Beckman Coulter's Play for High Growth

With the Coulter integration successful, Beckman Coulter looks for high-growth opportunities outside of its traditional businesses. Beckman, through internal efforts in its life sciences business and a series of small alliances, is making a play in genomics and proteomics. In addition to building up near-term revenues, the aim is to find new "content" in the form of assays for its clinical business.

Beckman Coulter Inc. 's decision in March to reorganize into three businesses instead of two formalizes a strategy it has been talking about publicly for months, to provide a "continuum of testing" from research through transitional to clinical diagnostics. In practical terms, the move separates the company's much larger but slow-growth clinical diagnostics business from its smaller but buoyant life sciences/drug discovery unit, which is riding the boom in genomics and proteomics analytical tools. Moreover, it provides a pathway for new research techniques and tools to find their way to larger, more lucrative clinical markets—a source of innovation that Beckman hopes will address the challenge of finding high-growth opportunities when more than two-thirds of its $1.9 billion of revenues comes from a mature, commodity-like business. The scenario is quite different from a few years ago, when the life sciences unit was a drag on earnings. It is now not only the fastest growing part of Beckman Coulter, but also a key to the company's future hopes in clinical diagnostics.

Most of the top diagnostics companies have efforts underway in genomics and proteomics, but Beckman's strategy, based on a mix of narrowly focused internal programs and small, but well-chosen alliances, reflects its cautious, efficient culture. Unlike Roche , Becton Dickinson & Co. , or the diagnostics division of Abbott Laboratories Inc. , it doesn't appear to be spending hundreds of millions of dollars on its efforts but may reap rewards just the same. At a recent meeting with investors in New York, Beckman top executives outlined the company's progress in its various businesses, focusing particularly on new research instruments and programs like its "advanced biosciences" business and its "progressive array" research initiatives.

The core diagnostics business had a robust 2000, growing 6% in constant currency, according to COO and chairman John Wareham. Routine chemistry, about 28% of total revenues, was up 13% while sales of immunoassays, about 18% of revenues, grew 2%—almost flat but encouraging given that immunoassays grew 8% while the nephelometers declined. Beckman is the US market leader in clinical chemistry, and in second position worldwide; it is the fifth largest maker of immunoassay systems. While it maintains its market leadership in hematology, the segment overall is not growing and Beckman's sales in hematology last year reflected that situation.

The company's strong show in immunoassays is one of its bigger surprises; few industry experts expected its 1997 purchase of the immunoassay instrument assets of Sanofi Diagnostics Pasteur [See Deal], now part of Sanofi-Synthelabo, to give Beckman much of an edge in the segment; at $50 million in annual revenues, the Sanofi business was just too small and the target market too competitive. Yet, Wareham says that the Accessinstrument platform, which originated at Sanofi, is one of the company's fastest growing product lines (albeit from a very small base), with revenues rising in the mid-30% range. Two new systems are in the works, including one with modified software to be launched later this year and a next-generation system scheduled for release next year. The menu remains limited compared to other immunoassay heavyweights, but the introduction last year of free prostate specific antigen (PSA), a reflex assay used to clarify ambiguous PSA results for prostate cancer diagnosis, is interesting enough to drive some purchase decisions; Beckman, until a month ago, has been the only company to offer the test on an automated platform. The company has 17 assays in development. Woes at Abbott Diagnostics and the pull-through impact of Beckman's broad product line also help drive sales growth.

Most of the public discussion, however, has centered on the life sciences division, where changing markets and increasing demand for faster, cheaper analytical tools and instruments is driving double-digit growth. Under the new organization, the division has $415 million in sales from centrifugation and drug discovery/analytical tools. The centrifugation business (about 10% of total corporate revenues), consists of spectrophotometers, HPLC, and capillary electrophoresis instruments. While demand among its traditional customer base of academic and government research institutions is growing slowly, efforts are underway to both shift attention to biotech and pharma companies, where R&D budgets for work that needs these tools is growing 30% a year, and to move it into newer technologies. And if the research market is crowded, confusing and fragmented, Beckman, by dint of its global distribution network and long experience in life sciences, has advantages.

The genetic analytical systems piece of the business is centered on Beckman's robotic automation for drug discovery, rapid screening, and protein sequencing. This is the fastest growing part of the company, with sales driven by customers who create large databases and then need tools capable of analyzing 200,000 to 300,000 assays a week, derived from those databases. At its core is the Biomekrobotic liquid handling platform, introduced in the early 1990s; the company also recently introduced a new DNA sequencer, which can do faster, longer reads than those currently on the market. Its progressive array program is exploring high-density alternatives, notably bead- and chip-based technologies. Due for commercialization next year is a program it calls array-to-array (A-squared), which allows users to analyze DNA, proteins and cell binding assays on high-throughput microtiter plate platforms. By placing a polypropylene substrate in each well, Beckman can expand by 100-fold the number of tests run simultaneously; a microtiter plate that can do 96 tests will be able to do 9,600 tests, sometime in 2002, the company hopes. The program will be launched first with cytokine arrays, which detect cell metabolism and are involved in immune response. The 1999 market for cytokine assays was $150 million, growing at 15% a year, with the rate to rise to 20% as more cytokines are identified, predicts James Osborne, PhD, VP, Beckman's Advanced Technology Center.

The company also has a series of small, mostly non-exclusive alliances. With Biopool International-Xtrana, it is developing a one-step amplification and sample prep technology for microtiter plate wells. A recent non-exclusive deal with Promega Corp. , which makes a variety of reagents, gives Beckman the opportunity to sell Promega nucleic acid purification reagents with the Biomek, creating an integrated platform that pits it directly against long-time industry leader Qiagen Inc.Despite Qiagen's market share of well over 50%, Beckman executives believe they can make inroads partly because many existing Biomek users would be interested in expanding the system's applications to include sample prep and are looking for one-stop solutions. The company also has a deal with Cellomics Inc. to develop a cell-based high-throughput screening instrument for drug discovery, notably lead optimization [See Deal].

Some of these technologies, as they are more widely accepted and their applications better known, may move into the company's new division, specialty testing. The division's aim is to transition research tests to the clinical market; many tests that fall into the category may stay there as they are deemed not suitable candidates for full FDA clearance. Currently a $120 million business, it is growing 42% a year and is based on Beckman's cell analysis and flow cytometry product lines.

On a more practical, near-term level, Beckman hopes to use it to focus more attention on finding new applications for flow cytometry; Beckman is a weak number two in the field behind Becton Dickinson, and its flow business turned in mediocre performance last year. But Beckman has several projects in the works, including a long-range program to develop an analyzer that combines hematology and flow cytometry and a new cell analysis system to be launched next year. Moreover, it has several near-term research initiatives, including one it calls Immunomics, which are looking for new flow applications. Immunomics is based on MHS tetramers, a proprietary technology licensed from Stanford University . These measure cellular immune response and are useful for gauging the efficacy of new immunovaccines and drugs, which require accurate, highly specific T-cell counts; Beckman is currently supplying them for 20 clinical trials in diseases such as cervical and renal cancer and melanoma. They also may be useful in predicting the potential of organ rejection prior to transplantation and in more precisely gauging the status of HIV/AIDS patients. Beckman executives estimate this could grow from a $25 million business today to a $100 million business by 2005. Tetramers can distinguish subsets of T cells, while current technology recognizes only broad categories of T cells.

Another initiative, in cytomics, aims to find additional new applications for flow cytometry and convert those from research to clinical utility. The hope is to give flow more attention as part of specialty testing. A third program, in particle characterization for industrial applications, already brings in $39 million a year.

Sales growth for the company overall is likely to hover in the 6% range this year, says CFO Amin Khalifa, with net earnings growing 15-16%. The company has a strong cash flow and is reducing debt slightly ahead of schedule; last year it paid down $116 million of the huge debt incurred from its purchase of Coulter Corp. in 1997 [See Deal]. Lowering the debt expense will add 2% to overall corporate growth, while operating income improvement will add 4%, Khalifa adds.