Okay. Well, welcome everyone here in Toronto, and I guess we've got a good group as well on the webcast. Thanks for making the trip. Safe harbor, not going to read that, though I do want to point out that I'm probably going to be making some forward-looking statements here. Actual results may differ materially from these statements, so make sure you check out the slides for more information, especially the folks who are online. Okay. The agenda. What we're going to do is we're going to have Tom Joyce, one of our EVPs, kick off the day for us. He's going to introduce all of the presenters so that you guys get a chance to see who they are. We won't go through the introductions again each time.
Then what we're going to do here is we're going to go through all the pre-sales, and we'll bring everybody back up at the end for a Q&A. Just save the questions, if you will, for then. After we wrap on the Q&A, you can see there's a couple of things here. We've got four different lab tours set up around the building here. On the back of your name tag, it's got the start of your tour location. We're going to ask everybody to go to the cafeteria. In the cafeteria, we have a staging area. Look for your number there. There will be a lead person there. We'll grab everybody in the cafeteria, take you to the tours.
You'll get to see all four of them in succession, and then we're going to bring everybody back to the cafeteria, load up your luggage on some buses, and we're going to head downtown and go to a couple of different customer sites. Again, on the back of your badge, you've got a one or a two that'll designate where you're going to go for the customer visits. If you could try to just grab your bags and find the right bus, we'll get you downtown for some customer visits. Then after dinner or after the customer visits, for those of you who are staying, we've got everybody here, the presenters, as well as Larry's coming, and we're going to have a dinner downtown tonight.
That's the run-through of the day, and with that, I will hand it over to Tom, and he can introduce the team.
Thank you, Matt, and let me add my welcome to all of you. Thank you very much for making the trip here to Toronto to join us today. Before we get started, I would like to introduce the rest of the members of our leadership team, those who you will hear presenting over the next hour or so. Maybe if the guys here in front would just stand up for a minute. First off, on my right here is Matt Trerotola. Matt is one of our group executives at Danaher. Matt has responsibility for our life science businesses. Matt will be talking to you about those businesses today. Many of you may recall Matt. Matt was our group executive in charge of the product identification platform over the last four years, and during the course of the beginning of this year, has taken responsibility for our life science platform.
You will also be hearing from Rainer Blair. Rainer is President of AB SCIEX, our host here today. He has done an outstanding job over the last 18 months as you will see, and I think what you will hear about today is the fruits of his labors and his team's labors over the recent timeframe. Finally, Dave Hicks is here today. Dave has been with AB SCIEX and its corporate predecessors for the last 18 years. Dave is a Vice President and General Manager with responsibility for product management across a multitude of our vertical end markets. So you will be hearing from each of these folks during the course of the day today.
While many of you may perceive Danaher as a relative newcomer to the life science and diagnostic space, we have actually been at this a while, approaching the better part of a decade in building what we believe is an outstanding position of industry leadership across life science and diagnostics. That industry leadership position really has as its foundation a terrific portfolio of products and brands that you will hear more about today. Those products and brands we believe are really well-positioned in the fast growth segments of both life sciences and in diagnostics. We look at fast growth segments in terms of both applications as well as in terms of products and technologies. In life sciences, for example, we think about our strong position in stem cell research.
Stem cell research, a well-funded segment of the life sciences, where investigators are continuously probing the secrets to challenging diseases that range from cancer to macular degeneration to the recovery from terrible spinal cord injuries. We look at investigations around proteomics and metabolomics, the investigations of the basic functions of the metabolism associated with drug discovery, for example. In technologies, we are well-positioned in some of the fastest-growing segments from a product perspective. You will hear about our Leica business and its position in confocal microscopy, here at AB SCIEX in mass spectrometry, and in Beckman Coulter, in our life science business, in flow cytometry. Diagnostics, particularly with the addition of Beckman Coulter, has become a very significant portion of the portfolio. Diagnostics represents, in vitro diagnostics represents just 2%-3% of overall healthcare spending and yet informs anywhere from 60%-70% of ultimate treatment decisions.
Plays a critical role ultimately in patient outcomes. Specifically, we have terrific positions in cardiac-related diseases and in cancer. Unfortunately, the two largest causes of death in the U.S. today. Our technologies range from immunoassay technologies at Beckman Coulter and Radiometer to immunohistochemistry at Leica Biosystems and acute care positions at Radiometer. Our businesses have an outstanding global reach. Many of them, when we acquired them, came with a strong global footprint. But through investments that we have made, particularly in the emerging markets, you see now emerging markets become a significant portion of our overall growth, in excess of 40% of our 2011 core growth coming from those fast growth market segments. Investments in innovation have long been a cornerstone of many of our businesses, but we continually take those investments up to new levels.
Now in excess of 7%, driving new products, and many of those new products you will see and hear about today at AB SCIEX. But beyond AB SCIEX, those investments are paying off at Leica in terms of the new SP8 platform that Matt will tell you about, at Beckman Coulter with a terrific new platform, the AU5800 Series, and at Molecular Devices, the new IonWorks Barracuda series. We believe today that this leadership position across life science and diagnostics is unrivaled. We access a very large market today across the platform, in excess of $36 billion, with great long-term growth prospects. You see the balance there between instrumentation and consumables, and we will break that down for you in a little bit more detail in a few minutes across the two sides of the platform.
At 8.5% operating margin in 2011, that is an operating margin, obviously, somewhat diluted, had some noise in it relative to the Beckman Coulter acquisition. When you strip away some of that noise and you look at where we were, say, in the first quarter, you would see a 13% operating margin across the platform, and obviously, we see that increasing over time as we gain traction in the newly acquired businesses. We participate across a market that spans hospitals from the large clinical central lab of the hospital all the way to the point of care, say, at the emergency room, for example. In large reference labs, both reference labs focused on clinical diagnostics as well as in the applied markets. Government and academic research plays a significant role in our customer set, as does a wide variety of applied market customers, ranging from food and beverage to pharmaceuticals and forensics.
Each of our brands, and you will learn more about these today, hold number one or number share positions in their relative markets. Here for the first time, we give you a look at how to think about the platform really in two different segments. Matt will spend some time here in a few minutes talking about the life science tool segment, anchored with brands like Leica Microsystems, AB SCIEX, Molecular Devices, and now what we are referring to as Beckman Coulter Life Sciences. We have taken the Beckman Coulter business and really formed two separate Danaher operating companies, one uniquely focused on the life science market, roughly an $800 million business. And secondly, the larger portion of the business, our diagnostic business that we will refer to as Beckman Coulter Diagnostics, a roughly $3 billion leading position in in vitro diagnostics.
You see the differences in the volume associated with these businesses. Perhaps what's even more notable is the difference in our life science business being more of an instrumentation business, admittedly one with a growing consumable stream, and our diagnostic business, one with a very strong consumable stream associated with that legacy installed base of instrumentation and a base that continues to grow day in and day out. When we think about how we win in these markets, we think first about the key elements of winning, building competitive advantage in life science. Certainly, we have strong brands, as you would have just seen. But really the focus of our investments are around innovation, an innovation that really drives increased levels of performance, ultimately that help in an end user's workflow.
Those solutions, as you'll hear more about today, tend to be complete solutions, end-to-end solutions that help not only in terms of the instrumentation and the consumables, but the software that ultimately leads to an ease of use that creates competitive advantage. Our low-cost region position, where we've moved an increasing amount of our manufacturing footprint, also helps us from a cost position in driving improvement investments in R&D. You'll see that a bit here in a few minutes when we talk about the AB SCIEX story. In our diagnostic business, we have an extraordinary range of instrument. Some of the breakthroughs in the innovation investments that we've made over the last number of years. We think about the investments at Leica Biosystems and the improvements that have yielded the enhanced performance of the BOND-III immunohistochemistry platform.
We think about the investments that we've made in the AQT90 FLEX platform, the investments at Radiometer that have yielded a breakthrough technology for applications at the point of care. Finally, like in our life science business, integrating those instrumentation solutions with software that allow for an extraordinary level of ease of use, and ultimately make for an answer to the ever-increasing pressures of a lack of skilled professionals in those diagnostic labs have added to the competitive advantage that we bring through the solutions of our businesses. Our businesses today have a strong foundation that comes from an array of macro drivers. These cut across both our life science and diagnostic businesses. The evolution of life science research has created a situation where end users are constantly looking for higher levels of performance. They're looking for us to help them push the boundaries of research.
As a result of that, competitive advantage accrues to the innovators. I think you'll see that innovation today as we go through the new product platforms here at AB SCIEX. Increasing investments in preventive and predictive medicine are continuing to drive our diagnostic businesses. This obviously yields not only increased volume, but ultimately reduces the cost of treatment and helps to address the ever-pressing challenges of healthcare costs here and abroad. Increasing regulatory oversight is present across our businesses, and this can oftentimes create demand, where regulatory oversight, say in the example cited here, like in food or water testing, actually adds to the needs for higher levels of instrumentation and new test kits. At the same time, regulatory oversight and increasing regulatory demands can raise the bar.
It raises the bar for all the competitors in the market, and ultimately, those that clear that bar consistently are the ones that win in the marketplace. Healthcare expenditures continue to be a driver for our businesses in the emerging markets. One example of that is the investments that are going on in China today, particularly in the tier 3 hospitals, and now increasingly in the tier 2 hospitals as we see a growing demand for higher levels of sophistication in the instrument bases used in those facilities. Finally, new solutions. New solutions that address, as I mentioned a few minutes ago, that search for skilled labor, that scarce resource that are the skilled professionals in those labs today.
We believe that our solutions in investing in software, in automation, and ultimately in ease of use are the secrets to competitive advantage in addressing that key driver in the market. Our end-user markets, as you heard a minute ago, are diverse in their nature. Our life science businesses tend to concentrate on the left-hand side of these circles in government and academia, in pharma and biotech, and in reference labs, particularly in the applied markets. Our diagnostic businesses obviously focusing much more on hospitals and large clinically oriented reference labs. In many cases, these customer sets actually overlap to some extent as we see investigations and research coming out of the left side of this continuum and moving increasingly into applied clinical applications on the right side.
Many of you have inquired in the past as to how our business splits out across clinical research and applied markets-related applications. You see that split here, and we've taken the research segment and split that out further to give you a little window on our exposures from an academic versus pharma and clinical perspective. As you see there, our government-funded and academic-related research business is roughly $1 billion. So a broad customer base and an outstanding portfolio of products to serve that customer base today. Finally, I wanted to give you an update on Beckman Coulter. We are thrilled with the progress that the team at Beckman Coulter has made over the last number of months. We are approaching the first anniversary of the close of that transaction.
It seems like longer than that, given that I think the transaction was announced in roughly the beginning of February last year. But since then, the team has just done an outstanding job. We've seen continued improvement month-over-month, quarter-over-quarter in customer retention and win rates, and now low single-digit revenue growth in the past two quarters. Margins continuing to improve with terrific work, not only in the restructuring of the business into the two different operating companies I mentioned earlier, but reducing non-customer facing G&A costs, improving the efficiency of our supply chain, and in turn, reinvesting those funds in growth and investments both commercially and in innovation. Resulting, however, despite those investments, in a first quarter EBITA of 16% and 20% EBITDA, the best first quarter since 2006.
The priority of the business throughout those levels of improvement has continued to be a relentless focus on quality. Not only product quality but ensuring that our quality systems and the remediation required in some of those systems and processes continued unabated. We were very pleased to announce back in February that we filed with the FDA for the return of the troponin assay on the Access platform. As recently as last week we announced the filing of that troponin 510(k) for the DxI platform with the FDA. So very exciting news for our customers as it relates to troponin. On the quality systems side, we were very pleased with the outcomes of recent re-inspections of our Brea and Chaska facility, Brea, California, and Chaska, Minnesota. In both cases, those re-inspection yielded zero 483 observations from the FDA inspectors. So an outstanding outcome in both of those facilities.
Operationally, we've continued to drive improvements in service, reducing past due scheduled maintenance calls, as you see here, and a significant reduction in unscheduled service calls, representing the kind of improvement that we're making in real product quality, the reliability of those products, and the resulting uptime. Finally, some very exciting news that just became available last Friday and will be released today publicly. We received the approval from the FDA for a new assay known as phi or PHI, Prostate Health Index. This is a simple, non-invasive blood test to improve the diagnosis of prostate cancer. This assay is 2.5 times more specific than the well-known PSA assay that you may be familiar with today. The ultimate result of this is we believe we will see a reduced number of biopsies and improved diagnostic information provided to both clinicians and ultimately to patients.
Some very exciting news for the team, and I know they're thrilled to have that announcement made public here today. As we think about Beckman Coulter, we see tremendous traction across the board. Internally, certainly tremendous levels of improvement, but I think what's most important is customers are seeing the difference. We're hearing that from customers, and we're seeing it ultimately in the end results in the marketplace. With that update, I will now turn the podium over to Matt, and Matt's going to take us a little deeper into the life science platform and give us an update on all that's going on there. Matt, it's all yours.
Thanks, Tom. As Tom said, I'm going to talk a little bit about the life science platform without getting into AB SCIEX, because you'll hear a little bit more about that after I'm done. We've got about $2.5 billion of revenue in about a $10 billion market space here. It's a set of really fantastic brands and very strong technologies. Really across all of these businesses, there have been substantial new innovations in the past two to three quarters, some of which you'll hear about today. At about 20% consumables and service, we'd certainly like to try to grow that going forwards. As Tom said, it is primarily at this point an instrumentation business, and we know that innovation in our instrumentation is critical.
We've got a little over 20% emerging markets in this set of businesses. I think that's a great opportunity for us to invest proactively for emerging markets growth and also an area where leveraging across the platform can help us to go further, faster. Let me start with Leica. Leica is a leader in microscopy, really serving the life science research community but also medical surgery and a range of industrial applications. A number of you were in Wetzlar last year and got to hear about six years in the Leica story as a part of Danaher and really some of the great impact from DBS there, where the business has gone from low single digits operating margins when it joined Danaher to the level of low teens today. This is a business where there are healthy growth drivers.
Really, scientists continue to want to push the frontier on what can be seen and how fast it can be seen. In surgery and forensics and other QC industrial applications, there continues to be penetration of better and better processes that need better microscopes and solutions wrapped around those microscopes. We thought we'd highlight here the new confocal platform here. Confocal is really the upper end of the microscopy market, and it's an area where lasers are used to excite the specimens as they're being looked at. This is really the area where the technology innovation battle goes on in microscopy. Really the person who can enable the clearest and fastest views at this highest end of the market is a technology leader in the market. This has been a strong area for Leica for many years.
The SP5 platform was launched in 2005. Since then, there have been very strong performance by Leica in the mid-range and the high end of the market. But that microscope did not really hit the lower end of the market, and while we had some products for that lower end of the market, we've not been as successful through that time period at the lower end of the confocal marketplace. We're very excited to talk about our SP8 platform. We launched that earlier here in June. This is a new platform that we did VOC, voice of the customer, across the full range of customers for confocals.
We developed a solution that pushed the frontier on the high end and really set a new standard in terms of speed and resolution. At the high end, if we take this microscope and also enable it with some of our proprietary super-resolution technologies, like our STED technology, we can get researchers to below 100 nanometers in terms of what they can see, and they can see it in live specimens.
This really gets into the area that previously was more of an electron microscopy area and allows light microscopy and some of the advantages that come with light microscopy to get into these very small and specific areas that are very important in the fast-growing area of cell therapy, where researchers want to look at small populations of cells, and they need to be able to live cells, so they need to be able to look at them very quickly. That's not the whole story. Yes, we did push the frontier on the top end and reestablished Leica as the leader in confocal microscopy. But at the same time, we've designed and launched a full platform that is modular and enables researchers to buy at the medium or even the entry-level low end of confocal and have future-ready upgrade ability to move up the platform over time.
This creates a great opportunity for share gain for us in the lower end of the market, where we can access researchers that are earlier in their careers or maybe in small or medium-sized labs who have the opportunity to become a part of the Leica family and get a future-ready solution that can be upgraded over time to be the best confocal microscope there is. So we're very excited about this product and its ability to have us gain share both in developed and emerging markets. The reception has been extremely positive from the experts and customers that have seen the product before and since it's been launched. Moving to Molecular Devices. Molecular Devices is newer to Danaher, a few years with Danaher.
A portfolio of businesses, including a leading position in plate readers, but also key technologies that enable cellular research and that enable drug discovery and some areas of bioproduction. Really, in Molecular Devices, over the first couple of years with Danaher, there's been two focuses. One has been on improving profitability and cash flow, and the second has been in reloading the product pipeline.
On the profitability front, we've applied the Danaher Business System to the operations, to the support processes, and to pricing, and driven some significant profit improvement from break even to high single digits, while at the same time, we've used the Danaher Business System and invested proactively in new products, had over 10 product launches last year, including the Barracuda product that Tom talked about, as well as a very successful high-content screening platform, a new product there that we launched in the fourth quarter that has had some great early momentum. This year, we've got more product launches planned here, including a new plate reader platform. But also, we're significantly increasing the focus on using DBS to improve the go-to-market processes within Molecular Devices. We expect to see good contributions to growth from both the products coming through, as well as those efforts on the go-to-market front.
Beckman Coulter, as Tom said, is really the great life science franchise that was within the Beckman Coulter business. Here, it is a very strong brand, Beckman Coulter, in life sciences, and they are a set of leading technologies in the areas of flow cytometry, sample preparation, and some key areas of characterization and separation. These markets have good growth drivers and a pretty significant recurring revenue contribution in this business, about 50% or so of recurring revenue from reagents, consumables, and services in this business. We thought we would highlight flow cytometry. This is an exciting technology. The flow cytometry industry is about $1.5 billion. It cuts across diagnostics to research. There are analyzers and reagents for those analyzers that cut across that continuum. Also, there are flow sorters that are used for separating and counting cells in life science research.
Beckman Coulter has got a leading position in the diagnostic analyzers, as well as the fastest and most precise cell sorter on the market. It is a strong position here, and this flow cytometry market is one that has got healthy growth drivers from really new stem cell therapies and other cellular research. Also from diagnostic tests being available more in emerging markets, more routine diagnostic tests being funded in emerging markets, and the development of flow assays for companion diagnostics. A key trend in this area is the need for sample in, result out solutions. Customers have been very clear about a desire in flow cytometry for things to be easier. Earlier in the year, we acquired a company called Blue Ocean Biomedical, who has the first sample in, result out flow cytometry solution for routine assays.
This is a solution where the sample prep, the analysis, and the software for understanding the results are all seamlessly integrated in one box, and it is a product that between a great solution and the great Beckman Coulter brand and channel, we think that we are going to be able to do a great job leading the growth of this exciting new segment within flow cytometry in a way that is complementary to our leadership in other segments. AB SCIEX rounds out the group. You are going to hear more about them later, so let me close off the discussion of the life science group here by saying it is about $2.5 billion of revenue in an industry with good, solid mid-single digits growth.
There has been some great impact from DBS so far, both improving profitability and improving the products and the growth of these businesses, but a lot of great opportunity for DBS impact in the future years here. Thank you.
Thanks, Matt. Before I turn the balance of the program over to Rainer and the rest of the AB SCIEX team, I thought it might be helpful to just do a brief refresher on from whence we came. Some of you may remember this structure that's outlined here on the page. Perhaps for others, this might be a bit new. The AB SCIEX business, as you know it today, prior to the acquisition, was a 50/50 joint venture owned by two public companies, Life Technologies, as well as MDS, based up here in Toronto. As we approached the prospect of the acquisition of this business, it became clear that it wasn't as simple as two sides of a joint venture. AB SCIEX, or the joint venture itself, through MDS, actually owned Molecular Devices.
Molecular Devices was an acquisition done by MDS a few years before we came on the scene for the acquisition. In addition, MDS had a 50/50 joint venture with PerkinElmer around the ICP technology. If you think this looks complicated, you're right. It was complicated. Not only was complicated, but obviously from the standpoint of the mass spec structure as well as Molecular Devices, it was suboptimal. It was not a terribly well-functioning structure. Also, probably worth keeping in mind, this was 2009. So this situation was against a backdrop of a not terribly attractive macro situation. Perhaps a few others wouldn't have contemplated the complexity here, but against that backdrop, there would be even fewer, perhaps, who would wade into these waters. But we were very confident.
We were confident that there was certainly unlocked potential here through bringing clarity of focus and structure, an integrated structure, and through the application of DBS. We were confident that there was value to be unlocked and competitive advantage certainly to be established or actually reestablished in most cases here. As the process unfolded, we did in fact acquire all of the AB SCIEX, the AB joint venture, so both sides of the 50/50 joint venture. We acquired Molecular Devices, and we acquired the half of the joint venture associated with PerkinElmer. That was just the beginning, though. For the first 6 months, we sold the ICP mass spec, 50% of that joint venture, back to PerkinElmer. We divested the laser microdissection products from a regulatory perspective. Then 2 weeks after closing, we acquired Eksigent, and you'll hear more about Eksigent today.
As we sometimes would summarize that in the cliff notes, a double carve-out, a virtual JV integration, the disposition and acquisitions equals we were really busy. But it certainly, as you'll see through the balance of the day today, it paid off. In the years preceding this transaction, this virtual JV structure that I mentioned that was arguably suboptimal really led to a lack of focus on driving the business forward. The JV itself, strangely enough, actually had no employees itself. Both employees were on either side of the joint venture, which made life certainly a little complicated. Commercial was sort of on one side of the JV, and R&D and manufacturing was on the other side of the JV. There was not necessarily a Danaher-like cadence to the management process.
And in general, the two sides of the joint venture came from different points of view as it related to what the ultimate objectives were, namely those being growth versus those being costs or operating profit. There was what we would describe as an air pocket from an innovation standpoint during this period. The AB SCIEX business today actually comes from a long history of outstanding innovation, and you will see certainly in its current form, the beneficiaries of great innovation. But there was a period there where there certainly was a lack of new products, as evidenced certainly in the 2008 timeframe around ASMS. As a result of that, we were losing share and saw margin contraction along the way. If we fast-forward to today, we see a much different picture. In the post-acquisition timeframe, we have seen terrific growth.
We have seen improvements in gross margin and those improvements in gross margin as a function of the applications of DBS, both in the factories as well as in transactional areas, through great work in the supply chain, through improvements in new products. That gross margin lift has allowed us not only to improve the ultimate operating margins, but has also allowed us to reinvest in R&D and continue to fuel the engine of innovation, driving growth in the future. You will hear about the complete overhaul of the product line today from Rainer and the team. You will hear about the new products that are noted here, as well as Eksigent. But ultimately, that is all paid off in terrific core growth greater than 10% core growth in 2011, and we think certainly a promising start here in 2012.
So a journey, no doubt, one that we still think we are in the early stages of, but great progress along the way. Rainer, Dave, those that you will meet today on the team have done just a terrific job, and we are thrilled to share that with you in the balance of the day today. With that, I will turn it over to our host for the day, President of AB SCIEX, Rainer Blair. Rainer?
Thanks, Tom. Good afternoon, everybody. It is a pleasure to see you here. So many familiar faces. Some of you were at ASMS, so I am sure that you still feel the aftereffects of this. In fact, our building is still shaking a little bit from all the product launches that we featured there. Really, what we are talking about today is the result of a great team, combined with the power of DBS and the Danaher group. Really look forward to sharing what the team has accomplished to date with you just now. Let us have a quick peek here at the agenda. If we look, I will just do a quick overview on AB SCIEX. Again, we will keep that short.
For those of you that are not so close to mass spectrometry, we will talk about what a mass spectrometer is real quick, and then we will talk about how we think about growth here at AB SCIEX now and going forward, as well as how we drive the topics of operational excellence. Then later on, we will get to the next portion of the day with the tour stops and the customer visits. We just have a quick peek here at AB SCIEX. We operate in a $2 billion market. It is growing at about 6%-8%, a nice clip. Those growth drivers change over time, and we have listed some of those here. I will certainly not go through all of them.
But certainly, I think the topic of changing food regulations, Tom mentioned this, around the world, not just here in the U.S. with the Food Safety Act, but also tightening regulations in the European Union, as well as the new Food Act that has just passed in India, and additional regulatory rules being layered in in China as well. Lots of growth in this area. Imagine the growing population putting pressure on a very, very stressed food supply system throughout the world. Certainly, the high-growth markets of China and India and Brazil are constantly mentioned for their organic growth potential. What I find particularly interesting is that these markets are now not just doing more of the transactional laboratory testing, but they are starting to invest quite significantly in research as well.
When you think about some of the larger institutes, both in China as well as India, you are starting to see nations building knowledge around research and a large need for some of the more sophisticated and higher-priced solutions that are provided by AB SCIEX as well. Then last one to mention from my side is the entire topic of biologics. You are all aware of the patent cliff that the pharma industry is facing. Fortunately, there is a new frontier, and that new frontier is biologics. We see an extraordinary amount of investment by various market players going into the biologics segments in order to create new knowledge and new solutions for the healthcare industry going forward. If we bring all that back, AB SCIEX is playing in this marketplace with those drivers.
We are over a $600 million company, with 70% of those revenues coming from instruments and about 30% coming from recurring revenue streams, such as service and consumables. Those are very important recurring revenue streams for us, certainly for the financial benefit, but also because of the customer touches that this gives us on a regular basis. Imagine service is regularly there in front of our customers, connecting the preventative maintenance, giving us leads, also giving us tips on the next design characteristics of our new instruments. It is a very, very important element of our business and an element that is growing faster than the average and that we will continue to invest in going forward. From a geographic standpoint, you can see we have a nice diversification there.
We'll continue to push that and make sure that we are nicely even here throughout the world, leveraging the hotspots of growth as best as we can. All of this together makes AB SCIEX a leader in the mass spec industry. Let's have a quick peek at what a mass spectrometer is. A mass spectrometer is basically a really fancy scale, and what it does is it weighs molecules, in essence. Having that weight information allows you to identify a compound in a sample or a molecule in a sample, as well as quantitate and count the number of those in the given sample. If we keep it simple for a second, think about a pool.
If you take a pipette and you put one drop in that pool, a mass spectrometer will be able to identify what that contaminant was, one, and two, how much of it is in that pool. I'm sure you're all familiar with parts per million measurements, and we certainly do those. Parts per billion, you've heard, I'm sure, and we do those as well. We also do, in special cases, parts per trillion, which is extraordinary, and the power of these instruments, of course, is what helps us push science along in research. If we look at a more practical example, how is this mass spectrometer used in, for instance, the pharma development processes? In the context of a trial, imagine ingesting a drug and that drug being metabolized by your body, and those metabolites then get analyzed.
Some of those metabolites, if the drug is not an appropriate candidate, could be toxic, causing side effects, or could be even worse, toxic and yield results that are not acceptable. Our instruments are used in some of the most sensitive studies in order to improve the quality of life and human health going forward. If you think about that and then go just to the right of the chart here, you see the various technologies that are employed in mass spectrometry and the appropriate products that AB SCIEX, in its broad portfolio, offers to provide these solutions. Here's a big chart, and we're not going to go through the whole chart.
In fact, this is more of a reference chart for you, and it may be handy for you just to take it out of your folder and refer to it as we go through the course of the presentations here. Basically, you can see how the major verticals on the left side align with some of the macro drivers that Tom and Matt spoke about. They also represent the focus verticals for AB SCIEX. In our strategy, we focus on these verticals because we think they will yield the highest growth rates and the most sustainable development going forward. This is where our focuses are. You can see as you go from left to right what type of customer there might be, the customer's pain points and needs, and then the uses of our instruments that play in that particular segment.
So you can see, again here all the way to the right, the instruments that we position in those various markets. If we think about food safety and just follow that one along, lots of state testing labs, of course, that are typically an after-the-fact. There is an emergency, the state gets involved, and you need to identify something quickly. Or if you are a food manufacturer, you are looking more at preventative testing to ensure that you do not have contaminants getting into your products. And we are regularly involved in this kind of testing throughout the world, not only with instruments but with software solutions, methods that we develop. You all may recall the melamine contamination of milk in China as an example, or the plasticizers used as emulsifiers in Taiwan, or even the most recent in the U.S., orange juice contamination scandal.
In all cases, the AB SCIEX rapid response team put together the methods and provided the instruments in order to identify those contaminants. So, a huge issue and clearly an attractive and growing market. If we take a quick look now to see how we think about growth, we have invested an extraordinary amount in the development of our commercial and go-to-market strategy. In fact, we have increased our global sales force by 50% over the last two years, the number of application labs by 40%. We talk about Shanghai and Singapore here, but there is actually going to be more on the way. And you ask yourself, how can you do this? In fact, it is the Danaher Business System and the toolset that it provides.
For instance, in this case, DRA, Dynamic Resource Allocation, where if you envision a P&L, we literally eliminate the waste in one section of the P&L or deprioritize to take those resources and apply them to the growth levers that we see in our businesses. And here you can see that going on, and you will see that throughout my talk today, that DRA is really the motor that is helping us focus our resources and energies and then drive for execution. We have also extended our reach in the marketplace through strategic cooperations. These are just a select few, Phenomenex, Advion, and Spark Holland. I am sure you know them all. Phenomenex, for instance, is a supplier of columns to UHPLC labs or HPLC labs, reaching to thousands of labs that could be interested in upgrading to LC-MS workflows.
So a great opportunity for us to gain more leads and market access on the one hand, and on the other hand, Phenomenex also resells in a marketing agreement, our i-methods. Lastly, we have invested heavily in expanding our service product portfolio just to connect the dots to the earlier statement on recurring revenue. And we are focusing very hard on continuing to improve our warranty-to-service contract conversion rate to ensure that we have that continuous touchpoint with our customers, learn about their applications, and continue to meet their needs. So all this together here has really helped us drive the growth. I think the graph on the top right speaks for itself, and we continue to intend to grow faster than the market. A little more on the topic of commercial execution. Using DBS tools, we have realigned the way we manage our funnels.
Certainly clear line of sight now from the lead all the way through to the revenue and ensuring that at every step across the way, we are able to apply resources to improve the metrics and as such, the results. You can imagine more creative, more expansive lead generation through improved market coverage. Think about such things as virtual trade shows, webinars, and so forth that allow us to reach much further and deeper into the marketplace than the traditional trade shows or scientific conferences, as an example. Then converting those leads to funded opportunities and aligning the organization around exactly that point. Now that that opportunity is there, how can we win it? Doing that in a cross-functional way is a very great strength of the DBS system, and it has helped us to really drive our growth just from an execution standpoint.
I think the graph, again, speaks volumes here when you look at the increase in the leads year-over-year. Not only a huge step, but the slope of the curve continues to go up. Very significant impact here, again, of DBS rigor and focus. I think most of you registered today in a trailer. That is a very special trailer, and it is representative of some of the creative lead generation techniques that we have employed here over the last 12 months or so. In particular, the MASS-tastic Voyage was a combination of AB SCIEX and some partners such as Phenomenex and Peak Scientific. Because we had heard from our customers that they often do not have the time or the resources, again, to travel to application labs or trade shows and so forth. So we said, "That is fine. We will take the lab to you." I think you saw it.
It is a fully fitted-out lab in which you can actually run samples. So besides the fact that we had some folks in the lab that were able to see the country, 77 days traveled and lots of miles and cities visited, we have over 1,200 new customers. They were unique. We did not see them before, and they came to us with, if you will, envisioning the sandwich bag and a sample, and ran those samples there with our team for results. So just an extraordinary way to really get high-quality leads, and to get to new segments of the business that we had not seen before. Just as one last point, this was combined with the launch of our 4500 triple quad and traps at Pittcon.
You can see here that we, for safety reasons, had to take the instrument off of the vacuum every day that we did not use it, which is a huge point for mass spec users. Normally, you do not break your vacuum, and here it went up and down 40 times without a single service call required. So it speaks to what a workhorse and what a robust technology this is. It connects the dot later when we talk a little bit about some of the improvements we have made in R&D. Pretty exciting stuff here. If we move on then to commercial execution and emerging markets, of course, we are all investing in emerging markets. You may know that we have moved our manufacturing from right here, this facility, to Singapore some years back. So you probably know that.
In fact, later on, you will be walking on that manufacturing floor, seeing what it is deployed for today. What may be new to you is that we have moved our entire global supply chain, including procurement, over to Singapore to be at Gemba. So where the action is to be closer to those suppliers in the low-cost regions to ensure that the plant and those design engineers are much closer to the suppliers, and you can make the necessary improvements and innovations right there where things are happening. We want to be close to our markets, and we want to have our manufacturing facilities and associated functions right in the middle of the action. We did that here at the end of 2011, setting us up for great opportunities in 2012.
In addition, we have tripled the size of our sales force in China, again, funded through DRA, as well as gone to a direct sales model in Korea. If we think about India, you may know we acquired the Labindia distribution, something that we have seen work very successfully with Videojet that had turned distributors into direct sales forces, another opco here in the group. We have taken that thinking, taken control of those resources in the market and are now again investing more in more feet on the street, more application centers to get closer to our customers and take control of the markets that we are in. Then lastly, Brazil. We have just finished up just before Pittcon.
This was the last vestige of the acquisition from Life, and we have taken over now the team and the facilities there and are investing to expand those in this high-growth market as well. So I think it is clear that we are very much focused on increasing our exposure in these high-growth markets and taking these investments very seriously while also deploying our DBS processes throughout the world. So improved execution, more exposure to those high-growth emerging markets, and now we also want to step into new markets to accelerate our growth. We see the clinical diagnostic market as particularly promising. Mass spectrometry brings new value to those markets, faster, more accurate results versus many existing methods. Of course, you know, to enter the clinical diagnostic market requires some prerequisites are met, such as CE approvals or the FDA approval.
We have already installed now the quality management system that allows us to design and develop medical instruments. In fact, we received our ISO 13485 certification in the first quarter as a major milestone on that journey. Then in the next 12 months, you will see that we will be registering our instruments as Class 1 medical devices here in the U.S. and entering actually with a CE-IVD solution in Europe in the early of 2013. So exciting marketplace, lots of potential for innovation. We have talked about this before, but the message here is we are making those investments and we are on track. Lastly here, biologics. Everybody is talking about them, and it is a good thing because biologics are the new frontier in healthcare, and there is an extraordinary amount of investment going on by all the stakeholders in the healthcare markets.
AB SCIEX is in the middle of that, and you can see this through the launch of the TripleTOF 5600+, we will talk about that in a little bit more, as well as the 6500. A suite of solutions that go along the workflow, which is new for us, that range from discovery, development through commercialization. For those of you who have known us for a while, you know we have been more entrenched in the topic of quantitation and development. Here we are talking about AB SCIEX providing solutions from discovery development through to commercialization. Again, taking these new instruments and these new solutions now to new marketplaces, new verticals as well. Innovation. After all of that, we have more to do, and we left this one right here as sort of the last pillar of the strategy to drive our growth above market rates.
Really what we have to say is we have reignited the innovation fire. Tom talked about an air pocket. Well, there are no more pockets in the air. We have got a steady stream here with plenty of uplift, and we have really changed the game. We have gone from developing more powerful instruments and having various market players come to us to see how they are applied, to fundamentally changing our perspective here and going much more deeply into our market segmentation, gathering the VOC, and developing vertical and application-specific solutions. Of course, that has huge implications for the breadth of our portfolio, and we will see that in a minute. As well as it shows us incremental opportunities in application-specific workflows. With that, we also recognized that we had to accelerate our development timelines.
Expanding the portfolio and enhancing our product launch cadence to always stay there at the top of the heap in terms of performance required us to accelerate our product development. I will show you in just a couple of minutes exactly how we have done that and what the results were for that. But fundamentally, we have dramatically increased the number of new products and significantly reduced the time it takes us from a product development standpoint. Let us have a look. Well, lots of voice of the customer, VOC, going very deep and understanding the use of our instrument and the pain points of our customers, fundamental to the way we go to market now. For instance, our customers came back to us and said, "We want a range of price-performance solutions from you, AB SCIEX.
So top end for sure, and keep going there, but we need the entire range." Additionally, there is an extraordinary amount of satisfaction with the improvements that we have made in our software solutions, both from a quantity and quality perspective, but there is a huge demand for more of it. Many of you may know of the new SWATH program, which we see as an extraordinary development, opening up new doors in proteomics research. Just launched that at ASMS as well. Even our Eksigent acquisition has opened up new doors in terms of understanding what opportunities we have in the marketplace by highlighting the need for more robust, easier-to-use, lower flow rate solutions for our customers. In this particular area, you may know we have just launched the microLC solution from Eksigent.
If we go back and take a step back for a minute, let's think about all this VOC and what's a great example of that. The first instrument that was launched after the acquisition by Danaher was the TripleTOF 5600. 850 data points, customers led to the creation of these qual-quant workflows, and we had the benefit of beta testing with key scientific opinion leaders in order to ensure that we hit the mark there. As you may know, the TripleTOF 5600 has exceeded all of our expectations, both in terms of the sales volume, but also in the applications that it is starting to penetrate. So really, really important change for us here. Again, DBS provides extraordinary amount of methodology around the topic of VOC and helps us drive that VOC in an efficient manner into our product development processes.
How do we accelerate our product development? Well, certainly we invested more in our core research team, so I'm specifically speaking about research here versus development, in order to create the new knowledge that is required for proprietary solutions and to close or to fill performance gaps or opportunities that we see in the marketplace. As an example, with the 6500, we've launched the IonDrive technology, and you'll hear about that during the tour. A proprietary capability developed right here where you are today, which is unique in the marketplace and provides top-of-the-line performance. We've certainly also invested a great deal in R&D. If you look over the 3 years, we've increased our R&D investment by 150%. 10% of revenues is where we're at today.
Doubling the size of our software team, on the one hand, installing the regulatory affairs and quality assurance organization required to be able to run a clinical diagnostics business, while simultaneously reducing on average our development time by 30%. Lots of good stuff going on. Tom mentioned we were busy. You should see the smoke coming out of this building on a regular basis. DBS also has helped us focus extraordinarily well. You've likely heard of lean management in R&D, but also this ability to use visual management to be able to compare ourselves and benchmark with other top-notch operating companies within the Danaher Group has resulted in an extraordinary amount of learning, accelerated learning, which may be unique here to the Danaher Group. Things like fast prototyping, we quickly get there and fail early, reducing our development costs and allowing us to accelerate our launches.
Being able to get to the factory, for instance, in Singapore, without all those startup and scale-up hiccups has been an extraordinary breakthrough for us. The 4500, again, that instrument that was on the MASS-tastic Voyage that you saw outside, that development cycle time was reduced by 40%. The effectiveness of these tools, it's real, and the amount of savings that it gives you is extraordinary, while again allowing you to DRA where appropriate and necessary. This is what we went to market with in 2009. Great instruments, the 4000 series, the most sold and installed instrument in the history of mass spectrometry.
lean management in R&D, but also this ability to use visual management to be able to compare ourselves and benchmark with other top-notch operating companies within the Danaher Group has resulted in an extraordinary amount of learning, accelerated learning, which may be unique here to the Danaher Group. Things like fast prototyping, we quickly get there and fail early, reducing our development costs and allowing us to accelerate our launches. And being able to get to the factory, for instance, in Singapore, without all those startup and scale-up hiccups has been an extraordinary breakthrough for us. The 4500, again, that instrument that was on the MASS-tastic Voyage that you saw outside, that development cycle time was reduced by 40%.
The effectiveness of these tools, it's real, and the amount of savings that it gives you is extraordinary, while again, allowing you to DRA where appropriate and necessary. This is what we went to market with in 2000, lean management and R&D, but also this ability to use visual management to be able to compare ourselves and benchmark with other top-notch operating companies within the Danaher Group has resulted in an extraordinary amount of learning, accelerated learning, which may be unique here to the Danaher Group. Things like fast prototyping, we quickly get there and fail early, reducing our development costs and allowing us to accelerate our launches. And being able to get to the factory, for instance, in Singapore, without all those startup and scale-up hiccups has been an extraordinary breakthrough for us.
The 4500, again, that instrument that was on the MASS-tastic Voyage that you saw outside, that development cycle time was reduced by 40%. The effectiveness of these tools, it's real, and the amount of savings that it gives you is extraordinary, while again, allowing you to DRA where appropriate and necessary. This is what we went to market with in 2009. Great instruments, the 4000 series, the most sold and installed instrument in the history of mass spectrometry. And after the VOC, the change in our development methodologies, and the application of DBS, this is how we go to market in 2012. You can see an extraordinary expansion here of the portfolio, not just in the number of instruments, but if we saw another dimension here, you would see an extraordinary expansion of the number of verticals and applications that these instruments can play in.
On the top, you see the triples and traps. On the bottom left, you see this expansion of our Eksigent product portfolio ranging now from nano, micro, to analytical flow rates covering the whole gamut, as well as our high-resolution, accurate mass solutions ranging from the 4600 to the newly launched 5600+. So completely refreshed in three years. And now I'd like to have Dave Hicks join me up here and speak a little bit more about these innovations. Thanks, Dave.
Thank you, Rainer. Good afternoon, everybody. I have got the opportunity to talk about and give a little more color about the new products that this innovation engine has generated for this year specifically. But before we talk a little bit about today and looking forward, let me talk a little bit about going backwards here and give an additional story here about the innovation engine that SCIEX has been and continues to be, going back to about 30 years ago when the first LC-MS/MS platform was introduced by this group. On this chart, what we have done is plotted over time the increase in sensitivity, or the factor of increase in sensitivity over time that we have achieved with the introduction of the various platforms of mass spectrometry coming out of this group.
Sensitivity is one of the critical parameters that customers use to evaluate the performance of a mass spectrometer. Increased levels of sensitivity have allowed us to move mass spectrometry into different application areas to solve ever more challenging problems, and that has happened over these past 30 years. As a matter of fact, we have one of those platforms, the API III, back here, introduced. And over time, it was a steady stream of innovations by the group here to bring increased levels of sensitivity, increased performance into these markets. And this allowed us to expand, not just into different applications within the pharmaceutical industry, our core, but into applications in academia and growing applications into the applied markets. Rainer talked about the 4000. This was, and still is, one of the most popular mass spectrometers introduced in the market. It was a substantial jump in sensitivity when it was introduced.
It also delivered an increased level of robustness and reliability, and it was a major platform for us that boosted us up into that number one position into this industry, relative to market share. But as you get up into these levels of sensitivity, it becomes ever more challenging for our scientists and engineers to improve this level of performance, as you can imagine. We introduced the 5500 family of products a few years ago, and this allowed us to upgrade the electronics, the performance, how we integrate this to different sorts of front ends. But you can see at the time of this introduction, we were not at that point able to give a boost to the sensitivity of the platform. A number of other parameters improved, and this has now become our number one selling platform. This year, though, we are delighted at ASMS to have introduced the 6500.
It has been a couple of years of hard work by this research and development team, the commercialization team, to make sure we are introducing not just increased performance and sensitivity, but the reliability and robustness that goes along with a new product introduction like this. Let me go ahead and now flip over to a video that will give a little color on this, and then I will come back and talk about the customers and the applications we sell these platforms into.
The modern LC-MS/MS laboratory continues to evolve year after year, seeking new ways to improve sensitivity, accelerate throughput, and enhance data quality. AB SCIEX has been there from the very beginning, leading the advancements. AB SCIEX has pushed the limits of performance again by merging highly evolved sensitivity with renowned performance. Introducing the new AB SCIEX 6500 LC-MS/MS series, with revolutionary new multi-component IonDrive technology. The world's most sensitive triple quadrupole, with up to 10 times increase in sensitivity and 20 times increase in detector dynamic range, all with no compromise in mass range. Nothing has changed, except everything.
Great. It gives you a sense of what we've done relative to the development of the platform. For those of you staying for the tour, we're actually going to go into one of the demonstration laboratories and go into a discussion with some of our scientists on that platform specifically. But in general, what does the 6500 do for us this year? Well, it allows us to continue to offer the highest performance of sensitivity and selectivity into this marketplace, specifically into our core, the drug discovery and development groups in pharmaceutical CRO, and now their academic partners. It also lets us bring that level of performance into the applied markets and into the endocrinology and some of the clinical research areas that we're working in.
What they'd like to do is be able to push these limits of sensitivity to get to ever lower limits of detection, but at the same time, be able to maintain very robust workflows that they don't have to re-engineer a number of times as different samples come upon them. As we've developed this sensitivity and performance, as we've increased the dynamic range, we've also made sure to increase those parameters as well. One case study, and this product is just rolling out now to the customers. We have a number of customers that have been using the 5500 successfully, but because they are still challenged with samples where they want to get to lower levels of detection, they've been working with more complex sample prep and enrichment strategies.
One customer, Jupiter Environmental Laboratories, now has evaluated this technology and sees a perfect fit to work that they're doing in protecting the Everglades from contamination of pesticides from some of the development areas in that particular region. We're going to be seeing a little bit more of the sensitivity improvements coming down the road, but another area of innovation for us, as Rainer pointed out, doesn't necessarily involve always increasing the high end, high performance of the systems. Many of our customers don't need the highest level, but they would like to have reliable, robust workhorses for routine analysis in their laboratories. Because of the volume of work they'd like to have, they need to layer out a number of these platforms into their laboratories.
The 4000 continues to be a very important platform for us, continues to sell very well, and it was a challenge for us to make sure that we could intelligently re-engineer this best-selling instrument such that it delivered all the performance that the 4000 had, remove some of the costs from our 5500 platforms and pass that on to the customers so they have a mid-price, mid-performance platform, and very importantly, up the reliability, robustness, and the ability to configure this to high-performance front-end systems. We also paid special attention to this installed base and were able to, as we rolled this product out, include a method exchanger such that those customers using the 4000 could start to layer in the 4500 into their laboratories for routine use without needing to re-engineer those methods themselves.
This has a lot of applicability into the applied markets, but also finds its way into some of the pharmaceutical companies and even into some of the academic laboratories where peptide analysis, for example, is becoming a more routine analytical tool using mass spec. Case study here, as we rolled this particular product out, it was the contamination scare or the food scare around orange juice being imported from Brazil, where some of the material had been contaminated with pesticides, and now all the orange juice coming into the U.S., as well as other countries, needed to be tested on a routine basis for this contamination. The 4500 was challenged with that and successfully rose to the task.
It is not just in sensitivity and quantitation that is important, but the capability, the detection capabilities, the complexity of the samples that we want to analyze, where we bring the power of our TripleTOF or accurate mass platforms into this marketplace. Rainer talked about the TripleTOF 5600 and the rollout that had, just as we were joining the Danaher organization and starting to apply some of the DRA technology, some of the voice of customer technology, some of the DBS systems into the rollout of that platform. Now, that has become very successful for us, but this year, we introduced an extension to that product family in two key areas.
One, the TripleTOF 4600, was actually introduced at AOHUPO in Asia, in China this year, where we wanted to bring out a workhorse platform in the TripleTOF family for the more routine analytical testing that the TripleTOF platform enables one to do. This is used, for example, in core laboratories in protein analysis and academic groups. Also into some of the food testing laboratories where qual and quant workflows are important. At ASMS, we introduced the TripleTOF 5600+. The enhancement onto this best-selling platform for us was specifically in the areas of selectivity, where we add the SelexION technology to help us bring selectivity to these accurate mass workflows.
The MSMS all with SWATH acquisition, which Rainer referenced, which is really a breakthrough workflow co-invented by groups here as well as at ETH Zurich in Europe, that enables one to look at a complex sample in a much greater degree of comprehensivity. We can see many more constituents in that sample, and we can quantify all those samples simultaneously, both for targeted analysis, in other words, looking at things we know we want to see, but also measuring things that we are not sure we are going to want to study, but have that data available for retrospective analysis later on. That SWATH application is gaining a great deal of interest, not just in proteomics laboratories, but also into metabolomics and lipidomics groups as well. Now, where is that work being done? Primarily in the academic research groups, but also in the research labs of pharmaceutical companies.
Here, they are trying to look at the comprehensive constituents in a complex sample, like a disease tissue sample versus normal, and start to pick out biomarkers, potentially, for pre-symptomatic disease diagnosis. We are working with folks at the Buck Institute for Research on Aging, for example, in this area where neurological disease and Alzheimer's is being researched this way. But also in the food and environmental testing area, where we may not be sure of what is contaminating in that particular sample, and we want to have tools for qualitative analysis of unknowns, and then be able to convert those into quantitative assays. Also, in the Eksigent family, innovation has been active, and this year we are rolling out a number of new platforms coming out of that particular group.
Eksigent, as you have heard, was an acquisition that we made in 2010 and had a leadership position in the very low flow chromatography area for protein analysis. That is now extended into, from nano to the now the microLC area, a product that you will see later on today and in one of our tours, where we are bringing microflow LC, a little more robust technique in low flow chromatography that can be used in both protein analysis as well as drug analysis. We couple that to both our qual and our quant systems. This year, we introduced a UHPLC or high-flow system with the Eksigent badge onto it, so that we can branch out and broaden our portfolio of chromatography systems that we can integrate our mass specs to and deliver from a single vendor and from a single brand, the products for a wide range of applications.
This UHPLC system in Eksigent, the LC 100, is important for especially our customers in the applied markets, where they would like to have a robust mid-price system for high-flow chromatography integrated to our 4500 and to our 4600. What this results in is not just a number of new instrument platforms, but the need for us to also innovate around the different software packages, front-end solutions, methods that we are offering onto these systems, and different chemistries that we are innovating around as we roll out these new platforms. It has been a busy year, and due credit to the team here at AB SCIEX, both here at Toronto and in our R&D organization, as well as our commercial organization that has been able to bring out these solutions to customers. We do not see these as simply individual platforms, but coming together as integrated systems that represent productivity solutions for customers.
When we go into a customer at a food laboratory, we are not bringing them a mass spectrometer, we are bringing them a quantitative solution to their food problem challenges or a contaminant identification system, et cetera. Let me turn this back over to Rainer, and we will talk to some of you later on this afternoon on our tour.
Thanks, Dave. Thanks, Dave. Great job. Let us jump right into the topic of operational excellence and how it is that we grow, that we invest, and that we expand margins at the same time. I think the common denominator, I think the red thread that runs through all of that, is the talent of the team combined with the power of DBS. That is really how we have done this. We have spoken at length now of the growth, and you can see that again reflected in the metrics there on the right. But we have also expanded by roughly 500 basis points here, the margins. How have we done that? Well, we have certainly done that through our lean conversion in our factories. That is one portion.
We have also applied a significant amount of leverage to the topic of PPV, so the procurement organization and increasing the low-cost region purchasing, as well as involving our suppliers in order to help us re-engineer for higher quality and lower cost, many of the components that are involved in the manufacturing of our mass spectrometers. You can see here some of those metrics, labor productivity increased by 20% and so forth. We have also been able to improve the robustness of our manufacturing as well as the predictability of the results there, allowing us to significantly enhance our on-time delivery, and you can see that here with a 2,200 basis point improvement in our on-time delivery statistic. I will talk about that more.
But think about the implications of that reliability as it relates to freight, reducing the express freight that you need all day long in order to get to your customer on time, and two, reducing the number of distribution centers down from 11 to six, and we still see more potential there. All of that in effect has allowed us to DRA, finding, on the one hand, waste, on the other hand, tightening up processes, shortening them, and accelerating them, and allowing us to invest in the growth initiatives on the one hand, also making a contribution to improve gross margins and upping the R&D investment while still having enough to improve our operating margins as a whole. Just again, this common denominator, great teams coupled with the power of DBS and the support of the Danaher group is what allows this kind of breakthrough improvement.
And we are particularly proud to say that our Singapore plant won the most improved plant in Asia for Danaher, which is a highly competitive group. Pretty pleased about that. If we look at accounts receivable, again, DBS finds its application everywhere. If we get to the bottom line, you can see that the working capital turns went from 2.5 turns to greater than 8 turns in just that 24-month period, running through the various line items. So on accounts receivable, identifying the gaps, the top three actors, getting standard work, and daily process rigor behind those in order to drive those outstanding receivables back to where they need to be. Then the same thing in inventory management, but with much more involved changes.
The lean conversion on the one hand, on the other hand, going to kanban inventory replenishment systems versus the traditional material planning. Then, of course, using techniques such as tiger teams and really keep that daily focus on driving our inventories where they need to be. And you can see here the inventory turns doubled during that time period. Then lastly, our accounts payable. So we look in every crevice, under every stone to find an opportunity to remove waste, again, to simplify, shorten, and accelerate processes through DBS. And again, here, we have been able to increase the payment terms that we have with our vendors through the increased use of these P-cards. Again, a corporate initiative that as AB SCIEX, we have been able to avail ourselves of in order to drive improved working capital and improve the cash flow of our business.
So again, the red thread of DBS running all the way through our working capital accounts. Let us have a quick look at this on-time delivery statistic. Pretty powerful stuff. We are very, very happy about this because, in essence, we have really met our customers and expectations here and continue to work on it. If you look at 2008 through 2010, we were basically just measuring whether we were shipping our instrument from the factory on time. So after acquisition, the first thing we have done is we made this a customer-centric process by measuring how we perform against the customer's request date for one side of the equation, and then the other side is to make sure everything, not just the instrument, but the software, the accessories, and the parts all arrive at the same time and are installed successfully. And so here you see the pressure points that were created here.
The tools on the bottom right that we apply here that come out of the DBS toolbox in order to get this very, very significant improvement over the last 18 months or so. So in summary, let me bring it all together. We have invested an extraordinary amount in order to drive innovation, certainly providing a lift versus market in our growth, but also to improve our execution, not only in the standard funnel management, but also to increase our exposure in emerging markets on the one hand, but also the ability then to enter new market segments to give above-market growth there as well. Then again, that red thread that ties it all together and that runs right through the middle of it is DBS and operational excellence that allows us to make the investments on the one hand, but also, on the other hand, improve our margins.
With that, I'd like to conclude, and I'd like to ask Tamara Bond to join me. Tamara has been with AB SCIEX and its predecessors for nine years and is our Vice President of Global Marketing. Tamara, would you tell us a little bit about our customer visit? Thanks.
Thanks, Rainer. Thanks, everyone. After the Q&A, we're going to take a short break in the cafeteria. About the top of the hour then, I'd ask you all to assemble into your groups. On the back of your badges, as Matt mentioned at the beginning, you'll see that you're in a particular customer tour, or sorry, a lab tour, an AB SCIEX tour group, and we'll take a tour through a number of our labs here. Please stay with your group. You're going to cycle through all of the stops along the tour. That'll give you a good chance to see the work we do here up close and personal. At the end of that tour, your tour guide will bring you back down to the cafeteria. I'd ask you to gather up your things and then get onto the buses.
At that particular time, we're going to take you downtown Toronto and do a couple of customer tours, going to a couple of internationally renowned research and teaching hospitals associated with the University of Toronto. Again, on the back of your badge, it'll tell you which customer tour you're going to. Customer tour number one is at the Lunenfeld-Tanenbaum Research Institute at the Mount Sinai Hospital, and the customer number two is at the Physiology & Experimental Medicine Research Institute at The Hospital for Sick Children. Both of these customers are longtime customers of ours. Great examples of being quite visionary early on, more than a decade that they've been using Mass Spec in their research and really helped to propel them in terms of advancing their type of science.
You'll also notice that they continue to push the limits in the research they do today, and they continue to vision, and they continue to put Mass Spec core in the center of what they will do in the future to advance their research. I think you'll enjoy both of those tours equally well. After that, we'll be getting back on the buses and heading over to the hotel, and then to dinner this evening. With that, I'd ask the rest of the leadership team to please come back up here for the Q&A, and then we'll see you for a break after that. Thank you.
Deane?
Thank you, Tom. It is a familiar question for Tom, but I would like to hear the thoughts from the management team. The day that AB SCIEX was acquired, I asked the question that no one owns just a standalone mass spec business, but there are opportunities to put front-end separation technology. You did this with Eksigent, so maybe you are making a commitment to LC. Just your thought process, a big focus on workflows, work streams, but those all involve other types of equipment and systems. What is the appetite for looking at these adjacencies, and what might the timeframe be?
Since Danaher has heard me answer that question a couple of times in our history together, I will turn it over to the team and maybe let Rainer you start.
Sure. Thanks. Great question. Certainly, liquid chromatography is an important element of the workflow. But it is not, in effect, what provides the result. Our thinking around liquid chromatography is, one, we have Eksigent and for very specific applications, you are familiar with the nano and micro applications around proteomics. Two, we have many options. In fact, we are the most flexible vendor in allowing our customers to choose the right solution that they would like in terms of being able to couple that with our mass spec. In fact, we find ourselves in a nice position to be quite flexible in allowing our customers to bring the LC that they would like into it. Lastly, to the asset question, we are Danaher, and we are always interested in vetting the marketplace. When the opportunities arise, we are certainly going to have a look at that.
Maybe the one last point I would add to that answer, Danaher, would be we still see the decision-making process being fundamentally around the choice of the mass spectrometer. A decision that is a quarter million dollars to north of a million-dollar decision. That is really only supplemented by the enabler of HPLC or other sample handling, sample preparation technologies that might be $25,000, $50,000, $100,000 decisions. That decision still generally is catalyzed around the mass spec, and the other components come along with it. We think our position is a good one in terms of being able to provide alternatives. Cliff?
Tom, you. Yep. Cliff Ransom. Tom, you have now run a bunch of different divisions at Danaher. Would you talk a little bit about what you have learned about integrating acquisitions in life sciences and diagnostics, and whether it is really any different than toolboxes, hand tools, dental at all?
Sure. I think we learned a lot of lessons along the way, Cliff, in those days where many of our acquisitions were perhaps more industrial-oriented businesses. I think the principles that we applied and the lessons we learned in those days are still very much relevant today. It is very much about the appropriate selection of talent and making sure that the team is assembled appropriately, that we first maintain the outstanding talent that built those businesses to begin with, and that we carefully and thoughtfully supplement that talent from internally at Danaher and sometimes externally from the industry. I think secondly, I think the lessons we learned about the application of DBS, the thoughtful application of DBS, ensuring that the DBS toolset is applied to the unique problem set and the unique opportunity set that business represents.
Those lessons are as relevant today in life science as they were in our earlier days of perhaps more industrial businesses. I will say that I think one of the differences, perhaps, Cliff, is that the premium that we need to put on investments in innovation in science and technology is that much greater today in these businesses. Today, Danaher is a business that is focused on building a science and technology company using DBS. I think that premium in these businesses is just that much higher and one that I think the continued investments that we are now making in R&D are indicative of that premium. But in general, I think those formative lessons are still critical today. Yeah.
Yeah. A question on this AB SCIEX sensitivity curve that you showed. How does the market opportunity vary as you move up that curve? At what point as we move up to 6500 or higher, is it sort of fun scientifically but not economically useful in terms of what a customer is willing to pay for?
Sure. Dave?
I can take a stab at that. Customers always seem to be able to find problems that sensitivity can help solve. There is no question about that. We are still not detecting every single compound and every single sample that we come across. You are right, the economics of this, especially for us, where it is becoming ever more difficult to start to challenge some of the laws of physics at the very high end that these instruments have, mean that we have to be somewhat selective on how much of our research goes into sensitivity and how much goes into the other parameters. We have actually something we call the five S's in development, where it is not just sensitivity, but it is things like speed, it is simplicity, it is the software, it is the selectivity of the system.
We are now spreading our research dollars a lot more evenly than we probably did 30 years ago across those different parameters. We are clever as to where we do that. The voice of customer helps us be sure that we are not inventing a solution to a problem that does not exist. Right now, we are still being challenged to push the limits in all those parameters for many of these customers.
I think what you saw in the 4000 that Rainer talked about, the reinvention of the 4000 QTRAP is a great example of that balance, where we recognize that the center of the market, if you will, that high-volume center, is still critically important to the economics of the overall business, while recognizing that that continued investment at the high end plays a role as well.
Thanks. John Grover with Macquarie. If you could maybe just, kind of a two-part question. One, I think you mentioned from 2005 to 2009, the core growth was less than 3%, kind of growing below market. You've introduced a whole host of new products recently. Can you maybe just talk about the optimal cadence to introducing new products? I think some of it was products that AB was working on that just couldn't quite get out the door, and now you're investing more with Danaher. But maybe kind of just the optimal cadence for new products in these markets. Then secondly, kind of along those lines, maybe can you just update us currently what's going on in the mass spec market relative in the last couple quarters? I think orders were slow in the fourth quarter, picked up in the first quarter. Pharma was weak.
Just maybe give us an update in terms of where we are in the markets. Thanks.
Why don't I take the product cadence question and give you the market question?
You got it.
So on the product cadence, you are right. You do not want to be introducing a replacement technology every year. It is costly. The organization has to work extra hard to handle those products. Right now, it feels like about a two to three year life cycle for some of these products. Gone are the days where you can sit there with a mass spectrometer and introduce it, expect to get full 10 years life cycle. We can repurpose it to a certain extent into some of these markets, but refreshing it, not necessarily with a whole new platform, but with an N plus one strategy where we enhance some of the platform, we do some of the development on it, and then we redirect our energies into other parts of the marketplace or the portfolio where we need to strengthen those areas as well.
Now we are pretty broad in the number of platforms, markets, price points, and applications we are going after. So we are needing to be judicious as to where we go ahead and do that. But hopefully, that product cadence stays at a level, maybe not quite as what it is at this year, but still very high to compete in this marketplace.
So was that a follow-on to that particular, no? Okay, to come to the market development, you may know in 2011, we were at peak growth in the marketplace on a very high clip, and I would say in 2012, we also see good growth, perhaps not at the peaks that we saw in 2011. Going to orders growth, I would say we still have quite robust orders growth. It differs by region. We are finding Europe to be a little more viscous than other places. Asia-Pacific is still quite dynamic, and I would put the Americas as robust. As we speak of application segments, we still see the applied markets showing the most dynamic for us. We still see good responses in the academic markets. Pharma, I would say, is probably the one that is a slight drag there in the average only.
But we still see a good growth clip here.
I got the mic here. Dave, for you, I want to move back to R&D a little bit. There's a lot of debate within industrials in general, less so, I think, in life sciences. But how do you arrive at 7.5% being kind of the optimal number where you can balance gross margins and drive above-market growth? Just as a follow-on to that, you have disparate assets here with kind of different R&D goals. Is there ever a time where you can really get synergies among a broader R&D effort where you can share resources and such and get a little bit more leverage out of your spend?
I don't think we want to leave you with the idea that we thought 7.5% was somehow an optimal number. It's a good number as we've progressed each one of the businesses up the scale. Each of the businesses that we've acquired, we've taken the R&D spend up, and I think you see the benefits of that in the core growth across the businesses and the levels of innovation cadence that you see here today. I think each one of our businesses, frankly, is different. Across even life science and diagnostics or even within life sciences, we would see a different R&D investment requirement in certain businesses versus others. So I think those decisions are made selectively, and I know Matt can comment on a couple of the specific differences across our life science businesses.
But I think those decisions are ones that we make carefully. In general, I think you'd see that number going up over time, particularly as we continue to do the great work associated with DBS, letting some of that fall through to the bottom, but certainly reinvesting some of it in R&D. You want to comment on maybe some of the differences you see across each of the life science businesses, Matt?
Yeah. I think we haven't picked a number for the group, but more each business, we want to be investing in R&D as much as makes sense to be a strong leader within the industry. What that amount is in microscopy and even within different areas of microscopy can be quite different from what it might be, say, in plate readers or some of the Molecular Devices businesses or here at AB SCIEX. So we've got a pretty wide range. I did want to comment to your question about R&D leveraging which is that we already have certain areas where there's some cross-group collaboration. Rainer and Dave talked a little bit about clinical applications, and certainly in clinical applications, there's a need for great automation. We've got within both parts of Beckman Coulter some great automation capabilities, and so we've got some active collaborations there.
If you were at ASMS, you would have seen a
CE capillary electrophoresis front-end system to the question about front-end systems in front of mass spec in the conference room there. I think those are examples of where we are able to collaborate across the group. I think we have still got a philosophy that says we are going to be flexible and do what is the best for customers, and sometimes that may mean collaborations that go from companies in the group to companies outside the group. But where it makes sense, we will collaborate within the group and get the R&D leverage that comes from that.
I think one last example is on the diagnostic side, where we are seeing cooperation between Beckman Coulter and Radiometer, for example, in clinical trials on certain assay developments. Rick, or who has got it? Sorry.
Actually, a question along those lines on the clinical strategy. Can you talk a little bit about whether you see the mass spec model evolving as you move into the clinical markets? In other words, does mass spec move more toward a reagent rental-type model? What do you see as the next applications that go mainstream beyond kind of vitamin D and neonatal screening and some of these areas we have already seen?
First of all, we definitely see the business model that mass spec plays in going to the rental reagent format. We find that the way the payees and payers are interacting in that market also, again, synergies knowledge that we have derived from Beckman Coulter that that is the way that market plays. Those are the rules of the game. We can adapt profitably our approach, our go-to-market strategy for that as well. That is absolutely the case. Now, when it comes to which assays we intend to continue to supply to the market, such as the ones that need to be approved for 510(k), you are mentioning ones that are certainly within the realm of consideration. Things like vitamin D, immunosuppressants, that would be another one, steroids, these kind of things.
We are looking at those, and we calibrate on the market demand and on the regional differences in order to make those calls. But probably will not be talking about which specific ones we will start with yet.
You talked a lot about, obviously, the accelerating growth in the business. Can you talk a little bit about how much share you think you have picked up since acquiring the business in mass spec more broadly?
Just to make sure that I understood it here while I was clearing my throat.
It's a market share question. What's your relative market share as you see it today versus when you
Yeah, I think particularly in 2011, we've picked up a healthy share gain. There's various resources out there in the marketplace. It's always hard. It varies by market and it varies by geography, but we certainly see that we picked up a couple of points, something of that nature.
Rick.
Just two questions for Rainer. As you built out the Eksigent product line, have you seen the attachment rate as a front-end go up and specifically on any of the platforms in particular, 4000, 5000 or probably not the 6000 at this point? But have you seen the attachment rate go up as you built out the product line?
I'll just repeat the question. You weren't quite as loud. The question is, since we've acquired Eksigent and launched some new products there, have we seen the attachment rate to our instruments increase? And the answer is yes, in two particular ways. One increased focus and rigor to ensure that our value propositions include Eksigent as a part of that value proposition simply by having it training our sales folks and ensuring that it's a part of the value proposition has increased quite significantly our attachment rate. And then certainly now that we've launched micro as well as the analytical flow rate instruments, we're finding an increase in the attachment rate there as well. Particularly in the applied market as it relates to the analytical flow rate. And when we think about micro there, we're thinking around peptide quant and those kinds of protein applications.
Just as a follow-up, given the work that you've done on the manufacturing side at SCIEX, maybe some of the big costs have come out with moving to Singapore, some of the procurement efforts. What does the gross margin roadmap look like at SCIEX from this point forward?
The gross margin roadmap is driven by a number of factors. Certainly, we're looking at an improved mix, as you can imagine, with the new product launches, all of which are on a different cost basis. We expect an improved gross margin through mix and the associated volumes there. As a standard part of DBS, we continue to derive PPV value analysis, value engineering, which is a tool we use to improve quality while reducing component costs. We continue to see that improvement. As to how much of that we end up sending to operating margins versus increased R&D and so forth, that we'll take one step at a time.
Hi there. Could you just touch on regarding product development, the role of software, and how that plays into your ability to expand into some of these applied markets? It seems to me, I think you mentioned before some of the diminishing returns you get as you really push the envelope purely on performance. If you look at where the market from aspect is going, the importance of making the technology more accessible through software, that was just one theme I didn't see in the slide that I'd be curious about.
Yeah. Great question, and I think you've really provided 50% of the answer to it. Our VOC, as I mentioned earlier, has really given us a great understanding of how the needs of our customers, the pain points that they have, but also the challenges that they have from an economic standpoint play into their mass spectrometry solutions. It is in fact so as you go down to the applied markets where you're looking at more routine testing, that offering a complete solution on the one hand, so having all elements of the workflow tied together with some of those reagents that you saw Dave show you, as well as the methods and so forth, including certain sample prep solutions and so forth, are very important.
Software plays a key element to that because as you go down into this particular space, I think Tom mentioned this as well, the lab technicians are not of the same level of qualification as you might find them in an academic area where it's a post-grad or perhaps in a hospital where you have certification requirements. Software, in particular, is a key element to the ease-of-use component and pain point that you find in those markets and a key element of our strategy. Cliquid is a software solution that we provide to that marketplace, and it's clearly best-in-class in terms of ease of use and speed to result. Big part of our strategy. There's lots of questions here in the-
Thanks. Two questions. First one on the 500 basis points of gross margin improvement at thereabouts in the last just two years. PPV, that 130, how much of that was really more price-oriented versus mix and on the cost side?
The PPV actually refers to improvements that we've made in our purchasing and our procurement side.
Right.
Those 130 basis points refer specifically to that. Not to price or anything else.
How much price did you get on top of that?
On top of that, our price, I would say if you stick with the price statistic, is basically flat. We did not see a significant change there.
So all cost and mix driving the overall GM improvement over that timeframe.
Cost, mix, volume.
And volume.
Well, GM certainly.
And productivity.
Yeah.
The second question's around the $2 billion market size that you have right now, and you've expanded that over the last two years with some acquisitions, it sounds like, and you've gone up to $600 million. Where do you see that $2 billion addressable market headed? You've talked about a lot of adjacent opportunities, but how should we think about that in the realm of the overall $9 billion for life sciences as opposed to the other, the diagnostic side? How big are you going and how quickly?
Okay. Let me differentiate there between the market dynamic and where we are headed. The market is the $2 billion, and we think it is growing between 6%-8% sustainably. You will see it go up and down here in the next five years. If we keep all things equal, we expect that market to grow at 6%-8%. As we mentioned in our strategy, if we look at clinical diagnostics, not a part of that $2 billion market definition, specifically diagnostics. We see the potential market increasing very significantly. As you break through and you get the regulatory approvals and you start switching over time, it does not happen overnight. First large hospitals, then mid-size hospitals to the application of mass spec technologies, you could see a very nice bump there. Of course, with the corresponding growth in our business.
We have got time for one last question.
Tom, can you maybe talk a bit about, just from a macro perspective, obviously Danaher has a big exposure to Europe, and there is a lot of European exposure in this business. Maybe if you could discuss what you would expect to see if the economy there really starts to weaken, if you have seen anything quarter to date so far. On top of that, China, a lot of growth in healthcare there, but maybe differentiate between what would be your highest growth businesses and opportunities there. What kind of comes along as the caboose on that kind of healthcare spending train in China?
Sure. No question, Steve. Europe is a very mixed environment right now. We actually continue to see reasonable performance in Germany, the Nordic region. The more north you are, the more industrial you are, the more developed, I think, the better. Southern Europe, clearly in tough shape right now. Spain, Portugal, Italy, all generally very slow. A number of tenders, we would back that up by, say, the number of tenders that we had seen in the first half of the year, particularly in Spain as an example, Italy as well, much slower than prior years. We would still consider that probably to be a headwind, certainly here in the first half, and I would guess probably for the rest of the year.
Has that changed at all in the last month or so?
No, I would say pretty consistent in the last month or so. No meaningful change there. In China, clearly a slower start to the year than we would have anticipated broadly defined across the corporation. But if you go to particularly our diagnostic businesses, they continue to perform very well. Double-digit growth continuing in Radiometer, in Leica Biosystems, as examples. So where we see the investments going in, specifically into healthcare and into diagnostics, tier 2 hospitals, tier 3 hospitals, our businesses continue to grow very well. I think part of that is not only the investment, but it is also the bias towards more sophisticated, more high-end equipment, and then the associated pull-throughs, which in general, in our cases, are captive to our instrumentation. Probably a little bit slower on the life science side in China. Still pretty good growth.
We see significant investments going in, particularly in mass spectrometry. But again, a little bit slower than we would anticipate. Some of the tender activity here in the second quarter has picked up, so we are anticipating a little better performance in the second half than the first in China. I think that is time for a break. I think as Tamara just mentioned, we are going to have a break back in the cafe area. Then, I think, what? Top of the hour, 5 past, we are going to come back together, meet for the tours. Thanks very much for those questions.