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Thermo Looking to Expand LC Portfolio Via Bolt-On Buys, But Is Mum on '07 M&A Plans

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Thermo Fisher Scientific is looking to expand its offerings in the liquid chromatography market and may look for technology bolt-on acquisitions to achieve that goal, company officials said last week.
 
Thermo Fisher President and CEO Marijn Dekkers, however, was uncharacteristically evasive when asked during the firm’s first-quarter conference call about acquisition plans for 2007. The company last week reported first quarter revenue growth of 12 percent year over year on a pro forma basis.
 
Though it is much larger than its rivals in the life science research tools space based on annual revenue, Thermo Fisher trails Waters and Agilent in the liquid chromatography market. The firm has made efforts over the past year to gain ground in the market, including introducing a high-speed LC instrument and making some smaller acquisitions to enhance its LC product line.
 
“Our LC plans are exactly the way we’re executing our LC plans,” said Dekkers in response to an analyst’s question about the firm’s strategy for the LC market during the conference call. “We want to have a competitive product line, and we do.”
 
For example, he pointed to last year’s launch of the firm’s Accela HPLC instrument, a high-speed, high-pressure LC to compete with Waters’ Acquity UPLC and Agilent’s 1200 Series instruments.
 
“Obviously, with the mass-spec franchise that we have it’s important to have a product line that is strong with mass spec,” said Dekkers. “Our major focus in HPLC is the linkage between HPLC and mass spec — more so than that we focus on stand-alone HPLC.
 
“In addition to that, we have over the last year or so done some very important bolt-on acquisitions of technologies,” he said.
 
Thermo Fisher acquired LC sample-prep company Cohesive Technologies late last year (see BioCommerce Week 12/20/2006). It followed that buy with the acquisition in January of SwissAnalytic Group, a Basel-based firm that operates two companies offering mass spec and liquid chromatography products.
 
“We’re looking for technology bolt-ons that strengthen our overall capability in HPLC,” said Dekkers during the call.
 
However, unlike previous conference calls, Dekkers said little about the firm’s plans for acquisitions in 2007 or the M&A market in general.
 
“There have been some good deals that became available over the last three to five months, and I would say that I found them a little pricey,” said Dekkers. “It seems like the ability of the market to pay pretty good prices is there.”
 
He said that he would prefer not to comment further on that subject.
 
Market Dynamics Unchanged
 
Thermo Fisher reported last week that its revenues increased nearly 240 percent as R&D spending rose 55 percent and profit jumped 200 percent on combined sales and spending stemming from the merger of Thermo Electron and Fisher Scientific. On a pro forma basis, the firm’s revenues climbed 11.5 percent year over year.
 
Total revenue for the three months ended March 31 increased to $2.3 billion from $684.3 million year over year.
 
Thermo said revenue from its Analytical Technologies segment increased 15 percent to $1 billion, while receipts from the Lab Products and Services segment increased 9 percent to $1.4 billion.
 
Dekkers said that, in particular, environmental and industrial markets were creating greater demand for Thermo Fisher’s products.
 
“Our environmental instruments business is about $250 million, and specifically process technology-oriented environmental instruments,” said Dekkers. “From the scientific instruments point of view, we also serve the environmental laboratories. If you combine them it’s probably $500 million in total for the company.”
 

“Obviously, with the mass spec franchise that we have it’s important to have a product line that is strong with mass spec. Our major focus in HPLC is the linkage between HPLC and mass spec — more so than that we focus on stand-alone HPLC.”

He also said during the call that the spending patterns of Thermo Fisher’s life science customers remained relatively unchanged.
 
“Overall, not much changed from what we’ve seen in the past few quarters,” he said. “Biotech continues to be strong, big pharma is OK, and academic and government markets are steady and showing modest growth.
 
“We have not seen a significant strengthening in the pharma customer base, but not a weakening either,” said Dekkers.
 
The company said its profit rose to $138.9 million, or $.31 per share, from $45.9 million, or $.28 per share, in the year-ago period.
 
Its R&D spending increased to $59.8 million from $38.7 million year over year.
 
Company officials said during the call that the first-quarter results were in line with their own expectations, though the firm no longer gives quarterly guidance.
 
Dekkers was asked during the call if the firm planned to bundle more products during the year to wring revenue synergies from the merger.
 
He responded, “We have committed in our first year, ’07, for $75 million of total synergies. The vast majority of that is cost synergies, so we don’t really have a stretch plan here for 2007 for revenue synergies. But in ’08 and ’09, that’s certainly a bigger part of the overall synergy goal,” said Dekkers.
 
“There are a number of ways we can get revenue synergies,” he continued. “One is we can use the catalogs, the customer channels, and more aggressively promote legacy Thermo products that didn’t use to be carried in the catalog.”
 
He said the firm could also approach big pharmaceutical companies and ask if there is a way to better standardize purchasing, particularly on some of the more routine lab equipment and consumables. Dekkers also said the firm could use Thermo’s base in Asia to sell legacy Fisher products into that region.
 
Thermo Fisher raised its earnings-per-share guidance for full-year 2007 by $.08 to a range of $2.43 to $2.53 — an increase of 27 percent to 32 percent, due primarily to a lower effective tax rate. The firm maintained its revenue guidance of between $9.4 billion and $9.5 billion for the full year, which would be an increase of between 6 percent and 8 percent over 2006.
 
Thermo Fisher said it had around $670.9 million in cash and equivalents and $20.5 million in short-term investments as of March 31.

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