Medical Device Link.

Originally Published MX January/February 2004

COVERY STORY

Dade Behring chairman, president, and CEO Jim Reid-Anderson on the challenges and virtues of taking a billion-dollar-plus medtech company public.

Interview by Steve Halasey

It's a rare event when a new member joins the club of public medical device companies with revenues of $1 billion or more. All together, in fact, only about 30 companies worldwide qualify for membership in this elite group.

At the end of 2002, however, one more member was ushered in as a result of the financial restructuring and relaunch of in vitro diagnostics manufacturer Dade Behring Inc. (Deerfield, IL) as a public company.

The world's largest pure-play IVD company, with 2002 revenues of nearly $1.3 billion, Dade Behring was formed in 1997 through the merger of Dade International and the Behring Diagnostics business unit of Hoechst AG. Initially, the newly combined company seemed to be taking the challenges of integration in stride. But it soon became clear that the firm was overloaded with debt and headed for trouble (see sidebar, "Emerging from Merger").

The task of leading Dade Behring out of its difficulties became the job of Jim Reid-Anderson, who was appointed as the company's president and CEO in September 2000. Between November 2000 and October 2002, Reid-Anderson initiated a series of judicious personnel moves and minor structural adjustments, and led the company through a successful financial restructuring that reduced its debt by approximately 50%.

Under Reid-Anderson's leadership, Dade Behring has recorded steady increases in revenues and market share, creating strong momentum for the newly public company. Recognizing his achievements, Dade Behring's board of directors elected Reid-Anderson as chairman in October 2002.

In this excerpted interview with MX editor-in-chief Steve Halasey, Reid-Anderson discusses some of the key changes that Dade Behring has gone through as part of its transition to public ownership and his plans for leading the company toward further growth.

MX: How would you characterize Dade Behring's growth strategy in its new incarnation as a public company?

Jim Reid-Anderson: Let me start with a high-level overview. We have a well-targeted growth strategy based on high-quality products, customer-focused service, and extraordinary people. As the largest company in the world focused solely on clinical diagnostics, we have an in-depth knowledge of our customers in the central lab, and we target our products and services to meet their needs.

For us, people are the key. I think the people a company hires, motivates, and retains are the key to its success. People at every level at Dade Behring have created and sustained the success that we have had. Our 6000 people in this company are committed to quality, performance, and integrity, and they bleed Dade Behring green to make our customers happy.

I feel very privileged to have been part of the extraordinary success story driven by these people, who are deeply committed to our company, our industry, and, most of all, our customers. I believe that I have to set the pace for the company, and demonstrate the highest level of ethical performance every day.

As chief executive, I try very hard to keep myself focused on the long term, not stressing short-term success over long-term growth and performance. For the near future, we will be focused on organic growth and on running this business very, very well. But our eye is also on the future and on the need to position ourselves for the long term. As you might expect, one thing Wall Street wants is quarterly guidance on earnings, but we do not provide that. We actually focus our commentary around our long-term business strategy and targets. That is our management philosophy.

What kinds of changes did Dade Behring have to make in shifting from being a private company to being a public company? For instance, how did the composition of the board of directors change?

This has been a very interesting learning experience for all of us as Dade Behring made the transition from private to public. I had become CEO late in 2000, so a few areas were somewhat new to me. Specifically, the area of board governance was completely new. About six to nine months before we emerged, I knew that we were going to need an independent board—or at least I strongly wanted one. We set very high standards for board talent and composition as we embarked on the selection process last year, and the current board members bring incredibly diverse experiences and skills and a consistently high level of commitment.

Did you also have to make changes in the way the board operates?

We worked hard even before we recruited the board, and then after, to institute a world-class governance process, including an all-new manual that codifies the latest thinking in this area. The timing was perfect, because all of the governance issues for companies were just coming up. The new requirements imposed by the Sarbanes-Oxley Act of 2002 did not have a major effect on us because we were already changing our board and board procedures as we became a public company and did not have any vested interests we had to overcome. We took the best of what was recommended and tried to incorporate it into the new governance process we were building.

I think that the level of oversight, the guidance, provided by a public-company board certainly is higher, and has to be higher, than that of a private-company board. But the truth is that all boards, in partnership with the company's senior leadership, should ensure the highest standards of ethics and fiscal responsibility. There should be alignment and cooperation between senior management and the board, and sufficient checks and balances to ensure responsibility to shareholders, employees, customers, and the general public.

Boards and company managers are certainly under a lot of scrutiny right now. How have the requirements changed?

Probably the most obvious area of change in terms of how companies operate, the one that everybody reads about, involves auditing and financial standards. Historically, I think companies have had less-stringent standards for board and committee membership. Audit committees in the past would not necessarily have included people who were financially experienced. Now they have to have those people. So, processes have tightened up in every single area so that boards not only must have, but also want, people who are independent, who are experienced, who understand what is going on in a company. That to me is the biggest change.

Management and Structural Changes

What other kinds of management changes did you have to make in the shift from public to private?

When I took over as CEO at the end of 2000, I made some strategic changes to the management team, creating, on the whole, the group that is there now. We are fortunate that we have not had much turnover. Because the team that came in at the end of 2000 was so effective, talented, and cohesive, few management changes were necessary as we became a public company.

But some things did change. We established a new investor relations function and significantly strengthened our internal audit function. We also broadened the responsibilities of our human resources, legal, treasury, and corporate communications functions, because the public elements of the external side of business are so much more important now.

What new challenges, in measurable terms, have the various departments faced with the shift from private to public company? Does everybody have to move up a notch in performance?

The fact is the changes did not start with the private-to-public phase. It started when I made the organizational changes at the end of 2000. At that time, most, if not all, of my leaders who previously had been handling one job took on another responsibility and had to step up personally. That can be very tough for some people to do, but if you get the right people, they grab the opportunity and do very well. That is what has happened with us.

Since we became public, though, we have not had to make any major structural changes because the business had been operating so well under the current structure. We do continue to fine-tune the organization and structure, making only minor strategic shifts and moving some reporting responsibilities.

How have you managed to improve communication between departments since the changes in 2000?

We made a full switch to a functional organization in 2002. Interestingly, communication was seen as the biggest potential challenge with the new organization. Some employees felt we might be doing the wrong thing—the beauty of our organization, by the way, is that we actively encourage people to say what they think—since we could have been building functional silos. Actually, the opposite has happened. We have been able to reap the benefits of consistent processes and a high level of skills while still operating effectively within cross-functional teams.

Now, if I were to say that we never face any functional issues, I would be lying; those always exist. But the truth is that the strength of our executive leadership team and the relationships among executives feed all the way down through our organization. We have very strong cross-functional teams that operate at all of our sites as if there were no functions. So, we enjoy the benefits and consistency of functionalization without the politics.

How do they organize themselves to make that cross-functional situation work?

For instance, we draw people from various departments for each product, creating different teams, to support the product in a number of ways. These teams pull cross-functionally to ensure that we really get the best skills. Across the company, processes are standardized and consistent year to year.

Does that also feed into the product- development process?

Absolutely. We have what are called product approval committees (PACs), which are product teams, across every single product line. And then we have a consolidated process at the top that brings all of the key product-development processes together.

Emphasis on R&D

Also remarkable is that, meanwhile, the company has been increasing its R&D spending.

Yes. We have taken our R&D spending from about 6.5% of sales two or three years ago to very close to 9% now. I do not know if there is anyone in the industry that is above that. We are right at the peak—and just where we want to be.

Are there areas where intense R&D spending is a response to market opportunities?

Absolutely, particularly in two areas. One is on the chemistry side, especially in relation to the new Dimension Vista product. We have been spending at a very high level for many years, at double-digit levels, to bring a new product to market in the field, because the potential is so great.

The second area is coagulation, where we are the number one player and have the highest dollar spend. In addition, we have an incredible relationship with Sysmex in Japan, where they fund the development of instruments. With companies of this caliber coming together, the power of that investment is fantastic. We do not believe that anyone can match it, and it is going to pay off for our customers.

Are there areas—for instance, in molecular technologies—where you are not active but would like to be, or where you simply do not plan to get involved?

I can honestly say that I have no interest in going into molecular technology today, for a number of reasons. First and foremost, we have made a commitment to our customers, to our people, and to our investors that, for at least the next year to 18 months, we are going to focus on our current businesses and the potential for growth there, because it is substantial.

Much more exciting and promising for us is the field of proteomics. Today, we are the worldwide leader in plasma protein testing. We believe that with the Dimension Vista product we have just announced—and specifically the Loci technology that is used on the Dimension Vista and offers advanced detection capability—we may be able to produce a proteomic platform in 8 to 10 years. Such a platform could run tests to be developed by research houses. We envision taking these tests to market in a format such as an immunoassay. This is an area in which we have a lot of interest.

So this would be an open-system platform? That puts you in the interesting position of having lots of partners.

A significant number of partners would be necessary. The platform would be a closed system in the traditional sense, in that technologically it could only carry our assays, but those assays would be developed with the help of outside partners who want someone to take their test to market.

Now this is a long way off—8 to 10 years perhaps. But we feel strongly that, although genomics obviously has a great future, proteomics is probably even more important. It certainly could be for us.

Product Response

The Dimension Vista is scheduled for testing next year and launch in 2005, and is already generating substantial customer interest. Do you expect particular challenges to come up in the testing?

Well, I think that whenever you bring a new product to market, there are going to be challenges. We feel very good about where we are in the process; we are right on track. With the Dimension family—the Dimension RxL for midsize labs and Dimension Xpand for smaller labs—Dade Behring is the only company that offers combined routine and immunoassay testing in one box. So, we have already taken a step that, from a technology and especially from an engineering perspective, is way beyond anyone else.

Others are putting boxes together, connecting them. We are consolidating systems into one box in a way that the instrument requires less space and fewer resources, allowing our lab customers to operate more efficiently and effectively. The Dimension Vista takes it to a whole new level. It will have more testing capability than any other instrument. The process of putting all of this extra value into a smaller box is the challenge, and we believe we have the right solution for our customers.

And the Dimension Vista is especially designed for high-volume labs?

Yes, it will start in high-volume labs. Then, once we are certain that it does everything we want it to do, we will look at moving it to medium-sized labs.

A second area of challenge is that we have to make absolutely sure we satisfy all requirements of the regulatory agencies, especially FDA. We have a very strong relationship with that agency and work actively with FDA staff to ensure they are comfortable with our products and processes.

Are you looking at the international requirements as well?

Of course, yes. With a plant in Marburg, Germany, and a great team there, we are well positioned in Europe already.

Overall, we have come a long way as we have transitioned to becoming a public company, and we are very optimistic about the future. The company is hitting on all cylinders, thanks to our people across the world, and we are taking the strategic steps necessary to ensure that our momentum continues.

Photos courtesy Dade Behring

Copyright ©2004 MX