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Pharma Spending Rebound, New Products Push Thermo Sales up 7 Percent in Q3; Fisher Sales Gain 11 Percent

Thermo Electron said this week that improving sales to big pharma customers helped the firm post 7 percent revenue growth for its third quarter.
 
The company, which derives only 5 percent of its total sales from the top 10 pharmaceutical firms, was not hit as hard as some rivals by last year's dip in pharma spending. A rebound in that market was noted earlier this week by Waters, which believes that pharmaceutical firms are now releasing their capital budgets, benefiting vendors that sell big-ticket research instruments (see related article).
 
Thermo President and CEO Marijn Dekkers said during the firm’s third-quarter conference call this week that the stronger sales to bigger pharma customers were “encouraging.”
 
“Biotech is growing the fastest, but our sales to big pharma are also up over last year, and academic markets are showing modest growth,” Dekkers said. “We saw good growth in pharma in the third quarter, getting cautiously stronger, in spite of the fact that the year-over-year comparison in pharma is getting a little tougher as well,” he said.
 
Dekkers said that it’s hard to comment on strategies at specific pharma customers, though. “Even companies that, reading from the paper, don’t seem to be doing that well, could still grow significantly for us, depending on the specific technology needs they have,” he said. “But overall, I would say it’s an encouraging trend that the spending is up over the third quarter of last year.”
 
Dekkers said the contract research organization and generic pharmaceutical markets are both “huge opportunities” for the company’s products, particularly its LC offerings. He said the CROs have become a major selling opportunity because big pharma is outsourcing more development work. “As CROs get that work, they need to build laboratories, which is good for us,” he said.
 
“Generic pharma is … also realizing more and more that they want to do their own research,” said Dekkers. “It’s actually very interesting to see that generic pharma is in some cases changing its model from just copying drugs to beginning to try to invent and develop drugs, which is something they haven’t traditionally done. But to us, it’s all good news.”
 
As Thermo nears completion of its $10.6-billion merger with Fisher Scientific, company officials were asked during the conference call if Thermo’s acquisition strategy would change.
 
“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,” replied Dekkers.
 
“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.”
 
The firms are awaiting approval of the merger from the European Commission, which they expect by Nov. 9. Once they have that approval, the merger will immediately be completed.
 
“The management teams who are going to be responsible for the combined company are in place, [and] the organization has been announced internally,” Dekkers said. “We’re completely lined up to get this done by November, and to hit the ground running.”
 
Q3 Gains for Both Thermo and Fisher
 
Thermo reported third-quarter revenue of $725 million, a 7-percent increase over sales of $679 million in last year’s Q3.
 
Revenues for the firm’s life and laboratory sciences business grew 5 percent year over year, company officials said during the conference call. Dekkers said new products, particularly its mass spectrometers, were key growth drivers during the quarter.
 
Geographically, sales to Europe and Asia both grew in the high single digits, while sales to China grew over 15 percent. Sales to North America were up slightly in the quarter, while sales to the rest of the world grew over 30 percent, company officials said.
 
Thermo reported net income of $48.8 million, or $.30 per share, for the third quarter, compared with net income of $57.7 million, or $.35 per share, for the comparable period last year. Its Q3 2005 results include a gain of $17.1 million, or $.10 per share, on the disposal of discontinued operations.
 

“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.”

The firm spent $38.7 million on R&D in the quarter, nearly flat with last year’s third-quarter R&D spend of $38.8 million.
 
Thermo finished the quarter with $158 million in cash and cash equivalents.
 
After releasing the Q3 results, Thermo officials raised the firm’s full-year revenue guidance to between $2.88 billion and $2.9 billion from previous guidance of $2.81 billion to $2.86 billion. The firm also raised its 2006 EPS guidance to a range of $1.74 to $1.77 from previous estimates of $1.68 to $1.73.
 
Meanwhile, Fisher Scientific this week reported a 10.8-percent increase in third-quarter sales and a 62 percent spike in income.
 
For the quarter ended Sept. 30, Fisher posted net sales of $1.51 billion compared with $1.36 billion for the same quarter in 2005.
 
The firm’s net income increased to $152 million, or $1.22 per share, from $93.5 million, or $.77 per share, in last year’s third quarter.
 
Sales of scientific products and services in the third quarter increased to $1.17 billion, a 9.9 percent increase over the prior-year period, Fisher said.
 

As of Sept. 30, Fisher held $279 million in cash and equivalents.

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