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Size Will Not Matter … Yet; Thermo Fisher Exec Says Post-Merger Changes Not Afoot

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Users of Thermo Fisher Scientific’s proteomics platforms should not expect too much in the way of change after Thermo Electron and Fisher Scientific closed their $10.6 billion merger last week, a company official said.
 
In an interview with ProteoMonitor’s sister publication, BioCommerce Week, Marc Casper, said that Thermo Fisher has no short-term plans to dramatically alter its combined sales force or product portfolio. Casper is the executive vice president and vie presisent of analytical technologies at Thermo Fisher.
 
Coupled with remarks made in October by the CEO of Thermo Electron before its merger with Fisher closed, that should mean the newly combined company will continue innovating mass spectrometry technology.
 
“It’s business as usual from an organizational approach,” Casper told BioCommerceWeek last week. “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.”
 
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.
 
“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.”
 
For proteomics researchers, that could translate to new and improved mass specs. During a conference call with analysts last month, Dekkers noted that in its new iteration, Thermo Fisher would continue working on mass spec innovation.
 
“As long as our customers have a need for improved sensitivity and accuracy, and we know they do have significant needs in that area, we will be able to come out with improved versions or new technologies that help them to do their research better,” he said. “I don’t believe this trend is going to stop any time soon because I believe the customers are still demanding improved capability from us.” [See PM 10/26/06].
 
Casper noted this week, 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.”
 
Smooth Selling Ahead?
 
Thermo has hinted in the past at how a newly combined company would change the way it interacts with its customers. 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 usually sets up dedicated and ongoing contracts.
 
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."
 
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.
 

“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.”

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.
 
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 named proteomics as one market with "attractive growth opportunities" along with drug discovery, 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, “especially considering the fact that our industry is still highly fragmented, and therefore will likely continue to undergo a fair amount of consolidation.”  
 
“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.”