Although 17 instrument and laboratory product businesses recorded impressive total sales growth in fiscal 2016, their overall average productivity gains were minimal, according to an analysis of fiscal 2016 sales per employee for these businesses (see table below). In many cases, slower sales growth for businesses coupled with steady hiring patterns resulted in a year-over-year decline in productivity growth.
Changes in productivity provide insight into a business’s strategy and development, and can also indicate broader trends across the industry in terms of market growth and product demand. The figures in the table are based on FY16 employment figures and FY16 currency neutral sales in US dollars. For companies that do not report in US dollars, constant exchange rates were used.
Excluding currency, the companies in the table recorded a 0.6% increase in productivity in fiscal 2016 to average sales per employee of $328,453. For these companies, FY16 currency neutral sales growth averaged 6.5%; however, the growth rate of total number of employees was less than a percentage point behind at 5.8%.
Consequently, overall productivity growth for the 17 businesses decelerated from the 3.6% increase in fiscal 2015. In FY15, not only did currency neutral sales grow faster, at 7.2%, but the percentage increase in the number employee numbers was slower, at 3.5%. In fact, in FY15, none of the 17 companies reported a decline in currency neutral sales growth, compared to 5 that did in FY16.
Sales Declines vs. Productivity
Although annual sales, excluding currency, declined for 5 companies in the table, only 1 company, Harvard Bioscience, reported a decrease in the number of employees. Of the 4 other companies, the number of new hires was moderate to flat in 3 cases, Bruker, Fluidigm and PerkinElmer, as each company was engaged in different stages of efficiency programs.
PerkinElmer reported restructuring plans in both the second and third quarters of 2016, which decreased its workforce by 94 employees, according to its SEC 10-K filing. The changes were part of a broader multiyear effort aimed at company processes and organizational structure, which included realignment of the company’s divisions (see IBO 9/30/16).
Bruker reported in its 10-K filing that 125 employees were affected by the restructurings of its Bruker CALID and Bruker Nano Group businesses last year. For all of Bruker, the filing shows a reduction in number of general and administrative, and R&D employees, but increases in the number of production and distribution, and selling and marketing staff.
Following revenue declines, Fluidigm initiated a cost savings and efficiency plan in the first quarter of FY16, which included workforce reductions. Regulatory filings show a reduction in the company’s general and administrative, and manufacturing workforce. But the company increased the number of R&D, sales, technical support and marketing personnel.
According to Pacific Biosciences’ SEC filings, its workforce increased in all areas in FY16, perhaps in anticipation of Roche’s introduction of a clinical NGS system based on Pacific Biosciences technology. Roche terminated the agreement late the year (see IBO 12/31/16), which will likely affect fiscal 2017 staffing levels.
Employee Growth vs. Productivity
In fiscal 2016, four companies recorded double-digit employee growth: Bio-Techne, lllumina, NanoString Technologies and Pacific Biosciences. Two of them, Bio-Techne and NanoString, also recorded double-digit jumps in productivity, as employee growth was accompanied by strong sales.
Although Bio-Techne completed two acquisitions in fiscal 2016 (the largest of which was Cliniqa, with 75 employees at the time of purchase [see IBO 6/15/15]), the firm added 204 employees altogether. Company sales growth also benefited from the first full year of sales of the 2014 acquisitions of CyVek (see IBO 11/15/14) and PrimeGene (see IBO 4/15/14). Investments in fiscal 2016 related to employees included sales and marketing, and geographic expansion, according to company conference calls, related to the company’s growth plans. The company aims to reach over $800 million in sales by FY21.
Tecan recorded the fastest increase in productivity in FY16
Like Bio-Techne, Nanostring is a company in growth mode. But, unlike Bio-Techne, it has not made any acquisitions in recent years. Nonetheless, it recorded the highest percentage growth in employees among companies in the table. Nanostring’s 10-K filing shows that the company’s employees grew by double-digit percentages in all work areas in FY16, including a 48.6% increase in its R&D workforce to 107 people. The company introduced several new assays during the year, increased its penetration of the clinical diagnostics market, advanced its companion diagnostics agreements, and announced future R&D projects, namely, single-molecule sequencing chemistry and multiplex digital immunohistochemistry.
Fastest Productivity Growth
Tecan was the company in the table with the fastest productivity growth last fiscal year at 9.9%. Including the 2015 acquisition of Sias (see IBO 10/31/15), which had around 80 employees at the time of purchase, total employment grew only 3.3%, or by 44 people. This excludes approximately 60 employees added by the 2016 acquisition of SPEware (see IBO 8/31/16), according to the company’s annual report. This was a relatively minor increase in a year when currency neutral sales increased double digits. Sales growth was driven by new products introduced in the current and previous years. The productivity growth is also a considerable increase from fiscal 2015, when Tecan’s productivity rose 4.2%. Also adding to FY16 productivity growth were past acquisitions, as the company’s 13.5% growth in currency neutral revenues included 5.3% growth from acquisitions. In some ways, the company reaped the benefit of past investment, as the company’s total number of employees rose 8.5% in FY15 as the company rolled out major product lines.
Although Tecan recorded the fastest increase in productivity in FY16, VWR recorded the highest sales per employee at $442,569. The company benefits from being primarily a distributor of other companies’ products, and thus has a lower manufacturing and R&D footprint than other businesses in the table. It has also been one of the most acquisitive firms in the table, buying five businesses in fiscal 2016 alone. Despite the highest sales per employee, productivity declined 3.7% in FY15 (see IBO 6/30/16).
Illumina, which recorded the highest productivity among these 17 companies in FY15, was number two last year with sales of $436,068 per employee. The company’s dominant market position, portfolio of high-priced consumables and product pricing enabled it to maintain high productivity despite a decline in FY16 sales. Illumina continued its double-digit increase in employees, rising 22.5% and 25.2% in fiscal 2015 and fiscal 2014, respectively (see IBO 6/30/15).
Year over year, however, sales per employee declined, dropping 9.6%, as hiring outpaced sales growth. The company’s investments are related not only to company growth but market growth. As Illumina President and CEO Francis deSouza told analysts on the company’s first quarter 2016 conference call, “I’ve highlighted over the past year or 18 months that much of the market development that has to happen now in sequencing falls on Illumina; that we don’t have a lot of other large companies who are spending marketing dollars developing markets and, so, that is key for us to do, more than it ever has been.” Such markets include NIPT testing and clinical oncology, and their associated reimbursement and regulatory issues.
Productivity declined for 10 of the 17 companies in the table. For 5 businesses, productivity fell despite an increase in fiscal 2016 sales: Agilent Technologies, Bio-Techne, Illumina, Sartorius Lab Products and Services, and VWR. This reflects an investment period for these businesses. As discussed above, Bio-Techne and Illumina’s investments are related to future growth prospects.
In fiscal 2016, Agilent added 700 employees. The increase comes after a 200-employee decline last year following the divestment of product lines, organizational changes and streamlining efforts. During FY16, Agilent acquired iLab Solutions, which had 70 employees at the time of purchase (see IBO 6/30/16), and closed its purchase of Seahorse Biosciences (see IBO 9/15/15), stating that most of that company’s 200-person workforce were now with Agilent. The company has stated its commitment to growing its informatics, diagnostics and services businesses. It also signed a product development agreement with LaserGen (see IBO 3/15/16), which includes new Agilent R&D efforts. Thus it appears after a period of reorganization, new investments are flowing.
Like Agilent, VWR’s productivity fell last year. In addition to acquisition activity discussed above, VWR continues to increase its portfolio of self-manufactured products and its services business. Of the 900 employees the company added in FY18, 700 were based in North America, and Europe accounted for 200, according to the company’s 10-K. These are also the two regions in which acquisitions were made.
Likewise, Sartorius Lab Products & Services grew its employee base due to acquisitions. The business added 172 people in fiscal 2016, stating in its annual report that most of the new positions were due to the purchase of IntelliCyt, with 55 employees at the time of sale (see IBO 6/30/16), and ViroCyt (see IBO 7/15/16). The acquisitions boosted annual division revenues by about 3%. In its annual report, the company also noted increased investments in the division’s sales structure. The acquisitions represent new technologies and markets for the company, so the company can be expected to invest in them in coming years.