Partnering Business

(OEM business)

Total sales Partnering Business1

(CHF million)

EBIT Partnering Business

(CHF million)

EBIT margin Partnering Business

(in % of sales)

Sales by product groups

(in % of sales)

Tecan not only provides end customers with automation solutions, but is also a leading developer and manufacturer of OEM instruments and components which partner companies sell under their own name. Tecan has been operating its OEM business since the Company was founded more than 30 years ago; parts of the business within today’s Group can even look back on 40 years of history.

Tecan expanded its OEM business in the year under review. Over the last nine years, sales have grown by an average of 9 % per year. The OEM business has been designated as the Partnering Business segment since 2011. The share of this segment in the total sales of the Tecan Group was 42 % in 2013.

Tecan benefits in the Partnering Business from the outsourcing of instrument development, either in full or for specific parts, to specialists like itself by diagnostics and other life science companies. This enables these companies to focus on developing tests used in diagnostics or research. In recent years, this trend has been accelerating. OEM customers benefit from Tecan’s extensive technology experience in a wide range of instruments and modules in the area of laboratory automation. By outsourcing instrument development, customers are able, among other things, to shorten the time to launch while also gaining access to Tecan’s innovative technologies.

Product portfolio

Tecan has a wide range of products. The Company supplies various well-known diagnostics instruments in the OEM business and serves several hundred customers with components. Customers engage Tecan to carry out widely differing elements of instrument development: the spectrum ranges from components to complete instruments. Tecan’s solutions are thus also able to grow with the needs of the customer.

Components

Tecan’s Cavro® brand is the market leader in laboratory automation components. The Company supplies laboratory instrument manufacturers with essential components such as precision pumps, valves, robotic arms and development software. They are used in systems that have a wide range of applications in life science research, diagnostics, forensics and numerous other industries. In customers’ product ranges, Tecan components generally remain an indispensable element over the entire life cycle of a device. The components business has seen strong growth in the last two years. For example, Tecan gained customers in the fast-growing area of nextgeneration sequencing and posted rising sales in China.

Platform-based solutions

Fast time to market and low development costs are key for some OEM customers. In these cases, Tecan can adapt the products and platforms it develops for its own end customers to the specific needs of OEM customers. These adapted and standardized platforms are then distributed under the customers’ own brand name as system solutions that combine Tecan’s instruments with the partner’s own specific tests. Detection instruments from Tecan can also be modified or integrated into fully automated laboratory solutions.

Dedicated solutions

When an OEM customer is looking for a specific product, designed and manufactured to a specific functionality and cost, a dedicated system development can be the answer. Dedicated systems are usually most appropriate for products with a longer life-cycle and when the specific functionality and total costof- ownership are the key decision criteria. By choosing to partner with Tecan, OEM customers get access to the Company’s full range of technologies, modules and software as well as its expertise in system integration and regulatory and quality processes.

Customer service and consumables

Support for OEM customers does not end once the instrument development is finished. Tecan also offers OEM customers a range of services after the product is launched via its global service infrastructure. The Company can install instruments directly at the end customer’s location, provide a helpdesk facility, train the OEM customer’s service team and even handle customer service itself. In addition, Tecan maximizes instrument operation time by providing a global spare parts service. OEM customers active in the diagnostics market may benefit from Tecan’s high-quality consumables such as certified pipette tips, which are an important component of a validated system solution. Thanks to the growing number of installed devices in recent years, this business posted high growth rates.

Growth drivers

Tecan has a broad base of OEM customers and is continuously increasing the number of supply agreements. The supply of new products stepwise generates additional sales, building on the established base. This enables achievement of sales growth in excess of the market level. The Partnering Business will therefore continue to make a considerable contribution to the Company’s growth in the years ahead.

Launch of new products

Tecan expects two dedicated diagnostics instruments to make a significant contribution to sales in coming years: Dako Omnis and ORTHO Vision™.

Dako Omnis, a new platform for automated advanced staining for tissue-based cancer diagnostics was launched in the year under review. Given the advancing global marketing by partner Dako, an Agilent Technologies company, Tecan expects a significant increase in sales in 2014. Further information on the Dako Omnis can be found on pages 4 through 7 and on page 36. ORTHO Vision is a next generation diagnostics instrument used for blood typing and to determine other important blood parameters. The device, which is being developed for partner Ortho Clinical Diagnostics, the market leader in immunohematology, will be launched by the partner into several regional markets during 2014. ORTHO Vision™ Max, a variant of the instrument with a higher sample throughput, is also being developed by Tecan. 

Tecan gained a number of new customers for platform-based solutions in the year under review; these will contribute to sales growth in the years ahead. In addition, Tecan is currently discussing several new projects with potential partners.

Numerous customers are also developing instruments incorporating innovative Tecan components as elements. Other customers have already started serial production of new devices, resulting in higher volumes for components.

China

As in the Life Sciences Business segment, significant market potential is also presenting itself to Tecan in the Partnering Business in China. At present, only a modest share of sales is generated in China in the Partnering Business segment, although sales have increased significantly over the last two years. Tecan is benefitting here from the strong position of the Life Sciences Business and the known brand. Local device manufacturers are increasingly integrating Tecan components in various areas of application to ensure the necessary instrument quality and reliability. Also, Chinese diagnostics companies are interested in the supply of complete instruments by Tecan.

Performance in selected end markets in China is described in more detail on page 28.

Innovation

Tecan has also set itself the aim of further expanding its leading market position and becoming the partner of choice for customers for instrument development in the Partnering Business. To this end, the Company is focusing increasingly on developing proprietary, patent-protected technologies. One example is the innovative eFluidics™ technology. eFluidics is an alternative liquid handling technology based on electrowetting, which can manipulate fluids by altering the electrical field. Tecan is already holding discussions with diagnostics and life science companies who are very interested in the development of compact instruments for a range of applications.

Performance

The Partnering Business generated sales of CHF 164.6 million in 2013 (2012: CHF 156.0 million), which corresponds to an increase of 5.5 % in Swiss francs and 5.8 % in local currencies. Overall the Partnering Business accounted for 42.4 % of total Group sales (2012: 39.9 %).

Strong growth was achieved in services and consumables, as well as in China. The components business also continued to perform well. Instrument sales fell only slightly, with growth from new business and established product lines largely offsetting a headwind from the phase-out of products in the amount of around CHF 15 million compared to the previous year. The largest impact came from a partner who shifted the focus of its combined product portfolio following a company acquisition. Order entry in the Partnering Business also saw pleasing growth.

Sales growth accelerated further in the second half, and was 7.8 % higher than the prior-year period in Swiss francs, and 8.9 % higher in local currency terms. This development is a reflection of the launch of the Dako Omnis (P16) instrument by Tecan’s partner, Dako, in September.

Operating profit in the Partnering Business increased by 38.8 % in 2013 to CHF 42.7 million (2012: CHF 30.8 million). The operating profit margin rose to 25.5 % of sales due to a higher gross margin (2012: 19.2 %).