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PerkinElmer: refocused and on the move.

PerkinElmer has come a long way. Six years ago, the company in its current form did not even exist. In 1998, PerkinElmer's analytical instrument business was languishing in the shadow of the company's faster-growing life sciences division, Applied Biosystems, and the company's newest operating unit, Celera. Perkin-Elmer put the analytical instruments division up for sale in the fall of 1998. The surprise buyer was EG&G, a company primarily known for government work, such as its explosive detection systems, and whose principal life science offerings lay with a recently acquired plate reader company named Wallac (see IBO 12/31/98). In 1999, EG&G completed the purchase of the Analytical Instrument business as well as the Perkin-Elmer name for $425 million. With 1998 sales of $569 million, the analytical instrument business gave PerkinElmer entry into the molecular spectroscopy, atomic spectroscopy, HPLC, GC and thermal and elemental analysis markets.

The next five years would see the transformation of PerkinElmer into a $1 billion instrument provider (see IBO 2/ 29/04). Through two major acquisitions, a series of divestments and a few name changes, its instrument division is today known as the Life and Analytical Sciences business LAS). LAS generated 65% of PerkinElmer's total revenue last year and $120 million in pro-forma operating profit. With the integration of the Life Science and Analytical Instrument divisions in late 2002, which was mostly completed last year, PerkinElmer appears to have completed its restructuring and integration efforts, setting the stage for new priorities and strategies.

"Having spent about 14 months on the integration, we feel that we now have a clear strategy to go forward and have established a good baseline for LAS. We still need to improve the way in which we serve our customers and that--through investment in resources, training and systems--is our primary focus for 2004," say PerkinElmer Senior Vice President and LAS President Peter B. Coggins and Jon Rennert, vice president and general manager of LAS's Environmental & Chemical Analysis business. The formation of LAS built upon the integration of the company's two major acquisitions. In 2000, PerkinElmer purchased NEN Life Sciences, a provider of life science reagents and services, for $400 million (see IBO 6/15/00). With this acquisition and the purchase of Wallac, PerkinElmer solidified its presence in the drug discovery and genetic screening markets. In 2001, the company undertook its largest acquisition to date when it acquired Packard Biosciences for $764 million (see IBO 7/15/01, 11/15/01) to expand its liquid handling and automated sample preparation offerings. It also purchased LIMS company LabWorks in 2001 (see IBO 3/15/01).

Divestitures of smaller or non-core product lines included the sales of: the non life science related products of its Berthold process analytical business (see IBO 11/15/00); the Security and Detection Business in 2002 to L-3 Communications for $100 million (see IBO 7/15/01, 1/15/02); and the IRAS (Instruments for Research and Applied Science) business, which makes nuclear spectroscopy and research electrochemistry products, three years ago to AMETEK (see IBO 1/15/02).

The formation of LAS meant basic changes to the structure of the instrument business. "Starling with the development of a clear strategy for the business, we formed the four business elements comprising LAS: BioPharma, Genetic Screening, Environmental & Chemical and Service," said the executives. "We then moved to eliminate the overlapping infrastructure and optimized customer care, sales and marketing, and consolidation of R&D and manufacturing sites with the establishment of five Centers of Excellence [COE]." The COEs are located in: Downers Grove, Illinois; Boston, Massachusetts; Shelton, Connecticut; Seer Green, England; and Turku, Finland. "Wherever possible we have co-located manufacturing and R&D within a specified COE," add Dr. Coggins and Mr. Rennert.

Internal restructuring has also been accompanied by changes in how PerkinElmer interacts with customers. "Our go-to-market model has also changed considerably with optimization of customer care centers globally to provide a single interface for our customers, training for our field-based sales force and further investment in inside sales, e-commerce, and application and technical support," the executives tell IBO. Notably, LAS's service segment, One Source, now accounts for 21% of LAS revenue, with sales growing approximately 8% last year.

The integration also benefits PerkinElmer's ongoing efforts to improve productivity, reduce costs and institute new business processes in accordance with Six Sigma practices. The company anticipates pre-tax cost savings of $30 million to $40 million from the LAS integration relative to 2002 cost levels. "We have also spent a lot of time building process into R&D, and improving upon that already established in manufacturing to drive productivity," say the executives. Other areas of focus include supply chain management, working capital improvement and increased cash flow.

The focus on service is also in line with PerkinElmer's new Customer Excellence Initiative, started in 2004, which is designed to measure and improve customer satisfaction. "Identifying our customers' requirements, setting metrics measuring against them on a routine basis and tracking progress form the foundation of our Customer Excellence initiatives. We have developed and implemented programs that affect how we touch the customer before, during and after the sale," say Dr. Coggins and Mr. Rennert. As many instrument companies have noted, service, as well as consumables, are important sources of recurring revenue from an installed base.

As for the LAS product line, the company continues to target high-growth products as well as those product lines in which it has a strong position. In the BioPharma area, it is focusing on high-throughput screening, functional proteomics and cellular sciences. "We see a lot of synergy and opportunities to grow across technology platforms," says Dr. Coggins. "In drug discovery there's a lot of activity in various detection technologies as well as automated sample prep and processing as well as cellular science applications to address downstream bottlenecks such as the ADME/Tox area," he explains. "In the manufacturing market, the concern remains productivity and reducing the cost of poor quality. Regulatory concerns are important too, especially with respect to methods and documentation. Our Lambda and Spotlight systems have strong positions in QA/QC, so we want to maintain that momentum." In Genetic Screening, expansion of analytes, hardware systems, LIMS and software systems are the focus.

For the Chemical and Environmental area, Mr. Rennert cites spectroscopy as a key technology, especially FT-IR and ICP-MS. "We recently made a major investment in our Lambda UV/Vis platform, and that's already had a huge impact. We're investing in HPLC and in our Labworks LIMS. Labworks, for instance, has shown double-digit growth for the past two years."

However, the growth of new product lines as well is important for any business. In Genetic Screening, Dr. Coggins notes a move into molecular diagnostics as well as further investment in neonatal and prenatal screening. In the BioPharma area, process analytical technology is a market the company is pursuing. "We continue to regard process analytical technology (PAT) as an essential component in our overall pharma strategy because to be done well PAT requires a combination of software, instruments and service," says Mr. Rennert. PerkinElmer's molecular spectroscopy technology is especially well suited to such applications as is its experience with pharmaceutical customers. "We're making progress in this area and will announce an offering that fits the needs of customers as soon as it's ready." As a novel market, it also provides fertile ground. As he puts it, "Right now, the PAT space isn't dominated by any vendor with a comprehensive solution, so we believe that there's room for a strong, differentiated solution from PerkinElmer."

Current LAS R&D expenditures are between $60 million and $70 million. And as the company has noted in conference calls and investor presentations, it is not ruling out smaller acquisitions for LAS in order to add technologies to make product lines more competitive. However, as Dr. Coggins and Mr. Rennert explain, "We're always involved in business development activity that could help us bring new, innovative products to market quicker. In the short term, while we are building the business we need some stability rather than another major acquisition, so we will focus on the licensing-in of IP and small technology deals to support all business elements."

Now that the major changes that marked PerkinElmer's recent history are completed, LAS's new foundation appears well prepared for the new business environment facing broad-line instrument companies.
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Publication:Instrument Business Outlook
Geographic Code:1USA
Date:Jun 15, 2004
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