PARTNERING BUSINESS*(CHF million)
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(in % of sales)
**Including integration costs related to the Sias acquisition reaching a mid single-digit million Swiss franc amount.
SALES BY PRODUCT GROUPS
The Partnering Business generated sales of CHF 241.5 million during the year under review (2016: CHF 226.0 million). This corresponds to an increase of 6.7% in local currencies and 6.9% in Swiss francs. The acquisition of Pulssar Technologies, which has been consolidated in the financial statements since March 1, 2017, as expected only had a limited impact on sales. On an organic basis, excluding sales by Pulssar, revenue in 2017 rose by 6.1% in local currencies. This increase in sales was achieved despite a high baseline in the previous year, in which sales in the first half of the year had benefited from the last major order for a phasing-out platform. The lack of sales from this instrument platform was more than offset by new instrument platforms as well as strong growth in the components business, services and consumables.
After posting a modest decline in the first half of the year, sales growth recovered strongly in the second half, expanding at a rate of 16.4% in local currencies and 16.6% in Swiss francs. On an organic basis, this corresponds to growth of 15.5% in local currency terms in the second half of the year.
Order entry in the Partnering Business increased at a double-digit percentage rate in 2017.
Operating profit in the Partnering Business (earnings before interest and taxes; EBIT) rose by 26.2% to CHF 42.6 million in 2017 (2016: CHF 33.8 million). In this segment, too, the increase was largely attributable to the growth in sales, a higher gross margin and improved efficiency. The operating profit margin improved by 270 basis points to 17.5% of sales (2016: 14.8%), in part also due to non-recurring positive effects and because the prior-year period had included even higher integration-related costs in connection with the acquisition of Sias.
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 nearly 40 years ago – parts of the business within today’s Group can even look back on more than 40 years of history. The share of this business segment in the total sales of the Tecan Group was 44% in 2017.
HIGHLIGHTS OF 2017
- Expansion of the pump portfolio through the acquisition of the French company Pulssar Technologies and the relocation of Pulssar production from Paris to San Jose (USA)
- Development of a new instrument platform for molecular diagnostics with the Italian partner DiaSorin and for flow cytometry with the Japan-based Sysmex Corporation
In the Partnering Business, Tecan manages corporate customers, who are mainly diagnostics companies, centrally via Key Account Management. Employees in Europe, North America and Asia ensure the local management of existing customers and support the acquisition of new customers. There are direct sales employees in the individual national markets for the components business.
In the components business, Tecan supports instrument manufacturers with essential components where they want to develop an instrument themselves. By contrast, in the instruments business, Tecan takes over the development of the entire system, which it then manufactures under contract.
In the Partnering Business, Tecan benefits from diagnostics and other life science companies outsourcing instrument development, either entirely or for specific parts, to specialists like itself. This enables these companies to focus on developing diagnostic or research-related tests. This trend has accelerated in recent years, especially in the development of instruments that automate novel applications such as gene sequencing or other molecular-diagnostic technologies. 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.
Tecan has a wide range of products. The Company has developed various well-known diagnostics instruments in the OEM business and serves several hundred customers with components.
Tecan is the market leader in laboratory automation liquid handling components. The Company supplies laboratory instrument manufacturers with essential components such as precision pumps, valves, robotic arms and developer software. They are used in systems that have a wide range of applications in life science research, diagnostics and numerous other industries. In customers’ product ranges, Tecan components generally remain an indispensable element over the entire life cycle of a device. For example, Tecan supplies manufacturers in the fast-growing area of next generation sequencing with the Cavro® XMP 6000 Multi-Channel Pump for precision handling of fluids in different sequencers.
In March 2017, Tecan acquired the French company Pulssar Technologies S.A.S. Pulssar precision pumps expand the technology portfolio of Tecan’s components business and meet application-specific customer needs in various market segments.
PLATFORM-BASED AUTOMATION SOLUTIONS
Rapid market launch 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. Tecan has a broad range of modular platforms suited to applications with low to high sample throughput. Detection instruments from Tecan can also be modified or integrated into fully automated laboratory solutions for OEM customers.
One example of this type of platform-based automation solution is one of the world’s most successful molecular diagnostic platforms. It is marketed by the partner as a system solution jointly with a wide range of different molecular diagnostic tests. Applications include, for example, therapy monitoring in HIV or hepatitis patients and detection of sexually transmitted infections.
This platform-based approach is very popular in China, too. Many up-and-coming Chinese diagnostics companies are relying on the high-quality platforms of Tecan to automate locally developed tests, for example for molecular diagnostics.
DEDICATED AUTOMATION 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 most suitable answer. Dedicated systems are usually most appropriate for products with a longer life cycle and when the specific functionality and total cost-of-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 solutions as well as its expertise in system integration and regulatory and quality-related processes.
The corporate strategy pursues three vectors to ensure sustainable profitable growth. Tecan’s specific strategies allow it to drive forward customer projects with the respective business models of the two business segments.
Expanding the core business
In the in-vitro diagnostics market, some of the instrument development and production will be outsourced to specialists like Tecan. In this addressable market share, Tecan, through its Partnering Business, is the partner of choice in automation systems for many companies in the in-vitro diagnostics industry. Tecan supports these partners with their regional product launches of new instruments – developed and manufactured by Tecan – and the associated ramp-up in serial production.
PRODUCTION OF IMPORTANT PRODUCTS
Tecan has a broad base of OEM customers and is continuously increasing the number of supply agreements. The supply of new instruments generates additional sales stepwise, building on the established base. This enables Tecan to grow more rapidly than the market.
Numerous customers are also developing instruments incorporating innovative Tecan components as elements. When serial production of these instruments begins, it will result in higher volumes of the components being required and therefore higher sales for Tecan.
Dako Omnis for Dako
Dako Omnis, a platform for automated advanced staining which is used in tissue-based cancer diagnostics, is one example of a dedicated automation solution. The system automates both established processes in the diagnosis of abnormal cells: immunohistochemistry (IHC) and in-situ hybridization (ISH).
Dako Omnis produced by our partner Dako – an Agilent Technologies company – offers full automation and fulfils the requirements of large diagnostic laboratories, hospitals and universities. It offers continuous loading with individual samples or batch loading, as well as the option of leaving the system to run overnight. It therefore sets new standards for what customers can expect from an automated platform with regard to flexibility, capacity, efficiency and traceability of samples. In the year under review, Agilent Technologies announced that it had been selected as the main supplier for certain tissue tests by one of the biggest laboratory chains in the US. Tecan, too, hopes this will result in continuing demand for Dako Omnis platforms.
ORTHO VISION® Analyzer for Ortho-Clinical Diagnostics
The ORTHO VISION Analyzer is a next-generation diagnostics instrument used for blood typing and to determine other important blood parameters. The device was developed by Tecan for Ortho Clinical Diagnostics, a market leader in immunohematology, who launched it in various national markets from 2014. In the year under review, it was granted market authorization in China, too, which promises further growth potential for Tecan.
The ORTHO VISION Analyzer heralds a new era in transfusion medicine, with Responsive Automation. ORTHO VISION® Max is another variant of the instrument for transfusion medicine laboratories and has a high sample throughput. Innovative monitoring technologies and control mechanisms give transfusion medicine professionals the ability to track every critical process step. In addition, laboratory personnel can react at any time to ever-changing conditions within the laboratory and unpredictable requirements. For example, particularly urgent cases can be rapidly processed by loading samples into the ORTHO VISION Analyzer on the fly, allowing for prioritization.
The year under review saw a significant increase in the serial production of products from the ORTHO VISION™ Analyzer platform family. In January 2017, Tecan’s partner Ortho Clinical Diagnostics announced that it had installed over 1,000 instruments around the world. In January 2018, it was announced that another approximately 900 instruments were installed during 2017.
SGX CLARITY™ FOR SINGULEX
In April 2017, Tecan partner Singulex, which is based in Alameda, California, announced it had obtained the CE marking and thus market authorization for the Sgx Clarity system in Europe. Singulex operates in the field of immunodiagnostics and develops new methods that are based on Single Molecule Counting (SMC) technology. Thanks to the ultra-sensitive SMC technology, which is up to 1,000 times more sensitive than conventional technologies, it should be possible, for example, to rule out an acute heart attack or prevent the onset of clinical symptoms. Working in collaboration with Singulex, Tecan has developed the Sgx Clarity system in just three years.
ADDITIONAL NEW PLATFORMS IN SERIAL PRODUCTION
The year under review saw Tecan begin or increase the serial production of other instruments and for different partners. These new platforms form the basis of future growth.
Examples of these platforms includeVirclia® Plus, which performs tests for infectious diseases for the company Vircell; Aplidiag® Easy for Mobidiag, which is used for the molecular-diagnostic analysis of stool samples; and Multimacs® X for Miltenyi Biotec, which enables cell separation for various applications.
NEW DEVELOPMENT AND SUPPLY AGREEMENTS
Tecan has acquired a wide range of new customers for platform-based solutions over the past few years; these will contribute to sales growth in the future. Furthermore, the company has a pipeline that is well filled with potential new projects and is currently discussing a range of 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 the supply of higher volumes by Tecan. New development agreements were also concluded in the year under review.
In June, the Italian company DiaSorin and Tecan announced that they were to collaborate on a development project. Under the project, DiaSorin will make use of Tecan’s Fluent® Laboratory Automation Solution as its nucleic acid extraction platform, which will be used in combination with DiaSorin’s Liaison® MDX PCR system. The customer is thus provided with a complete sample-to-result system for molecular diagnostics. The Fluent® platform will be delivered to DiaSorin through Tecan Partnering and optimized for use in combination with the extraction chemistry and automated PCR setup of DiaSorin’s Liaison MDX 96 Well Disc.
Another development project that was advanced in 2017 was the new instrument platform for Japan-based Sysmex Corporation. It was developed on the basis of Tecan’s new Cavro® Omni Flex platform, which was adapted specifically to the area of flow cytometry.
OPENING UP GLOBAL GROWTH MARKETS
As in the Life Sciences Business segment, there is also significant market potential for Tecan in the Partnering Business in China. Sales have increased disproportionately in this region in recent years. Local device manufacturers are increasingly integrating Tecan components in various areas of application to ensure the necessary instrument quality and reliability. The first of these instruments have already been granted marketing authorization, and are now being manufactured in larger quantities. Furthermore, Tecan is also increasingly supplying Chinese diagnostics companies with entire instruments.
BUILDING UP FURTHER PILLARS IN THE INSTRUMENT MARKET
In the Partnering Business segment, Tecan mainly supplies diagnostics companies with instruments and components. Further pillars in the instrument market for life science research should therefore only be built up in the Life Sciences Business segment at present.
EXPANSION OF RECURRING REVENUES
The third vector focuses on expanding recurring revenues. Support for OEM customers in the Partnering Business segment will not end once 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 the complete service portfolio for devices itself. Tecan systematically expanded this business line in the year under review, for example, by taking over the installation and service provision for its partner Singulex’s Sgx Clarity™ system. In addition, Tecan maximizes instrument operation time by providing a global spare parts service. OEM customers in the diagnostics market may benefit from Tecan’s highquality consumables such as certified pipette tips, which are an important component of a validated workflow solution.
Only high-quality consumables can help ensure a high level of quality and reproducibility in tests. Thanks to the growing number of installed devices in recent years, this business posted high growth rates.