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Compound
Interest
By Kevin Kipp
Sigma-Aldrich moves to recapture earnings momentum as it continues
to assist the white-coat research community and strengthen the region’s
life sciences position.
Put your goggles on, Beaker. You never know what kind of reaction
you get mixing revered traditions with forward-edge technology.
That—along with filling thousands of orders for research chemicals
every day—is what they do at Sigma-Aldrich.
A sampling of the firm’s diverse pursuits illustrates just how scientifically
advanced this $1-billion-a-year company is:
- It
built a $25 million plant last year in Sheboygan, Wis.
Among other capabilities it can produce chemical compounds
whose manufacture requires temperatures of minus 100 degrees.
Celsius.
- One
of its divisions produces “research kits” for proteomics,
a key component to understanding human genomics.
- Across
the company’s four divisions, they help pharmaceutical
companies shorten the time-horizon for discovery, testing
and marketing of new drugs.
- Their
products also include specialized dyes and stains, polymers,
and chemical vapor deposition for semi-conductor manufacture.
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“Sigma-Aldrich is a leading life science and high-technology company,”
says president, CEO and board chairman Dr. David Harvey. “And service
is our obsession. It’s the key to our success.”
Service had better be an obsession. Consider some numbers that Dr.
Harvey provided: the firm fulfills thousands of orders a day, many
in the $250 range. They have 60,000 accounts and one million customers
worldwide. They’ve invested $50 million in a comprehensive worldwide
software system to take and ship orders, manage their global inventory
and handle various finance functions: Sigma-Aldrich markets 85,000
compounds, 40,000 of which they manufacture themselves.
Companies of this sophistication usually mention their origins,
if somewhat perfunctorily, but focus on what they’ve done for us
lately.
Sigma-Aldrich executives, board members and literature also let
you know about those who had a significant hand in advancing the
company’s know-how, product lines and fortunes—step-by-step, leader-by-leader,
decade-by-decade.
Call it the scientific method of admiration.
The Sigma-Aldrich story begins with a pair of chemical engineers,
brothers with different names, Aaron Fischer and Bernard Fischlowitz.
According to company pamphlets and pre-press documents, they started
turning out specialty products on Easton Avenue – inks, dyes, adhesives—during
the Great Depression.
Their first employee, Dan Broida (described as “crusty, outspoken
and warm-hearted,) remained with the company for decades. Nobel
laureates Gerty and Carl Cori of Washington University, along with
their protégé and adenosine triphosphate pioneer Lou Berger, contributed
to the company from the outside.
In December, Dr. Tom Cori who had been Sigma-Aldrich’s president,
CEO and~or board chairman, retired. Dr. David Harvey assumed those
roles in what a company document calls “an established succession
process.” Predictable, measurable, repeatable.
Sigma-Aldrich board member Dr. David Kipnis (also former Chairman
of Medicine at Washington University’s School of Medicine and Chief
of Medical Services at Barnes Hospital) says, “Tom Cori’s genius
was great attention to detail and long range planning. And he demanded
high performance from everybody…to match his own.”
Dr. Kipnis has known Sigma-Aldrich since joining the Washington
University School of Medicine faculty 45 year ago. “I came here
to learn how to do diabetes research with the Coris. I met Tom Cori
[yes, Gerty and Carl’s son] when he was a sophomore at [University
of] Wisconsin.”
Sigma-Aldrich, he says, was “the major —and only—supplier of the
compounds I needed. Fischer and Broida would frequently provide
young investigators enough of a compound free to get started on
your research.”
He credits Fischer with recognizing the fit of Aldrich with Sigma.
The latter company was a leader in biochemical compounds, the other
a leading manufacturer and distributor of organic compounds.
It was Dr. Cori, however—with the critically important assistance
of former CFO Peter Gleich, also recently retired—who made the marriage
work, Dr. Kipnis says.
Broida, Dr. Kipnis continues, “was fanatical. He introduced the
absolute dedication to prompt service and high-quality products.
It was built into the company in its early days and it remains today.
The new head, David Harvey, is just as adamant about that as anyone
else has been.”
So Sigma-Aldrich is still in good hands?
“David knows the company backwards and forwards,” Dr. Kipnis says.
“He was very involved in all the acquisitions: Supelco, Fluka just
to name a few of them. He saw to it that the new acquisitions meshed
smoothly into the company.”
Dr. Harvey also led a team of 10, including Mike Hogan,the current
CFO and CAO (“A” for “Administrative”) in the creation of a new
strategic plan for the company. Over the course of six months in
1999, they amassed and interpreted input from 650 customers and
150 colleagues.
Dr. Kipnis sees more than managerial and project management competence
in Harvey. “It was a major cultural step to recognize that you are
high tech, and getting into life sciences and staying at the cutting
edge of production of the supplies needed for avant-garde science.
David is vigorously leading that. Each division head is totally
dedicated in the same way, and to meeting the demands of consumers
before they recognize what they need.”
In his interview, Dr. Harvey was equally comfortable talking about
the science, the position or the future of Sigma-Aldrich or the
raw numbers of performance.
He described how Sigma-Aldrich’s annual sales breakdown among each
of its four divisions: 55 percent from laboratory products (nearly
pure chemicals for research); 20 percent from life science (kits
for research); 15 percent from fine chemicals (often larger quantities
of complex organic chemicals and biochemicals); and 10 percent from
diagnostics.
A new
$55 million life science research center located at Laclede
and Ewing will enable Sigma-Aldrich to double its Research
and Development expenditures. |
Among their 60,000 accounts and 1 million customers worldwide, 40
percent are pharmaceutical, diagnostic and biotech companies. Thirty
percent are universities, government institutions non-profit organizations.
Twenty percent are industrial, chemical and allied industries. Ten
percent are commercial and private office labs and hospitals.
Forty-five percent of their business is in the United States, 40
percent is in Europe, and 15 percent is international (i.e., elsewhere).
They have people, distribution centers and manufacturing facilities
all over the world.
Harvey continued to describe—and provide materials that specify—what
portion of what percent was further subdivided into which category.
It makes for spectacular charts in the hands of their graphic designers.
If you enjoy charts, by all means, get your hands on a Sigma-Aldrich
annual report.
You may want to get yourself an annual report even if graphs don’t
fascinate you, says Bob Koort, a New York-based equity analyst for
Deutsche Bank.
In a form of tribute to Sigma-Aldrich management, Koort took time
out to talk about the company, even while the markets were open.
“We think investors should buy the stock at these levels,” he said
in December when the stock was at 36, up from around 24 in March
of 2000. “They have a unique franchise serving the research chemical
market. They enjoy consistent demand, growth and pricing leverage.
We overlay that against the culture change that’s going on and that
makes it an exciting story.
“Tom Cori grew this business from scratch to a billion dollar enterprise.
To continue that growth pattern, they needed to do something to
address the pause in growth of earnings they encountered in the
late ’90s.
“They’ve done a remarkable job of some hard introspection in order
to resuscitate growth rates, and reignite investor enthusiasm.”
That introspection was Dr. Harvey’s strategic planning project.
It also focussed on realigning separately acquired and separately
run companies into what the company literature proclaims is One
Company Worldwide.
The strategic plan also exhorts employees to “Unleash Our Talents,”
to “Delight Our Customers” and to “Thrill Our Shareholders.” Managers
are trained and coached in Plan/Do/Study/Act process-improvement
cycles.
“That’s extremely important to help us take cost out of the system,”
Dr. Harvey says, “to pay for the improvements we’re making in conjunction
with the strategic plan. We’ve taken $25 million of expenses out
of the system in five years.”
This “passion for process improvement” is complemented by an “obsession
with service” and commitment to “leadership in life science and
high tech,” he adds.
Dr. Harvey evinces clear confidence in the plan’s value for his
company’s future. But he gets a hint of excitement in his Michael
Caine-like, English accent when he talks about how scientific developments
bode well for Sigma-Aldrich.
Take “reagents,” chemicals and kits to help researchers work faster
in the same way Grandma bakes a cake faster with a several-steps-simplified
box mix, rather than starting from scratch. (Step one: grow some
wheat.)
“Look at how long it takes pharmaceutical companies to bring a new
drug to the market,” he says. “It’s seven-to-10 years and $250 million
from discovery to testing to final product.”
Sigma-Aldrich’s ability to delight its customers can take some of
the years and dollars out of that framework.
“Another fast growing area is the human genome and plant science
area,” he says. “When historians look back on the year 2000, it
won’t be remembered as the year of the Internet but of the human
genome. Either delete or say this way “the year scientists deciphered
the roughly 3 billion chemical “letters” (A, C, G, T) that make
up DNA—life’s instruction booklet.
DNA is 99.9 percent the same in all of us, he points out. “We’re
more like a chimpanzee than a chimpanzee is like other apes.” How
comforting.
But the good news for Sigma-Aldrich is that it may prove more difficult
for pharmaceutical and other research companies to uncover minute
differences than it would be to identify the more readily apparent
differences between, say, feldspar, pyroxene and quartz.
Moreover, Dr. Harvey estimates, “If you look at genetic knowledge
in terms of what we’ve discovered, we know perhaps one percent of
what there is to know. A lot of our effort is asking how do the
genes work. The question is what switches them on and off. Genes
in fact produce proteins. There are at least one million proteins
in the human body so that will involve a lot of research.”
The study of proteins is known as proteomics and is considered the
next major step in gene technology. (incorrect science) That spells
a lot of production, isolation and analysis of DNA and proteins
that Sigma-Aldrich research chemicals and reagents can facilitate.
Dr. Harvey also drools a little thinking about research on neuroscience
(concerned with the brain’s chemistry: “What causes Parkinson’s
disease What causes Alzheimer’s?”) and cell-signaling (“How are
signals transmitted through the body to make your arm move or see
or hear?”)
“What will come out of this are pharmaceuticals of which we can
only dream,” he says. “Future generations will look back at how
primitive our knowledge is today.”
Want more? He’s got more. “Plants also have cell-signaling…probably
not feelings, but our makeup is very similar.” Maybe to a chemist.
“To take advantage of the possibilities, we are building a new $55
million life science research center here in St. Louis [at Laclede
& Ewing, between Saint Louis University and A.G. Edwards’ campuses].
It will enable us to double our R&D expenditures.”
Dr. Harvey’s familiarity with sales numbers stems probably as much
from a half-year of living with the strategic plan as it does from
his childhood love of mathematics.
He grew up in a working class neighborhood in Birmingham. “Not Alabama
but England,” he quips. His dad was a cooper, his mother a seamstress.
Both left school at age of 14.
Young Harvey by contrast swung a scholarship to Oxford University.
He earned his doctorate in chemistry, and incidentally “met a young
lady who was German.”
Following post-doctoral work in Heidelberg,; he married the girl,
Margarete. In 1974, after nine years with Shell International, Dr.
Alfred Bader, the founder of Aldrich Chemical Company, lured him
into the organic compounds business. Dr. Harvey continued to work
in Europe.
In 1975, Aldrich, with $10 million in annual sales, and Sigma, with
$20 million(the metal fabrication business, B-Line, also had $10
million), merged. Dr. Harvey, meet Dr. Cori. Dr. Cori, meet Dr.
Harvey.
With Sigma’s focus on and leadership in research biochemicals and
Aldrich’s corresponding position in organic compounds, the research
chemical industry had a formidable new player.
Dr. Cori was made president of St. Louis-based Sigma in 1976. Dr.
Harvey was made president of Milwaukee-based Aldrich in 1981.
“In 1986 we gave up our respective positions,” Dr. Harvey says.
“Tom became full-time CEO of the company. I became full-time COO.”
Sigma-Aldrich’s growth during these years was a story of moving
to the front edge. It meant plunging deeper into research and development.
It meant tackling new disciplines—immunochemistry, peptide chemistry,
microbiology, diagnostics. And along the way, it meant global expansion.
Sigma-Aldrich added companies whose names continue to be used in
company literature due to the strong brand identity they have: Fluka
Chemie AG, Supelco, Riedel-de Haën, Genosys Biotechnologies, and
Research Biochemicals International.
And the company succeeded in blending leadership.
“Some said Tom and I were an unlikely team,” Dr. Harvey says. “He
is more like a visionary. I’m more an analytical person. He also
had the ability to simplify a problem out of a lot of detail. In
many cases I supplied the detail.”
Dr. Harvey has enjoyed the ride. “I joined Aldrich in 1974 because
I was slightly bored, and needed a new challenge,” he says.
“I haven’t been bored since,” he concludes. “And one can be proud
of the products we sell because they help mankind.”
Kevin Kipp runs Bubble Communications, a creative services and
community relations firm in St. Charles.
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