Terrific. Well, welcome, day 2 of the TD Cowen Global Healthcare Conference. I'm Dan Brennan. I follow tools and diagnostics. Really pleased to be joined here with me on stage, Danaher Management. We have President and CEO, Rainer Blair. Rainer, once again, thank you very much for being here.
Dan, it's good to be here. Thanks for having us.
Awesome. I, you know, I thought we'd kick it off, obviously shoot high level, you know, the quarter wasn't too long ago. Just wondering, you know, you guys gotta set the guide framework for 3%-6% this year, maybe just speak to a little bit of, you know, kinda how you're thinking about the year and how you're thinking about the guidance, then we can dig into some of the details.
Sounds great. Well, first of all, we were encouraged by our finish to the quarter, which, you know, was really a broad-based beat and showed some nice momentum here as we came into 2026, and it's really on that basis that we set the guide. If you think about that guide is really led by our bioprocessing franchise, where we see high single-digit growth for the year. Great activity levels there all around. Even there we're assuming flat equipment growth. Maybe we'll talk about that a little bit later. In life sciences, we see end markets improving to some extent, also stabilizing. If you think about pharma, we saw several quarters of growth out of the pharma end markets there.
Clinical was solid, academic and government, while that was down for obvious reasons, we saw that solidify. Biotech also is showing, you know, some improvement there as the funding flows improve. As you think about diagnostics, here outside of China, and respiratory. You know, there was 8 quarters of mid-single digit growth, and so we're really encouraged by that. If you take those, now abating, headwinds, China in particular, we see nice growth there, for diagnostics in the low single digit area. That's how we started off the year. We like the setup.
Terrific. Maybe just as a follow-up to that, Rainer, right, that's the guide, and I think myself, and I think others are kinda anchored to that 3% right now. If we think about starting at 3 and, you know, pushing into that midpoint or even the high end, what, you know, what would need to happen? How realistic is that? Maybe just a little more color on some of the drivers there.
Sure. Well, I mean, as we look at the Q1 here in particular, we do see that as the low water mark and see continued improvement here for the course of the year. What would have to improve in our view is life science end markets. For example, we wanna see continued improvement in the growth there, stability with some of the things, the noise that we had in the last year, and we do see that. In biotech, similarly, we wanna see those improved funding flows now come through and order patterning and pattern, and we're encouraged by what we see there as well. Just to say, we wanna see life sciences continue to improve here through the course of the year.
Biotechnology, bioprocessing in particular, that would be an area that if we see continued improvement even in the strength of consumables or equipment kick in a little bit stronger, those would be other opportunities for acceleration.
Maybe just kind of staying at the high level, but maybe thinking about, you know, your, you know, your higher incremental margins that Danaher has, you know, that 35%, 35%-40% drop-through. You know, how do we think about that this year with that 3%-6%, you know, in terms of the incrementals? You know, would you be able to achieve that across the whole range? Do you need to be in the midpoint of the range? You've done a nice job on earnings, but, you know, as we see this growth progress this year, just wondering, you know, how you might contemplate that.
Well, even at 3%, it really shows you the power of the portfolio here, we, with those, with the fall-through you talked about, 35%-40%, we can deliver high single-digit earnings growth, 100 basis points, operating margin expansion. I think that's notable and, should the growth come in higher here beyond the 3%-4% range, you know, we see opportunity there for further EPS expansion.
Okay. We 'll dig into some of the segments in a minute, but just gonna kinda keep high level here. I mean, the Masimo deal was just recently announced a few weeks ago. I think it was a, you know, a deal that people, not necessarily that deal, but certainly a deal. Danaher's balance sheet's in great shape, and you guys are, been really shrewd acquirers over time. It did raise more questions maybe than is typical for Danaher, I think because the headline was it's a med tech company, so that was the 1st thing that maybe stuck out, probably less well known to folks like myself. Kinda what led you to the deal? What do you think the key selling points of the deal are?
We've been looking at Masimo for 10 years, maybe more. We've admired the company for a long time, as we encountered them in these acute care settings, particularly because of Radiometer. In fact, Radiometer was our 1st diagnostic acquisition back in the day, and we've learned a lot there and seen the value of these kinds of solutions and these high acuity settings, and Masimo is really a gold standard there. We view this as a specialty diagnostic company because doctors take that information and make absolutely critical therapeutic and clinical decisions right there in these very important applications. We really like and understand that particular application and when the opportunity arose.
You know, the model that we always use is we like to we wanna see the end market and the secular growth drivers that support that. We see that here as pulse oximetry and some of the other advanced applications are absolutely critical and will only be more critical here going forward, with an aging population, with the change in how anesthesiology works here, gaseous versus intravenous. Those are really important factors in supporting the growth here for the long term and are very, very positive. Then as we think about the asset or the actual company.
Look, this is the gold standard in pulse oximetry and in some other advanced applications, with an enormous intellectual property moat, a clinical data that is out there, for over a decade that really differentiates this solution. We like that aspect as well. On the other hand, we also see a lot of value reserves. We like to see those because we can bring the Danaher Business System and our capability to the asset in order to make what is a good, very good company into a great company. That's, that's really the opportunity here.
Lastly, you know, we like the financial model discussion. Here we see a company that is accretive from a growth perspective, a gross margin perspective, an operating margin perspective, and that will provide with the synergies that we've talked about, a high single-digit return on invested capital by year 5, if not sooner. This is really, from a Danaher perspective, a traditional, a very normal kind of acquisition.
Okay. I was gonna ask a question on synergies. Maybe I'll just kind of put a bow on the Masimo kind of conversation. I think you've laid out $50 million of 5-year revenue synergies.
Mm-hmm.
$125 million of cost side. J ust kind of Danaher typically is conservative on these. I guess what some questions we've gotten is on the cost side, there might've been a lot of margin that was already squeezed out of the business. I guess what supported those or how do you feel about those?
As you can imagine, we through the years that we've known Masimo, we've seen a lot of opportunities there as well as through diligence, which was, of course, very extensive. We see of the $125 million of cost synergies, $50 million in the cost of goods sold. On the gross margin line, we see another $50 million in the operating expense line, and then there's $25 million of public company costs that won't be necessary in the future. That's how you get to the $125 million, and we feel very comfortable about that. The $50 million sales synergies, we've talked about the same call point there between Radiometer and Masimo.
Radiometer's a little stronger in Europe, Masimo a little stronger in the U.S. They're about the same size, so we see a real opportunity to level each other up there. Of course, the Danaher Diagnostics platform, that franchise is a $10 billion before Masimo, franchise, and increasingly, C-suites at IDN and other large players in the space wanna talk to us about a much broader play, and that's gaining traction, and this fits right in there.
Okay. Terrific. Thanks. We move over to the businesses, starting with life sciences. It's been, you know, increased focus for investors trying to parse out kind of what's happening given, you know, the lack of recovery, not at just Danaher, broadly in the space, right?
Mm-hmm.
Pharma spending, economic spending has been tough the last couple years. You know, so here, you know, I think you guys declined a couple of points last year. Consensus has you about flat this year. A bit of improvement, but still probably well below what you would consider normal. Maybe just give some flavor on kinda what underpins even though it's, you know, flat might not be where you wanna be, it's still an improvement.
Sure.
What underpins that improvement? How confident are you in that?
Well, first, we're very confident in that, and we do see the pharma end market improving. You recall last year, after getting through some other types of headwinds, we had the MFN discussion, and pharma held back a little bit in terms of their investments. As 1 deal after another was cut there between the administration and the pharma companies, we saw that investment confidence return, certainly in life science research, for instance, in instruments as we saw there in the Q4 , as well as in biotechnologies. We'll come back to biotechnologies. That said, we also see improvement beyond pharma. Like I said, biotech is showing more life with the improved funding flows, and we see that not just in the U.S. but also in China.
Then we see other end markets, maintaining sort of the level that they were at, clinical, for example, which was pretty solid. All in, we see the life science end markets modestly improving here, and at the same time, we're gonna start as a company to comp out of specific situations, whether in genomic consumables, as an example, where 2 large customers in particular had affected us. That's, as we move through the year, going to return to growth.
Well, you mentioned the biotech side, and we'll get into bioprocess too, but just broadly in like biopharma, we've heard a lot about even just on research spending. I mean, it's probably not that big of a part of your business, but, I mean, is that part of the calculus too? Maybe a bit of improvement there with some of the funding that's occurred or just any, you know, any more.
Well, as we think about research funding, it certainly has stabilized. If you think about academic and government, U.S. academic and government is actually low single-digit % of our business.
Mm-hmm.
It's fairly small. That said, it has stabilized. You know, these worst case scenarios that were discussed last years have not come to pass. In fact, we've seen stability there in NIH funding, but also beyond, we're starting to see university funding come through at better levels than they had here in the middle of last year. We're encouraged by what we see there, but would say from today's perspective, it's stable.
Okay. maybe it's a question on AI and kind of the impact to your life science business. You know, there's been debates. It's very early, obviously, clearly, but, like, does AI make pharma more efficient, and do they have more money to spend on the successful molecules? Do they actually do less wet lab work? Just very early on, but, like, you know, how are you guys thinking about AI from, like, the life science part of your business, and what's the opportunity? What's the risk?
Well, we're very bullish about AI and the impact that it will have in life sciences and for the pharma industry more generally. In fact, we think it's a real growth accelerator here, not only short term but definitely for the long term because it ultimately accelerates the pharma development and commercialization flywheel. As we all know, it takes billions of dollars and many years, up to 10 or 12 years, to successfully bring a new therapeutic to market, and we see that accelerating. What that means for us if we, if we step back for a second, over 25% of Danaher's revenue is in the production, so bioprocessing of therapeutics. Less than 5% is in the discovery and development of that, and I'll come back to that in a second.
If you think about that in the future, we will have more drugs coming to market more quickly. That's a really significant opportunity for Danaher that is by quite a significant margin, the largest, and broadest, supplier to the bioproduction space. We see that as very positive. We also see, of course, the larger question of AI as a real shot in the arm for the profitability and the return on invested capital for pharma companies, which have been under pressure pretty significantly there.
If we go upstream to the discovery, preclinical work, if you will, we see over time, not overnight, but over time, that there'll be more in silico work there that is going to improve the number of successful candidates going into the clinic, meaning the yield of the drug development pipeline will increase, which is another very significant positive and will improve the economics of the pharma flywheel quite significantly. We know, not only through discussions but through the few examples that exist, that that benefit is reinvested in more discovery and more development. Ultimately, we believe that this is going to elevate all boats, if you will, as the water line increases.
Okay. Maybe we'll, maybe jump over to biotech and bioprocess. You mentioned a few times here the high single-digit bioprocess guide, reflects an improvement in instruments flat, versus down double last year and kinda consumables growth, I think, at the high end of high single digits.
Right.
Maybe just, you mentioned a few times kinda, but, like, this is such a critical business for Danaher, high margin, a lot of investor focus. Like, maybe give a little color on how you frame the guide, and, you know, how you're thinking about the puts and takes, you know, as we go through the year?
First of all, consumables continue to lead the way. Commercialized drugs and drugs that are in phase III and about to be commercialized, are real. The prescriptions there are growing. Biosimilars coming to market are a clear benefit to patients as well as therapeutic volumes, which is what our business depends on. This continues to be strength that is unabated and will carry the consumables aspect. At the same time, we do see equipment, which is a smaller part of the business, think around 15% of the business, we do see that improving. We're encouraged by the fact that we've seen 3 quarters of sequential order growth. In the Q4 , we saw actual sales growth in equipment, and we're encouraged by that, and we wanna see that trend continue.
Our funnels are active, and so we're very focused on that aspect of the business as well, and we do see that improving.
Just maybe 1 more on kind of on the equipment side there. What do you think, from, you know, your meetings with companies and maybe the salespeople's meeting with companies so flat is a heck of a lot better than down high, down double digits. What do you think would get that to, like, up 5, up 10? I mean, there was a view a year or 2 ago we all live in Excel, and we could see how much things were down. Like, "Oh, there's gonna be a recovery. It's gonna go like this." Obviously, it's starting to recover now, but what do you think it would take to get that into, you know, decently positive territory?
Well, I mean, I think that there's 2 factors here. The first one is that the lack of investment in new capacity over the last 24 months has resulted in improved utilization rates in the industry. That's important because you really do need to get ahead in terms of investment in order to ensure that you can provide the therapeutics. We know from the prescription data and from the volumes that are being consumed by patients that the drug demand has grown unabated whilst there has been little capacity expansion. It makes sense to us that these utilization rates are higher. As a result of that, we are seeing our funnels improve. That's, we believe, why we're seeing the sequential improvement in our order book as well as that growth.
That trend to be sustained, and then later on, I'm sure we'll talk about reshoring. Those are all factors that can contribute to an even better result here.
Yep. Well, that was the next question was reshoring.
Mm-hmm.
I t's obviously it's a topic we're gonna host tomorrow. We have a we have a senior executive from a leading engineering construction company to speak about what he's seeing in the field from facility build-out, so that'll be interesting on kind of drug companies and biotech companies. M aybe speak to a little bit about you know, does reshoring help drive new incremental equipment demand? From what extent is it just a substitution, you're moving stuff from 1 area to the other? Just maybe give us a high-level view of reshoring, and then I can follow up with a, you know, another question.
Our view here clearly is that we are in the early days of a years-long CapEx cycle that is already underway. We see that, as I mentioned in our order book, we see that primarily in brownfield investments in existing facilities. We also see that with our CDMO customers, who not only have increased demand for our solutions but are acquiring, if you will, underutilized pharma manufacturing capacity to be able to put that to use in this reshoring effort. Again, there's really at least 2 things going on that support demand. 1 is the continued growth of the use of these therapeutics and their penetration in the market. These therapeutics work, as they become more accessible through biosimilars and other reasons, that growth will continue.
The lack of capacity investment that I talked about a minute ago, requires that there'll be more investment capacity. When you look at phase III drugs, there are many viable drugs there that are going to require further capacity increases. Now on top of that, you add the reshoring effort that is underway for also national security reasons. This is not just a economic question in the United States. It is a national security question in the United States. These investments are coming, and it's just a matter of time as they catch up.
The brownfield investments that are starting to occur now will continue, and they will continue to accelerate, and then we will see these reshoring investments coming to us in the 18, 24, and 36 months, depending on how much of it is greenfield and otherwise. A years-long investment cycle ahead of us.
You guys haven't framed at all or provided any color. Would you do that at some point in 2026 in terms of as orders start to come through? You told $400 billion of announcements from the big pharma companies, but it's not just all CapEx. There's a lot of things in those numbers, right?
That's right. We do wanna provide that clarity, and that clarity will be based on the order book and actual data.
Mm-hmm.
As opposed to is, u nderstandably, it's very difficult to parse through these investment announcements. The timing differs, and of course, the plans sometimes change.
Mm-hmm.
It is coming nonetheless, and as we have greater visibility to that with more specificity, we'll provide that transparency.
Maybe just 1 follow-up there. Obviously, the Supreme Court shot down Trump's, you know, tariffs, and he's gonna work around that and try to figure out ways. I know our pharma analyst caught up with a couple of his companies, and they're saying no change on the reshoring, no change, you know, 'cause if the tariffs go away. I don't know. Is there any early color your team has heard from any customers? Is that the message, or is there no message yet 'cause it's still too new?
In my discussions with pharma CEOs and they've been very frequent and very recent as last week included, there's no change to these investment plans. These plans are driven as much by the tariff aspects that are maybe a bit in flux but ultimately result in similar types of levels as they are with the fact that there's an agreement with the U.S. government to do this in relation to Most-Favored-Nation pricing and so forth. There are deals in place here that will be respected.
Okay, great. Maybe just on consumables for Danaher. You know, you guys are the leading player in the market certainly by size and across a lot of the continuum. How do you think as the biggest player gives you a lot of scale and benefit but also subjects you to maybe some share loss 'cause there's a lot of smaller players coming after? How do you think you stack up on your bioprocessing consumables portfolio versus the market? Hold share, gain share, lose share?
First of all, these share gains and losses, these would be things that take a lot of time. This is not a incredibly fluid market in terms of share changes. That's just not the case. When we look at our share position, we think that it's improved, not by enormous magnitudes, but in some areas quite significantly. As cell culture media or single-use technologies come to mind, just as a data point, cell culture media grew, you know, over 20% here in the Q4 . These are areas where we believe that we're gaining share. In other places, we're probably holding share. You know, an area that we view really as a great opportunity is the filtration area.
Pall, now part of Cytiva, is a powerhouse in material science and is now launching its next-generation filtration solutions. We actually have a relatively small share in filtration. We really see this as a big opportunity to level up with our share position, in other places in the bioprocess workflow, and we're looking forward to that.
Terrific. Maybe just 1 on China. You know, historically was a, you know, contributed to bioproduction growth. Given all the back and forth, what's happened there, you know, it's hard to catch a trend, and there was certainly a contraction. Now with the resurgent biotech sector, wondering what China's contributing to, you know, bioprocess these days.
We're seeing growth in bioprocessing in China, and we expect that to continue to accelerate here in 26 off of what was previously contraction. That's really driven by increased biotech activity there, where China has found new means of monetizing these drug developments, primarily through licensing, but also increasingly through going public there in the Hong Kong Stock Exchange. That really has added a significant amount of fuel to the China drug development flywheel. We also see that in the number of clinical trials that are ongoing in China. Quite significant increase here over the last years. We're the largest player in China. We increasingly manufacture our solutions there locally. We are highly competitive, not just with multinationals, but also with local players there.
Our customers really enjoy working together with us to help them develop these molecules and ultimately bring them to market, not just for China, but also to have that capability and the credibility to market those drugs outside of China.
Terrific. We have about 5 minutes left. We'll jump over to maybe diagnostics. You guys have sounded very confident on that China drag which you've baked into your guide-
Mm-hmm
being pretty visible, and you feel good about that, you know, eventually lapsing this year to $75 million to $100 million. Maybe just speak to a little bit the visibility there 'cause, you know, we've heard rumblings in the December timeframe there could be another round of VBP or so just, you know, what are you hearing on the street there and, you know, should this be hopefully the 7,500,000,000 will be the right number?
We're not hearing about another round of Volume-Based Procurement or DRG changes, but what we do see is that very methodically, the provinces and the federal government are sort of cycling through the various diagnostic tests, just like they did when they started in pharma, then med tech, and then diagnostic tests. The great majority of our tests have already been part of that regimen, and we have the great majority of that behind us, and that's what gives us the confidence to limit the further impact to the $75 million to $100 million that you mentioned. Now what kind of things are they working on now? Well, dry reagents. As an example, people talk about those. We do not have dry reagents in China as an example, or specific oncology tests, esoteric tests.
We're really not involved and exposed to those. There might be players out there that are still in that part of the regimen, cycling through the various tests, but that's not the case for us. We're really looking forward to getting through the end of this year. We'll already see in the H2 the comps starting to improve. We already saw in the Q4 that type of thing playing out with the comps, so we're quite confident that we have this dialed in properly. We're seeing the patient volumes, you know, continue to be very strong. There's a need for these diagnostics, and we're looking forward to continued progress here.
Great. Cepheid's been, you know, tremendous deal for Danaher, right? Taking it from where you, where it was, the profitability improvement, and then the growth that you've had, not just COVID, but on the base business. Kind of sitting here today, kinda what excites you about Cepheid going forward, and, you know, what type of growth do you think we can expect there?
Well, Cepheid, I would tell you, early days.
Yeah.
We're just getting going. You saw the launches of our syndromic panels. We didn't really talk about it as much when we launched the 4-in-1 because it was so much part of the pandemic discussion. We have the MVP syndromic panel, which is really moving in the market very well, introducing us to new care settings and women's health. Now we have the GI panel, another syndromic panel. This is really exciting because now we're moving into the different plex market, and that's opening up a much larger addressable market for us. You know, this is an amazing part of the Cepheid strategy that we've executed. You know, we're well over 60,000 installed base now.
We already fully half of that installed base has the higher plex capability so that we can seamlessly implement these syndromic panels in the market. The other half, we've been able to develop the system such that we just literally pull the module out, put in a new module. You don't have to make any other changes, and you have now enabled your installed base to take on this entire syndromic panel play. We're really in the sweet spot there. Turns out that as you speak with clinicians about high plex, so 50, 70, 100 different plex, that they're actually not so keen on moving forward with that. It's actually a little bit too much for what they need from a clinical value perspective.
We've dialed into the sweet spot here with this plex of about 10, 12, and we expect a lot of growth to come out of that. Continued innovation at Cepheid. You know, this non-respiratory side of the portfolio is growing at double digits, and we expect that to continue in a really strong way.
How much could this new higher plex market add to the growth rate of assuming the base business keeps doing what it does?
Well, it's early days here.
Mm-hmm.
Let us get through more launches, but expect to see more and more launches from us. There's no doubt that this fortifies our position, makes us more and more attractive, on the clinician's bench top, and that we will consolidate, not just share, but really open up new applications for us.
Terrific. Maybe we'll try to sneak in 1 on the balance sheet too. You did the Masimo deal. You're working through that. Is it fair to think you wouldn't undertake another deal while this 1 is in the midst of closing? I mean, you have the capacity, I think, to do another $20 billion+ , but how do we think about that?
Well, we're always in the market looking at the next transaction that fits our strategy and our 3-dimensional framework that I often speak to. With this Masimo transaction, we'll sneak over just 2 turns in terms of our EBITDA debt ratio, and we feel very comfortable that we would still be in a place where we can execute another deal.
Well, maybe I'll let you wrap it up then with a, with a few seconds left here. Rainer, it's been a great discussion. What's the message you wanna leave investors with today?
Well, I would tell you that Danaher is, you know, transformed in its portfolio. Our businesses are highly attractive. We're really in the most attractive end markets here in the healthcare sector, and you can see that by the kind of margins that we generate, that 35%-40% fall through is so incredibly important. Even at growth rates of 3%, so the low end of the guide, the power of that portfolio and our earnings capability and our cost discipline allows us to deliver high single-digit EPS growth, and operating margin expansion of 100 basis points. You combine that with our ability to acquire assets, Masimo just being the latest example.
You know, we really do see, the LRP as well as double-digit, earnings growth, as a part of our future.
Terrific. Well, thank you very much for being here, and have a great rest of the conference.
Thank you.
Thank you.
Appreciate it.
Thanks, Rainer.