
 
Though it has continued to make acquisitions, Summe noted that two years ago PerkinElmer started switching its focus from growth via acquisitions to organic growth.
 
“We stepped up our spending on R&D to six and half percent of revenue,” said Summe. “We stepped up our spending on selling and marketing. We have been seeing some terrific results from this investment in organic growth. Last quarter our organic growth was 9 percent. The previous quarter it was strong as well.”
 
Friel said the firm has increased its sales and marketing spending, particularly in Asia, where it is experiencing high growth along with the rest of the industry.
 

"I think going forward that’s going to be the driver within PerkinElmer — to really focus on those specific applications where we think we have differentiated products, [and] that really gets us more aligned with the customer.”

Asked whether PerkinElmer’s M&A strategy would continue to follow the industry standard of smaller, focused deals, Friel said, “We probably look at both, but what I think we’ve found over time is the preferred strategy is to do the small, bolt-on” acquisitions.
 
“It’s a little less disruptive,” he said. “We can characterize the business better, and I think the integration goes a little smoother. I think you can expect from us to continue to look at those technology [and] product bolt-ons, particularly in the areas where we know well.”
 
Friel also noted that the firm has been “ramping up our service business fairly significantly.” The service business currently contributes about 15 percent of PerkinElmer’s total revenue.
 
“We look at it as a great opportunity and it really builds off of our breadth of technology and products,” he said. “We recognized a couple of years ago that there was an opportunity … to really go in and maintain the entire lab for our customers.”
 
He said the OneSource asset-management program, which was initially focused on the biopharma industry, has expanded over the past couple of quarters into the fluid and consumer products areas. “This is a significant growth opportunity, and we do believe we are taking share,” said Friel.
 
Interestingly, one of PerkinElmer’s competitors in the research tools industry, Applied Biosystems, just launched a new workflow-focused services offering and has eschewed the asset-management model believing such programs are not favored by customers (see feature article in this issue).

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