All right. Good morning. Let's go ahead and get started. My name is Eve Burstein, and I cover U.S. Life Science Tools and Diagnostics, and I'm really pleased to be joined by Michael Stubblefield, the CEO of Avantor. A little bit of background. So he's been at the helm of the ship since 2014, and before that, was at Celanese and spent some time also at McKinsey as a senior expert in the chemicals practice. So thanks also to all of you guys for joining us today. Quick reminder, you can submit questions through the Pigeonhole app, so I've got a lot that I'm excited to ask, but really wanna take your questions as well, and I'll be checking throughout the discussion, so send them in. All right, let's jump in. Michael, I think you wanted to start with some comments?
Yeah, thank you, Eve, and good morning, everyone. Thank you for joining us, today. Super happy to be here today. I thought it might be helpful just to kick things off and you know, share a bit of an overview of the business for those of you that are new to the story. We have our standard disclaimer here around forward-looking statements and non-GAAP financial measures. The presentation is posted on our website, so I'll leave for you to read all of the standard details there.
But Avantor is a leader in the life science tool space with a really terrific, you know, business model, where, you know, we are a leading provider of materials and consumables to the laboratory environment and the production environment for customers around the world. And we're really deeply embedded in supporting their workflows in early stage research and discovery. We'll support them through their scale-up and clinical activities, and ultimately, we provide critical input materials to their production platforms. We've tried to denote some of the more interesting attributes of our business model on the right-hand side of the slide here. Significant exposure to biopharma. More than 60% of our revenues are derived from biopharma and healthcare, with the overwhelming majority of that coming from biopharma.
Given the consumables nature of our portfolio, highly recurring revenue model, more than 85% of our revenues would in fact be recurring, and it's a really sticky business model. We're operating in a highly regulated, you know, marketplace with very stringent requirements. In our production platforms, nearly 90% or more than 90% of our products would actually be spec'd in and covered by the regulatory filings of our customers. So not only is it recurring, but highly sticky as well. And then we have, you know, just given the business model that we run, really deep, enduring relationships with our customers.
Back in December, we actually announced a transformation of our operating model, where we moved away from a three-region structure to a two business unit structure, that we think better aligns our business with the needs of our customers, specifically in the lab, as well as in the production environment. And you can see here, it's about a $7 billion platform. Roughly two-thirds of the revenue is gonna be derived from our laboratory customers, and roughly a third of our revenues will come from our production segment, we refer to as our bioscience production segment. Importantly, in that segment, about 45% of our profitability comes from that part of the business as well. Just a quick double-click on each of the two segments, give you a little flavor for what we do here.
Our laboratory solutions business is deeply embedded in serving the workflows of our customers in labs across the world, certainly in the research environment, as well as in diagnostic labs, as well as in the QA/ QC labs of many of our customers that are producing, you know, products across various end markets. And we do this through a really comprehensive offering that we've tried to cover in these three pillars. A really robust and deep proprietary products platform that would include, you know, self-manufactured chemicals, reagents, equipment, instruments, high precision consumables, most of which would be marketed under our flagship J.T. Baker brand, which has been around for about 120 years now.
We extend our product offering by embedding ourselves through our services offering more deeply with our customers. We have about 2,000 associates that wear Avantor uniforms that work at our customers' facilities on a whole host of activities, whether that be, you know, simple inventory management or stock room management to reactor setup, cell culture, media production, and literally everything in between. It gives us a really privileged position and insights into what our customers are working on. We also have a whole suite of digital capabilities that we deploy to our customers to drive efficiency and productivity.
And then we round out our offering to really build complete end-to-end workflow solutions through the partnerships that we have with our critical third-party suppliers, of which we have more than 5,000. To grow this business, you know, we're focused on, you know, high growth workflows, we're focused on innovation, and we're an important source of bringing innovation and innovative solutions to our customers in the lab, and you know, bringing efficiency and productivity to them through the digital tools that we deploy. At the heart of the model is really our customer access. We have unparalleled customer access through our lab offerings, and we serve more than 300,000 customer locations around the world.
Here's just a little bit of a cartoonish depiction of what a typical, you know, customer's campus might look like and how pervasive we would be across that campus in serving, you know, all aspects of their workflow. It's through this access that we're able to not only serve their laboratory workflow requirements, but it's also where we seed and introduce them to our proprietary production content that ultimately gets specced into the production process. So you can see, you know, this particular campus where they would be doing research and QA/QC workflows that we would service, you know, through our lab offering, but this particular campus also has a production facility that we would be introducing our critical raw materials into. Let me touch on the bioscience production segment here just briefly.
As you recall from my earlier slide, it's about a third of our revenue, but nearly half of our overall profitability. We're gonna be serving three principal end markets here. This is where our bioprocessing platform is housed. We also have a really unique custom medical silicone formulation business that serves the medical implant space in a unique way. We also have a custom formulations business that serves aerospace and defense as well as the semiconductor as part of our advanced technology offering.
The business model across all these three end markets, which on the surface might look a little bit different, but they actually all operate roughly the same way, which is to say that we would engage with our customers across all three of these areas in their early phase discovery and development activities. We would customize a solution for them, manipulating a whole host of properties associated with our formulations to customize the solution to meet their specific application needs. We would then earn a specification on their platform. We would support them through their regulatory and approval filings, and we would ultimately provide that content to them throughout the lifecycle of their product. Very stringent, you know, purity requirements and quality requirements in this space.
That's an important part of the business model, and a lot of regulatory expertise that's required. For example, in the healthcare space, our customers in the medical implant space would rely on the nearly 800 Master Access Files that we maintain to support their regulatory filings. I was gonna do just a quick double-click for you on bioprocessing. This is an area we get a lot of questions on, and certainly there's a lot of interest in just given the growth and importance of this area. So wanted to just give you a bit more detail on what we do to serve bioprocessing. We are a leading provider, as the slide suggests, of critical materials to service the biologic manufacturing workflows.
Of course, in the biologic manufacturing process, you're taking a living cell to excrete a certain, you know, protein or complex molecule that has some therapeutic value. And we would be the number 1 or number 2 player across the supply of materials into this space. And as you see on the slide here, we're gonna be relevant across all modalities. Most of you might be familiar with the monoclonal antibody therapies, which are the traditional space here. Certainly, the majority of the industry's revenues come from monoclonals, and we're deeply embedded in that space as well. And what's exciting to me there is, even though, you know, that's historically where a lot of the revenues have been derived, there's still a lot of momentum there.
There's a lot of innovation, a lot of new therapies coming out there, a lot of technical advancements, antibody- drug conjugates, for example, that still, in our mind, create a lot of runway for growth. But you also see, you know, exposure to GLP-1s, both the chemical as well as the fermentation route. You know, cell and gene therapy is particularly important to us, and we're really excited about that space as we're starting to move from, you know, treatment to cure. It's a new frontier. There's a lot of solutions that have yet to be developed there that gives us an opportunity to grow, share, and establish a really strong foothold. And then you have the other modalities, including mRNA, that are important to us.
We're gonna serve this space with a pretty comprehensive offering of materials and products. You know, you would think of us as providing process ingredients, you know, excipients, buffers, and a whole host of fluid management and single-use solutions. So I wanted to make it a little bit more granular for you. This is kind of a standard workflow depiction that you could think about using for really any of the modalities. This one happens to be for monoclonal antibody production, but where we've segregated the platform into kind of an upstream process, a downstream process, and ultimately a fill-finish process, and just trying to show you all the different places that we touch this process.
In the upstream process, of course, you know, they're concerned about, you know, growing and cultivating cells that will actually excrete the target protein. In that part of the process, we are gonna be providing all of the ingredients that would functionalize the media that enable the ecosystem around that cell to promote the growth and expression of the protein. And so this would be, you know, vitamins, minerals, nutrients, basically anything that you could think of that would be necessary to sustain cell life and growth.
In the downstream part of the process, you know, we're talking here about, obviously, eliminating any of the unwanted content that comes out of the upstream process, purifying and isolating the target protein, and we're gonna be providing, you know, buffers and other materials that are necessary to move the target protein through that purification process and provide the conditions necessary to drive the separation. We also provide, you know, specific materials that are used for inactivating any of the viruses that might have, you know, made their way into the process, as well as, you know, a whole host of chromatography solutions....
Before you get down into the, you know, final formulation and fill- finish step, where we would have the, you know, the broadest, you know, portfolio of excipients that are used to, you know, prepare that protein to be injected into a patient and to stabilize the protein so that it can still be functional, as it's used. You know, the—we do have some hardware that's scattered about through this process, but our primary focus is helping, you know, liquid biologic materials, you know, move through this process. And when we look at the other part of our offering here, which is on the next slide, you can see our focus on fluid handling and single-use solutions.
So same process flow, but connecting every unit operation in this facility, you would also see our line of peristaltic Masterflex pumps that would be used to move, you know, materials from point A to point B or operation A to operation B, to bring input materials into the process, to take waste materials out of the process, and we do this in an aseptic, end-to-end fluid management solution, and we're the only, only company that are able to, to do this. And so you see everything from the pumping technology to manifolds, assemblies, single-use components that are all used to facilitate the movement of that liquid biologic material through the process. One thing I would note here is just how intimately we touch the protein material on an end-to-end basis.
There's probably not another platform out there that would be touching this process as intimately or as closely as we do, or with as many specifications. It's not uncommon for us to have literally dozens of materials, you know, specced into a biologic platform. Innovation, as you would anticipate, is really critical to our business model and a key source of growth for our business, and we continue to ramp our investments in this area to bring innovative new solutions to solve, you know, the most contemporary problems that our customers are working on, particularly on some of the newer modalities. We have now 13 global innovation centers around the world, more than 200 scientists that are driving the collaborations with our customers.
I've denoted just a few of the more recent examples of innovations that are typical of the kinds of things that we work on that are coming out of our centers. The first one is a monoclonal antibody example, where there's a real market need to move away from the existing detergents that are used to provide the viral inactivation solutions in the process. So our teams have, you know, collaborated with our customers to develop, you know, new solutions that have better characteristics and certainly meet the regulatory and sustainability requirements of the customers.
The Cell and Gene Therapy example in the middle is an interesting example where our customers there have needs to basically penetrate the membrane of the cell so that you can release the genetic material that's embodied in that cell. And you need specific materials that can interact with the membrane to make that happen. So we've launched a whole set of GMP, you know, cell lysis solutions that enable that to work effectively with, you know, performance characteristics that are superior to anything else that's on the market. And the last example is just kind of an interesting capability that we have, given the material expertise that we have together with, you know, some of the single-use capabilities that we have in bringing together integrated systems.
So this is an example of a magnetic mixer that integrates our single-use bags together with our assemblies and manifolds, and our mixing technology in a way that is a lot more gentle for the protein. We have some exciting developments in the innovation space. This summer, we'll be cutting the ribbon on our new state-of-the-art innovation center in New Jersey that will double the capabilities that we have in this region, and we're excited about that. So just quickly before we take the questions, a couple of takeaways for the presentation here. Would want you to understand, you know, we have a leading position in both the lab as well as production.
You know, we provide mission-critical and process materials and ingredients into the high-growth bioprocessing end market, and, you know, hopefully, you get a sense for the importance of innovation to our model. So with that, let's take some questions.
All right. Thank you so much. Let's start with your segments. So you, you know, when you were introducing the company, you said you've reoriented from what you used to have, which were three different geographic segments, to now two segments that are based on customer needs or settings or environment. Why, strategically, did you do that? What were you hoping it would provide for you in the future?
Yeah, it was an important transition for the company as and in my, you know, perspective, having run the platform as you introduced me, for 10 years, to me, it was really a natural evolution of how we've built out the model. And it I think it recognizes the strength and positioning that we have within the laboratory environment, as well as within our, you know, production capabilities. And it's a, it's a better alignment of our capabilities with our customers' needs, and it brings, you know, I think, better focus and accountability, you know, for us in that regard. So, you know, we're super excited to make the move.
Not only is it, you know, I think, better aligned with how our customers think about our capabilities and how we can better serve them, but in a unique way, it also unlocks significant operating efficiencies. We've talked about this move unlocking roughly $300 million of, you know, gross cost synergies that will accrue to the business over the next three years. Exiting 2026, we'll have, you know, roughly $300 million in savings that'll come into the business, and we're off to a fast start. We've already been able to recognize some of those into the first quarter.
... Great. Are there any early proof points either on, you know, on execution against cost savings or perhaps on the strategic growth and better serving customer needs side that you can point to?
Certainly, there are. One of the things that we were particularly excited about as part of this transformation is, you know, getting our business better aligned with our customers to enhance their experience. So shortly after standing up the two segments, we've launched a global enterprise-wide, you know, customer, you know, transformation, where, you know, we're focused on providing, you know, better service to our customers on an end-to-end basis, and there's a lot of momentum building, you know, from that and excited by the capabilities that we'll have and ultimately what that means to our customers. It's also a much simpler model to operate when you think about the diversity of our business.
When you think about it at a regional level, it's hard to interrogate it. It's hard to analyze it. It's hard to understand it, quite honestly. I think thinking about it from a customer need perspective is a lot more straightforward. So it's made a lot of our operating cadences and rhythms in the company a lot more straightforward. We probably have now cut our operating reviews probably in half, just given how much more streamlined the operation of the company has come. So we've certainly benefited from that in the early days. And then I touched on the, you know, the operating efficiencies that accrued to us, moving from 3 units to 2. You know, there's a simplification of a lot of the back office functions that come from that.
You know, and we've got the full transformation program that's in flight that'll save us $300 million. We hadn't necessarily anticipated, you know, savings in the first quarter from that, but as you saw from our first quarter results, we were able to bring some of that forward as we're moving quickly to put things in place here. So starting to already, you know, realize benefits from that for sure.
Great. I think it was really helpful for you to go into depth on your bioprocessing portfolio, and you talked about how how many parts of the process you touch, but can you just really help orient us where you fit in the competitive landscape? How is the portfolio that you have different from the other players out there, like, you know, Danaher, MilliporeSigma, et cetera?
Yeah, I mean, it's obviously a very attractive space to be in, with a lot of growth and a lot of innovation, and so there's, you know, continual opportunities for you to, you know, bring, you know, new products into the market to, you know, reinforce your positioning. But when I think about the landscape, you know, we're going to be the leader in providing, you know, process ingredients and materials and single-use solutions into this space. I think the challenge, just as an industry, is everyone's portfolios are rather unique. There's limited overlap between the companies and the list of names that you mentioned there.
We don't traditionally think of them as competitors in what we do, 'cause largely they don't have the type of materials that you know that we would have. And you know I mentioned you know in cell and gene therapy, for example, it's kind of the new frontier. There's a lot of white space here, a lot of new materials that are necessary for those processes you know to work. And so we're you know deeply focused. I mentioned the new innovation center. A big part of that will be focused on you know cell and gene therapy innovation and bringing new materials into the workflow that are necessary to meet the needs of these you know customers. So it's definitely a complex ecosystem.
You know, a lot of those customers, those names you mentioned, you know, we would actually view as partners or complementary to what we do. It's a very fragmented space. You know, we literally provide thousands of materials into this space and, you know, have developed the capabilities over decades. You know, you mentioned my heritage back in the chemicals and petrochemicals space. You know, coming into this space and understanding the quality requirements and the capabilities that it takes to meet our customers' requirements are extreme. You know, our manufacturing processes take a certain amount of time, but our quality processes probably take an equal amount of focus, and the regulatory expertise that you have to be able to do what we do is quite significant.
We think we have a differentiated platform that, at least over the 10 years that I've been here, has outgrown, you know, the broader market by 300-400 basis points, you know, consistently.
Maybe, so let's stick on that growth point, actually. So, given your portfolio, what do you expect for growth in your bioprocessing offering versus bioprocessing in general? So for example, the trend towards single use is probably really, really good for you.
Mm-hmm.
But, you know, I could also argue that as we move toward more and more novel modalities that are focused on rare disease and small populations, you're not growing as many cells as you might for mAbs, and so maybe that's bad for some of your process ingredients. So, where do you see growth of bioprocessing writ large, and then what do you think your growth is?
So if you go back to the one of the slides that I showed in my presentation that depicted each of the modalities, there was a bubble there at the top of the chart that showed kind of, you know, greater than 10% growth is kind of how we view the market for this space. And, you know, you can take monoclonals as kind of the anchoring, you know, part of that, and, you know, whether that's high single digits or low double digits, you know, it probably wants to be somewhere in there from a market standpoint. And when I look at not only what's been commercialized, but the robust pipeline that's there, the therapeutics that are coming through there, whether it's for Alzheimer's or, you know, a whole host of other you know, indications-...
We're still excited about monoclonals, and particularly when you think about some of the technical advancements, you know, towards things like antibody drug conjugates, we think, you know, continues to propel this space forward. There's a lot of innovation and, you know, I, you know, we stress internally, let's not forget about the core here. At the end of the day, probably for the foreseeable future, most of our revenues and most of the industry's revenues will come from that space. The other modalities are, you know, interesting from a growth standpoint. You can, you know, we can debate is it 20% or 30% for cell and gene therapy. Regardless, it's a big number off of a relatively small base. We're seeing that in our business. We're encouraged by the number of approvals that are coming through.
Last year was a big year. I think last year there was more approvals than, you know, the five years prior to that combined. We already have, I think, we're up to four approvals out of the gates, you know, this year, and the pipelines are bulging. There's some really exciting science. Now, the scale- up is problematic and challenging. You know, these are sophisticated, you know, workflows. To your point, they're the manufacturing process itself is at an individual customer level or patient level, if you will, which is, you know, creating, you know, a lot of scale- up and manufacturing challenges that the ecosystem is working through.
And one of the things we're encouraged by, you know, in that is anytime there's friction or challenges, you know, that the partners need to lean in and help provide solutions, and that's where we excel. It's probably not too different than where monoclonals were at a couple of decades ago, and, you know, I'm sure that the maturity curve will get scaled here, and you know, we even see that on the platforms that are out there.
So we think there's a bright future for these other modalities that's anchored in the monoclonals, and, you know, we think that given the promise of the science that's out there, these emerging technologies that are already starting to take hold, that, you know, we consider kind of at least a 10%, you know, growth rate for this space to be, you know, pretty certain.
And so if, if it's at least a 10%, growth for the space, I think you said y- you've grown about 300, that's above average, so-
Yeah.
Is that right?
Yes, yeah, 300-400 basis points on average. You know, when we think about our long-term algorithm, and I think as we talked about at our Investor Day back in December, and I think pretty consistently, you know, I would look at this as at, you know, 14%-15%, somewhere in there, 13%-15%. You know, pretty, pretty frothy growth, obviously.
Right. So you talked about how you don't necessarily see some of the other big names in bioprocessing as competitors. Everyone has a really different portfolio. What does that mean for the timeline of consumable destocking for you versus some of the other names out there? So, you know, I could imagine, for example, that, or I could guess, excipients tend to have a longer shelf life than the average. So maybe those inventories could be held for longer and are gonna take longer to come down. Where does it put you based on your portfolio and the shelf life that your offerings have, and what do you anticipate for timing of that destocking to play out first year?
Yeah. So this has been, obviously, an important topic over the last several years. You know, just given some of the challenges, I think we have as a value chain of visibility into inventories and the breadth of the portfolios has made it challenging to really understand where our customers are at from an inventory standpoint. And so it's been pretty painful over the last couple of years to kind of chase down where those inventories are at. And, you know, we've tried to triangulate through surveys and customer interactions and obviously a whole host of data analytics. The proof point ultimately comes into what your order book doing.
And in my bioprocessing business, our average lead time on an order is probably 2-3 months, and so doesn't give us a real long runway into, you know, what our customers are thinking or what they're, what they're expecting to do here. But, when I look at the data that we have available to us from, you know, just customer inputs, whether that be, you know, formal surveys or VOC or just, you know, discussions I'm having with our customers, the inventory health has been improving steadily, actually for a while now, and that would indicate that, you know, we are in the last innings, across most of our materials from a destocking standpoint. The proof point of that, in my mind, is what we're seeing in our order book.
We talked about in Q4, seeing a modest uptake in the rate of order intake, and we saw another sequential step up of that in the first quarter. Not at a level that I think we would, you know, ring the bell and saying, "Hey, we're fully back," or that we would characterize as an inflection point, because it's not just our materials that are overstocked or we're overstocked at our customers. They actually did try to manage some of the shelf life issues by also proceeding through manufacturing and getting to the drug substance level, you know, where you can kind of store it in bulk, you know, cryogenically preserve it, before it gets converted to a drug product. And so our customers are also working through, you know, drug substance inventories.
And you can look at the balance sheets of our customers that are public, that disclose inventories. You can also see where their inventories, you know, are at and how those are trending. So I think we're probably further through the destocking of our raw materials, and I see that as my order book starts to step up. We're still not at an inflection point, and I think one of the reasons why we're not at an inflection point yet is our customers still have, you know, drug substance inventories that they're needing to, you know, to completely work through before, you know, campaign cycles and batch production gets back to what we would consider to be normal. But we like the trajectory, and there's certainly some momentum building here.
All right, I'm gonna do a quick rapid fire set of questions on the quarter, and then I wanna move to some longer term or more strategic questions. On the quarter, so first, for your education and government end market, in the last year, you've had really impressive strength there, four consecutive quarters of growth, which you attributed in part to increased commercial intensity during that time. But that market was down low singles this quarter. So can you help us understand how things played out there for you? Was it just a factor of very tough comps because you've been so successful? Was it increased weakness, or is it potentially share gain going back to where it came from?
Yeah. So this has been a really strategic area of focus for us over the last 12-18 months. You know, the end market itself, we would anticipate over long-term growing at, you know, kind of low single digits, and I think you're referencing our outsized growth last year. We were driving higher education growth, high single digit, low double digit type levels. We've got, you know, probably we're a bit under-penetrated there, so there's, you know, arguably more headroom for us than others there to grow.
But we did, you know, lean in specifically, you know, to enhance commercial intensity, more feet on the street, a lot of digital tools and content deployed, really scaled our digital marketing capabilities to drive, you know, personalized campaigns, you know, to be able to reach those, those scientists in the academic labs around the world. And the, you know, the proof point was obviously in the growth that we drove. In the first quarter, you know, our higher education demand is captured under our academia and government end market as a whole. And in the first quarter, even though academia and government for us declined low single digits, we did have another, I think it's the fifth straight quarter now, of growth in the higher ed space.
So we are continuing the momentum that we've seen there. Headwinds in K-12 and headwinds in government that kind of bring that end market down for us. But still we see good, you know, good growth and the continued momentum of, you know, new contract wins and extensions in the higher ed space, which ultimately is probably the key focus for us in that area.
What about the biopharma end market? So one question that we get quite a lot, and, probably from some of you in this room, is, is VWR losing share to Fisher in the channel? And if I had to make that argument, right, like, if I, if I had to, to offer evidence to support that, I would say, for you guys, you had started to see destocking in this, you know, biopharma end market earlier than Thermo and some other peers. So you had an easier comp, but you were still down high singles in that segment, with Thermo down only low singles. They also talked about stronger than expected performance in the channel, which is where they're competing most closely with you.
So there's a ton of noise here, and I hate to do this, but we get this question a lot. So on behalf of all of you that might have wanted to ask it, how would you respond to that?
Yeah. So, you know, pretty directly actually, the what I see when I look at our what our business, is a business with, you know, 100% contract renewals, significant new customer wins. You know, we look at other leading indicators like digital traffic, for example, to our websites, which, you know, we think we have best-in-class growth across that, you know, that indicator as well. It's not a very transparent marketplace. You know, there's not actually, you know, a channel number that you can actually benchmark to, to validate, you know, what specifically is, is going on there. So we have to look at it from a, you know, an end market perspective and, you know, what's going on at a customer level to, to kind of guide us on that.
You know, the Fisher channel isn't reported anywhere, so you don't actually, you know, know what that number is. When we look at others lab businesses that are, you know, maybe called out as a segment or, you know, specifically spelled out in their, you know, financial statements that we think are actually a, you know, a better mark for our business, you know, we see a best-in-class lab business and performance. I don't think anybody, you know, in the quarter, you know, showed better lab performance than we did. When we talk about biopharma, of course, yes, some of that is in the lab and exposed to the research workflows. Some of that is also in our bioprocessing platform that we report in our production segment.
So biopharma for us is an end market, but it actually spans, you know, both of our, of our segments. When I look at the production segment, although we're not, you know, cheering that the business declined in the first quarter, our bioprocessing business did better than anybody else's out there. Again, continuing this theme of whatever the market is doing, we're outperforming, you know, whatever that happens to be. In this case, it was a contraction. You know, hopefully, we're returning to growth sooner rather than later. But you know, we think that the performance of our business stands up, you know, against anybody out there.
The last point I would mention is, I think it's natural to try to draw kind of a two-party comparison here, particularly in the channel, given that there are two really strong, you know, nationally branded, globally branded channels that are out there. Fact remains, even if you add the two of us together, we're still a small fraction of the overall, you know, market. I don't know what the number is, but it's, you know, maybe it's a third or certainly less than 40%. So it's not a two-party race, and it could also be true that, you know, both channels are, you know, doing quite well, and don't necessarily, you know, have to take share from one another.
You know, them lose, we win, or we lose, they win scenario isn't the only, you know, way to think about that, that market. And if I had to guess, I'd, you know, presume that both of us are doing pretty well.
... All right, we're gonna start looking ahead, at least. One question on 2024. So you guys have been very cautious in your guide for 2024, not assuming any recovery in the back half of the year, which some peers have done. Can you walk through the range of scenarios for your margins if you were to see better than expected top-line growth?
Yeah, I probably don't wanna get into speculating on, you know, what could happen here. You're correct in that we've assumed just a continuation of, you know, run rates that we saw exiting the year and kind of projected those, you know, through 2024. And it's, you know, plus or minus, kind of playing out that way so far. If we are in a scenario where, you know, we do get, you know, stronger than anticipated growth, and we start to see recovery, you know, certainly that'll have an impact on the top line, but it'll also have an impact on mix, which is good for us, which will lead to margin expansion. It'll certainly improve, you know, absorption.
We have a pretty heavy, you know, model here, you know, to be able to reach the 300,000 customers around the world that we reach. And so, you know, growth and volume is good from an absorption standpoint as well. And then I layer on kind of the self-help of the $300 million cost transformation that we're driving. You know, that's gonna have an impact on margins as well. So what we've baked in is a continuation of current, you know, run rates, you know, together with what we anticipate being this year's impact from, you know, the cost initiatives. Anything we get from a growth standpoint is gonna be upside.
Okay. All right, let's, let's look forward. So, you know, clearly, 2024 has been challenged. I think most people are very, very optimistic about the long-term prospects of the industry because the drivers of growth, you know, aging population, increasing GDP, more capital-intensive therapeutics, all those are, are really good. But I, I kind of wanna focus on the medium term, so call it 25 to 27-ish. And I wanna talk about the health of your end markets in that time, and what it means for Avantor. So let's start with laboratory solutions segment first. If you're thinking about the lab, and then specifically for, for biopharma. Historically, there's been a pretty good correlation between pharma R&D and tools revenue. However, there's reason to believe that that could potentially be pressured in the medium term, right?
You hear some chatter about the IRA, but you also have a lot of companies with patent cliffs, and when that happens, often pharma companies will go out and buy assets and then accelerate them through clinical trials, and that's how they'll spend their R&D dollars rather than really early-stage stuff that's not gonna play out in time for smoothing that LOE. Is it reasonable to think if that is what's happening, that in the 25-27-year timeframe, that pharma might spend less on the traditional tools players like non-CROs over the next few years? And if so, you don't have a CRO. What does that mean for Avantor?
Right. I think it's an interesting, you know, topic to debate. I think our perspective on this is, you know, can you go back to that, the first principles of the science? There's a tremendous opportunity here to bring novel therapeutics, you know, to treat, you know, diseases that have been untreatable, you know, up until now. And so the pipelines are bursting. And whether it's, you know, being developed at a biotech startup or, you know, a traditional, you know, large pharma company, for us, it's really all the same. You know, we're providing all of the content that they need to facilitate that research.
My platform gives me access to all of these labs around the world, and in fact, that was the driver for bringing VWR and Avantor together, was to be able to give me access to all of these disparate labs around the world. And it's our strong view that, you know, good science will attract funding, regardless of where it needs to come from. And from a production standpoint, the specifications are earned in, you know, early phase discovery. And so if it ultimately gets developed by a startup or a biotech company, we get spec'd in, and it gets bought by a large pharma to fill a gap that they may have, the specification is gonna transfer with it, and so I think we're pretty well covered from that standpoint as well.
CROs do play an important role in all this ecosystem, and that's an important customer segment for us. We would serve, you know, all the CROs that are out there in a pretty meaningful way. So, you know, research requires, you know, all of the materials that we provide. We think that research is gonna continue to attract funding, you know, given the promise of the science that's out there. So, you know, we think this is gonna be a nice tailwind to our business for a long time to come.
So, funding, especially for small biotech, has been a real topic of conversation, and it was down in early 2023, and now it's back up. And that's certainly a good thing. But there's a concern that just because the funding is flowing now, doesn't necessarily mean that companies are gonna spend it as readily as they would have a couple of years ago when money was a lot freer and they knew that there was always more funding they could get, if they needed it. So, how do you think about how that money and when that money is gonna start flowing, and if it's gonna look different now than it did a couple of years ago?
... So for us, you know, the biotech customers at an enterprise level are probably low single-digit % of our revenues, but they're an important strategic focus for us, just given the science that they're developing. So we do watch it quite closely, and it does have an impact on the business. As you suggest, you know, the last couple of years, funding has, you know, come down from, you know, kind of the COVID peaks when everybody was chasing, you know, the vaccines and such. We saw it stabilize as we moved through, you know, last year, and we're encouraged by the data that we saw in Q1, where, you know, it looks like, you know, it started to come back up again and, you know, maybe in line with where we were at, you know, pre-pandemic.
Funding for, for biotechs, you know, obviously goes to build out new labs or to fund existing, you know, research. So, you know, if you're building out a new lab or getting—you're needing the funding to launch a new program, you know, once you get the funding, you've got to go through the process of building out the, the lab and, and getting things set up. So that can take 1-2 quarters in our—given the types, types of materials that we provide before you would, you know, generally see an impact, you know, on the P&L. So, you know, hopefully, you know, we see some of the impact of that later this, you know, later this year. But again, you know, back to my earlier comments on just the, you know, the science driving the funding.
There is a tremendous, you know, pipeline that's out there that shows a lot of promise, traditional monoclonals, as well as the new modalities. And, you know, it's not a surprise to us that we see the funding coming back to support these programs.
Let's move over to academic and government as an end market. So, we all know politically there's some risk to funding this year. We also know that, you know, something like NIH funding, which is certainly not the only form of funding for the sub- market, but is a good proxy. Something like that is at kind of an all-time high in inflation-adjusted dollars. So is it fair to say, would you agree with the statement that seems like there's more downside risk than upside potential in academic and government funding overall?
So to fund the academic research, you know, funding comes from a whole host of sources, including some of the ones that you mentioned. Despite all of our best efforts to try to correlate our revenues to the funding, you know, the R squared on that is pretty anemic. It is our view, though, that you know, this is an area of strategic importance for a couple of reasons for us. You know, we think it's important to invest and to, you know, continue to ramp our exposure into the academia area. The model on campuses is changing. They're no longer just doing research for research sake.
It's not uncommon to go into one of these institutions, and meet with a principal investigator who, you know, maybe the hour before, had been teaching a lecture, but now has put on his CEO hat and is running a, you know, kind of a start-up where they're incubating technologies with the intent to commercialize. So they are working on really important technologies with the eye to get them launched. And so, you know, we want to be there anytime you see that type of activity. The other important reason for us to focus in this area, of course, is for many of our customers, this is their first exposure to our brands.
When we talk to our customers and introduce ourselves, like, "Oh, yeah, I used to use the J.T. Baker products when I was a you know an undergraduate on campus doing research or whatever." And so it's critical to us that we have exposure to this space, and so we'll continue to invest in there. When we think about our growth algorithm, for us, you know, we would, this isn't a high-growth area. It's got the strategic importance for the reasons I just mentioned. But, you know, if this segment for us grows, you know, low single digits, that's more than enough to support the enterprise algorithm that we have.
We think that, you know, just the body of work that's underway and that we have line of sight to, that's, you know, well, well within reach.
Great. In the interest of time, I'm gonna keep running. I have so many more questions, but in the interest of time, I'll keep running. If anyone has any last-minute questions they want to get in, throw them into Pigeonhole. Maybe moving over to the bioscience production business. We've talked a decent amount about bioprocessing, so let's focus on the other end markets. For healthcare, a decent chunk of that revenue, as you mentioned, is silicone, and one of the biggest applications for that is implants and cosmetic surgery. And I imagine those buyers aren't the same as a lot of your other customers. So where are the synergies here between that type of product and other ones that you offer?
Then, there's a lot of conflicting data out there, but some of it suggests that that market is not doing all that well, might be declining. What does that mean for your business in silicone?
Yeah, so it's a really diverse platform. Certainly, you know, cosmetic implants are a piece of that, but it's pretty diverse. You know, we do a lot of things around, you know, cochlear implants, promote hearing, deep brain stimulation devices, you know, to treat, you know, Parkinson's, for example. Pacemakers have a lot of our content on it. So there's probably not an implantable device in the body that doesn't have some amount of our content on it. And we think the demographics of the population, you know, chronic diseases and other things, all provide, you know, a macro environment where this business is gonna continue to thrive, and we're extremely well positioned.
The innovation pipeline here literally has, I don't know what the current number is, but it's well over 500 projects underway here, and a rich, you know, history of providing, you know, new technologies into the space. So, the business model itself, as I mentioned in my presentation, runs exactly like it does for our bioprocessing business. So we would work with a device designer early in their, you know, development processes to customize the solution, support them through the regulatory filings, become part of their specification, and then support them at scale in production. And so the business model itself is identical. You're really overweighting on our expertise around material science, around purification, to produce materials at, you know, part per billion type levels of impurity.
So the business model itself is, like, you know, part and parcel to what we do. The other thing is, you know, it's part of the larger ecosystem, so we're able to leverage, you know, the supply chain, the digital, the quality regulatory, you know, capabilities that we use to serve our other, platforms. So there's actually quite some synergies.
All right. Two last questions. One, taking a step back and thinking about your, your end markets overall and, and what you expect for the health of them. You said at your Investor Day back in 2023, that you expect recovery could take 12-24 months. So at the long end of that range, that's sort of end of 2025. And it's only at that point that you'd be kind of exiting at a normal growth rate. We've also heard from, one of your competitors in the space that, that they think 2025 growth could potentially be a touch under the average. How are you thinking about growth in 2025?
Yeah, I wouldn't, you know, get ahead of our normal process. We've got a lot of work to do here on 2024, and we'll take the time in the next, you know, couple of quarters to see how things evolve. It is a dynamic environment. But I think our view still is the same, that these markets will recover over the next, you know, 1-2 years, and we're incredibly well positioned to take advantage of it when it does.
Fair enough. All right, we've talked a lot about the challenges in the sector, so maybe just last question, why don't you bring us back to the exciting, and what are you most excited about for the sector and for Avantor over the coming years?
I'd probably call out two or three specific things. One, these are terrific end markets, you know, really anchored in biopharma. Despite some of the near-term challenges, the promise of the science, the innovation that's out there is just really exciting. And we are especially well positioned, with leading, you know, solutions both in the lab to support the development of these technologies, as well as in the production environment, to provide the critical enabling materials that are necessary to produce these therapies. The business model of transformation that we have in flight, I think in a very unique way, will give us the opportunity to expand growth or accelerate growth and expand margins, over time and, you know, enhance focus and, you know, provide better alignment to our customers.
And then lastly, back to the innovation and the science itself. All of this, you know, goes back to the rich, you know, pipelines that are there, the promise of the science, the opportunity that we have to partner with our customers to bring, you know, life-critical, life-saving, you know, therapies to patients around the world. And there's probably not a more noble cause than being part of that, so couldn't be more excited.
All right. With that, we're out of time. Michael, thank you so much. Really appreciate it.
Thank you, all.