Sunday, July 31, 2005

Organic Chemistry: Can Thomson Pharma Provide Organic Growth?

When Thomson released its 2nd quarter earnings last week, revenue growth for Q2 2005 was at a healthy 10% over Q2 2004. Traditionally, Thomson has relied on acquisitions to bolster its top line. However, CEO Richard Harrington has placed greater emphasis on organic growth in recent presentations, and the result of this shift is apparent in the pace of acquisitions in the first half of 2005, which totaled $96 million versus $655 million in the first half of 2004.

Thomson's Scientific and Healthcare segment performed well in the 1st half of 2005 with 13% revenue growth in each quarter. In historical fashion for Thomson, the majority of the growth can be attributed to acquisitions from the previous year (primarily IHI). Factoring out acquisitions and positive gains from currency exchange, Thomson S&H realized 2% organic growth in revenue for Q2 2005.

To support organic growth, Thomson Scientific has placed a large bet on the future success of Thomson Pharma. Thomson Pharma was soft-launched in December 2004 when the product was far from complete. The premise of TPharma is solid: Thomson Scientific has assembled an impressive array of data sources for pharmaceutical research and is creating contextual links between related information in its repository. Thomson Pharma also pulls in content from sources from other Thomson groups, such as NewsEdge and company information databases from Legal & Regulatory and Financial.

However, in addition to delivering on the value-added features that an integrated platform can provide, Thomson faces the same pain point faced by all aggregators trying to make the leap to value-added aggregation in the age of Web search engines: that is, pricing tactics. From the evidence to date, Thomson is focused on selling subscriptions to TPharma to enterprises based on their past usage of constituent parts of TPharma, and Thomson is betting that companies will pay a premium for access to the entire collection and its value-added integrated features. This strategy has worked well with Thomson Financial's Thomson One platform. It is not as apparent that it will work with TPharma since not all companies will value the modules in TPharma a similar fashion.

To succeed in its shift toward greater dependence on organic growth, Thomson will need to prove that it can leverage its integrated information collection via multiple product packages and delivery of value-added services targeted to specific audiences. Acquisitions will continue to play a role in building out its collection. However, pricing for full access and for new product and service bundles is bound to be the biggest challenge.
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