All right. Thank you everyone for being here. It is my pleasure to welcome the Bruker team to the Morgan Stanley Healthcare Conference. My name is Mike Fedele. I lead Morgan Stanley's life science tools and diagnostics practice in the healthcare investment banking side. I am joined here by Frank Laukien, Chairman and CEO, as well as Gerald Herman, the Chief Financial Officer. Frank, Gerald, welcome.
Thank you for having us.
Thank you.
Maybe just to start off, Frank, your father founded this company back in 1960 around NMR, when the ultimate kind of potential was far from clear. I am curious, within Bruker's portfolio today, where do you see kind of similarities or where there is maybe a gap between what you view as having really strong scientific potential, versus what is well understood today?
Okay. Interesting question, yeah. I think we're in that inflection point where people are trying to understand biology much more deeply, disease biology, drug discovery, biomarkers that may play a role in diagnostics or MRD or whatever it may be. The biological questions, I think, more so than the technological questions, what magnet, what laser, what mirror, what mass spec do I need? There's a fast evolution there as well, but I think we're at that inflection point where people call it sometimes biology or disease biology 2.0. We've used or coined the term the post-genomic era of drug discovery and disease biology. I think that's where the biggest inflection point is right now, where people aren't quite sure yet where that will go and where there is a debate. We almost understand everything because we have the genes.
No, we understand 20% of disease biology and the complexity. I think it's more on the biology side than necessarily the technology side. Yes, we have better TIMS, TOF and magnets and whatnot coming out all the time. We're a technology powerhouse. But I think it's more important, and we've transitioned the company to really be also deep in disease biology and biomarkers and the biology 2.0 that's behind that.
Maybe for an investor that's newer to the Bruker story, double-clicking into what you just said about post-genomics, what exactly do you mean by that? How do you want an investor to understand about how Bruker fits into that ecosystem and where you're going?
Yeah. Genomics and sequencing are foundational, but in some diseases they make the big difference. In many other diseases, they've scratched a little bit more than the surface. But I think that maybe we understand 25% of biology and disease biology is sort of. Maybe that's almost a consensus or there's a range, obviously. So clearly proteomics, clearly bottom gene expression at the transcriptomic and proteomic level. But beyond that, even every protein, so-called protein, is a protein group, which is an average of 30 different molecules. They're called proteoforms, and that's where the function or pathology, as the case may be, occurs.
Understanding that with much higher differentiation, resolution, doing that at scale and with sensitivity is one of the key new important areas where function, binding of drug targets or protein-protein interactions, function occurs then primarily at the proteomic level, and also multi-omics at the metabolomic, lipidomic, small molecule levels. In addition, that's often embedded in a spatial context. So spatial biology has become very important. In addition, because it does get more complex and we might as well deal with it's a big market opportunity, and ignoring it has led to atrocious rates of translating discoveries into new drugs, right? They're still very poor. In addition, we need to understand binding and interaction and protein dynamics. Good old NMR is a crucial technology for that. That plays well with mass spectrometry, but also with other vendors, Cryo-EM or AlphaFold. So bringing together multi-omics, spatial interactions, binding dynamics.
I know you want me to stop, probably. Oh my god, it's a long list. But unless we really tackle the hard problems, and for that, AI is a foundational tool. It's an enabling tool. You can't do that anymore with human expertise only, and so the confluence of these factors is really crucial. I take that as, yeah, too bad for drug discovery and for diagnostics development. So many failures, so expensive, so long. But of course, wow, if you could get the insights from 25% to 50% or to 75% because you're not afraid of the complexity and the depth that's needed, and that's the hypothesis we're pursuing. Providing the tools to deal with that is an incredible opportunity. That's the biggest S-curve and inflection point for Bruker over the next 5- 10 years. Yes, we do deep tech. Yes, we do diagnostics.
But that's the really big opportunity.
We are pursuing, not all, but multiple aspects, usually with the deepest and best tools.
That's great. Where are you seeing the most demand, whether that's from what your customers are talking about or what's actually kind of pulling through on the one hand and what's taking longer than you may have otherwise anticipated?
Yeah. From a very fast growth phase for Bruker from post-COVID to about 2024, where we're very significantly outgrowing the market and most of the larger peers in the industry. Then some very significant headwinds in 2025 from currency to tariffs to academic spending, from which we're still in part recovering in 2026. Sometimes it's absence of headwinds as in U.S. academia, and in many areas we're seeing more and more in accelerating tailwinds. This year, something we normally haven't talked much about, non-life science deep tech, which is, if you include defense and energy, maybe $700 million of our revenue. So that's the fastest-growing and, by the way, typically very high margin, high incremental margin business. The life science indicators of academic spending outside of the United States growing strongly for us.
China growing on the order side for us, and now we actually do believe that there is a budget flush for NIH and NSF that's going on, and they'll put a lot of money into the system before the end of September. That should bode well then also for Q4 and maybe Q1 orders for us for some of these high-end research tools that people are ready to adopt. I didn't mention all of them because it's complex enough, but there is additional things for spatial 3D genomics and so on, where academic funding will really be welcome because I think some of these things are the early phases yet. Some of them are getting readily adopted by biopharma, like the timsOmni, others like 3D structural genome. What's that? Does that really matter? It's not just something we can sequence. No, it interacts. It has topologies.
It has proximities. For that, we need academic funding, and there the U.S. tends to lead. It's doing well in China, it's doing well in Europe, but the U.S. is now hopefully coming along as well.
Not sure that answered all your question, but
I think it's a good start.
parts of it at least. Yeah.
You mentioned deep tech. I think one tendency that investors sometimes have is to try to bucket or categorize. What do you think gets lost about the Bruker story and what you all are doing if an investor tries to categorize you purely as kind of life science tools?
Yeah. Maybe as little as six months ago, I would have said, well, people don't understand that part at all. But I have to say that life science tools analysts, in the last six months, have done quite an excellent job in taking a deeper dive into things like semiconductor metrology and even into EUV lithography and the latest ASML tools and how we're in a small way still plugged into that. But as that's transitioning from the 3000 to the 5000 series, what medium-term effect could that have on Bruker? They've actually done a pretty good job, and my colleague Mark Munch has done a good job in a number of opportunities to educate everybody. Yeah, it's not only one semiconductor metrology $500 million bucket. There's a $200 million bucket that kind of goes with the KPI of WFE, so you can track that.
Other things have to do more with the technology trends towards smaller and smaller feature sizes, towards more and more stacks, towards more and more layering of materials. Then, of course, the advanced packaging, which is key for artificial intelligence, high-performance computing, and it's absolute key for the high bandwidth memory that this year has really taken off. Of course, if you're Micron and other companies have benefited from that, and we are benefiting from that demand. So it's become explained much better. Even at life science healthcare conferences, we now get some very educated questions from our investors on that part of the business.
Great. Maybe, conversely, for a life sciences investor that may not necessarily be as familiar with the semiconductor world, how should they understand where in the ecosystem Bruker sits with your metrology business?
Yeah. So our deep tech may be around $700 million. So that's a very important part of the business. Diagnostics is $550 million growing to $600 million. In addition to the systems biology 2.0, these are two other color or pillars of the business where we're just delighted that the core technologies, which are measurement technologies and some automation and software, but ultimately measurement technologies. When they really mature and find killer apps, they find something like the MALDI Biotyper for clinical microbiology, or they go into semiconductor high volume manufacturing metrology as our semiconductor metrology example has shown.
And this trajectory of taking technologies to applications like proteomics, spatial biology proteoforms, glycoforms, and then eventually transitioning that also into LDTs and into regulated diagnostics is such an important and fundamental driver in our industry that, of course, it's a key for Bruker's strategy and a part that's important, but that we and a few other companies, Rigaku, Thermo Fisher Scientific, have some of that. Most other life science companies don't have that. Also have this big deep tech part that has outstanding margins. It has some of the best incremental margins. It's a sizable piece. It's not all semiconductor, but including defense, including fusion energy and things like that. It's around a $700 million business. It's a key pillar that we absolutely like, and it's based on many of the same technology. So it's not a separable business because sometimes we get that question.
No, it has the same technology base. Some of it goes into deep tech and fusion and semiconductor. Some of it goes into diagnostics. Much of it goes into drug discovery. It's a beautiful continuum of what we can derive from these original technology leadership that then more and more becomes applications and market leadership in these segments.
That's great. Maybe shifting gears, AI has certainly been a popular theme this week. How should investors think about where Bruker sits in terms of that ecosystem as there's more and more AI happening around drug discovery, development, the clinical process, and what are you seeing today versus what are you think is more aspirational and what do you hope to see longer term?
Yeah. So starting with in a nutshell conclusion, last week I was misquoted, and we took a bit of a hit, but let me clarify. So the nutshell conclusion is that for the tools, for selected deep high-resolution tools that provide you with deeper insights, where we're the best example in the industry, but there are some other companies in spatial or proteomics that also play a significant role there or structural biology, Cryo-EM, right? But not all companies, I think it's going to be a very significant structural demand driver, and that's a terminology created by someone else. But there's an AI structural demand element that I think will emerge very strongly 2027, 2028 and beyond as people have done the basic AI infrastructure investments.
Or maybe it's a partnership with a new tech bio company that has hundreds of millions of funding that does that investment in automation and agentic AI and self-driving. People dream of lights out labs. Well, the lights stay on. There's a few people still around, but very much automated and accelerated and AI intelligently accelerated, agentic AI-accelerated drug discovery or improvement of new superconductors or materials or battery research. It goes in many more directions. So a very big growth driver for selected the highest performance tools. If you take all the data that's out there that's scratching the surface and you're throwing a bunch of AI, you'll get some incremental insights.
But I think unless you really take the most discerning tools and use them for building your frontier models, and then for validating them in this DMTA loop of design, make, test, that's us, analyze, that's human and artificial intelligence, and then intelligently figure out how to keep going in that loop, so it's sort of directed and not just boiling oceans, is a huge driver. I did observe next last week that with a lot of that investment and mostly fixed biopharma and other industrial CapEx R&D budgets on the R&D or drug discovery side that I thought part of as a retrospective comment, why did the industry, and including Bruker, grow more slowly than we might have expected at that other conference in January 1st?
I think part of that is because, of course, that became such an urgent requirement, because for many, that it did in part crowd out some CapEx earlier in the year, and that all got abbreviated into a soundbite that I thought AI was a headwind. I think it's an enormous tailwind for selected deep high-resolution tools that provide you impactful insights and we're the poster child of that.
Maybe a related question, but for Gerald. Does any of this or what's happening with this AI thematic change how you think about capital allocation?
I don't think our capital allocation decisions have really changed. Most of our capital is being deployed for innovation in the R&D field. After that, it becomes maybe more around our capacity constraints, particularly as it relates to some of the semi pieces that we've been talking about, where we've made pretty significant CapEx investments to build capacity. After that, we begin to look at opportunities on the M&A side. Certainly part of our dividend and return capital to shareholders thereafter. I don't think our priorities have really changed. I think we're hopefully getting back to a place where we've got to We're building enough capital and cash flow to be able to get back to it to play the game at a higher level.
Since we did some sizable acquisitions in 2024, the smaller acquisitions we've done since then tended to often strengthen our infectious disease and microbiology diagnostics business with NGS reflex testing, with an additional capability to do fast AST, to metagenomic software, again, an NGS application. We don't make sequencers. We know where to buy them. Then we get particular new capabilities on liquid array and direct from blood and on reflex testing and microbiology. We like, of course, at Bruker to also build out the aftermarket and consumables component. Years ago, when we were a pure instrument or nearly pure instrument, still meant 20%-25% aftermarket, service upgrades, et cetera. Now, at least it's at 40. It's clearly going towards 50/50 as diagnostics, but also spatial biology have a lot more consumables and razor blade pull-through. So that remains an important area where we are interested.
Then one area that we haven't mentioned yet is our recent Mimetas acquisition in the Netherlands in Leiden. We actually acquired 90% of the company because we wanted the founders and management to keep driving this. Every time you go to a This is about drug discovery and development and preclinical work. People want to complement their animal models, which there's not so much for ethical and economic reasons, maybe those as well, but primarily because often they just don't work that well. Certainly don't work well in neurodegeneration. The track record in going from mouse to men in cancer drugs is horrible. 95% of drugs fail, probably because the immune systems are so different for humans. So they want humanized microphysiological systems, or sometimes it's called NAMs for new approach. We looked at all the smallish companies in that space.
There are quite a few that started up. It had a bit of a hype, then it had a disillusionment phase. We thought we picked the one that has the best content, the best organs-on-a-chip, humanized physiological relevance, but also the best automation that's scalable because they use microtiter plates. We're actually quite delighted with that. It's only about a EUR 10 million business, but that could move to EUR 50 million or EUR 100 million over the years. Plus, it'll pull in a lot of spatial and metabolomics, proteomics tools, sort of at the tip of the spear. That and AI and multi-omics and spatial is actually a very high priority for drug companies.
As I went to some of their drug discovery meetings, I look at AstraZeneca, Novartis, and I am picking names at random, they all somewhere on their circle of things to do that are strategically important is organs-on-a-chip, organoids, but you want to go beyond that because you want to have multi-organ capabilities. You want to have a little bit of an immune system that is simulated. This Mimetas smaller acquisition is, I think, strategically another very important addition for next generation drug discovery and development.
Maybe following on that point, are there particular therapeutic categories or disease areas that you are seeing particular interest in within the portfolio? Or is it more these kind of different approaches, looking at organs-on-a-chip and trying to understand more of biology from a different perspective? What is the right way to think about that?
They tend to be different companies in that space, do not only have different technologies, but sometimes different content, and they have these different disease area specializations. They are cardiovascular, metabolic, cardiovascular disease, vascular problems. Of course, cancer plays a significant role. For our other tools, I think a lot of it is oncology driven, spatial biology eventually merging with tissue diagnostics or complementing tissue diagnostics. That tends to be not only, but primarily for oncology, tissue pathology. Autoimmunity and neurodegeneration are runners up, I would say, but I think oncology is the most important one.
Got it. When you evaluate whether it is a company or even a new instrument or technology that you think about developing more organically, where is it today that you are most focused, and what kind of separates, or how do you think about the ultimate commercial potential versus what is critically important from a scientific perspective, even if it may be more niche? How do you balance those?
Well, we still sometimes find niche or technological opportunities where we can innovate because we can technologically leapfrog or do something very differentiated. We more and more look at the overall disease biology, actually, and say, Okay, well, if metabolomics and small molecules are an important part, or I could pick something else. Maybe I will pick a second example in a moment. Well, what is really required? Not only do we have a hammer and do we have a screwdriver, and what can I do with those two tools, but what is the toolkit that is required? What is generally available? Tends to be sequencing in our case, because we think there is plenty of options there.
What is really required to get a deeper understanding to make drug discovery more successful, ultimately maybe faster and cheaper and/or to make biomarker and diagnostics discovery for cancer and other applications more successful, more differentiated, and with a shorter valley of death or whatever they call that. We then did not build the timsOmni because we could, because we said, Hey, we have a wrench that nobody else has. What do we do with that? We said, Okay, proteomics or bottom-up proteomics, which is proteomics 1.0, we really need to understand these functional or pathological molecules. We need to understand intact proteoforms. That is so hard, but why don't we take a big step forward in that? Now we can characterize antibodies, and now we can have better tools for immunopeptidomics. They also help us in targeted protein degraders.
These are not things we all figured out up front, but these are things as you learn, Oh my God, we have new applications. It is fantastic. Fundamentally, we thought we have got to get from gene expression at an average protein group level to proteoforms because that is where the pathology occurs. That is where the drug targets can be very different depending on whether they are glycosylated or where they are glycosylated. It used to be hopelessly complex, and there was no lamp post, so people said, Well, then I will not go there because I cannot see anything.
But now there is a flashlight, and it gets stronger every day. Now people say, Yeah, absolutely. That is what we need. That is why very unusual for that timsOmni technology and proteoforms that pharma invests so early in a new technology. Normally, they leave that in academia for a few years.
Right now, they are half or more of our business because they know how much they are missing and how it might benefit them to have a much deeper understanding of their disease biology and of their targets and mechanism of action, not just shooting more bullets at their target. What if it is not the right target? Or what if the target is really a mix of targets and you need to understand that in a better way?
The short answer is much more driven by customer needs and overall NMR, mass spec, other vendors, Cryo-EM or AlphaFold integration to get the best information on multi-omics structural and dynamics binding interactions in function is sort of how do we get deeper functional information. Then, okay, that wrench or that hammer over there, we could make that better and 10 times more sensitive or higher throughput or whatever it may be.
And that I think has also led to higher margin products for us because we still compete on technology, but very often we have very unique solutions that, oh my God, nobody else can answer these high impact questions.
Perhaps shifting gears to diagnostics. You all recently established microbiology and infection diagnostics as a standalone group. What does that structure allow you to do differently? How would you like investors to think about what you're doing in diagnostics more broadly?
Great, yeah. So yeah, that's a north of $500 million or $550 million business that's grown so rapidly. It had inorganic growth with the addition of the ELITech molecular diagnostics business. That's a delight. Again, this year they're placing their InGenius, BeGenius, now MyGenius PRO higher throughput systems ahead of business plan. They're growing very high single digits, sometimes above double, just into the double digits. Just like the S curve is highly non-linear, for a while, they were steadily improving their margins in the mid to upper teens, and now all of a sudden they're jumping well into the 20s. So it's a beautiful business. But overall, microbiology, infectious disease, including some other product lines, we think there's a lot of opportunity for innovation that's been somewhat of an area that was not very innovative in recent years, and innovation with impact.
The syndromic panel market and others, bioMérieux in particular, have shown how important that market is, but it's still expensive. Can we bring that into the mainstream? Can we do sepsis detection better? Can we, in some cases, by NGS or other means, do it direct from blood, things that shave off a day or two, which may be critical and life-saving or shortening the ICU time for a patient, and also improving the long-term outlook and recovery? Are there things that have a big medical impact and unmet medical need?
We just found by focusing on that area. We're not in MRD, that's a wonderful field, but we're really, really good at this, and we have a unique and pretty broad set now of tools, including some of the new NGS applications on other people's sequencers, that are really coming together where I think we're the innovation leader in much of that field. We've been enough of a niche strategy that we're not directly colliding with Roche or Abbott or Hologic, and that's good. Sometimes they need our more specific MDx tools as part of their big tender for a big university hospital because we take care of some of the long esoteric tail. Esoteric tail sounds a little underwhelming, but it's actually a nice market and has some very nice right to exist and nice margins, plus some of these new capabilities.
It's very exciting. Allow me one more comment. Longer term, having that diagnostics business that right now is microbiology, infectious disease, but so many of our protein, proteomics, lipidomic as well, and then spatial biology tools, when they grow up, some of them will be in LDTs and in regulated IVDR and FDA diagnostics. Therefore, having a diagnostics business with the experience, the regulatory apparatus that you need in Europe, in the U.S., and other countries is really very important so that we don't all of a sudden have to hand that over to someone else when maybe the margins and the sustainability of some of these today RUO proteomics or spatial biologies transition, at least in part, towards the regulated higher barriers to entry, higher margin worlds, which we think will inevitably happen, and we want to drive that and not get stuck in the RUO world.
Right. Maybe a question for Gerald. Given where we sit today, what are you seeing in terms of growth for the rest of the year in terms of the markets and some of the different end markets that Frank mentioned across the tools side of the business versus diagnostics? What's most important to understand?
I think the first point is that for us, FY 2026 has still reflected a relatively gradual recovery in the overall market. We are seeing really solid signals that many of the elements of our market are starting to really improve. I'd say probably the number one piece is biopharma for us. We saw a really strong order growth in the second quarter. Even on a first-half perspective, it was quite solid for us. I'd say in the other end markets, we've talked a little bit about semi mostly being driven by the AI demand field, but that's staggering order growth levels for us actually in the first quarter and the second quarter. So continue to feel quite solid and optimistic and encouraged about that. I think the other areas outside of the U.S. for Acad/Gov research end markets were quite strong for us.
Here we are talking about at least in the second quarter, greater than 20% order growth for us outside the U.S. and Acad/Gov. I think the other piece that is quite important for us, because we had not seen this in a more sustained way, really was China. We saw strong order growth greater again than 20% order growth in the second quarter, and we are continuing to see solid order performance in China across a broad spectrum of categories, whether it is semi, which we can still sell a limited number of products into the semi field in China, but that is quite solid. I think biopharma, quite strong. Encouragingly for us on the academic and government research side in China, also performing quite well, not only in the second quarter, but what we have seen so far thus far into the third.
China seems to be, I mean, this is a major headwind for us, especially in 2025. With a couple of quarters of good solid China order growth that will help propel. This will not drive most of our 2026 performance, but certainly help our 2027 performance dramatically. Solid on those sides.
Great. Maybe just to close it out, Frank, what is one thing that you wish more investors understood about your business?
The one thing. I think I am actually delighted that deep tech and semiconductor people now understand that better. The fusion world, the defense world, that is smaller, but it is also coming along. I think the transition of our mass spec NMR and of our spatial biology tools in how impactful that will be to have a deeper understanding of disease biology 2.0, drug discovery, and diagnostics biomarker development, how compelling and differentiated that is, I think is not that visible yet because initially some of the more late-stage biopharma and bioprocessing have been the better-growing areas, and they were underrepresented, and so other companies have done remarkably well and resumed growth earlier. I think as we come back to growth, we may well get back to the 200- 300 basis points long-term algorithm, above market algorithm for growth that we have had by maybe by 2028.
But we may also get into a hyper strong, but a very strong growth phase as we had in 2021, 2024. We're setting ourselves up for that, and if that doesn't succeed, getting to do the 300 basis points above market is a very probable scenario, but I think there's a very significant upside to that.
Okay. Great. Thank you very much for joining us.
Thank you.
Thank you.
Thanks for having us.