Thermo Electron is betting that new product introductions from the past year — led by its LeadStream, LTQ OrbiTrap, and Darwin LIMS products — will drive revenue growth and invigorate sales of bundled offerings in 2006.
Though the firm posted overall fourth-quarter revenue growth of 21 percent, and 24-percent growth for its Life and Laboratory Sciences business, Thermo President and CEO Marijn Dekkers acknowledged last week that sales of integrated workflow bundles remain "very small." Company officials hope that by focusing on research applications such as ADME-Tox, biomarkers, protein research, and blood screening for various infectious diseases, they can get more customers to buy bundled packages of integrated tools.
Asked during the company's fourth-quarter conference call to quantify bundled workflow sales — which would include automation, service, and LIMS products — Dekkers said, "It's still a very small number. It's 1 or 2 percent of total sales."
Dekkers said the firm expects more customers to purchase bundled workflow tools this year, but added, "You have to be very selective as a supplier which application to do that in. You cannot do it for everybody … so, we have focused on the larger applications that [offer] a lot of revenue opportunity, where quite a lot of customers are struggling with the same workflow issues."
"But coming out with this at the beginning of 2005, when a lot of budgets were already set, in a year when there was quite some conservatism in spending, particularly in big pharma, we were, I think, a little bit ahead of … our expectations that we could drive such a dramatic workflow change in a short period of time."
He also noted that Thermo sees bundling opportunities in new labs that need to be equipped, where "it's not so much around a specific workflow, but will help them in an efficient way."
The firm's ADME-Tox integrated workflow offering, called LeadStream, is a major point of focus for Thermo, following a year in which it failed to sell a single package. "It turns out that a lot of our customers are liking the product, are evaluating it, [and] are putting it in their budgets for 2006," Dekkers said.
"But coming out with this at the beginning of 2005, when a lot of budgets were already set, in a year when there was quite some conservatism in spending, particularly in big pharma, we were, I think, a little bit ahead of … our expectations that we could drive such a dramatic workflow change in a short period of time," he said. "It is a significant improvement in the workflow, but the customer also has to throw the old away."
Thermo introduced LeadStream at last year's LabAutomation conference (see BioCommerce Week 2/3/2005). The package includes either a TSQ Quantum quadrupole or ion-trap LC/MS instrument, the LeadStream WorkCell automated platform for conducting assays, and the LeadStream Reformatter, an automated plate-preparation technology. The components are integrated through the LeadStream Orchestrator software, which collects and stores data and controls the workflow processes of the system.
The system sells for between $1.5 million and $2 million, company representatives said, noting that it is built to a customer's needs and can be expanded through the use of modules.
Dekkers also said the firm expects the LTQ Orbitrap, a hybrid mass spectrometer introduced at last year's ASMS conference, to be a key driver of growth in 2006. The system sells for around $800,000, and although Dekkers would not say how many of the Orbitrap instruments the firm expects to sell this year, he said sales efforts would emphasize workflow efficiency.
"We believe very much in workflows," Dekkers said. "How do they prepare the actual sample before it goes into the mass spectrometer? And then, how do you get the data, how do you get the best possible answer?"
Part of that sales effort will center on Thermo's Darwin LIMS product, which launched during the fourth quarter of 2005. "This product combines Thermo's best LIMS technology with those from our Innaphase acquisition in 2004," said Dekkers (see BioCommerce Week 9/16/2004). He said the product is now being demonstrated to customers.
Q4 Revenue Rises on Acquisitions
Despite its difficulties selling LeadStream in 2005, Thermo's fourth-quarter revenue increased 21 percent to $741 million from $613 million in the year-ago period, though 19 percent of that growth was the result of acquisitions. The firm also noted that currency translation cost the company 4 percent in revenue growth.
Though revenue for the LLS business increased 24 percent to $563 million from $455 million year over year, only 4 percent of that growth was organic. Dekkers said that sales to the top 10 pharma companies were up 5 percent for the quarter, which "was not as good as we were in terms of growth the year before. Still, large pharma is not a drain on our organic growth rate," he said. Dekkers also noted that sales to the top 10 pharma companies represent only 5 percent of the firm's overall revenue.
Tax benefits tied to a divestiture last year caused Thermo's profit in the quarter to decline 54 percent to $56 million, or $.34 per share, from $121 million, or $.53 per share, year over year. Adjusting for that gain, the firm's net income rose 29 percent.
"There is no doubt there will be further consolidation in our industry, and there is no doubt in my mind we will be one of the companies that participates and drives that."
For full-year 2005, Thermo's revenue rose 19 percent year over year to $2.63 billion. Acquisitions contributed 15 percent to the revenue increase, the company said. Its profit for the year declined to $223.3 million, or $1.23 per share, compared to $361.8 million, or $1.34 per share. However, adjusting for gains on the disposal of discontinued operations, Thermo's net income rose 22.4 percent to $255.1 million from $208.4 million.
Investors clearly liked the financial results, sending Thermo's shares to a 52-week high of $35.20 late last week. The shares have since pulled back to close at $33.22 on Tuesday.
Although the company does not break out revenue by product lines, Dekkers said he believes Thermo gained market share throughout 2005 in the mass spectrometry field.
Thermo also said that 23 percent of sales in 2005 were derived from products introduced in the past two years compared with 20 percent in 2004.
According to Thermo, Asia was its top growth region for sales in 2005. The firm opened a manufacturing facility in China a year ago, and opened two demonstration centers — one in Shanghai and the other in Mumbai — in the fourth quarter. Overall, Thermo added more than 300 employees in China and India in 2005.
Dekkers said sales in China grew more than 20 percent year over year, while European sales grew at a mid-single-digit pace, and North American sales were in the low-single digits.
Company officials predicted that 2006 sales would grow between 6 percent and 8 percent to between $2.78 billion and $2.83 billion. They said the forecast does not include any acquisitions or divestitures that may happen this year. They also forecasted a 13-percent to 16-percent increase in adjusted EPS to $1.75 to $1.80 for the year, which excludes $.10 per share in stock options expenses.
Thermo finished 2005 with $214.3 million in cash and cash equivalents, and long-term debt of $458 million.
It spent about $1 billion on four acquisitions last year, and acquisitions remain the firm's first priority for use of cash, said Dekkers, followed by paying down debt and possibly buying back shares.
"As long as the industry is as fragmented as it is, we believe there are opportunities for us to do some good, intelligent, economical acquisitions," he said. "There is no doubt there will be further consolidation in our industry, and there is no doubt in my mind we will be one of the companies that participates and drives that."
— Edward Winnick ([email protected])