Agilent Technologies president and CEO Mike McMullen

Agilent Technologies CEO Mike McMullen recently sat down with GEN Edge for an exclusive interview. Read Part I here.

In Part II of this interview, McMullen discusses Agilent’s Diagnostics and Genomics Group (DGG), some key factors in DGG’s growth, and potential headwinds to the company’s growth in fiscal year (FY) 2022. (This interview has been lightly edited for length and clarity.)

GEN Edge: The Diagnostics and Genomics Group (DGG) is Agilent’s third-largest group but enjoyed the company’s highest year-over-year growth in FY 2021. You mentioned the Nucleic Acid Solutions Division (NASD) and Resolution Bioscience. What else has driven DGG growth?

McMullen: NASD was a really, really strong grower for us in 2021. We’re going to put up another double-digit growth year in ’22, and that growth will continue to accelerate as we add more production capacity.

The other growth driver for DGG has been our genomics business. Agilent is the pioneer of the target enrichment used as part of a next-gen sequencing (NGS) workflow—we’re the leader in this space. Our target enrichment portfolio is only used in the research market, for people doing NGS research work. Many of our diagnostics customers have SureSelect panels as a component of their assays.

GEN Edge: How much has Agilent’s genomics growth reflected chemistries, and how much instruments?

McMullen: As NGS utilization in diagnostics continues to grow very strongly, we enjoy that growth. But we have a story that goes beyond just chemistries in genomics. We also have the leading instrumentation portfolio: Sample prep, QA/QC instrumentation, our 2100 bioanalyzers, TapeStation. Our TapeStation system is the leading product in the (electrophoresis) space along with fragment analyzers. We also have a very important automation tool called Magnis. What we’ve been able to do is have this combination of chemistries and automation that allow our customers to handle high-level workflows.

What you can see is this whole interconnected system that we have been working on, which is research-to-diagnostics, and then developing tools that can be used in research functions first, and then gets translated and moved into the diagnostics area. The diagnostics area requires the ability to do higher volumes, and this is where the automation strength and the historic instrument strength of Agilent really comes into play. That business grew quite strongly for us in 2021.

If you look at some of the expectations that Illumina has for growth in 2022, you can see there’s going to be a lot of demand for NGS-based workflows. Agilent is a major provider of chemistries and instrumentation into that workflow.

GEN Edge: DGG’s businesses include pathology, nucleic acid contract manufacturing and R&D, and companion diagnostics. Which businesses proved key to driving the group’s growth?

McMullen: We have a pathology business that really slowed down during the early days of COVID because people were postponing treatments, they weren’t getting biopsies done. As we’ve learned as a society to how to navigate the impact of COVID, we’ve seen a resurgence of growth in our core cancer diagnostics business as well.

As mentioned earlier, our biopharma services businesses started to get more traction. We did a companion diagnostics partnership announcement with Eli Lilly [in 2013], as just one example of us continuing to have a strong companion diagnostics business. And we made an exciting new addition to our portfolio with the Resolution Bioscience team.

It’s really a combination of NASD, Resolution Bioscience, the strength in our core genomics business, and then also a return to strong growth in our pathology business, as well as the initial impact of having some of these newer businesses a part of Agilent. It’s a multi-factor growth story.

GEN Edge: Agilent received FDA approval in October for a companion diagnostic for Lilly’s Verzenio® (abemaciclib) plus endocrine therapy called Ki-67 IHC MIB-1 pharmDx (Dako Omnis). How does Agilent expect to continue growth in companion diagnostics this coming year? And how significant will that be driving DGG growth?

McMullen: In 2012, we acquired Dako. They were the pioneer with companion diagnostics, with the first companion diagnostic test for [Roche’s] Herceptin® [trastuzumab] in breast cancer. We have a well-developed reputation in the marketplace, well developed capabilities to work with the FDA and pharma partners, and have built a really strong team and ability to develop companion diagnostics for our pharma partners.

Given our global reach with our pathology testing business, in addition to the companion diagnostic services, when the therapeutic comes on the market, then we are also the leading provider of the test itself. So there’s an interconnecting between the services business and ultimately, your diagnostic testing volume.

GEN Edge: Why did Agilent acquire Resolution Bioscience last year?

McMullen: What’s happened over the last several years is the emergence of newer NGS-based technologies, and the ability for pharmaceutical companies to develop a series of new therapeutics. We lacked that NGS—we had strong customer relationships, we had strong infrastructure to work with the FDA. We really didn’t have the liquid biopsy expertise and technology inside the company. Many of our pharma partners would say to us, “we love working with your team, but you have this gap in your portfolio.”

That’s where Resolution Bioscience comes in. [President and CEO] Mark Li and the team came into Agilent with a series of really strong relationships with several pharmas. This makes it even stronger for us, because we now can go to the pharma partners with the complete offering across IHC and NGS. There’s been really good growth here, but in the next several years, we expect that growth to accelerate given the addition of the NGS capabilities via Resolution Bioscience.

We’re focusing on a certain segment of the marketplace: We’re not going for asymptomatic screening. What we’re going for is therapy selection. This is a natural expansion of what already is an existing business for Agilent. We do that today on tissue-based; we’re not going to do it on blood-based.

That’s our play, and I think it will be a nice additional growth factor for us for years to come. It’s still a relatively small business today, but again, the NASD business that we have today was a relatively small business when we started investing in it very heavily, and you’ve seen the explosive growth. We’re expecting explosive growth down the road from this business as well.

That’s why I always like to close out my comments with investors and the team by saying, the best is still yet to come. We’ve got a great track record of delivering accelerated growth for the company. But we still continue to invest for growth, and a number of things we’re investing in aren’t yet in our in our P&L [profit-and-loss statement].

GEN Edge: Could DGG grow into the second biggest segment for Agilent?

McMullen: Maybe. I like to have that internal competition. We believe our LSAG [Life Sciences and Applied Markets Group] business is quite sizeable already and will continue to grow. I think it’s fair to say that DGG is expected to be the fastest-growing group within Agilent.

GEN Edge: Speaking of LSAG, why did Agilent re-segment that business a couple months ago?

McMullen: Great question. That was a secondary effect of the decision that I made to create a “One Agilent” commercial organization. One of the transformational elements of Agilent’s story has been the declaration and ability to build what I call this “One Agilent” culture, the idea that we work as one company, one team on behalf of the customers. The move to have this one commercial organization brings all of the customer-facing activities all within one organization, from our first initial discussions with our customer about their application needs and what we may be able to help them with, all the way through installation of equipment through the post-sales support.

If you’ve followed the “new Agilent” since we spun off the electronic measurement business—when I came in as CEO, we had five different sales forces, and a philosophy of aligning our field teams with a business unit, as opposed to aligning with markets. Now, we can consolidate all digital paperwork into one organization. This is really an elevation of all staff that have the voice of the customer directly into the CEO staff. Around the table we have all the people who in that same staff are now going to be all working with customer issues.

We’re already very good at customer satisfaction: The Wall Street Journal had us as number two in customer satisfaction in all the United States for the Top 250 Best-Managed Companies of 2021. So hey, there’s a number one to be had! Right now, we have record customer satisfaction with Agilent.

GEN Edge: Given that level of satisfaction, why is Agilent re-segmenting LSAG?

McMullen: We’re going to take our customer satisfaction to the next level. And we think it’ll have some knock-on effects in terms of, we’re able to move faster to address customer needs. We also think it’ll be a way to add scale to some of our smaller businesses.

Back to your question: could DGG be a bigger part or the biggest group? This is a way to put more scale, so we can have our digital programs not only supporting our LSAG and CSD (Chemistries and Supplies Division), but also our Genomics and Pathology Services businesses. You just start to leverage a lot more resources to grow some of the smaller parts of the company.

In China, for example, what we’ve done is we’ve moved all the sales actives under one China leader. If you look at our [J.P. Morgan presentation] numbers, Diagnostics is only 6% of China’s business. At the company level, it’s 15%. There are big opportunities for us to grow our Diagnostics business in China. The whole structure change is all about driving increased levels of customer focus, even more customer focus, and more scale to certain parts of our business.

The knock-on effect of that was that I asked Padraig McDonnell[Senior Vice President, Agilent & President and Chief Commercial Officer, Agilent CrossLab Group] to lead that new organization. He has a long history of field leadership. I also asked him to continue to manage our large service organization. I said, “Well, that’s an awful lot for him, to also continue to manage the CSD business.” My initial thought was, we need to figure out how to handle the span of control and, by the way, we’re really trying to drive what we call connect rates. Connect rate is when you buy an instrument from Agilent, are you also getting the full speed, the workflow, the chemistries, the software, the services from Agilent?

I decided to move our CSD business under Jacob Thaysen’s leadership [Thaysen is senior vice president, Agilent & president, Life Sciences and Applied Markets Group]. We’re really excited about this because we’ve had really good working relationships between the instrument team and the chemistry team. We think this will make it even easier for the two of them to work together as part of one organization, to really make sure that as we design new instrumentation, we’re thinking about where the appropriate level of chemistries, consumables, and other things that should be part of an instrument portfolio.

We’re operating from a position of strength, both in terms of the customers, as well as the strength of our consumers business. I just thought that we could even take it to the next level by reshuffling things a little bit organizationally.

GEN Edge: How has staff taken to the change?

McMullen: The response internally to this change has been very, very positive. As you can imagine, every time you potentially disrupt the field, you have to be concerned about how your field team sees the change. We’re not changing any account relationships, but they also see ways for us to do things better, because since 2015, the portfolio businesses have changed a lot. I’ve got this whole live cell analysis business, for example, and often those sales team leaders are also calling the same customers that our genomics teams are calling on. So, can we do a better job of coordinating our activities? Can we do a better job in terms of positioning the entirety of our portfolio? We think we can.

The reaction from our field teams have been, “Well, it’s about time!”  I think it’s just a natural extension of this cultural transformation that started back in 2015, which is one company, One Agilent, all working together on behalf of the customer and that we’re not going to line our commercialization up on business units.

GEN Edge: Agilent has issued investor guidance projecting revenue growth of between 5.5% and 7%, and just slightly higher for Q1. What headwinds does Agilent see as slowing down growth potentially this year?

McMullen: The one headwind we’ve called out is probably about a half point of headwind in COVID-19 related testing. Our core growth without that headwind would have been more like 6–7.5% for the initial guide.

We’re actually very positive about the ability for us to sustain high levels of growth in 2021. Our two largest markets, one being pharma, but also the Chemicals and Energy market. Both grew by double digits in 2021. We look into 2022, so we’ve assumed a slower level of growth rate there just because of the base, but also because it’s the first guide for the year.

We think there’s upside if things continue in our two largest markets, Pharma, and C&E. And C&E, as you may know, includes chemicals, energy, and advanced materials. That business is in a state of recovery as the global economy has come back, and our customers are very confident about their ability to invest. PMI [positive material identification] is an expansionary territory. You’re seeing a continued evolution of business in this area as we sell into solutions for lithium batteries. We know what’s happening in the automobile industry, and we’re going to be a part of it.

We know there’s a real push to more sustainable materials, more sustainable energy sources. Agilent is a part of that story in terms of our C&E business.

Finally, COVID also exposed the fragility of our supply chain. So many of our customers in pharma and the chemical industry have longer-term plans to onshore certain critical components which were previously sourced offshore.

Long story short, the biggest headwind we’re seeing for this year would be related to COVID-19 and the way we set up the company for the guide for 2022 was really to leave upside in our two largest markets where if things continue to go as strongly as they have been going, we can expect to see some outside performance there.

GEN Edge: Why is Agilent confident about continuing to deliver strong results beyond this year?

McMullen: All indications are that the growth rate of the company will continue to improve, because we’re really making these big bets on what are growing markets. When you’re in markets that are all about investments to improve the human condition, wow! It also gets our team very excited, too. You want your team to be proud of the company you work for.

When you when you talk to your friends and your family about what Agilent does and how we’re doing certain things that really can make a difference in people’s lives, I mean it really is motivational. It’s energizing. People may not always be coming to the office right now, but they come to work with a sense of mission, a sense of energy, and a real sense of purpose. And I think ultimately, you see that translated into why we’ve been doing so well in terms of the financial results. Great results don’t happen by accident. There’s a human element to why companies succeed.

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