Thermo Fisher targets a growing niche: precision medicine
WALTHAM — In the 10 years since it was formed by a $10.6 billion merger, Thermo Fisher Scientific Inc. has turned in some impressive numbers.
The world’s largest supplier of laboratory products and services has bought more than a dozen smaller companies. Revenue has doubled to a projected $18 billion in 2016. Employment has grown from 30,000 to 55,000, including 1,930 in 13 offices in Massachusetts. And annual research and development outlays have increased from $300 million to more than $700 million.
Shareholders have fared well. Thermo Fisher’s stock has gained an average of almost 15 percent annually, nearly double the rate of the Standard & Poor’s 500 Index.
“They’re a consolidator in a consolidating industry,” said Jack Meehan, senior life sciences and diagnostic tools analyst at financial services firm Barclays in New York.
But the industry, estimated to generate $100 billion a year in annual sales, remains fragmented, with Thermo Fisher controlling less than 20 percent, according to analysts. To sustain its heady performance, the company is seeking to be the dominant supplier of equipment used in precision medicine, the rapidly growing field where biopharma companies combine DNA analysis and diagnostic testing to target therapies to individuals and groups of patients.
“If you look at precision medicine, our technologies are being used in a really dramatic way,” Thermo Fisher chief executive Marc N. Casper said in an interview, citing programs in the United States and abroad. “We have strong footholds in genetic analysis and protein analysis. Given the things we’re working on, I feel incredibly confident about the future.”
Casper, who started his career as a consultant at Bain & Co. and Bain Capital, is known for his analytical management style and taste for buyouts. He took over the top job at Thermo Fisher in 2009 from Marijn E. Dekkers, who presided over the 2006 merger of Waltham’s Thermo Electron Corp. with the larger Fisher Scientific International, based in Hampton, N.H.
This month, Casper is moving Thermo Fisher into a new eight-story headquarters, perched on a hill overlooking Route 128. The 286,000-square foot building has amenities ranging from electric car charging stations to a landscaped terrace and path zigzagging up to a putting green. It will initially house about 330 employees relocated from its current headquarters down the road and a nearby administrative building, but it could eventually accommodate up to 450.
“This facility is part of our strategy to make sure we are a terrific place to work and have a great environment so we can retain and attract the best people,” Casper said.
On display in the lobby are a gene sequencer used by scientists to map strands of DNA, and a chromotographer that can identify compounds in chemical mixes. They are two examples of the thousands of products sold by Thermo Fisher — the state’s second largest public company, with a market value of $60 billion — to drug makers, academic labs, and industrial businesses.
Becoming the preferred supplier for scientists working on personalized therapies may be the fastest path to expanding its market share. “They want to be the one-stop shop for any medical research lab, whether it’s a pharma or a biotech or an academic lab,” said Meehan at Barclays.
Several rivals also have their roots in Massachusetts, including Perkin-Elmer Inc. of Waltham, Waters Corp. of Milford, and Millipore Sigma, a Billerica company now owned by German drug and chemical giant Merck KGaA. Thermo Fisher also competes with Danaher Corp. of Washington, D.C., Agilent Technologies Inc. of Santa Clara, Calif., and, in the increasingly important market for precision medicine equipment, Illumina Inc. of San Diego.
Shares of Illumina, the market leader in whole genome sequencing, shot up last month amid rumors of a Thermo Fisher takeover bid. Neither company would comment, but a near-term deal is considered unlikely because Illumina’s market value of $25.5 billion makes it prohibitively expensive. Thermo Fisher already has spent more than $20 billion in the past three years buying companies to boost its scale, including Life Technologies Corp. and Affymetrix Inc., a pair of California companies selling products enabling precision medicine research.
Illumina is viewed as the biggest prize in that niche, and a business that could turbocharge Thermo Fisher’s growth. But with the Waltham company still integrating prior acquisitions and reluctant to draw the ire of antitrust regulators, analysts aren’t betting on a deal.
“They may have to take a breather and pay down some debt,” suggested Karen Koski, director of life sciences tools and diagnostics research for financial services firm BTIG LLC in New York. “Thermo has the advantage of a broad portfolio. But the larger a company gets, the harder it is to grow organically and the tougher it is to move the needle” on growth.
Even without Illumina’s sequencing technology, Thermo Fisher has the capabilities to be “at the table globally in the precision medicine dialogue,” Casper said. He cited the company’s work helping to enable the Obama administration’s “cancer moon shot” program, which focuses on tumor-causing genetic mutations, as well as precision medicine initiatives sponsored by the National Institutes of Health in the United States and the Chinese government.
Among the company’s offerings to precision medicine researchers are an Ion Proton DNA sequencer, developed by Life Technologies, that screens tissue samples to search for rare inherited diseases in the Saudi Human Genome Program and a study by the US National Cancer Institute seeking to determine if cancers can be treated based on their molecular abnormalities. Thermo Fisher has also developed sophisticated diagnostic kits being used by the Karolinska Institute in Sweden to reduce unnecessary prostate cancer biopsies.
“We can very accurately define what is a true positive and a false negative,” said Corina J. Shtir, Thermo Fisher’s head of precision medicine. “We’re looking to advance our capabilities.”