A Middle-Aged Beckman Experiences Growing Pains

In the early 1990s, Beckman was hit by adverse market conditions in its two major businesses, life sciences and clinical diagnostics. A strategic restructuring in the past two years has left it in strong financial shape and focused it on new areas of growth.

• In the early 1990s, Beckman was hit by a double whammy: adverse market conditions worldwide in its two major businesses, life sciences and clinical diagnostics. A strategic restructuring in the past two years has left it in strong financial shape and focused it on new areas of growth.

• Beckman is highly skilled at using its focus as a competitive advantage to maintain leadership position in mature markets. But its willingness to take risks to achieve high growth is in question, given the conservative, bottom-line orientation of its top management.

• As external pressures in the diagnostics and research markets increase, 1996 could be a pivotal year for the company.

In the early 1990s, management at Beckman Instruments Inc.viewed the Italian diagnostic market with alarm. Italy was Beckman’s second-largest geographic market and spurred by changes in government reimbursement, testing volume there was declining at a rapid rate. Many of Beckman’s Italian customers were unable to meet minimum volume requirements on reagent sales.

While its European competitors stood by hoping for a turnaround, Beckman management took a hard stance. It pulled its high-volume chemistry analyzers that weren’t meeting performance requirements out of the market and refurbished them for use in more profitable areas. In short, it quickly retrenched, the only diagnostic company to do so with the exception of Abbott Laboratories, and instead increased its efforts in the more stable US.

Beckman’s tenacity and tough-minded focus on the bottom line, both for itself and its customers, has stood it well during recent years, when its major markets—clinical chemistry and bioanalytical products for researchers—have been flat and highly competitive. Only Boehringer Mannheim Diagnostics,a division of Corange Ltd. , and Johnson & Johnson Clinical Diagnostics have greater global chemistry sales. Beckman has consistently placed more than 1,300 chemistry units a year and now has an installed base of more than 8,000 analyzers worldwide, according to Boston Biomedical Consultants.

On the research side, its Biomek 2000robotic workstation for handling and processing liquid samples is doing nicely following its introduction last year. The firm remains the worldwide leader in supplying centrifuges, with an estimated 30%+ of the overall market and even more of the ultra-fast segment.

But, as cost-containment initiatives take effect in most of its key markets worldwide, Beckman’s slow and steady tempo may not be enough to let it flourish long-term. Historically, the company’s greatest growth came in the late 1970s and early 1980s, from its expansion beyond research products into clinical diagnostics. Since then, Beckman has succeeded by focusing on its core businesses—strengthening them as necessary, but not going beyond them.

In late 1993, in response to tougher economics in its global markets, Beckman management undertook a redirection and restructuring program. The restructuring fine-tuned the internal operations’ organization and finances. The redirection set in motion a strategic focus on new technologies with great potential that don’t stray too far afield of its core businesses.

The reorganization is complete and its full impact will be felt this year. But it may not go far enough toward prodding the characteristically risk-averse company to make changes faster. The current diversification efforts are incremental—a few small acquisitions and alliances. Each deal, it seems, simply adds a piece to a core business—i.e., a few immunoassay analytes onto a chemistry analyzer, a new niche product for research customers. Beckman may be right: perhaps it should focus on its core businesses. But it also needs to take into account the danger of such a strategy: that it may be passed over as competitors evolve faster.

Beckman’s dilemmas are the same as those faced by its diagnostic and research competitors. On the diagnostics side, all players must struggle with a decline in testing volume, mature technology, and overcapacity of suppliers and providers. On the research side, reductions in government funding have hurt academic and government laboratories, while cost-containment pressures are forcing consolidation among pharmaceutical customers, chipping away at the traditional research-customer base.

Several of Beckman’s diagnostics competitors are implementing a variety of strategies, the most common of which is expanding to offer a broad array of products across different laboratory segments. While it isn’t clear yet what being a full-line company does for growth, Beckman’s approach seems timid to many observers. “The restructuring addresses short-term problems but doesn’t answer the fundamental issue of what to do for long-term growth,” says Henry Weinert, president of Boston Biomedical.

Growth isn’t a new challenge for the company; it has faced the same concerns since it went public in 1989. But it is under greater pressure to do something now, as market conditions deteriorate, competitors map out their strategies, and the company completes its program of internal fine-tuning.

Taking Diagnostics By Storm

Beckman was founded in 1935 by Arnold Beckman, a professor at the California Institute of Technology. His inventions, the pH meter and the spectrophotometer, propelled its growth for years. The company didn’t enter the clinical diagnostics business, which today accounts for 60% of its $930 million annual revenues, until the 1960s. The initial clinical products, a series of stat analyzers, each individually measuring one basic chemistry for which doctors routinely need quick results, were hits. For much of the 1970s, the company owned the stat testing market. The introduction of the Astra, in 1978, which combined all of these stat tests onto one instrument, further fueled the company’s rise to the forefront of diagnostics.

The timing of the Astrawas impeccable; it was carefully targeted to capitalize on the weaknesses of the dominant chemistry player of the time, Technicon Instrument Corp. (now part of Bayer Diagnostics , a subsidiary of Bayer AG ), which had an analyzer for basic chemistries. But Technicon’s product, unlike the Astra, was inconvenient to maintain and couldn’t be run 24 hours a day. The Astra accounted for much of Beckman’s growth in the 1980s, until the company introduced its first random-access, high-throughput instrument, the Synchron chemistry analyzer.

The Synchron, unlike the Astraand other stat instruments, wasn’t the first analyzer of its kind on the market. But it was a breakthrough in terms of ease of use. With Beckman’s sales clout and name recognition, it became the chemistry system for mid-sized and large hospital labs.

Meanwhile, Beckman was undergoing a series of ownership changes. In 1983, SmithKline Corp., looking, like other pharmaceutical companies, for diversification opportunities, bought it. By the mid-1980s, its financial performance slowed significantly, as its once super-successful reagent-rental program collapsed from economic uncertainties created by the federal government’s new prospective-payment system, which transformed laboratories from profit centers to cost centers.

In 1984, President and CEO Louis Rosso brought in John Wareham, then in charge of SmithKline’s veterinary business, to head Beckman’s diagnostics group. Wareham engineered a turnaround by reorganizing the diagnostic group structure, cutting manufacturing costs, and re-orienting the company to its core businesses, cutting back on peripheral areas like microbiology and radioimmunoassays.

When SmithKline spun Beckman off into a separate company in 1989, it went public, led by Rosso, who later became chairman, and supported largely by management that had been in place since the mid 1980s, some of whom are still active in the company.

Restructuring In Tough Economic Times

In the 1990s, Beckman encountered challenges in all of its markets as constraints worldwide in public financing for academic and government research, as well as health care cost-containment initiatives, took their toll on its traditional customers on a worldwide basis. “Customer groups in diagnostics and life sciences were impacted in every country in one way or another,” recalls Rosso. The company decided to “reorganize to improve financial performance and to direct its efforts toward those opportunities that emerge out of that dislocated market.”

The restructuring process, begun in early 1994, is now complete. It involved cutting the 7,000-person workforce by more than 1,000 and generating further savings by merging the two core business units, bioanalytical and clinical diagnostics. These units previously operated as distinct vertically-integrated divisions, but now share support staff and advanced research resources. Functions close to the customer, such as field sales and service, remain separate. Importantly, the combination merged all manufacturing, which previously had been divided in three groups—diagnostics, life sciences, and centrifuges. “As we got closer to the customer we kept the distinguishing characteristics [of the two markets],” Rosso says. “The separate development centers [there are four: diagnostics, centrifuges, bioanalytical tools, and molecular biology] conceptualize and design products for various customer sets. We merged what we thought made sense and kept the customer focus.”

Merging the two businesses, Rosso hopes, will also help foster better communications among groups of people that hadn’t shared much in the past. As he sees it, the integration has the potential to allow technologies to migrate between research and clinical applications.

This does not often happen because researchers tend to require great flexibility and to apply small volumes of samples to many kinds of experiments while clinical customers are less interested in flexibility and more demanding of higher throughput and speed. But the potential for cross-over success is there. Several Beckman products have evolved recently in this way, notably its capillary electrophoresis system for separating small samples, which was introduced in 1989 as a research tool and was launched as a new diagnostic product in Europe this fall.

Rewards of a Bottom-Line Focus

The restructuring should enable the company to save $50 million a year, executives say, and it hasn’t hurt business performance. “We were still able to drive the front-end of the business while going through traumatic changes,” says one executive. “The people interfacing with customers—in marketing, sales and service—were least affected [by the restructuring].” The result: Beckman’s earnings before special charges grew 13% in 1995 from 1994, while sales revenues grew 5%, from $888.6 million in 1994 to $930.1 million in 1995. Including special charges, net income was $48.9 million, or $1.70 per share, compared to $42.2 million, or $1.50 per share in 1994. While 5% may not seem like much compared with some other industries, it’s more than respectable in clinical chemistry and bioanalytical research. This is reflected in the stock price, which in early February has been trading at a record high.

The second part of the program focuses on the long-term. Through several acquisitions and alliances Beckman is making small, focused investments in molecular biology for their research business and in methods of improving laboratory productivity, namely workstation consolidation and workflow automation, for their diagnostics business. The biggest of its deals to date was the acquisition, completed in January, of Hybritech Inc. from Eli Lilly & Co. But it has also repurchased rights from Rhöm Pharma (now a subsidiary of Procter & Gamble Co. ), a German pharmaceutical company, for rapid fecal-occult tests in Germany, France, and several other countries; acquired protein purification technology from BioSepra Inc. ; and gene sequencing expertise from its staged acquisition of Genomyx Inc., begun in May 1995.

The aim is to “focus and reinvest in franchise product businesses that have good prospects, such as diagnostics and centrifuge businesses, as well as on emerging needs such as customer needs for laboratory productivity, which are bound to increase in spite of cost constraints,” says Rosso.

Selected BECKMAN PRODUCTs

SOURCE: Beckman Instruments

A Powerhouse in Chemistry

Beckman’s performance in 1994 and 1995 reflects its ability to capitalize on its existing strengths, rather than new initiatives it is undertaking. Behind its stronghold in chemistry is a tough, aggressive sales organization, including a respected national accounts group, a focused, stable management, and a highly competitive product line. While Beckman isn’t known as a price-cutter, the Synchronhas among the lowest manufacturing costs in the industry and a broad menu of more than 80 tests. If chemistry is broken into niches based on the throughput needs of different sized labs, Beckman dominates the high-middle throughput range, suitable for mid-sized to large hospital labs.

The company also has down pat the technique for building on a replacement market. It adds value to its existing products every two to three years, observes Weinert. The first Synchronmodel, CX-3, for example, launched in 1988, a low-end stat analyzer for eight of the most commonly measured analytes, has been followed in rapid succession by software improvements and subsequent generations of instruments. The CX-4 CE, CX-5 CE, and the CX-7 have been introduced with progressively more sophisticated features, broader menus, and higher throughputs. In 1995, the company began offering additional enhanced software (brand name: Delta) options for the CX-3, CX-4, CX-5, and CX-7 models.

Now Beckman is finishing development of a new generation of Synchronanalyzers that substantially increases the throughput of the Synchron Delta (launched just last year), broadens the menu, and utilizes a different detection method. It will enable the company to expand its customer base into larger hospital and small regional commercial labs, a group that the company hasn’t previously been able to reach, according to Albert Ziegler, VP, diagnostics development center, and formerly responsible for the company’s North American sales and marketing efforts.

The product addresses the changing needs of hospital customers, who are consolidating and, as they do so, requiring higher-volume instruments, he points out. Consolidation among laboratories is inevitable as hospitals merge and those remaining affiliate with buying groups or managed-care organizations, he adds. With fewer sites remaining and less skilled workers, labs will demand instruments with larger menus that can do more testing faster and easier.

Beckman faces a fight in this new segment, notably from Boehringer, with whom it already competes in Europe. But competitors all are vulnerable in one way or another, Ziegler points out. Boehringer doesn’t have as strong a presence or infrastructure in the US as Beckman; J&J has the global presence, if not in diagnostics, then as a broad corporate entity, but lacks a comparable high throughput, broad-menu instrument; and Olympus, which is a major supplier to large reference labs, doesn’t have the global infrastructure to reach the more fragmented hospital customer base.

Success in the hospital is likely for Beckman because it knows how to tenaciously inch its way into a market, industry experts say. Its sales force is headed by very aggressive people, says a former executive. “If you compare Beckman to Boehringer, Boehringer is very gentlemanly. Beckman drives hard and does what needs to be done to get a sale.”

Motivation is high: The sales force receives a generous bonus based largely on systems and after-market sales. Key customers are invited to Beckman’s headquarters, where they are given a tour and meetings with senior management. Implicit in these public-relations shows is the message that Beckman has been and will be around for a long time, while its competitors undergo ownership and management turmoil. “Beckman remains one of the few independent diagnostic companies and you have to give management credit for that,” says the former executive.

A Leader in Immunoassay Niche Markets

Beckman selects reps who research their markets on a one-to-one basis,” says John Engles, senior product manager, laboratory services, VHA Inc. , which recently renewed a preferred-vendor agreement with Beckman, as well as two of its competitors, J&J and DuPont Diagnostics, now in the process of being acquired by Dade International Inc.“Its reps focus in on a geographic area or sometimes a specific competitive vendor’s equipment that hasn’t been updated. They work a region hard, going after one or two particular brands at a time rather than a whole market. Their approach is more rifle shot than most.”

Beckman’s focus has stood it in good stead in many respects. It has shied away from chemistry markets that others have plunged into because it doesn’t see financial rewards in them, such as physician’s office instruments and the high-end reference labs. While the company has a strong national accounts program, it has avoided signing highly discounted sole-source contracts because it doesn’t believe this kind of sale can be profitable unless buyers fulfill compliance requirements, which they by-and-large aren’t doing, says Wareham, now president and COO. “I think a lot of people are trying it but I am not sure how successful it will be. You’re dealing with technology-driven products embedded in processes.” Compliance is hard to drive because every lab has different economics and what fits one hospital’s lab doesn’t necessarily fit another’s.

But management’s hesitancy to stray far beyond the core businesses may also stem in part from a failed attempt in the mid-1980s to develop a multi-purpose immunoassay analyzer. While a Beckman spokesperson denies the effect, other observers and former executives there at the time believe the experience helped shape its current general attitude toward diversification and reconfirmed its staunch support of focusing narrowly. After spending millions, Beckman discontinued the program because of technical delays and poor timing. Now, it doesn’t make sense to tackle the major immunoassay vendors head-on.

Instead, the company remains a long-time leader in niche immunoassay markets of serum-protein testing and rapid fecal occult diagnostics. It splits the $200 million serum-proteinein market evenly with the Behring Diagnosticsunit of Hoechst AG, up from a 45% market share in the late 1980s. But the nephelometry, or serum-protein analysis, market, like others in in vitro diagnostics, is stagnant. Nevertheless, the company plans to launch a new nephelometer with higher throughput and a larger menu than the current model, Array, in the second half of this year.

Likewise, Beckman has owned the rapid fecal-occult testing business for years because it has an easy-to-use kit, and bigger infrastructure than its competitors, which are primarily small companies. Until recently, it has been content with this position.

The Nagging Dilemma of Long-Term Growth

But critics point to the drawbacks of maintaining a narrow focus, especially when customer demands are changing so rapidly. A straightforward danger, of the kind Beckman is used to coping with, is its increasing dependence on a replacement business. A replacement business won't provide a greater after-sales business, says Ziegler. The solution, as with Beckman’s new analyzer, is to increase the scope of the menu and offer other kinds of value-added features, he suggests.

Strategically, Beckman faces an even greater challenge as its customers seek to pare vendors. As they do so, many suppliers are offering product lines that cut across different segments of the laboratory, in order to appeal to customers who favor one-stop-shopping.

Beckman management has been reluctant to embrace this approach, noting that the company is doing well because of its focus and that most contracts are still being signed on a segment-by-segment basis, rather than on the basis of cross-category bundling. “There have been very few instances in which we have lost a customer because the competition combined, for example, hematology with chemistry,” says Rosso. “It hasn’t happened yet. I won’t say it won’t happen, but I don’t know what will trigger it.”

Beckman’s response to date has to been to redirect the company’s diagnostic focus away from supplying instruments and reagents toward helping laboratories improve work flow and cut costs. This is selling a process, Rosso and Wareham explain, which might involve automation, simplification of current tasks, and workstation consolidation. Instrument and back-end automation, which links the instrument to hospital information systems, are now lesser concerns, as most diagnostic vendors already offer systems that incorporate these categories.

Instead, Beckman, as some of its competitors have done, has set its sights on automating the front-end of the workflow process, which involves sample handling, bar coding, and centrifugation, much of which is currently done manually. The company is developing an automated workstation, which incorporates a robotic arm for transferring tubes between delivery tracks, centrifuges and analzyers.

It is also aggressively working to add select immunoassays to its chemistry analyzers. Customers for these products could not only run the tests with fewer steps but also pay less for them, since the cost of testing on chemistry analyzers is likely to be much lower than that of testing on dedicated immunoassay analyzers.

Of course, Beckman and its competitors have tried for years to put immunoassays onto chemistry analyzers, with limited success. Immunoassays generally require greater sensitivity than chemistry assays, along with a washing step that companies have found difficult to eliminate.

But Beckman has strong development capabilities in instrumentation and access to some new technologies that might help it meet this goal, says Ziegler. It has, for example, optioned rights to a new lipid/polymer platform technology developed by Biocircuits Inc., for which the company is conducting a feasibility study and which has potential to be useful in this area. The technology didn’t work in a membrane format for Biocircuits, but Biocircuits has since developed alternative formats that might be of interest to Beckman, says Don Hawthorne, Biocircuits’ CFO. Some believe that Beckman’s new capillary electrophoresis technology has the flexibility to form the basis of a system that is more readily adaptable to combining immunoassays and chemistries.

An Incremental Approach to Acquisitions and Alliances

As with the Biocircuits deal, some of Beckman's immunoassay work is being done through deals. These deals are small and reflect Beckman’s conservative culture and desire to minimize financial risk. Beckman was rumored to be interested on and off for years in Hybritech, based in nearby San Diego, before buying it at a price that many in the industry believe was less than $10 million.

Its Fall 1995 Biocircuits deal is also financially savvy; it’s based on convertible debt and the cost is therefore reflected on the balance sheet, not the profit and loss statement. The Genomyx acquisition is staged over three years, allowing the ultimate price, beyond a guaranteed minimum of $10 million, to be based on the success of sales of Genomyx’ DNA sequencer, the genomyxLR, which has already been launched.

The pace of alliance and acquisition activity has indeed stepped up, admits Jay Steffenhagen, VP, corporate strategic planning and business development, not only because of the company’s redirected strategy, but also because diagnostic-company valuations have come down substantially and are “more realistic.”

Granting that Beckman may have gotten Hybritech at a bargain price, to many observers Beckman’s plans for the former Lilly subsidiary are something of a puzzle. Critics say Hybritech, while once known for its stellar scientific breakthroughs, no longer has much to offer. The once high-flying company’s demise has been well-publicized: It was a research powerhouse that developed ways to combine monoclonal antibodies to make better diagnostic tests. But its real commercial opportunity came as it discovered the prostate specific antigen assay (PSA) for monitoring and detecting prostate cancer.

Hybritech’s downfall came about because it failed to develop an instrument for PSA and its other tests, and therefore lost the market for PSA, by far its major product, to Abbott, which did develop automated systems for the test. In recent years, Hybritech’s sales have slowed steadily as Abbott’s share of the PSA market has grown. The firm’s decline is likely to continue as new competitors make PSA available on their random-access-immunoassay analyzers. Once highly creative and entrepreneurial, Hybritech is also said to have been victimized by Lilly’s bureaucratic corporate culture. Lilly put the company up for sale two years ago and in the interim many of its best managers and researchers have left.

Rosso and Wareham insist that the primary motivation behind the deal was strategy enhancement, not bargain hunting. In addition to its research expertise in immunoassays, Hybritech has extensive regulatory expertise and some good core products; unlike Beckman, it has experience getting a pre-market approval successfully through the FDA, they say.

A Good Buy

While Beckman is actively evaluating options for integrating Hybritech, Wareham and Rosso note that William Pelzer, a former Beckman senior manager who left in the early 1990s to go to another company, has since returned as general manager and Hybritech is being converted into a “Center for Excellence” in immunochemistry development. Beckman plans to use this expertise to develop new assays for its workstation consolidation program. Although it didn’t buy Hybritech to automate PSA, it may try to get the PSA on one of its analyzers, says Rosso. And it is interested in using Hybritech’s expertise to develop other tumor markers.

Even if Hybritech’s technological initiatives never amount to much, at least in the short term, Beckman appears to have gotten some useful assets at little financial risk to itself. It can take advantage of cost efficiencies: in late January, it Hybritech’s 552-member workforce by 14%, leaving an R&D staff of about 200. The division is said to be marginally profitable and without much investment Beckman can probably get good cash flow from the remaining PSA business. In addition, Hybritech receives royalties from the Tandempatents on its monoclonal antibody discoveries and on its patents for Icon technology. While these expire in about five years and probably weren’t exploited by previous management to their full potential, they still generate more than $10 million in cash a year. The Icon rapid tests, namely Strep A and pregnancy, are dated and harder to use than new tests, but continue to have a sufficient following among many physicians who like their quality.

Molecular Biology in the Research Markets

The Iconline effectively expands the size of Beckman’s rapid-test subsidiary, SmithKline Diagnostics, which had sales of an estimated $30-40 million, almost entirely from its Hemoccult fecal occult test. This gives Beckman critical mass in the non-instrumented rapid-diagnostics test market, placing it second in the market behind Abbott. In addition, in 1994, Beckman repurchased from Rhöm Pharma rights to Hemoccult in some of the larger markets in Europe, notably Germany and France, as well as some other countries, and signed a co-marketing agreement with Abbott to sell Beckman’s rapid test for detecting H. pylori. Rapid tests could certainly be a legitimate growth opportunity, if, as some believe, use of rapid tests will increase under managed care as doctors try to cut down office visits from patients and treat them faster.

Beckman’s policy of incrementalism is also being played out in its bioanalytical business. As sources of funding for bioanalytical research shift from the public to the private sector, the nature of bioresearch is evolving from pure to applied research, says Bruce Tatarian, VP, developing and emerging markets, and formerly VP, operations, bioanalytical business.

Since its growing customer base among for-profit companies makes purchases based on business effectiveness, Beckman’s emphasis is shifting from providing research tools to offering methods, be they systems or consumables, for enhancing lab productivity. “Anything that helps reduce [customers’] time to market could be useful to them,” he explains. “Pharmaceutical-company customers are much more aware of return on investment when they purchase this kind of research tool than previous customers were.” As part of this productivity-based approach, Beckman has in the past year introduced several niche analyzers, notably the Biomek 2000, an automated liquid-sample handling system that Beckman says is doing quite nicely. The device screens substances that might be useful as potential drugs.

Beckman’s research business has also undertaken some small collaborations. In addition to the Genomyx deal, it signed a marketing and distribution deal with BioSepra, which makes instruments and media that facilitate protein purification processes and are useful in pharmaceutical development and production. The alliance could cost Beckman up to $5 million in licensing and development fees, not including any royalties that it would have to pay based on how much of BioSepra’s chromatography media and workstations it sells.

The aim of these relationships is for Beckman to participate in the growing field of molecular biology. The purchase of Genomyx, a Genentech spin off, gets Beckman into the DNA sequencing business, in which Beckman hopes to establish a significant presence. Analysts are skeptical that this alone will make Beckman a significant player in sequencing, but Tatarian says that the Genomyx sequencer fills a gap ignored by current vendors to the market. It provides a low-cost automated system for researchers that do sequencing, but not in huge volumes, and who don’t need the expensive, ultra-fast machines sold by companies like the Applied Biosystems Inc.division of Perkin-Elmer Corp. Tatarian believes that these researchers will be happy to relinquish some of the tedium of manual sequencing and this will be a fast-growing market.

To some extent, Beckman’s niche strategy is more suited to the research field, where no one system has huge sales but where customers may need a larger variety of tools. Beckman has solid product lines in two separations techniques, capillary electrophoresis and high performance chromatography, and in DNA synthesis, but no one blockbuster product.

But, like diagnostics, the life sciences business is beginning to branch out into new areas and carve out new ways of doing business. In the past, bioanalytical tools didn’t require a lot of any particular reagent because scientists needed instruments that could be used in a greater variety of applications than in diagnostics, but didn’t need to do as many repetitive tasks on them. Therefore, instrument purchases have made up a greater percentage of sales than they do in diagnostics, which has until recently relied heavily on reagent-rental arrangements.

As molecular biology takes on a more prominent role in research, it requires instruments like DNA synthesizers and sequencers that can do highly repetitive tasks and need more reagents; furthermore, researchers who once were adamant about producing their own reagents, now are more receptive to the convenience of buying them from suppliers. Beckman is slowly shifting its business mix to those instruments, and the growing consumables business gives it an additional revenue stream, says Tatarian.

The Oligo 1000, for example, a DNA synthesizer, has a consumables-to-hardware ratio that is comparable to diagnostics, making reagent rental arrangements appropriate. Competitors offer similar arrangements, but Beckman’s instruments are more economical because they are faster and therefore can save customers money, says Jack Wareham. Likewise, the Genomyx sequencer is attractive in part because it relies heavily on reagents.

The Next Step

Still, the bulk of the bioanalytical business remains dependent on a product line that Beckman has offered for decades, namely centrifuges. The centrifuge division still accounts for about half of the bioanalytical research sales. With a reported $150 million in annual sales and good operating profits, high barriers to entry and a big share of worldwide centrifuge sales, it remains healthy. Its major challenge: growth. It has the leading share of an already mature market the products for which use few consumables.

The heavy dependence on the success of centrifuges in Beckman’s bioanalytical business reflects a key issue in its growth strategy: The company hasn’t branched out beyond its core businesses since the late 1970s. While it has done well within this core, some restless former employees point out that the company hasn’t gone as far as it could have, given the talent it had amassed and its position in the diagnostics industry. They observe that in the early 1980s, Beckman and Abbott’s diagnostic businesses were both about the same size in terms of revenues, but Abbott’s business is now more than triple the size of Beckman’s.

Beckman’s aversion to risk has in short caused it to miss critical windows of opportunity. Some say that Beckman’s immunoassay analyzer program failed in part because the time-consuming system of internal controls on development projects slowed it down to the point where the company lagged too far behind competitors. Weinert notes that it may have passed up a number of acquisition opportunities, particularly on the bioanalytical side, because they didn’t meet top management’s stringent financial criteria. In short, the conservative bent and attention to the bottom line that has helped Beckman flourish in tough times, may have a flip side: it may be stifling the company’s growth.

To its credit, top management understands the need for change. Recent deal-making activity, in addition to providing windows on new technology, may be paving the way for bigger moves. “Very slowly and painfully, Beckman is stepping up to the idea that it must acquire growth opportunities. It’s no riskier to do that than to do nothing,” says Henry Weinert. On the bioanalytical side, as he sees it, Beckman’s options include buying a company that gives it a major operating base in conventional molecular biology or buying a molecular biology reagent company.

On the diagnostics side, he sees more consolidation opportunities as valuations approach more realistic levels. Beckman management insists it is not for sale and Weinert and others doubt it would sell unless forced to by a hostile tender offer. Nor does Weinert think, given its history of feisty independence, it is a good candidate for a major strategic alliance. He predicts that Beckman will instead make a significant acquisition, possibly this year.

On the other hand, Beckman, unlike most of its competitors, hasn’t had major stumbles. Nor has it been distracted by changes in ownership and management, as have Boehringer and DuPont. Although some top managers left in the wake of the restructuring, its current group of core executives has remained stable since the 1980s.

For its part, Beckman management says it looks forward to continued but modest growth, as refinements in infrastructure and new product offerings introduced in 1995 move into their first full year in 1996. It hopes to see renewed growth in Europe and notes that a thrust into emerging markets begun in 1995 is coming into its first full year of existence. What’s unpredictable as far as Beckman is concerned, says Wareham, is how onerous the environment could become. Otherwise, he adds, “if conditions are a continuation of 1995, we’ll look for a good year.” Whatever Beckman does, one can bet it will be bottom-line oriented. In a turbulent market, maybe that’s not bad.—WD