Going for growth
July 2011
by Jeffrey Bouley  |  Email the author


WALTHAM, Mass.—With one of the primary aims being to enhance its position in high-growth, high-margin specialty diagnostics, Thermo Fisher Scientific Inc. has signed a definitive agreement to acquire Uppsala, Sweden-based Phadia AB, described as "the global leader in allergy and a European leader in autoimmunity diagnostics," from European private equity firm Cinven.  
The acquisition, totaling approximately $3.5 billion in cash, is expected to be immediately accretive to Thermo Fisher's adjusted earnings per share and accretive by 26 cents to 30 cents per share in 2012, and the parties expect to complete the transaction in the fourth quarter of this year.
Phadia presented an attractive picture to Thermo in part because of a three- year compounded annual growth rate of 10 percent on a constant currency basis and total 2010 sales of about $525 million.
The company's in-vitro blood-test systems for clinical diagnosis and monitoring of disease revolve around two brands: ImmunoCAP for allergy tests, which accounts for 85 percent of revenues, and EliA for autoimmunity tests, which accounts for the remaining 15 percent of revenue. Phadia reportedly supplies more than seven out of 10 allergy laboratory tests worldwide and four out of 10 autoimmunity tests to laboratories throughout Europe.  
Addressing the media and investors May 19, Marc N. Casper, president and CEO of Thermo Fisher, said he was "really excited" about this transaction "because it really enhances our leadership position in specialty diagnostics, which is one of our key growth platforms. The addition of Phadia is a major step forward in our strategy to build on our depth of capabilities here and it significantly increases our presence in this high-growth market."  
But it is the allergy testing in particular that Thermo Fisher wants, with Casper describing allergy testing as an attractive, high-growth market and noting that in-vitro allergy testing is growing some 9 percent annually worldwide. Roughly one in five people in North America and Europe suffer from allergies, and he says the in-vitro allergy testing market has significant untapped potential for growth, particularly in the United States, where such testing is in the early stages of adoption.  
"There is a huge opportunity in emerging markets such as China and India where, at this point, little testing for allergy is done at all," Casper adds. "The demand for allergy testing is also expected to increase as new therapeutic treatments come to market. This will provide Phadia, and now Thermo Fisher, with a significant growth opportunity."
But while is may be a relatively small part of Phadia's business, the autoimmunity testing is also a draw, as it is a growing segment of healthcare, with Thermo Fisher noting that more than 100 million people worldwide suffer from autoimmune disorders, including celiac disease, rheumatoid arthritis and connective tissue diseases.   
Currently, Europe accounts for 47 percent of Phadia's business, the United States for 23 percent, Japan for 18 percent and other areas of the world for the remaining 12 percent. So there is plenty of room to grow in the emerging market arena, as Casper envisions, as well as globally in general.  
"Today, Phadia has over 5,000 systems installed in more than 3,000 laboratories in 60 countries around the world," he says. "This large install base provides a solid platform for future growth of a wide range of diagnostic tests."  
Phadia has been around since 1967, and is credited with releasing the first in-vitro allergy test more than 30 years ago. The company, which boasts approximately 1,500 employees worldwide, will be part of Thermo Fisher's Specialty Diagnostics business within its Analytical Technologies Segment.
"Our key capabilities fall into three categories: anatomical pathology, where we focus on workflow solutions for tissue-based cancer diagnostics; microbiology technologies for detecting pathogens in food and a range of infectious diseases like MRSA; and specialty assays, including drugs-of-abuse testing and our biomarker business," Casper says. "These three businesses total $1.4 billion in revenues. With Phadia, our specialty diagnostic business expands by about 35 percent to $1.9 billion in revenues."
"Thermo Fisher brings Phadia a significant opportunity to grow as part of the world leader in serving science," says Magnus Lundberg, Phadia's CEO. "We share a culture of innovation and a strong focus on customers, and I am confident that this is a winning combination for our employees and customers around the world."
The transaction is expected to generate a total of $35 million of cost and revenue synergies in 2014, with $10 million generated in 2012. This includes $15 million from cost-related synergies and $20 million of adjusted operating income benefit from revenue-related synergies. The transaction is also expected to result in greater tax efficiencies by leveraging Thermo Fisher's global structure.  
Zacks Investment Research notes that Thermo Fisher exited the first quarter of fiscal 2011 with $2.8 billion in cash and cash equivalents, compared to $917.1 million at the end of December 2010, "primarily due to the funds raised to finance the Dionex acquisition and free cash flow, partially offset by share buybacks."
In addition, selling two laboratory-testing services businesses—Athena Diagnostics to Quest Diagnostics and Lancaster Laboratories to Belgium based Eurofins Scientific—brought in another $940 million to Thermo.
Looking at that financial snapshot and considering some of the company's current cost controls, Thermo Fisher's operating margins have shown an improving trend, Zacks notes, adding, "The company's strong cash position enables it to make suitable acquisitions, or repurchase shares, thereby improving the bottom line further. However, any kind of economic turbulence could negatively impact the company's sales based on financial constraints and customers deferring their buying decisions."

Thermo Fisher acquires Sterilin 
SOUTH WALES, U.K.—Thermo Fisher Scientific Inc. also announced last month its acquisition of Sterilin Ltd., a provider of single-use plastic products serving the microbiology, life sciences and clinical markets and headquartered here.
Financial details of the acquisition were not disclosed. In 2010, Sterilin reported full-year revenues of approximately $35 million.
Marc N. Casper, president and CEO of Thermo Fisher Scientific, said in a statement that the acquisition broadens the company's range of innovative specialty laboratory products, and is consistent with the company's strategy to leverage its global sales and support organization to give its customers across Europe, Asia-Pacific and North America greater access to these products.  
Sterilin offers a broad portfolio of disposable plastic products used in sample collection, preservation and processing, including a leading line of tissue culture plastics that complement Thermo Fisher's line of plastic consumable products used in laboratories worldwide. The business will be integrated into Thermo Fisher's Laboratory Products and Services segment.  
Sterilin also supplies the life-sciences industry with a range of Iwaki tissue culture plastics, from standard flasks and dishes to the more advanced glass based products, for live cell imaging. The company offers a range of regular bottles in HDPE, LDPE, or PP from 30ml to 2000ml with standard, dispensing, child-resistant and tamper-evident closure options.  
Sterilin also manufacturers a range of molded and extruded silicone products from medical grade tubing to silicone discs. The company has approximately 270 employees.
Code: E071102

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