Porter’s Five Forces Analysis of Thermo Fisher Scientific
|Name||Thermo Fisher Scientific|
|Headquarters||Waltham, Massachusetts, US|
|CEOs||Marc N. Casper|
|Revenues||USD 44.92 billion (CY22)|
|Profit||USD 6.95 billion (CY22)|
Thermo Fisher Scientific is an American company that manufactures medical and scientific instruments. The company was launched following the merger of Thermo Electron and Fisher Scientific in 2006. The company was awarded FDA approval in March 2020 to create testing equipment for the pandemic.
The company ranked 92nd on Fortune 500 (2022) and 120th on Forbes Global 2000 (2022) lists. The company operates in the following segments:
Life Sciences Solutions Segment – biological and medical research, production of new drugs and vaccines
Biosciences – discovery against life threatening disease such as Covid-19 pandemic, protein and molecular biology and other related drugs.
Genetic Sciences –high value genomic solutions for clinical research, real-time polymerase chain reaction (PCR) technology used to identify changes in gene expression, genotyping or proteins on anindividual gene-by-gene basis and for diagnostic testing to identify infection
Clinical Next Generation Sequencing –next-generation sequencing (NGS) business working on delivering easy, speedy and price-effective NGS technology for a wide range of applications
From a financial standpoint, the company reported revenues of USD 44.92 billion, up 15% YoY in CY22 compared to same period last year on the back of slight improvement in organic revenues where core organic growth was 14% YoY and Covid-19 related testing equipment revenue was USD 3.11 billion.
Porter’s Five Forces Analysis
Thermo Fisher Scientific Rivalry among Existing Competitors
- Intense Competition
Bio-research has been carried out in some way since the dawn of human civilization and all countries have their own wings for genetic research. The life sciences industry is extremely less concentrated with business scattered across the globe and each have different pricing power when it comes to their proprietary technology and patents. Hence, there is pricing control with respect to the technological advancement, needs of the healthcare sector which is being catered and regular product updating.
- Danaher Corporation
Danaher Corp is another American medical supplier company based in Washington that caters to life sciences and genetic research equipment. Danaher reported revenues of USD 22.28 billion in CY21, up 8% YoY and profit of USD 3.65, a noticeable increase of 21% YoY. Danaher’s goal is to help scientists develop molecular treatment for chronic diseases and infections and develop chemicals for to maintain food freshness and safety and protecting global water supply.
Thermo Fisher Scientific Threat of New Entrants
- Extraordinary Investment in Fixed and Working Capital
The business to manageLife sciences business is no easy business. The business requires setting up laboratories and manufacturing facilities and hiring the most skilled (and perhaps expensive) talent who understands molecular biology and create a wide range of products that fit the need of healthcare sector. There are also a lot of issues with patent licensing and testing of such equipment as the company can get involved in a couple of controversies. One such event was in 2019 when Thermo Fisher selling services for China’s genetic surveillance program.
- Insanely Regulated
Genetic research is a very controversial and regulated business. The companies like Thermo Fisher sells its product in variety of markets due to which they not just have to comply with each of the country’s local regulations but also international regulations on safety and privacy. The company also engages in governmental contracts which could directly impact revenues and brand image.
- Intellectual Property and Patent Protection
Being a purely research dependent business, a major chunk of expenses are channeled towards developing new products that can solve life threatening diseases. The company acquires many patents every year and enters in to intellectual property right license agreement with various outside party vendors.
Thermo Fisher Scientific Bargaining Power of Suppliers
- General resource Suppliers
The company believes in having multiple supply sources for a single product to eliminate supplier dependency. Due to that, no single supplier holds material impact on pricing power as the business is research dependent rather than part dependent. This helps the company in requesting updates in certain parts as the business is highly dynamic and requirements keep ever-changing.
- Limited resource Suppliers
For reasons like regulatory compliances, cost efficiencies and uniqueness of design, there are some suppliers that holds complete inventory of a single raw material. The company faces a bargaining from these suppliers and if these suppliers are affected by financial, legal, or any such problems, Thermo Fisher is directly impacted because of heavy reliance from such suppliers.
Thermo Fisher Scientific Bargaining Power of Buyers
- Complex Pricing Mechanism
The pricing is extremely complex as the products keep on changing and with slight changes in raw materials could have significant implications on the pricing of final products. The buyers are healthcare sector, government organizations or other such clientele that caters to the need of health related segments. Since these are lifesaving drugs and equipment, consumers have limited pricing power. However, factors such as placing large orders in case of governmental contracts or limitations on price increase by any international organizations can impact price hikes,
- Ability to pass on Cost-push inflation
The very nature of these products that they are used to save lives makes them price insensitive. Healthcare sectors is extremely insensitive to demand price elasticity as the consumers have to resort no matter how expensive such treatments are. For the case of Covid-19 pandemic, the world was new to such rapid spreading and life threatening pandemic and the world resorted to such research and treatments irrespective of their costs because time and lives are always more important than money.
Thermo Fisher Scientific Threat of Substitute Products or Services
- High Switching Cost
Since the product is greatly varied, there is extremely high switching cost for healthcare users. Also, switching from one vendor to another might also requires hospitals to conduct internal audits that satisfy their needs. Also, the product not just have to be approved by the local hospital board but also the country’s medical regulator which creates additional complexities.
- Dynamic Product Lifecycles
The product life cycle in life sciences is not fixed and could range from a few months to decades. This depends on the changing nature of disease, effectiveness of prevailing drugs, improvements in technology, advancements in research and other multiple factors. The buyers have the option to recommend changes and their feedback is appreciated by companies like Thermo Fisher who constantly strive to improve their product offerings.
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- Brian Anderson, (2023), Analysts Offer Insights on Healthcare Companies: The Ensign Group (ENSG), Thermo Fisher (TMO) and Zimmer Biomet Holdings (ZBH) [Online], Available at: CNBC
- Trefis Team, (2022), This Healthcare Company Is A Better Pick Over Abbott Stock [Online], Available at: Forbes
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- Simply Wall St, (2023), We Think Thermo Fisher Scientific (NYSE:TMO) Can Stay On Top Of Its Debt [Online], Available at: Yahoo Finance
- Jimmy Cramer, (2023), Cramer says don’t sell this surging portfolio holding [Online], Available at: CNBC