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. The share of this business segment in the total sales of the Tecan Group was 45% in 2018.
SALES TO THIRD PARTIES
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(in % of sales)
- Sales to third parties + intersegment sales
The Partnering Business generated sales of CHF 265.6 million during the year under review (2017: CHF 241.7 million), which corresponds to an increase of 9.7% in local currencies and 9.9% in Swiss francs. The segment posted continued strong growth from existing instrument platforms, first contributions from newly launched analyzers and the consumables business.
After posting significant growth in the first half of the year, sales in the second half grew by 3.9% in Swiss francs and in local currencies.
Also in the Partnering Business order entry increased at a high rate in fiscal year 2018.
Operating profit in this segment (earnings before interest and taxes; EBIT) rose by 15.9% to CHF 48.6 million (2017: CHF 42.0 million). This positive performance is primarily a result of sales growth and lower acquisition-related integration costs compared to the prior-year period. The operating profit margin improved by 100 basis points to 18.2% of sales (2017: 17.2%).
HIGHLIGHTS OF 2018
- Broad-based strong sales growth from existing and newly launched instrument platforms; considerable progress with a number of development projects
- Development of groundbreaking MAPlinx™ OEM software platform
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.
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 MAJOR INSTRUMENT PLATFORMS
Tecan has a broad base of OEM customers and is continuously increasing the number of development and 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 for 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. Agilent Technologies has been selected as the main supplier for certain tissue tests by one of the biggest laboratory chains in the US.
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.
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.
DEVELOPMENT PIPELINE AND PRODUCT LAUNCHES
Tecan made considerable progress with a number of development projects in the Partnering Business and has concluded new development agreements during 2018. More than five projects are currently in the development phase, the sales potential of which ranges from single-digit to clear double-digit million amounts in Swiss francs per year. To continuously fill the development pipeline, Tecan is currently discussing a range of projects with potential future partners. It is the riches project funnel to date, with the majority of projects in the area of molecular diagnostics and other fast growing applications. Furthermore, numerous customers are also developing instruments incorporating innovative Tecan components as elements.
The year under review saw Tecan begin or increase the serial production of new instruments for different partners. For 2019, again several additional market launches are expected.
One such example is the PS-10 Sample Prep System for Japan-based Sysmex Corporation. In 2018 Tecan successfully concluded the development of this new instrument platform. It was developed on the basis of Tecan’s new Cavro® Omni Flex platform, which was adapted specifically to the area of flow cytometry.
The PS-10 is a highly automated, flexible sample prep system for laboratory developed tests and routine flow cytometry applications. It helps highly trained operators to concentrate on analyzing data and allows existing laboratory procedures to be easily incorporated.
Flow cytometry is applied in healthcare, microbiology, industrial applications, quality control, as well as plant and animal cytology. The technology makes it possible to carry out real-time, absolute counting of cells, cellular subsets and other particles on a volumetric basis and thereby allowing to detect and measure physical and chemical characteristics of a population of cells or particles.
Recently the Biosciences unit of Lonza Group using Tecan’s Freedom Evo platform developed the PyroTec™ Pro Robotic Solution, the first-ever fully automated, plate-based robotic solution for endotoxin detection. The new system includes innovative dynamic software to run the assay and marks a milestone in endotoxin detection, allowing pharmaceutical manufacturers to replace manual, error-prone processes with a fully automated solution.
The PyroTec™ Pro Robotic Solution was unveiled at the beginning of 2019 at a major industry trade show.
NEW GROUNDBREAKING SOFTWARE PLATFORM AS BASIS FOR FUTURE PROJECTS
In instrument development projects, the importance of software has continuously increased over the years. The software platform hereby has to control the system itself and at the same time needs to cover a wide range of applications. A competitive OEM offering has to therefore include not only modular hardware but also modular software, where parts and software code can be re-used to create new configurations – without having to start from scratch. Fast time to market, reduced life cycle management cost and multi-application utilization are key aspects when it comes to developing software for a dynamic product portfolio in a regulated environment.
With the introduction of the groundbreaking MAPlinx™ OEM software platform, Tecan can address those increasing demands with a design that is based on fully pre-tested modular building blocks. Whether it is sample preparation for next generation sequencing, an automated immunoassay workflow or another application, MAPlinx can be tailored to match an OEM customer’s automation needs. It is one common software architecture, regardless of the specific hardware platform or application.
MAPlinx is also at the heart of the new Cavro® Magni Flex platform that was developed for low- to mid-throughput volume needs. Together with the Fluent workstation, Tecan’s high-speed automation solution, MAPlinx can also be leveraged for high throughput volumes that are not covered by the Cavro Magni Flex.
The modular components can be adapted for a wide range of applications including molecular testing, blood group analysis, immunoassays, histology/cytology, mass spectrometry and more. This allows Tecan’s clients to address different future market needs and leverage the intention of the modular portfolio to be faster to market.
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. Asia sales in the Partnering Business grew by 18.3%, particularly boosted by strong growth in China.
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. In the year under review, the share of recurring revenues from services, spare parts and consumables exceeded one fourth of total segment sales.
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. 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 high-quality 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.