Okay. Are we good to go? I think we'll kick it off. Welcome, everybody. I'm Tycho Peterson from the Life Science Tools at Jefferies. I'm pleased to have Rainer Blair with me from Danaher. Maybe, Rainer, to kick it off, we could just start talking a little bit about 2026, coming out of 3Q, and you laid out an initial framework, 3%-6% range for core. Maybe just talk about some of the gives and takes we should be thinking about as we think about the setup for 2026.
Sure. Tycho, I mean, let's start with the third quarter, which I think bears some important information. You know we beat the third quarter on the top, the bottom line, as well as in cash flow. With that, ended up a little bit ahead of where we thought year to date, and have taken really those beats and are reinvesting those in additional productivity investments here in the fourth quarter to set us up nicely for 2026. I think the other point that's important here is that when you look at our third quarter, with a core growth of 3%, we delivered 10% plus of earnings per share growth, which gives you a sense of the earnings power of the portfolio, the discipline of the Danaher business system, that even at growth rates of 3%, we can deliver that kind of earnings expansion.
I think that's an important message. Now, having said that, if we back off and look at the markets here for a minute, we are in an improving but not yet normal operating environment. It's in that context that we have ring-fenced the growth expectations for 2026 and the 3%-6% that you mentioned. I'll talk about the individual markets in just a minute. It's also important to note that we're talking about high single digits plus EPS growth, even at the low end of that range. I think that marks the third quarter as the beginning of that marker for 2026.
Maybe just thinking about some of the variables, I think there's China, there's bioprocess equipment, there's obviously academic and government. Can you maybe just talk through each of those?
As we look at then that growth rate, 3%-6% for next year, how do we need to think about that in terms of our segments? If we look at bioprocessing, for example, we see that to be high single digits. That is, again, driven primarily by consumables growth that we have seen here throughout 2025 and continuing. That is supported by commercial drug volumes that have continued to show very nice growth and, of course, our very strong position in those. As a reminder, 90% of monoclonal antibodies are supplied by Danaher. 75% of Cytiva's bioprocessing business is tied to monoclonal antibodies. That is really what drives the train there.
We have also included an assumption that our equipment sales, and keep in mind we're the largest equipment player in the market, will be flat in that 2026 bioprocessing assumption for a total of high single digit growth. If we look at the life sciences, here we've really not assumed a significant end market improvement. As you know, there's a fair amount of noise going on here, even in the fourth quarter with the U.S. government shutdown, which thankfully is now behind us. As we look at other markets, we expect those to essentially remain the way they have in 2025. For us, we expect a bit of an improvement as we comp out of some of the headwinds we had in our life science consumables businesses. Lastly, if we think about diagnostics, diagnostics in 2025 was quite impacted by volume-based procurement reimbursement changes.
We'll start getting to less of an impact here in 2026. We've talked about $75 million-$100 million of impact through as that continues to play out in 2026. Put that into proportion of a $24 billion-$25 billion roughly revenue company, so you can see the impact of that starts to wane. Lastly, for diagnostics, I think it's important to know that for the respiratory market, we're assuming essentially the same endemic rate of testing that we expect here in 2025.
Maybe just thinking about bioprocess for a minute, just curious about kind of the order trends, visibility, where you're feeling a little bit better or worse. On the consumables, obviously, you've got cell culture media, single-use chromatography, all doing well. I know you're a little bit still cautious on equipment. What would it take to call a turn there too?
As we think about consumables, let's start with that. We're growing at mid-teens. We're very happy with our growth there. We're clearly taking share in certain categories. Single-use technologies comes to mind. Cell culture media comes to mind. We're also growing very nicely in resins. What we see in filtration, really, is there a real opportunity or there is a real opportunity to increase our share over time. In fact, that's one of the areas we have a lower share, and we see an opportunity to level up there on the consumable side on filtration. Now, as we think about equipment, as I said, for 2026, we're assuming flat growth. That's after a year of decline here in 2025. We expect that to level out. We have seen in the third quarter sequential orders growth in equipment.
We anticipate that Q4, as we said previously, would likely be similar. Yet we've been somewhat conservative here as it relates to the next year on the equipment returning. We believe that equipment will return, and it's a matter of the timing. The reasons for those are twofold. One, there has been a slowdown in equipment investment here over the last two years while the underlying market has grown quite significantly, as evidenced by the consumables growth. Two, we see and believe that the reshoring efforts will happen and continue to gain speed over time.
How much of the view on equipment is waiting to see how the fourth quarter shapes up versus maybe the first half of next year? Also, maybe just remind us how much of that is replacement versus greenfield.
Let's start with the second part of that question first. While there are replacement investments, as you would expect in any sort of production environment, for bioprocessing, replacement investments are not really the main driver of equipment orders. It really is capacity expansions that drive the equipment order book. That's important because as we're the largest and broadest supplier of bioprocessing equipment, as we see that secular growth start to re-accelerate here over time, we feel that we're very well positioned.
I have a handful of questions on reshoring. Before we jump into those, I guess, is there anything on the bioprocess equipment side that would indicate maybe a little bit of a slowdown as pharmas kind of rethinking where they want their footprints?
At this point, and having traveled extensively, as so often, and really engaging with our customers at the highest levels, our belief is that our customers have accepted and are starting to move on the fact that most favored nations is playing its way out, that there are workable solutions here. With those solutions and those deals also come these commitments to make reshoring investments. We believe that those are happening slowly but surely, smaller investments first. That is probably a little bit what we see in the order book. Over time, these larger investments, they just take longer to plan and to execute, will come into play into years 2027 and beyond.
Another question we tend to get pretty often is just how much is incremental? What's your take on that from talking to pharma execs?
Our belief is that the investment in reshoring is incremental. What at this point is unknown is to what degree it is incremental. The reason for that is simply that we have had a slowdown in equipment investment here over the last several years, while the activity levels have remained to be high. It is just a matter of time until the demand requires additional capacity. There might be a little bit of catch-up in that on top of the reshoring activity.
I think you noted on the 3Q call that the pharma tone has improved globally, right? It's not just U.S. and just onshoring. Maybe just talk a little bit about the global footprint and how much is CapEx versus R&D. Let's talk about the different buckets for you guys.
Sure. We do see that the environment in pharma and the investment environment is improving. In fact, we've talked all along, whether it's in life sciences or in bioprocessing, that our pharma business is growing. A couple of things of note here. We see in China a great deal of innovation going on. Not me too, not me better, but new to the world compounds and many more licensing deals happening with the pharma industry, providing biotechs and pharma companies there a monetization avenue in addition to going public there in the Hong Kong Stock Exchange. That has developed into a new dynamic there in China. As a result, we've seen some of that benefit by returning to growth here in bioprocessing in China.
As we think of then the investment book in other parts of the world, we see a clear trend towards investing in advanced technologies here, advanced therapies, and those will likely continue here. We expect that the pharma investment environment will be supportive here over the next several years.
I guess kind of given some of the gives and takes here, you've got VBP, you've quantified the headwind, obviously, for 2026, less than this year. You've got maybe some stimulus flows. Talk a little bit about what we should think about for China, underlying China growth for the next couple of years for you guys.
For China, the fall is how I would characterize it the following way. If we talk about life sciences or life science business, there has been solid. It's not at previous activity levels, but it is solid and moving forward. We do feel and see some of the stimulus investments occurring and playing out there. As we think about bioprocessing, I just spoke of how bioprocessing has picked up and returned to growth here in 2025 on the basis of a better biotech environment with the monetization opportunities. Then there's diagnostics. Diagnostics, of course, has in 2025 offset some of the growth of the other two segments. That's been related to the volume-based procurement playing out quite significantly along with the reimbursement changes. We expect that to be quite a bit lower.
Recall, $75 million to $100 million is how we've characterized that headwind on the one hand. On the other hand, we do see volumes starting to solidify. Patient volumes, testing volumes are starting to show stabilizing. We would expect those to return to growth as the demand for healthcare not only remains unchanged but continues to increase in China, part of the reason why China has been so aggressive in addressing the economics there. Over time, we would expect China in diagnostics to return to growth, probably not the type of growth that we saw the last 30 years, but still growth that contributes to the fleet average.
Are there changes you're making proactively to the business in China? I think Beckman are going to be making all equipment and reagents in China by the end of the year. Are there other things you can kind of point to?
We are very clearly ensuring that we not only remain, but advance our competitiveness in China. Beckman Coulter, Tycho, as you just mentioned, will be fully localized both in hardware as well as reagent manufacturing. The supply chain will be local and secure in China for the diagnostics business, the majority of that diagnostics business. In addition, of course, we're very focused on the pharma companies and biotech companies in China as they are not only innovating for China, but they're innovating for the world. That's an important part to play that we have there.
Maybe we can shift over to life sciences and just thinking a little bit about the flattish outlook you laid out on the call. You've got the omics, you've got Pall, you've got instruments. Talk about the various gives and takes for that business.
Essentially, we've not really assumed a significant end market improvement for life sciences in 2026. What we've seen, of course, is particularly the academic and government business was down here in 2025. As a reminder, for Danaher, overall, academic and government is less than 5% of the business. Nonetheless, in our life science tools area, about 20% is exposed to academic and government. As such, that particular segment is down. We expect that to at least be stable here in 2026. As we then look to our other businesses in other end markets, pharma has been growing for us in 2025. We expect that to continue in the life science tools area. The clinical business, where we support LET customers and CLIA Labs, we expect that to continue to be solid. Lastly, the applied markets are also doing well.
I want to call out our leading position in PFAS there where we are a standard and our methods are very important to the overall testing industry.
Can you maybe just touch on innovation here too? I know you do not tend to get a lot of questions on it, but just talk a little bit about what you are most excited about on the life science side.
We have continued to invest very significantly in innovation. Every quarter when I'm on the call, you see me talk about those innovations. As you mentioned, not as many questions on those. Nonetheless, we have launched here the 8600 ZenoTOF, a very important mass spectrometer that really gets you more proteins, quantifies those proteins at a much better price-value relationship. We see in our funnel interest picking up in that particular launch quite significantly. As the investment environment improves, we would expect that to accelerate. We also have our Mosaic Spectral solution. That is for flow cytometry. That is a great innovation because you can now have spectral flow cytometry without having to buy a new flow cytometer. You can attach this to an existing installed base. Once again, as the investment environment picks up, spectral is used more in the research side.
We'll expect that to take hold. Cytiva VT, that is a cell colony picking solution which uses AI-enabled algorithms to accelerate the picking of the all-important cell lines that ultimately produce high productivity, high-yield therapeutics.
Maybe just to close out on life sciences, on the omics business, just touch on Aldevron because I think the business outside of the two customers that get the most attention, Moderna and Sarepta, is actually starting to recover. Talk a little bit about that.
That's right. We continue to work on Aldevron. As you've said, we've been lapping now the reduction in demand from two customers. In the rest of our book, we're starting to see growth. We would expect as we comp out in the first half of next year to continue to see improvement in the Aldevron business here in 2026 and beyond.
Obviously, long history of M&A at Danaher. Talk a little bit about what that framework looks like today, any lessons learned from recent deals. It's been a little while since you've been active. Abcam was two years ago. Talk a little bit about current environment.
Our capital allocation bias remains M&A. We view that as a means of creating outsized shareholder value as well as to strengthen competitive positions as we define our strategy. That continues to be our bias. It is also clear that we are going to stick with our framework, which is we have to like the end market, and it has to be a key part of our strategy. Two, we want to see an asset there that has value reserves where we can add value and make a good company a great company, or a great company an even better company. That is a key element of our playbook. Lastly, of course, the financial model has to work. The hurdle rates are higher in the current interest rate environment. That is why we make sure that we stay within that framework.
Now, that said, we've also done some share buybacks. That very clearly evidences our discipline in looking at the relative ROIC of an investment. If buying our own shares and our own great company, which we have a ton of confidence in and we know very well, returns a better ROIC, then we'll do that. That is not a programmatic approach. That is merely an approach to take when other alternatives are not as attractive. Lastly, I'll say look for us to do more transactions such as Pall or the GE Biopharma business or Cepheid, IDT. I'd also put Abcam in that camp. These are all companies where we saw value reserves. We can apply the Danaher business system to in order to ensure that there are several levers that we can move to create long-term value. We expect that at Abcam as well.
We're making great progress there.
How about on the services side? Has your view of kind of doing more on the service side changed over the years? As we think about onshoring, obviously, there's an opportunity in the CDMO space. How do you think about being more of a full-fledged service provider?
I mean, from our perspective, we really like product-related businesses. We know them very well. We're very strong on the innovation side, as I just recounted. We like creating proprietary positions with our innovation and ultimately to drive value down that path. We are not focusing on pure-play services businesses because we just like our margin profile, our growth rates. We like also running businesses that we're very familiar with.
You mentioned Abcam a minute ago. Maybe just talk about, I mean, you've obviously got the pharma piece and academic piece there. Talk a little bit about how you think about the growth rate for that business, where do margins stand today. Obviously, one of your competitors is changing hands there. Does that change the market at all?
That was.
AppCam.
In Abcam, we could not be more pleased. It is clear that we have to start with Abcam as 60% exposed to academic and government. There is a little bit of a headwind on that side of the portfolio. What we see is nice growth in pharma. We see nice growth in recombinant protein. We are fixing the topics, the task list that we developed in due diligence and making real progress on that. In fact, our operating margins are up 500 basis points since the time of acquisition. We are very confident that that is an asset that over time and as some of these academic and government headwinds wane, returns to a high single-digit kind of growth.
Maybe we could just spend a minute on diagnostics. We touched on kind of the China dynamic. Maybe just talk ex-China and maybe ex-respiratory, just how you're thinking about where you could see an improvement on the diagnostic side.
We're very happy with the prospects of our diagnostic businesses. If you take out China, we have been growing in the mid to high single digits the last six quarters. That's important. If you look at Danaher overall, about 90% of our business is outside of China. If you look at diagnostics, that ratio roughly holds the same. What we see then is that our strategy at Cepheid to drive the non-respiratory business is really taking hold. We see low double-digit growth there in the future. As the respiratory business becomes a smaller part of that mix, the Cepheid overall growth rate, of course, improves. If we think of Beckman Coulter diagnostics there, we're just at the beginning of an innovation cycle. We've just launched the DXI 9000.
That's a differentiated high-resolution immunoanalyzer that allows us to do assays which previously were not available on immunoassay analyzers. For example, if you think of the FastTrack designation we received for our early-stage Alzheimer's assays, that's possible because of the high-resolution capability. As that assay comes through, that'll be incredibly important to pharma companies who are now developing treatments for early stage. That's important to us. We're just in the early innings of that particular platform taking hold. It's going very well along with several other innovations at Beckman Coulter. As I think about Leica Biosystems, we're leading the charge there in anatomic pathology that is AI-enabled with digital pathology. Here you see AI-enabled algorithms helping pathologists to make even more accurate diagnoses.
That's required because the new generation of therapeutics, if you think of antibody-drug conjugates, for example, require a different level of diagnosis than heretofore. That technology driver is pushing through the AI-enabled digital pathology where we're a leader. There are a number of press releases out there where we are collaborating with the largest pharma companies in order to bring that to reality and to patients. I'll mention Radiometer Blood Gas. It's such an important thing in the emergency departments. That's a company that continues to grow in the mid, more high single digits here. We continue to see that occurring in the future. You can see I'm pretty excited about the diagnostic side here as that comes together. That's a $10 billion franchise, which we believe over the long term is differentiated.
Lastly, I'll say we are really transforming our diagnostics business from a company that focused on lab efficiency to one that provides important clinical content and lab efficiency. You'll continue to see us accelerating the launch of new assays going forward.
Is it fair to say the focus still remains on distributed content though as opposed to CLIA centralized testing?
Correct. What I've been speaking of right now are really the assays that you, hospital or at the point of care, you would run on our instrument solutions.
Maybe just one last one in closing. You've talked on a three-week call about kind of driving more leverage across the portfolio. I think you've now got a key account, Salesforce, going to market as Danaher. Maybe just talk a little bit about that strategy and how much of a focus that is.
We do. We are finding again and again that customers really appreciate when we show up in a coordinated fashion at the right point of sale, if you will, with our customers. That is the case in life sciences. That is certainly the case in bioprocessing where integrated solutions are so important. Increasingly, that is also important in diagnostics where large customers and hospital chains really appreciate that Danaher has a not only full but differentiated portfolio of solutions.