All right. Good morning, everybody. My name is Luke Sergott, and I cover life science tools and diagnostics here at Barclays. Today with me, I have the pleasure with Prahlad Singh or Dr. Singh from Revvity CEO. Given we have a limited amount of time here, let's get right into it. So let's start with the Life Sci business. You've built a pretty robust drug discovery side. Talk about the demand there. It's been soft across the paradigm for a while, the last few quarters. So talk about the demand that you're seeing and really kind of where you play and why you might be insulated from some of the areas of weakness that others are seeing.
Sure, Luke. It's good to be here. You know, I always have, you know, interesting discussions with you. But talking about life sciences as an end market and then how we play there. I think, over, you know, as we've gone through this journey of portfolio transformation over the past several years, you know, in life sciences, our focus has sort of gone from being a leader on the preclinical stage for small molecules, and, you know, and we made significant investments to build the same kind of portfolio on the biomolecules side of it. And our focus has always been that how do we provide differentiated offering to our customers, especially as we look at the clinical research and development? You know, we don't do any commodity products.
We don't do any routine, large products that might be used for routine work in the lab. It's always been focused on how can we provide either technology or tools and capabilities to leverage that technology, or, on the other hand, reagents for that purposes, that helps them, A, be much more efficient, faster, and cheaper to do drug development. And that has what has been our focus, starting first on the small molecules and now moving to biologics, especially in the cell and gene therapies, right? The second part of your question is, you know, what is the market demand has been?
You know, I think as we saw in September, since September, I would say that the market has stabilized, and you know, and that stability has continued, and we hope that it stays the same as we have seen since that time.
On stability there, so from... You know, as you're making that push more into the biologics discovery side, walk us through kind of the demand from, you know, as you're saying, stable. Is that more biologics, or is that on the large one or the small molecule? Do those tend to move with each other? Just on how that dynamic plays out.
Yeah, you know, again, the research programs where these big pharma or small or mid-size pharma biotech play, they are multi-year programs. They are not sort of dependent on moves up and down a quarter. So it's more around the overall underlying stability that we have started seeing in the market. I see that as a positive trend, and hopefully that continues into the year.
Okay. And then is the stability, and how do you think about that with the year-to-date funding raises that's been on the biotech side? And I understand that a lot of that's going to go towards the development and clinical trials, but as that starts to trickle through, how in the past has that, you know, started to materialize in your bookings?
Yeah. I mean, we see that as a positive trend, and, you know, hopefully, that results in a positive outlook as we look forward to the next few quarters. You know, of course, it takes time for funds to translate from when it's funded to the bench.
That's what we need to see how quickly or how much time that takes to happen. You know, but anything that would come from that would be upside because we've not assumed any of that in our guidance as of now.
Right. And then on the guidance, quick segue here. You know, through the different assumptions baked in your different subsegments, so reagents up in the singles, instruments down high singles, software up high singles. Kind of walk us through the underlying, you know, drivers of each of those, what you're seeing, and then kind of sources of upside or downside that you may take there.
Yeah, I mean, I think, you know, we've when we guided at the beginning of the year, we didn't assume any big uplift in the environment. As I said, you know, we assumed the stability would continue, and so far, that has panned out. If you just look at breaking down into the pieces, you know, there were two pieces that were unique to us versus last year. One was the software business, which, you know, we had pointed out early in the year. Last year, there were not that many renewals, and now that goes back into a growth phase this year.
Second was the Revvity Omics business for us last year, which was unique in terms of the partnerships that didn't pan out last year, which we expect that to come back, and, you know, not just the annuity of it, but also for the partnerships to come back. So those are two positive trends that we have seen. You know, on the life sciences instrument side, we've assumed them to be down-
... you know, close to double digits. But, you know, the reagent side of the business, we've assumed them to be, you know, the lower single digits. And the diagnostic side of the business, again, we've assumed it to be in the same trend that we have seen last year, which being, up higher, low single. So essentially, that's sort of where we have, ended up being, up 2%. But I think where, look, it's important to also realize that if you look at how we performed in 2023, you know, the differentiated portfolio shined. Because if you look at our peer group, you know, we were the ones who were at the upper quartile in terms of what we delivered in terms of organic growth for the year. And we expect that similar performance to continue.
All right. So just tying that piece of the guidance, the Life Sci in before our first question was on the discovery. So, you know, with the instruments being down close to double digits and we have high singles guide, so talk about where you play within that discovery paradigm, like why it's down and what we should be looking at for that to recover? And that same thing, I guess, is thinking about reagents up mid-singles. Like, what's from the antibody perspective from BioLegend, is and a lot of that goes to its flow, like, is that cell gene therapy driving that? Is like, you know, we're looking for the KPIs to start improving here.
I mean, obviously, cell and gene therapy is a big driver of that market and play there. But really, if you look at our portfolio, Luke, now, it is, you know, we don't have something that you build large inventories of. You know, give you the example of BioLegend. You know, delivery there is 24 hours. So it's not that, you know, customers take large inventory and store it. And, you know, for us, the big precursor of the market turnaround happening will be when we see our fast burn rate reagent flow through happening at the same clip that it used to happen in the growth market. So for us, that becomes a very good indicator. I think the life sciences instruments, especially the, you know, more unique large ticket items, those are much more CapEx dependent.
Obviously, that will take a bit longer time for that to turn around and then see the impact of the funding coming in or the market turnaround happening, taking a longer period of time.
All right, sounds good. On the software side, you just introduced clinical trial software. You're talking about, you know, this is one of the upside drivers this year for growth, just because you don't have the contract renewal timing differences. So talk about on the software piece, really where your plan here is over the next three years. Like, do you continue to build out new applications, new modules, or is this just more about market penetration?
That's a great question. I mean, look, the way I would think of our software business is it's not very dissimilar to where our life sciences business was a few years ago, where we played largely in the small molecules, preclinical research and preclinical research and development space. You know, our software business is a $200 million business with slightly higher operating margins than our life sciences business average. So it's, you know, it's a darn good business. And, you know, I'm not going to say whether it's three years or whatever. You know, over the next few years, we expect that business to double. And the reason we say that is what we have done is very akin to what we've done on the life sciences side of the business, i.e., take it from small molecules to biomolecules. You know, that's one growth trajectory.
The other growth trajectory is take it from preclinical to the clinical side of the portfolio. You know, so the one announcement that we just had is how we are putting the clinical suite out. Essentially, it takes the analytical capabilities that we have had on the preclinical research side now onto the clinical side. You know, you take the data and the information that the data aggregators bring to the CROs on the clinical side. On top of that, this is more like an intelligence platform that allows our customers and researchers to use the analytical capabilities of the software that we provide for data that they might want to read out of it.
So they'll use it for, like, so the clinical trial piece will talk with Signals and from the data that was built from the discovery side, using the new data coming in from the clinic, very glad to come up with new insights.
That is one aspect of it.
Yeah.
But the other aspect is just on the clinical. As all the clinical platforms provide the data, it sits on top of that to provide analytical tools.
Got you.
that can be used.
Okay. Then, as this moves, you guys talk about moving this more towards the SaaS-based model. You sound like more project type of functions, and that's what, I guess, how pharma is looking at it. So what's the pushback, or what's it going to take to convert more pharma into that SaaS model?
I mean, there is not really much pushback. It's a matter of time as we introduce more and more capabilities and tools, the more the expansion into SaaS happens. You know, now close to one-third of our software business is in SaaS, and that growth trajectory continues. So we don't see that slowing down. It's just a matter of time as we introduce more capabilities on the platform and the offering, the more it moves towards a SaaS portfolio.
How many of your existing biopharma customers are now, you know, using some part of your software?
I mean, this is for us, fortunately, you know, we have a very entrenched customer base. You know, I would say probably a majority of the top 50 pharma biotech are using our software suite, and maybe I would say 17, 18 of the top 20 are using it. So-
How many of your customers, of all your biopharma customers, though, how many? I'm just thinking of more penetration to existing customer base.
That's great. I mean, you know, look, on the pharma biotech customer, that's a long tail, right?
Yeah.
So there is still a lot to go and get. But I guess what I'm saying is on the top 50, we already are there, but that's another growth opportunity as we go and, you know, capture more and more of the tail.
Got you. Let's turn it to the China Life Sci, right? If you're at the halfway point. So in guide, you don't expect a stimulus. It's clearly not happening anytime soon. So talk about, you know, the demand there and across the different end markets. Again, you're more pharma-based, but just give us a sense of what you guys have been seeing and how the quarter has been trending versus what you were expecting when you issued a guide.
Yeah. Again, I'm obviously not giving you mid-quarter trends, but I mean, if you look at our China portfolio, you know, 17% of our revenue comes out of China, 10% is in diagnostics, 7% is in life sciences. I think we've talked about the diagnostic side of the portfolio, pretty intensively over the past several quarters and years, that we've taken time to build. It is differentiated, you know, because it's in reproductive health, because it is an immunodiagnostic. That's where we've continued to see traction, given how, I would say, specialized and, not using the word niche, that portfolio is. On the life sciences side of it, 7% of it, more than 50% is now reagent-based revenue.
So, you know, so if there is a large stimulus, we might not have a big impact of it, but it will definitely benefit our business. But if you look at it in perspective, you know, our kind of business grew versus everybody being down and not just, you know, close to double digits, but significant double digits. That is the differentiation of our portfolio. And, you know, to some extent, that does not get the attention from our investor base. But we've really been very thoughtful in what to bring to China, when to bring it, and how to bring it. And I think that's, I would say, our USP for the China market.
Digging a little bit on that, why you're, why you actually grew China last year, and you're talking about differentiated, you know, model that's not like saying, you know, reagents, the instruments and software. Talk about where you saw particular strength, like where all the demand was coming from and versus others that were struggling.
Sure. I mean, look, on the immunodiagnostics side of the business, you know, as I've said before, the awareness around immune, autoimmune disease still continues to be in its infancy. It still continues to be in its, I would say, infancy, even in developed markets. You know, and definitely in a lot of the growth markets, you know, China, India, Brazil, you still have a lot more awareness that continues to get generated around autoimmune disease. So the profile for the immunodiagnostics business to continue to grow in double digits over the next several years is very bright. On the reproductive health, the newborn screening, obviously, business has obviously been impacted by the birth rates . Hopefully, this is the Year of the dragon, so we see a change in that.
You know, but we've continued to bring in new menus, you know, around Duchenne muscular dystrophy, spinal muscular atrophy. You know, we've tried to continue to keep our portfolio strengthened by adding more and more disorders, so that has helped us in China. On the life sciences side of the business, you know, the more reagents that we have introduced into the marketplace has definitely benefited us. And, you know, look, we are not immune to the impact of the stimulus, but, you know, we have not been impacted as severely as some of our peer groups have been.
Okay. And then lastly, on the life sci piece, so from the Biosecurity Act, any of your customers that are going to be impacted or meaningfully, like near term disruptive? Clearly, this could be a share gain opportunity for you versus, you know, as the work comes, it comes over here. But just as you guys kind of look at that in the near term.
Yeah, I don't think, you know, again, as I mentioned earlier, most of what we sell now in China are $500 or $200, $1,000 kits, you know, that are shipped overnight. So, you know, it's not that we are selling large million-dollar; majority of our revenue doesn't come from large $500,000 or $1 million instruments. That would swing the needle for us, whether it's Biosecurity Act or, you know, any or VBP or pick any one of those examples, right? And that's why I come back to strategically what I've tried to do is bring a portfolio into a particular market.
That is what the market needs, whether it's in terms of localization, whether it's in terms of having a differentiated portfolio that is a market lead, rather than it being a routine me-too test or a me-too assay into the market.
Okay. And then from a, you know, local competition standpoint, you know, coming in and commoditize stuff, give us a sense of how much of your business could be impacted from that. You know, you just talked about, you know, providing very differentiated products, but obviously there's going to be some stuff on-
Yeah. Yeah, and I think, you know, we see some of that. And as you see, you know, we recently announced, you know, a different distribution model for some of our more routine legacy products that we had in the infectious disease. So, you know, strategically, we continue to look at our portfolio and see how we can transform it to address some of these needs. You know, the other aspect is you will see some pricing pressure, and we assume some of that pricing pressure in the 5%-7%, that is getting impacted because of local competition.
I guess that's a good way into talk about, like, why are you guys making that change now in that go-to-market strategy, going direct on those, you know, less technical products?
I mean, it's just, you know, it's just finding the right partner who would take that. These were more routine tests that were there, HIV, HBV, you know, HPV, things that were very routine. And it didn't make sense still to have that portfolio, considering that we are trying to continue to build a more differentiated portfolio. So it was a good opportunity for us to get that into a new distribution pattern.
Was it something that stimulated in the market? You're like, okay, let's just take advantage of this opportunity, or is this actually many years in the plan, just waiting to find the right partner?
It wasn't many years in the plan, but we are always on the lookout of how do we continue to optimize the portfolio that we have for our market. So it was neither overnight nor many years.
Got you.
It's planning the right time.
So on the diagnostics, you know, the guidance for low single digits for the year, walk us through kind of how you think you're playing out. Pretty big step up here in the second half for you. How much of that seasonality versus actually, you know, a recovery in some of the markets, or just walk us through the de-
On the diagnostics side?
On the diagnostics.
Yeah, you know, again, there is not a whole lot that swings quarter by quarter on the diagnostics side of the business. It generally tends to play out in this manner. You know, on birth rates, you know, we continue to see pressure, but we've got some NPIs coming out, and we continue to have the geographic expansion opportunities. You know, diagnostics will continue to grow in its healthy pace. You know, the U.S. continues to be a strong market for us. So as more and more NPIs get approved in the U.S. on immunodiagnostics, that's continuing to be one of the drivers. So again, it's a portfolio that we've built now over a period of time, where we are not competing, you know, whether it's around flu or any of the routine tests.
We have a specialized portfolio, where there is a high market demand for it.
How does that play into the second half step up? Like, you know, as, as we're thinking about that from your, from your guide perspective.
It's more around anniversary on some of the CapEx investments that might have happened. So but it's nothing outside there.
Gotcha. And you're talking about the U.S. continuing to step up and grow healthy. You know, Euroimmun, when you guys did the deal, this is one of the major growth drivers and strategies for that business. Has kind of taken a little bit longer to penetrate the United States market. So talk about, you know, some of the hurdles that you guys have had to overcome and, you know, are we hitting an inflection point where the U.S. can be, you know, much more penetrating the market? We can see much more, incremental step up for Euroimmun going forward.
Yeah, I mean, you know, if you look at it, Euroimmun, as I have said, when we did the deal in 2017, and that you should assume it's going to grow 12%.
Yeah.
It's grown that and more, except, you know, so it's done really well. You know, one of the biggest, bigger drivers for it is actually the U.S. market. You know, it was 5% of Euroimmun revenue when we acquired, and it's 15% of it. So the U.S. has actually grown at a CAGR of 25% over the period that it has been as part of our family. So it's done really well. It will continue to do really well because it is still underpenetrated, despite that 25% CAGR that it has demonstrated. And if it's nothing more than just the amount of time, resources, and energy it requires to get more and more assays through the FDA and the approval process and time that it takes for those assays to get approved.
You know, we think that Euroimmun and the immunodiagnostics business will continue to have a bright future globally, but more so in the U.S., as it continues to be one of the larger markets where, you know, from an opportunity perspective.
Then, you know, from a menu perspective on Euroimmun in the United States, are you guys at that critical point where you have a majority of the portfolio where you can go to the lab and it's like, okay, yes, and then anything else is just kinda ancillary, or do you need to add three or four more tests to get to that critical point?
I think we need to add a few more tests, but also in, I would say, in the autoimmune side, we do have a pretty critical mass. On the allergy side, we need to continue to build the menu in the U.S.
Who are the key competitors there from, from the autoimmune and the allergy? I know Thermo has a big allergy business.
Yeah, on the allergy side, you know, as you named, Thermo’s a big competitor there. On the autoimmune side, you know, I think we have a market leadership position. There’s Abbott, there are competitors, but the expansive menu that Euroimmun brings to the portfolio typically is what drives it to its leadership position.
Okay. Let's talk a bit, a little more long-term guide here. We got you up here, might as well think a little bit outside of the quarter. So you guys just walked down your long-term guide from the double digits. Now you're down to 6-8, 75 basis points of margin expansion. You know, as you do the bottoms-up build, but that's pretty consistent from the different subsegments that you can get. So how much conservatism is baked into there? Like, when you guys think about that long-term guide, what needs to happen for us to get over that, and then what, you know, some of the risks there for it to come under?
Yeah, I think, you know, when we came back with our long range planning, there were two or three things, Luke, that we wanted to calibrate. One, is when we came out with our midterm plan in 2022, I think, right? You know, it was a very different time frame. You know, markets were growing at double digits on the life sciences side pretty well, and, you know, that wasn't normal, but neither was 2023. So, you know, for us, it was that we went back and looked at historically and a bottoms-up planning around what is the growth inherent growth rate for the life sciences side of the business.
You know, and the second aspect is what we also realized is having an absolute number for a defined period was not the right way to look at it, but rather have an underlying market growth on which you look at your portfolio and say: What is the incremental growth that you would have on the market over a period of time, rather than a defined period of time? So those were sort of the two corrections or, you know, adjustments in our assumptions on how we look at the market growth. In terms of the portfolio, look, the life sciences reagent and our software business is gonna grow 9%-11%. You know, that's the inherent growth rate. On the instrument side of life sciences and applied genomics, that's gonna grow mid-single digits.
Our reproductive health business is going to grow 2%-4%. Now, you know, either the birth rate improves, you get more opportunities there, or software business grows at a much faster pace than we think it is. You know, I think we have a good level of prudence in our assumptions now, and then that was one of the reasons for the adjustments on the top line.
Makes sense. And then last one here, last couple seconds. So, you know, with, on that same vein, you've made a lot of portfolio changes. You just closed a big divestiture, rebranding. So talk about what you think the biggest opportunities are for you guys over the next three years.
Yeah, I think the part of our story, which we continue to communicate more and more, is how our portfolio has changed in terms of what transformation that we have done has made us more of a partner of pharma biotech rather than a vendor. That's the piece which is going to allow us to have a much more differentiated performance, because what we bring is knowledge, technology, and capabilities all the way from preclinical research and discovery to the clinical lab, in terms of not just identifying and helping them develop the target, but also at the back end, identifying and following up on their patient population for their clinical studies and post-approval.
So we are a part of the journey all the way from the beginning to approval for our pharma biotech customers, and that's the piece of the story that still needs to get, you know, better understood and absorbed by the investor community.
Got you. Thank you. That's all the time we had. Didn't even get to ask my famous question for you. Thank you. Great to see you.