Diagnostic Insight, 1996 Interview Conducted by Robert Bauer

Michael J. Quinn grew up in Troy, New York, the oldest of five children in an Irish Catholic family. "I was an inner-city kid — I learned to work when I was eight years old. I knew what it was like to get my hands dirty and stand on my own two feet. I feel very fortunate to have an education, but my real education was on the street." His father was a machinist who, with no college education, rose through the ranks to upper-middle management. "I saw him struggle, and I admired him," Quinn said. Married for 26 years, Quinn has 22- and 17-year-old daughters. To relax from 80-hour work weeks and a hectic travel schedule, he golfs and plays in an amateur softball league. At 52, Quinn has spent much of his career in the laboratory products distribution environment. Recruited from the University of Buffalo in 1967, he began working at Scientific Products as a sales trainee after graduation. He earned rapid promotions to become SP's first Vice President of National Accounts in 1974, then Vice President of both Marketing and Sales. He became General Manager of V. Mueller, AHSC's operating room division, and in 1978 returned to SP as President of its industrial division — running a multi-million-dollar company at age 33. In 1983, Picker recruited him; after a stint as Executive Vice President at Bergen Brunswig, he became Fisher Scientific's President a year ago. He has relished coming full circle. "One of the reasons I came back to this industry is that I enjoyed my job at SP and being in laboratory products distribution more than anything else I've ever done. It is phenomenal that I had a chance to come back to the industry — to a company that I competed with for 15 years — and end my career the same way I started it. I'm very proud to be associated with this company." Another source of pride for Quinn is his "Fisher University". Through an affiliation with Pittsburgh universities, professors help train Fisher Scientific people in intensive managerial programs. "We've trained our managers in hiring, counseling, compensation — people and customer skills, finance, marketing. For practical topics such as sales, we bring in people who've walked the mile. It's a unique concept. We're a prime example of what should be going on in American industry— the evolution of business into education," he said. Quinn's approach to managing Fisher is "always, first and foremost, results — the importance of providing shareholders with value. I've brought many excellent managers to Fisher with me. I have wonderful, extremely competent people, and we share a similar philosophy." He credits that philosophy— customer focus — to former SP chairman Karl Bays, "one of the best health care executives in America. He always focused on the importance of the customer, and I have never forgotten that." In this interview, Quinn discusses developments within both the industry and Fisher Scientific.

Integrated healthcare networks are evolving

ROBERT BAUER: What role will distributors play in a tougher managed care environment?

QUINN: There are very interesting trends developing in health care, with rapidly evolving integrated health care networks. Acute care institutions, nursing homes, physicians' practices, and pharmacies will unite locally, and you'll see health care management and delivery systems as focal points in metropolitan areas such as Chicago, New York, and Philadelphia. Distributors will become logistics partners to customers who are uniting under the umbrella of health care net works: Customers will need someone with logistics and systems expertise to act as 'captain of the huddle' to deliver products within the net works — when and at the price they need them. To do this, distributors will need to form alliances — laboratory, dietary, med/surg, pharmacy — similar to how the integrated net works are aligning varied medical services. Very few medical product distribution companies are recognizing the importance of doing this — they're still all trying to do it on their own, and I don't think that's going to work.

ROBERT BAUER: Laboratory distributors appear to be stepping back from backward integration into high-tech products, with ventures such as Instrumentation Laboratory/Fisher Scientific and MicroScan/Baxter being abandoned. Central purchasing and distribution has not been a primary basis of competition for capital and high technology laboratory products. What happens in your integrated network scenario?

QUINN: Scientific Products tried for years to be a major player with the higher-volume, higher priced capital equipment; I don't think that's laboratory products distribution's core competency. Once you hit the upper middle level of capital equipment, you need specialists who concentrate 100% of their time selling, servicing, and understanding it financially. We're not built for that — we're logistics experts. We can take the juice that comes from those products and handle that competently, making sure people get what they want when they want it — and are serviced properly. Reagents could come through a distributor, or the manufacturer could be part of the alliance. If I want to differentiate my portfolio of products and services, I may want to have an alliance with a Johnson & Johnson or an Abbott, which could really gain from our systems technology. We'd make sure that their customers have the highest service level plus accurate accountability: who, what, when, where, and how. Some distributors are carrying huge inventories on small margins. I think we'll have to be much better working-asset managers; that means taking a look at the manufacturers we're carrying in various categories . Fisher Scientific is going to represent the best manufacturers in the clinical laboratory industry, the customers' choices of manufacturers, but we're probably not going to continue to be all things to all people and I believe every one of my competitors will do the same thing.

ROBERT BAUER: So you'll be brand neutral, letting customers, as a whole, select the brand they prefer?

QUINN: Yes. But I won't be able to have every customer tell me what he or she wants because that's how I found myself where I am right now — carrying, for instance, 11 manufacturers in a category when I should have only three. I'll have to take the biggest customers with the biggest collective bargaining capability. That's where the formulary comes in: You'll see big groups begin to pare their product offerings to their own institutions. Some of the larger groups are talking about keeping sales people out of their institutions. If they had a logistics partner, the sales people would have to go in front of a review committee; if your product is accepted for the formulary, you're in, and if it isn't, you're out. Right now if you're out you're never really out because you can call on the hospital or sell around the corners — but those days are almost over. A lot of manufacturers — especially those in pharmaceuticals — are threatened tremendously by this.

Prices are leveling off in a market influenced by consolidation

ROBERT BAUER: Customers are looking for more services and better price on distributors' already small margins. What will happen to price?

QUINN: In consolidation you have a marketplace that's demanding lower prices, and market producers claiming they're not making enough money. With consolidation, the water level stabilizes, and I see that happening in many industries such as pharmaceuticals, where pricing is leveling off. People realize that if you want quality products and services you're going to have to pay a fair price for companies to deliver that. I think we're getting to the end of the price game. The price/value relationship is way out of whack in our industry. We're in a very high tech industry that requires a tremendous amount of R&D and engineering time as well as capital investment, and when you look at the gross margins some of these products are carrying, it's unfair to the producers. Across the board manufacturers and distributors are basically saying, 'I'm not going to take it any more. ' They want to improve the price/value relationship.

Fisher Scientific will make additional acquisitions to strengthen and broaden our portfolio

ROBERT BAUER: This is a transitional period in laboratory products and distribution. After exiting the clinical laboratory products distribution market with the sale of Instrumentation Laboratory, why is Fisher Scientific re-entering this field now?

QUINN: If things had been in reverse sequence [purchasing CMS before Instrumentation Lab], we would probably still have IL, and it would make better sense because we now have the channel to the customer. When Fisher Scientific bought IL, it took industrial research people and tried to make them clinical — that's very difficult. When you have a clinical company such as CMS, and have the manufacturing vertically integrated, it's much easier to accomplish. You'll see additional acquisitions that will strengthen and broaden our portfolio. When our people see a customer, they'll be on equal or better footing than anybody they compete with.

ROBERT BAUER: What is Fisher Scientific's vision for growth and success, and how does the CMS acquisition fit into Fisher's overall strategic direction?

QUINN: If you look at the sequence of events when Baxter basically sold off its industrial research division to VWR, and a few months later Fisher Scientific bought CMS, Fisher became the widest channel of distribution for clinical and scientific products in the entire industry — worldwide. As a result, we have been approached by manufacturers that I never would have bet on knocking on our door, asking us if we'd be interested in representing some or all of their products. It gives me a wider opportunity to choose high-quality products. Fisher Scientific has the capability to raise capital to do the right things right at CMS. I think you'll see us expand its market basket. We'll give CMS a real shot in the arm from a systems standpoint, including SupplyLink [see below]. Our logistics capabilities certainly will complement CMS products tremendously. We intend to take very good companies and make them better — and very quickly.

ROBERT BAUER: How will Fisher's ownership improve CMS's position with corporate buyers and suppliers, within the growing demands of the managed care environment?

QUINN: Fisher Scientific developed a system called SupplyLink for our research business that many CMS people and their customers — the larger groups that have seen our systems technology — are asking us to bring into the clinical/hospital side of the business as a leadership vehicle. When I was at Bergen, I thought they were a leader, if not the leader, in systems development on the hospital/medical side of the business, and I believe now that SupplyLink is at least two years ahead of any thing I saw there. SupplyLink is an electronic mall that allows the establishment of formularies in all major categories of procurement— pharmaceutical, dietary, med/surg, and laboratory— right down the line. Each formulary could be different: Once established, it is exclusive to your hospital, your clinic, your nursing home— and it allows you to access it as your catalog. You can then regulate usage by the people who work for you who currently go outside the system and buy outside of contract. For example, if a group has proprietary agreements with a number of companies, and our collective bargaining power and pricing are based upon giving them all of our purchases for their pricing, today maybe 70% of the people go along with the contract and the rest do what they feel like doing. SupplyLink circumvents that because every time somebody pops outside the formulary, it tells you what hour he did it, his department, his name, what he bought and at what price he bought it — and the variance between what he bought and what he was supposed to buy . It changes a very liberal system that doesn't have optimum controls for properly managing healthcare expenditures into a very, very disciplined, exacting system that allows you to keep track of every penny 24 hours a day, seven days a week.

Fisher Scientific is setting up its organization around the world to participate in diverse markets

ROBERT BAUER: Fisher has been expanding around the world. CMS is primarily a U.S. organization. How does this fit with your globalization strategy?

QUINN: We are setting up our organization around the world to be multi-faceted. Our Canadian operation is a perfect example: It's both clinical and industrial, and it does very, very well. We're the number-one company in Canada in terms of market share. It's one of our better performing divisions, and is really a model for the way we'd like to be in other countries. We're beginning to integrate internationally by taking some Fisher Scientific and CMS people who have core competencies needed in Europe and the Asian Rim to help bring the Fisher philosophy to those countries. Fisher Scientific's international focus is well managed and working effectively.

ROBERT BAUER: What are the challenges of your integration? How will you handle the integration of facilities, services, systems, and sales organizations?

QUINN: I've integrated companies before, and I've done it both the right way and the wrong way. We decided we weren't going to take our day-to-day key managers and have them try to do their jobs every day and also try to fit in integration. We hired an integration manager with a dedicated team of professionals in all functional areas; their only job is to integrate these two companies. It's working very smoothly and very quickly. We're not in a race with VWR or Baxter; we have our own defined time limits and cost reductions that we want to accomplish to make ourselves stronger in the eyes of the financial community and our share holders, and I'd say we're ahead of schedule. Fisher is totally dedicated to being the best company in our industry worldwide— rated as such by our customers

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