Thermo Fisher Scientific and Life Technologies made their financial-reporting debut as one company (see IBO 4/15/13) with the release of Thermo’s first quarter earnings in April. The industry-changing acquisition united two of the top five analytical and life science instrument firms (see IBO 4/15/14), creating a company whose financial size and breadth of products dwarf instrument-industry competitors.

In the first quarter, Thermo reported 22.3% revenue growth to $3,904 million, with 20.3% of the growth due to acquisitions net of divestitures (see page 11). Thermo sales grew 1.9% organically. Because the acquisition closed on February 3 (see IBO 2/15/14), Thermo’s first quarter results include only a partial quarter of Life revenues. The results also reflected the divestiture of three Thermo businesses to GE Healthcare (see IBO 1/15/14), which was completed on March 21. This year, Thermo revenues are forecast to grow 29%–30%, including 26% growth from Life, net of divestitures. Adjusted operating profit margin is forecast to expand by 220–250 basis points to 21.7%–22.0%. Including Life and the divestitures, Thermo’s pro forma 2013 revenues were $16,601 million. Life Technologies 2013 revenues grew 1.9% to $3,872 million (see IBO 4/30/14).

Thermo laid out its plan for the newly enlarged company at its annual analyst meeting on May 20, providing insight into how it will utilize Life’s product lines, technologies and business footprint to grow many of its businesses and improve profitability. Marc Casper, Thermo president and CEO, emphasized how the addition of Life adds to the company’s unique capabilities, improves customers’ productivity, and enables Thermo to leverage its size and scale, especially in emerging markets. At the meeting, Thermo also presented pro forma 2013 results for both companies under its new financial-reporting structure. Pro forma 2013 revenues for the Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products & Services Divisions organically grew 3%, 2%, 3% and 4% to $4.52 billion, $3.15 billion, $3.19 billion and $6.40 billion, respectively.

Thermo also provided a breakdown of each Division’s pro forma revenues for the previous 12 months through March 31, illustrating the diversity of individual markets served as well as the shared base of end-users. Within Life Sciences Solutions Division, Biosciences, Genetic Sciences and Bioproduction accounted for 45%, 42% and 13% of sales, respectively. Discussing the Division, Mark Stevenson, Thermo executive vice president and president of Life Sciences Solutions, highlighted the revenue synergies that will be generated by Life’s access to Thermo’s corporate accounts and Fisher Scientific channels and growth in emerging markets. Updating the company’s next-generation sequencing (NGS) strategy, he said Thermo plans to focus on providing NGS targeted gene panels, improving NGS usage and workflow, and investing in a clinical menu for oncology. FDA registration of the PGM NGS system is expected this year. Over 2,500 Ion Torrent PGM/Proton NGS systems have been installed, and more than 150 Ion Chef systems for NGS sample preparation have shipped since the product’s introduction in the first quarter. He also highlighted opportunities in pharmacogenomics, forensics, microbiology and bioproduction for Thermo and Life’s combined product offerings.

Within the Analytical Instruments Division, Chromatography and Mass Spectrometry accounted for 61% of pro forma results through the first quarter, Chemical Analysis Instruments accounted for 32%, and Environmental and Process Instruments represented 7%. In his meeting presentation, Tom Loewald, senior vice president and president of Analytical Instruments, emphasized the Division’s product innovation, particularly in MS, as well as its wide range of analytical capabilities and application expertise.

Healthcare Market Channel, Clinical Diagnostics, Immunodiagnostics, Microbiology, Anatomical Pathology and Transplant Diagnostics represented 28%, 21%, 17%, 16%, 11% and 7% of Specialty Diagnostics Division pro forma revenues through the first quarter. Andy Thomson, senior vice president and president of Specialty Diagnostics at Thermo, highlighted the Division’s growth serving adjacent markets, including its IVD/OEM partners business, which accounted for 8% of end-user revenues, and its nontraditional diagnostic customer base, which accounted for 13% and includes the criminal justice, food safety, and pharmaceutical and biotech sectors. He also discussed how Life’s technologies strengthen the Division’s differentiated companion-diagnostic capabilities and transplant-diagnostics business.

Within Laboratory Products and Services, 58% of pro forma revenues for the last 12 months were from Research and Safety Market Channels, 29% were from Laboratory Products and 13% were from Biopharma Services. Illustrating the Division’s scale and set of capabilities, Alan Malus, executive vice president and president of Laboratory Products and Services, noted the Division’s over $3 billion in eBusiness revenue and its more than 4,200 on-site supply centers, as well as its relationship with decision makers from research through production. Utilizing the product, service and support offerings that it brought to the biopharmaceutical industry, the Division is expanding into other sectors, such as food, energy and contract labs. Mr. Malus explained that Life adds to the Division’s life science offerings, R&D collaboration opportunities, applications expertise and e-business capabilities.

At the meeting, Thermo also gave a glimpse of its expanded footprint in emerging markets with the purchase of Life, and how this is a key component of future growth prospects. Emerging markets accounted for 18% of Thermo revenues in 2013, and Thermo expects to grow this share of revenues by one percentage point annually. Combined pro forma annual revenues through the first quarter for Thermo and Life in China, South Korea, India and the Middle East totaled $1.2 billion, $26 million, $20 million and $18 million, respectively. Syed Jafry, Thermo senior vice president and president of Asia-Pacific and Emerging Markets, highlighted the company’s prospects in China, India and South Korea. He described, in particular, how the Life acquisition enlarged Thermo’s presence in South Korea, where it has now instituted programs to target vertical markets and key accounts.

At the analyst meeting, Thermo also updated the expected synergies for the combined companies. The company anticipates $100 million in cost synergies in year one, but now expects $300 million in year three, compared with a previous estimate of $275 million (see IBO 2/15/14). Excluding cost synergies, the company forecasts cost savings to total $360 million this year. The estimated year-three revenue synergies were also updated, increasing from $75 million to $150 million.

Thermo also laid out a long-term financial model for 2014–18, estimating 3%–5% annual organic sales growth. Under this scenario, revenues would total $19.6–$20.4 billion in 2018, with an adjusted operating margin of 24%–26% and $3.4–$3.8 billion in free cash flow. Thus, Thermo’s acquisition of Life will continue to benefit it for some time.