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 over 40 years ago. With the acquisition of Paramit Corporation, a leading OEM developer and manufacturer of medical devices and life sciences instruments, Tecan’s Partnering Business expanded significantly its commercial reach, its capabilities and its US and Asia presence. Including Paramit, this business segment's share of total Tecan Group sales increased to 49% in 2021.
SALES TO THIRD PARTIES
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(CHF million)
PARTNERING BUSINESS(in % of sales)
The Partnering Business generated sales of CHF 461.6 million during the year under review (2020: CHF 322.1 million), which corresponds to an increase of 43.3% in Swiss francs and 43.1% in local currencies. On an organic basis, i.e. excluding Paramit's sales in the last five months of the year, sales rose by 8.1% in Swiss francs and 8.0% in local currencies. Similar patterns to the Life Sciences Business were observed in the Partnering Business, with automation platforms and OEM components supporting COVID-19 testing contributing strongly to sales in the first half of the year, and disposable pipette tips throughout the year. In the course of the year, the demand for automation systems in other areas of in-vitro diagnostics recovered markedly and helped to offset the strong sales contribution from COVID-19-related systems in the prior-year period. As expected, the base effect for the Partnering Business was more pronounced compared to the Life Sciences Business in the second half of the year and organic sales decreased by 20.3% in Swiss francs and 20.6% in local currencies.
Including the first-time sales contribution from Paramit, total segment sales increased by 42.1% in Swiss francs and 41.6% in local currencies in the second half of the year.
Operating profit in this segment (earnings before interest and taxes; EBIT) remained unchanged at CHF 59.2 million (2020: CHF 59.1 million), while the operating profit margin reached 12.8% of sales (2020: 18.3%). The integration costs and amortization of acquired intangible assets recognized for the Group in connection with the acquisition of Paramit were recognized in the Partnering Business and had a lasting effect on the reported operating result for the segment. Excluding these acquisition-related effects, the underlying increase in profitability was due to economies of scale resulting from higher volumes and a favorable product mix.
HIGHLIGHTS OF 2021
- Acquisition of Paramit Corporation, the largest transaction in the company’s history
- Conclusion of major development project; several products nearing launches in 2022
In the Partnering Business, Tecan manages corporate customers 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, marketed under the Tecan Cavro® brand, the company supports instrument manufacturers with essential components where they want to develop an instrument themselves. By contrast, in the instruments business, marketed under the Tecan Synergence™ brand, Tecan takes over the development of the entire system, which it then manufactures under contract. Customers are mainly diagnostics companies. With the acquisition of Paramit, Tecan’s Partnering Business also expanded its reach into the life science research market and added a completely new business vertical in the attractive and fast-growing market for medical devices. Further information regarding the Paramit acquisition and the expansion of capabilities and markets can be found in the chapter "Markets and Strategy".
The combination of Paramit with Tecan´s Partnering Business offering significantly enhances the customer value proposition. Paramit adds new capabilities and technologies, in custom design and custom development as well as in manufacturing. Paramit also extends Tecan’s offering for life science research and expands it into medical mechatronics.
Tecan on the other hand adds significant R&D capabilities in software development as well as workflow expertise. Overall, significant potential exists to cross-leverage products and services and expand regionally.
In the Partnering Business, Tecan benefits from diagnostics, life science and medical device companies outsourcing instrument development and manufacturing, either entirely or for specific parts, to specialists like itself. This enables these companies to focus, for example on developing the diagnostic 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. With the acquisition of Paramit Tecan has expanded its OEM business also into the area of medical devices.
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. The renowned Cavro® components 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 Cavro® pumps and fluidic systems for precision handling of fluids in different sequencers. In 2020 and 2021, Tecan saw substantial demand for the Cavro ADP, one of the smallest and most sophisticated air pipettors on the market.
In 2019, Tecan broadened the components portfolio through the acquisition of a long-term supplier of key parts, also vertically integrating the manufacturing of critical precision-machined parts. With two manufacturing sites, one in California (USA) and another in Ben Cat Town (Vietnam), Tecan is benefiting from the long-term supply of high-quality precision-machined parts and realizing cost savings by internalizing their supply.
PLATFORM-BASED AUTOMATION SOLUTIONS
Under the Synergence brand Tecan designs and builds integrated lab automation solutions. Rapid market launch and low development costs are key for some OEM customers. In these cases, Tecan can adapt the products and automation 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. During the coronavirus pandemic, this reliable instrument platform became a backbone of COVID-19 testing with new molecular diagnostic tests designed to detect SARS-CoV-2 approved for use on the system.
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. With Tecan platforms already registered with the Chinese FDA, the local diagnostics companies were also able run their COVID-19 PCR tests on their existing platforms.
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.
MEDICAL DEVICES AND BENCHTOP INSTRUMENTS
Paramit has been designing and manufacturing medical devices, diagnostics and life science instruments for almost 30 years. Its portfolio is complementary to Tecan’s and consists of surgical instruments, critical modules and systems for surgical robotics, point-of-care and personal testing devices, as well as diagnostic systems amongst others.
Paramit also works with life science companies developing and manufacturing high-precision instrumentation. Its clients are mainly US-based companies commercializing a range of products for genomics, proteomics and cell-analysis including flow cytometers, microfluidic instruments, and systems for electrophoresis, imaging, high-sensitivity biomarker detection, microarrays and sample preparation.
The corporate strategy pursued 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. The acquisition of Paramit added additional vectors for the Partnering Business.
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 segment, Tecan, through its Partnering Business, is the partner of choice for automation systems and components for many companies in the in-vitro diagnostics industry. Tecan supports these partners with development, the associated ramp-up in serial production to full lifecycle management and more options.
Key application areas for the Partnering Business are:
- Genomics workflows (Molecular Diagnostics, Next-Generation Sequencing)
- Protein analysis, particularly workflows of mass spectrometry and immunoassays
- Cell analysis (e.g. flow cytometry)
- Tissue analysis (e.g. advanced staining)
- Blood typing for transfusion medicine
SUPPLY 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. Examples:
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).
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. In 2021, Ortho Clinical Diagnostics announced the availability of enhanced Ortho Vision Swift and Ortho Vision Max Swift Analyzers. The new suite offers labs more processing power, enhanced responsiveness, and advanced data security to ensure results that are consistently fast, accurate, and reliable.
THERMO FISHER SCIENTIFIC LEVERAGING TECAN’S AUTOMATION TECHNOLOGY
In August 2020, Tecan entered into an agreement with Thermo Fisher Scientific, the world leader in serving science, to enable scaled-up COVID-19 testing globally. Since then, Thermo Fisher Scientific has introduced a new highly automated, real-time PCR solution designed to analyze up to 8,000 samples in a single day to meet increasing global demand for COVID-19 testing. The high-throughput system enables laboratories to significantly scale up their testing capacity to support global efforts to return communities back to work and school.
The Thermo Fisher Scientific Amplitude Solution includes instruments of the Tecan Fluent Laboratory Workstation family, the highest performance platform within Tecan’s extensive portfolio of liquid handling solutions for laboratory automation and the Introspect software, an instrument and consumables usage analysis and reporting software.
DEVELOPMENT PIPELINE AND INSTRUMENT PRODUCT LAUNCHES
Tecan made considerable progress with a number of development projects in the Partnering Business and has concluded new development agreements during 2021. Various projects are currently in the development phase. These projects cover Tecan’s focus application areas including molecular diagnostics and protein analysis, with sales potential of individual projects ranging from single-digit to clear double-digit million amounts in Swiss francs per year.
One of those projects is, for example, an ongoing development program with The Binding Site Group (Birmingham, UK). The two companies are jointly developing an automated solution for The Binding Site, based on Tecan’s Fluent platform, using mass spectrometry to diagnose blood cancers.
To continuously fill the development pipeline, Tecan is currently discussing a range of projects with potential future partners. The majority of projects in the rich funnel are in the area of molecular diagnostics and other fast growing applications.
For 2022, again several additional market launches are expected.
TECAN CAVRO - EXCELLENCE IN THE WORLD OF OEM COMPONENTS
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. Various new instruments were launched by the respective partners in 2021.
During the coronavirus pandemic, Tecan saw a substantial increase in demand for the Tecan Cavro Air Displacement Pipettor (ADP). Designed for easy integration into compact instruments, this pipetting module is ideal for applications that use disposable tips to prevent carry-over or contamination, such as molecular diagnostics, cell culturing and point of care (POC) diagnostics.
For example, in early 2020, AusDiagnostics, an Australian in vitro diagnostics company offering molecular diagnostic testing platforms, has launched the Ultra-Plex 96 high throughput screening system.
Another example is the BioXp™ 3200 for Codex DNA, a synthetic biology company based in San Diego, USA. The system enables researchers to quickly build synthetic gene constructs in their own lab, accelerating vaccine, therapy and diagnostic assay design and delivery workflows. Choosing the Tecan Cavro ADP as the best fit for their application, Codex DNA was able to significantly reduce the time from beginning of the project to production of the first instrument.
BUILDING UP FURTHER PILLARS IN THE INSTRUMENT MARKET
In the Partnering Business segment, Tecan mainly supplied diagnostics companies with instruments and components. Further pillars in the instrument market for life science research were not effectively accessible to the Partnering Business, although the some two-thirds of sales in this market come from instruments and only about a third from reagents. Many of these instruments are benchtop systems that require a specific OEM manufacturing setup to be able to produce a high variety of those systems. Through Paramit’s custom design and cost-competitive manufacturing capabilities, both in North America and in the APAC region, Tecan can now access this market segment. Equipped with proprietary computer-directed assembly technology, Paramit’s facilities deliver ultra-flexible production planning. This patented, computer-directed assembly technology, vPoke®, resolves complex mechanical assembly into tightly controlled assembly steps for medical device and life science instruments.
The process generates a rich device history record, providing component traceability, while reducing the potential for errors (“zero-defect manufacturing”). Life science instruments in Paramit’s portfolio include flow cytometers, microfluidic instruments, and systems for electrophoresis, imaging, high-sensitivity biomarker detection, microarrays and sample preparation.
EXPANSION OF RECURRING REVENUES
The third vector focuses on expanding recurring revenues. In the past two years, sales from services, spare parts and consumables increased significantly. As in the Life Sciences Business, the disposable pipette tip business saw a substantial increase in demand due to COVID-19 testing. As a result, overall recurring sales of services, consumables and reagents in the Partnering Business, excluding Paramit, amounted to about one third of total segment sales in 2021. Paramit only has a small share from spare parts and services, which Tecan intends to grow in the future.
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.
EXPANDING INTO THE FAST-GROWING MARKET FOR MEDICAL DEVICES
In addition to the existing end-markets, Paramit now offers access and scale in a subsegment of the large medical device market called “medical mechatronics”. With medical devices, the addition of Paramit’s capabilities and customer portfolio adds an entirely new business and growth vertical to Tecan’s Partnering Business. The Paramit portfolio includes components, modules and systems, based on robotics, micro fluidics, optical, laser and radio frequency technologies for key applications like surgical robotics, cardiovascular controllers for heart failure, reconstructive surgery, laser treatments and hemodialysis amongst others.