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Finding the Pulse of Thermo Fisher’s Life Technologies

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Apr. 1 2016, Updated 9:08 a.m. ET

Overview

Thermo Fisher Scientific’s (TMO) acquisition of Life Technologies positioned the company as the second-largest player in the genetic sequencing market. After the acquisition, the company established its Life Sciences Solutions Group, which is made up of the Life Technologies business and the Biosciences business. (Investors can read more about the deal nuances in the series A Must-Read Company Overview of Thermo Fisher Scientific.)

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Market positioning

Thermo Fisher’s Sequencing segment is a $300 million business that is growing at a tremendous rate. The company has primarily focused on developing the segment on targeted sequencing focused on cancer research.

Pharmaceutical companies that partner with Thermo Fisher in the development of cancer-related tests include Pfizer (PFE) and Novartis (NVS). Thermo Fisher’s sequencing platforms are used by pharmaceutical companies to develop tests for diagnosis and treatment of cancer. Illumina (ILMN) is one major company in the sequencing market.

Financial contributions

The Life Technologies acquisition led to Thermo Fisher’s entry into new markets and segments, providing a more comprehensive portfolio of products to customers. It has helped strengthen the strategic position of the company. The Life Sciences Solutions segment grew organically, at 5% in fiscal 2015, exceeding company estimates of around 3%.

The company expected the deal to provide $115 million of additional cost synergies and $60 million of revenue synergies in 2015. But Thermo Fisher successfully delivered $130 million in cost synergies, exceeding expectations. Revenue synergies of the acquisition were reported to be $90 million—far ahead of the synergy targets provided by Thermo Fisher. This reflects the company’s strong ability to deliver target revenue synergies of $150 million in 2016.

Investors can participate in the growth of Thermo Fisher and the healthcare industry by investing in the Health Care Select Sector SPDR Fund (XLV), which has ~2.2% of its total holdings in Thermo Fisher.

Now let’s analyze the Affymetrix acquisition.

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