Good morning. Excuse me, I lost my voice here last night. It wasn't from a happy party. I'm Ken Apicerno, Vice President, Investor Relations with Thermo Fisher. I'm going to briefly cover a couple of things and we'll get on with the schedule.
Probably going to call my colleague up to read the safe harbor because I don't think I can get through it. Let me just quickly cover the agenda, if I can. So this year, we're taking a little bit of a different tact from prior years, less of a deep dive on the segments. We're actually going to go through the elements of our growth strategy. So Mark Castro will start with the strategic view.
Williamson will come up with a financial view. And then we have 4 of our business leaders presenting on the various elements of our growth strategy. I think you'll get a good feel for why we're so excited about the opportunities we have in front of us. During the middle of the program, after Mark Stephenson's presentation, we'll take a short break. And then at the end of the session, Mark Castro will come back up for and A for about 30 minutes.
And we should end the program right around 11:30 or so. If a couple of administrative things before we get started. When we get to the Q and A session, if you could please just raise your hand, And if you could, if you could please just mute your cell phones, that would be very helpful.
Actually, I'm going to
call my colleague, Raft de Hata, tick him up and read the Safe Harbor because I don't think I can get through it.
Thank you, Ken. This is a dream come true for me. So various remarks that we may make in these presentations about the company's future expectations, plans and prospects constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including doses caused in the company's most recent quarterly report under the caption Risk Factors, which is on file with the Securities and Exchange Commission and available in the Investors section of our website under the heading SEC Filings. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change, and therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today.
Also during the presentation today, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP, including adjusted EPS, adjusted operating margin, adjusted ROIC and free cash flow. The non GAAP financial measures of our results of operations and cash flows included in today's presentations are not meant to be considered superior to a substitute for Thermo Fisher's results of operations prepared in accordance with GAAP. Definitions of these non GAAP financial measures and for historical purposes, reconciliation of the non GAAP financial measures to the most directly comparable GAAP measures is available in the appendix to today's presentations. So with that, it's my pleasure to introduce our President and CEO of Thermo Fisher Scientific, Mark Casper. Thank you.
Ken and Raf, thank you. Ken, we're looking forward to your speedy recovery. It is great to see you here in New York City. As you know, I always view this as the best day of the year. And certainly, if you follow Thermo Fisher Scientific, I hope that you share in that sentiment.
I would like to start by thanking our Board of Directors who, as this year, as in years past, join us here for the meeting. And I'd like to ask them to stand as I introduce them: Jim Manzi, our Chairman Nelson Chae Martin Harris, Tyler Jacks, Judy Lewent, Tom Lynch, Laura Sorensen, Scott Sperling and Elaine Yullian, thank you for your service to our company. It's extremely valuable. Our company leadership team is also here. You're going to hear from members of them, members of the team this morning present a different topic.
Steve Williamson, our CFO, will give you an update on our financial outlook and why we're so excited for the future. Then you're going to hear, as Ken mentioned, more depth on our 3 drivers of growth. Mark Stephenson will update you on innovation. Saiyad Jaffray on our presence in high growth and emerging markets. And Greg Harrim will give you an update on our customer value proposition.
And then Michel Lagarde will also add his views on our value proposition as well as give you an update on the integration of Patheon into the creation of our pharma services group. As you know, We delivered a fantastic 2017, and we're on track to deliver another outstanding year in 2018. So I think you'll get a great sense of why we're so excited about our future today. We're going to cover a lot of information this morning. We wanted to put the takeaways from the day right upfront so that you have the summary of the meeting.
At the highest level, Thermo Fisher Scientific, clearly the unrivaled leader in our industry. And you'll get a sense of why the market we serve is so attractive and why we're so confident that we have an even brighter future ahead. And when you look at why we believe in that, you'll see the benefits of our unique scale and depth of capabilities and how that creates competitive advantage for Thermo Fisher Scientific. You get a good sense of where we are in our proven growth strategy and how our PPI business system drives exceptional financial performance in terms of earnings and cash flow growth. We'll talk about the ongoing ability to continue to deploy capital to create incremental value.
And when you put those factors together, you'll get a good sense of the outstanding financial outlook we have with both short term and long term excellent prospects. I'll spend a few minutes updating you on the orientation of where we are as we sit in the middle of 2018. As you know, Fisher Scientific is the world leader in serving science. We have excellent brands well recognized by our customers, and we're known for our industry leading scale and our unmatched depth of capabilities. From a scale perspective, 70,000 colleagues, about $1,000,000,000 of investment in research and development with unparalleled commercial reach to customers around the world.
From a depth of capabilities, we're known for our leading innovative technologies, how we drive productivity for our customers, the deep applications expertise that we have and the comprehensive services offering that we apply to our customers. All of those capabilities are powered by our PPI business system, which is how we operate the company. In terms of our segments, we'll give you a little bit of a deeper dive in a few moments. But the thing that's special about the company is how each of our segments complement one another and make each other stronger. On a pro form a basis, we have $23,000,000,000 in revenue, including Patheon on a 12 month basis.
And when you look at the each of the segments, each are a leader in their own right. From a mission perspective, we enable our customers to make the world healthier, cleaner and safer. And you'll get a good sense today that everything we do starts with our customers, right? And that intense focus on customer success is what really continues to allow Thermo Fisher Scientific to gain market share. The mission that we have, which is an important mission about enabling our customers ultimately to make the world a better place allows us to attract and retain the very best people in our industry.
Here are three examples of some recent things that our technologies and capabilities have been used for, and there are countless examples that we could be talking about. From a healthier perspective, we played an important role In the advancement of the first therapy, a CAR T therapy for leukemia patients in children and young adults, Our B technology was ultimately the enabling technology that Novartis used in the development of their product that was launched recently. From a cleaner perspective, our chromatographs are used to measure pesticides in water, food, beverages to ensure that we have a clean food supply. And from a safer perspective, our TRUENARK analyzers are used by law enforcement to help tackle the opioid crisis. And in this case, a law enforcement personnel is able to determine what a substance is 3 different examples, all very different, about how we enable our customers to make the world healthier, cleaner and safer.
Dated for the 2017 performance, right? So it took the 5 year track record, added another year. And what you'll see is that the top line, we've grown 10% average since 2011. We've been able to translate that into 15% EPS growth and 16% growth in free cash flow. And Stephen will give you a lot more about what our future holds, but we continue to drive outstanding financial performance.
So that gives you a good sense of the financials. The other aspect, because we don't just measure financials, is a number of other metrics that are equally important to driving our growth momentum. When you look at this, and it's something we talk less about, We measure our customer allegiance, right? And from the Net Promoter Score, which is the methodology we've used for about a decade, We've improved it by 23% over the period. The starting point was very high.
It was outstanding performance, And
we continue to
make it better. But the interesting thing is, is that we measure this by every business, by every region. We get all of our customer comments, and that's how we work. It prioritizes how do we make the company better, how do we meet unmet needs to ensure that we continue to grow share. We also measure our employees' experience.
We use a number of indices to understand how our colleagues feel about working at the company. And since we started using this methodology in 2014, again, starting at a high level relative to the peers, we've been able to increase our metrics by about 9 percent in terms of our performance. And then finally, from a social responsibility perspective, take a look at our website and look at the social report. We also have some copies here as well. We're very focused on being a good company in the communities that we work, right?
Whether it's philanthropy, a focus on sustainability, volunteerism in the communities and having good corporate governance, These are all parts of sustaining industry leadership. So when you take the combination of our financial performance and you look at how we measure our success with customers perspective and the impact we have on our communities, that is how together that package creates value for all of our stakeholders. So now looking to the future. A number of years ago, we introduced to our owners our vision for 2020. And in January of this year, as the decade is quickly winding down, we introduced internally our vision for 2,030, right?
Because a lot of what the success of the company is, is having every colleague understand what are we trying to accomplish and having an aligned team that's focused on the most important priorities. When you look at our vision for 2,030, It should look familiar to you. It should look very similar to what we were trying to accomplish in this decade, continue to be an unrivaled leader, being a great company to work at, Having a wonderful team that makes a difference, very focused on customer success and a passion for innovation. Those are the recipes that will continue to sustain and propel Thermo Fisher Scientific to be an even stronger industry leader. When we do that, we'll be able to continue to deliver outstanding financial performance.
When we talk internally about this, What we then say is, when we introduced in January, is we have 48 quarters to actually execute this plan. And what are we doing in this 90 day period in the Q2 of a 48 quarter plan to actually deliver on those results? And that's how we operate from a company perspective, which is, are we making a difference every day in delivering on our long term objectives? And that has served us well, and That is why we're so excited about what the future holds for Thermo Fisher. In the balance of the remarks, what I want to talk about is why We're so confident that our future looks even brighter.
The first element of that is that we serve an attractive end market. The second is that we have a proven growth strategy. The third is driven by the benefits of our PPI business system. And finally, that we have a disciplined and successful capital deployment methodology. And this is why we're so confident that our future will be incredibly bright for Thermo Fisher Scientific.
So starting with the first element of the longer term view is our end markets. When I look at the end markets, we serve about $150,000,000,000 end market. The underlying growth is somewhere in the range between 3% 5%, And that outlook continues to be very positive. The drivers of that long outlook is that we benefit from favorable demographics. We benefit from the amazing science and the advances that are going on these days in terms of the advancements coming from science.
And we benefit from the technology migration moving from research applications into the applied markets and into the clinical markets as well. And you'll get a sense of all of that during the course of the morning. When you look at our objectives, it's to grow at a minimum of 1 point faster than the rate of the market. So a 4% to 6% outlook based on this rate of market growth is what we're consistently focused on delivering. So we serve good markets that have been very consistent over long periods of time.
The second aspect of why we're so excited about the future is our growth strategy, and a well executed consistent strategy does position us for outstanding growth. The three elements of that strategy are high impact innovation, the benefits of scale in the high growth and emerging markets and our unique customer value proposition and why that puts us in a very special position to gain share with our customers. I'll give you an overview of each, and then you'll get more depth on this in some of the subsequent presentations. When you look at our innovation strategy, first, some of the basics around it. We have the largest investment in our industry by far at $1,000,000,000 We spend about 6.5% of revenue in terms of R and D.
We want to make sure we're spending that to get a high return on investment By having great input so that we're developing the right products and capabilities, we have deep scientific expertise internally. We complement that with a world class scientific advisory board and a very deep set of customer collaborations to understand their unmet needs and be able to apply those technologies in the real world settings. We've become known across the industry as a thought leader, and these are some excerpts that you can get from different publications about the role that we play in advancing science. When you look at that innovation strategy and how we apply it and how we have high impact to innovation, at a high level, we're focused on delivering best in class new products. We then take that and use the depth of capabilities to make a big difference in advancing the scientific discoveries.
We'll talk about precision medicine today. We'll talk about structural biology as examples of how we're making a difference, capitalizing on the big scientific trends. And then finally, we're driving the migration of life science tools into the diagnostic and clinical markets. And those three elements are the roots of our innovation strategy. A few years ago, we started talking about digital and the opportunities that, that presents.
And just say 2 to 3 years since then, We have really benefited from applying digital capabilities for our customers. Mark Stephenson will give you a sense of that today. So that's innovation at a high level, the biggest R and D budget applied on the right opportunities with a great track record of success. The second element of our growth strategy is around benefits of scale in high growth regions and emerging markets. Many of you have heard me say many times that if you are a customer in emerging market, it is rational For you to want to do more business with Thermo Fisher Scientific because you simply get a better experience.
And the reasons why you get a better experience than your alternatives are we have the most capable commercial infrastructure to reach laboratories and customers around the world. We have tailored e commerce experiences for each of the markets. We have local R and D and manufacturing capabilities tail of the products and services for our customers. We have a world class supply chain. And because of the career opportunities that Thermo Fisher has, We have access to the top talent.
Those factors have allowed us to grow the percent of company's revenue from 15% of our revenue in the high growth and emerging markets in 2011 to 21% today. And when you look at it, it's a big business for us today, $4,700,000,000 with very strong presence in China, Korea, Southeast Asia, India, to name a few. As that has grown to be a bigger and bigger portion of our business, it obviously has propelled our organic growth as well because it has an even bigger contribution to our long term success. The 3rd element of our growth strategy is our unique customer value proposition. When customers work with us, they're working with us primarily for two reasons.
They're trying to improve their innovation or they're trying to meet their productivity requirements. And we enable both of those things from the capabilities that we have. Because of our unmatched customer access around the world as well as the ability because of our scale and impact to have relationships At the CEO level, at the Chief Procurement Officer level, at the heads of manufacturing and R and D across our customer base, We really are able to work in a differentiated fashion with our customers. Over time, we continue to increase our market share or our share of wallet with our existing customers by launching high impact new products, by leveraging the benefits of our research and safety market channel and the fact that we do the procurement for our customers for what they need in terms of scientific supplies by continuing to provide more and better comprehensive value added services And then supplementing those capabilities with acquisitions so that we're always having something new and exciting to talk to our customer base about. And when we do that, we're driving huge impact for our customers, and that gives us more case studies to talk about and ultimately drive adoption with additional customers.
When you look at how we've applied this unique value proposition to the pharmaceutical and biotech customer base, Since 2011, we have averaged 8% organic growth over that period serving that customer base, which is far faster than the rate of market growth. It really has been a very significant driver of growth for Thermo Fisher Scientific. So that gives you a good sense at a snapshot level of the value proposition and you'll get or our growth strategy, you'll get a good sense of it in more depth during the course of the morning. So that turns us to the 3rd aspect of why we're so excited about our future prospects, which is our PPI business system. Our PPI business system is how we operate.
It drives efficiency. It drives productivity. It helps us deliver the financial commitments we have every year on how we expand margins, but it's much more than that. It's about how we operate from a quality perspective and how we ultimately create customer allegiance so that we can drive organic growth. Stephen Williamson will give you some examples today, as will Michel Lagarde in terms of how he's applying this methodology to the Patheon business.
And then the final aspect of why we're so excited about the future is around the disciplined capital deployment methodology that we have. Our M and A strategy should be well characterized, or is well characterized and Should be no surprise on the details of it. When you step back and you think about what we're doing, we look at lots of different possibilities, But it's all about selecting the right opportunities, right? And we have a very rigorous selection process. And if you boil it down, we start with enhancing our customer offering, meaning that when a deal is announced, will a customer be able to say right away, I got it.
I know why Thermo Fisher did it. I see how it's going to benefit me intuitively. The second is that it strengthens our strategic position, meaning that when we add a capability, the whole company benefits from that addition to the business. And that ultimately, the return metrics are very strong from a return on invested capital perspective. When you look at that, the way I'd say it differently is, are we the right owner of a business is a way to think about ultimately whether we'll do a transaction.
We have a proven integration methodology. When you take the selecting the right transactions, integrating them in effective fashion, We're able to enhance the financial performance and operational performance of the company in taking it from before we owned it to after we owned it, the business performs better. And then secondly, we have an excellent track record of delivering strong costs and revenue synergies, and that combination has created substantial investor returns over the years. The middle chart shows the last 10 plus years of the company's deployment of capital since we created Thermo Fisher Scientific in 2006. And the point of the chart is every 2 to 3 years, ahead, have you run out of things to do?
And really what the reality is, is that we serve a very big market, and we've been able to be very active over long periods of time. And then there's the final chart, which is where are we today. And you take the top 3 players in the industry and you look at the serve market, The top 3 players make up about onethree of the total market, which means that we're sitting in a position today where the industry is still incredibly fragmented with hundreds of industry participants and the ability to generate substantial capital generate and then ultimately deploy substantial capital going forward. And Stephen will talk about our modeling assumptions around that as well. So that's the methodology, and then there's a little bit of an update on how we're doing with our 2 most recent large scale transactions.
The first of which is FEI, closed in September of 20 So a little over 1.5 years ago, we've had a very good start to the acquisition, right? Right from the start, We focused on increasing R and D investment and applying our PPI business system to the business. You're seeing a steady cadence of new products today investments. And you've seen tremendous improvement in financial performance of the business because of the ability to expand capacity by using our PPI methodology. And ultimately, we've been reinvesting in the business to expand our customer demonstration labs around the world and have gotten the business into a virtuous cycle where we took a business that was growing in the low single digit organic growth as a stand alone business, And we're now growing in a strong double digit growth organically today.
We've been able to exceed the synergy targets that we set out, And we're running well over the ROIC targets that we announced at the time of the transaction. So we're off to a fabulous start with great opportunities ahead. Business. It's an attractive market. It's a fragmented market.
It's growing well. And Patheon brought incredibly complementary capabilities to our clinical trials business and our bioproduction business. At the same point, from a rightful owner perspective, we've been able to leverage our customer relationships to be able to open doors for the combined pharma services offering to improve the already strong growth outlook to make it even better for the business. And This combination delivers very strong financial returns. When you look at the update, the integration is going incredibly well.
The PPI business system is being widely adopted. Our cost and revenue synergies are on track, and we're making great progress on the revenue work streams to drive further growth. I think the quote sums it up from one of our pharmaceutical customers about the logic of the capabilities we brought together and why we're winning more business. So that gives you a good sense of why we're so excited about the future: attractive markets, a proven growth strategy, the benefits of our PPI business system and a disciplined capital deployment methodology. I will end with a slide that I've used for many years in a row with no changes, which is our formula for success hasn't changed.
We're using those drivers of organic growth, our PPI business system and our capital deployment to consistently deliver strong adjusted EPS growth. And we're very, very excited about the future. With that, I'm going to hand it over to Stephen Williamson, our Chief Financial Officer, who's going to give you an update on our financial outlook. Thank you.
Thanks, Mark, and good morning, everybody. It's a pleasure to be with you today to give you another update on the company. These are the topics I'm going to cover this morning. First, I'll take you through a profile of the company, talk about the revenue profile first and then drill down segment by segment to give you a quick overview of each of the key segments. I'll give you two examples of how we're using the PPI business system and continue to use the PPI business system to make an impact across the company at multiple different levels.
And then get into the financials, quick recap on how well we did in 'seventeen, What we're continuing to do in 'eighteen and then taking that strategy that Mark just outlined and show you a really bright financial future that comes with The updated 3 year long term model. So starting with the revenue profile of the company, As Mark mentioned, we've included Patheon in the numbers here to give you an idea of the current composition of the company. So about $23,000,000,000 in revenue in total. And what Patheon did is it added to the pharma and biotech part of the pie on the left, and it increased the services part of the pie in the middle. And what that did is basically further strengthen an already attractive revenue profile for the company.
As Mark mentioned, pharma and biotech has been a very strong growth End market for us. It's yes, it's pretty decent market growth, but this is where we're taking a significant amount of share using our customer value proposition. And bringing in Patheon, that just further solidifies that value proposition to those key customers, both large and small, to enable us to take share going forward as well. So that's we're really well positioned from an end market standpoint. And then in terms of the middle pie, kind of the type of revenue, Approximately 3 quarters of our revenue now is recurring in nature with services and consumables, which is a really strong position to be in.
And then you think about the pie on the right, which is our geographic view. Approximately 25% of our revenue is coming from Asia Pacific, Rest The world is kind of high growth markets. We're well penetrated in these markets. But as you'll hear from Syed Jaffray this morning, we're really well positioned to continue to take Significant amounts of share as we go forward in these key markets, and that will be an ever increasing part of the pie on the right. Saw this slide earlier in terms of the segments.
I guess I view this as we have very, very attractive individual businesses in each of these key segments, Made all the stronger, all the better by being part of the whole of a greater company, really tapping into the strength that we have in terms of the depth and breadth of capabilities And the customer linkages that we have across the company make a huge difference. Let me take you through a quick high level view on each of these key segments, starting with Life Science Solutions segment. So here, it's really a fantastic unmatched depth of capabilities to enable life science research to happen And to enable our bioproduction customers to be successful. Think about those two pieces, life science research. We have the broadest array of instruments, equipment, consumables, Backed by deep applications expertise, a fantastic rich content web presence and an easy to buy click and buy type of approach in the web e commerce.
That enables life science research to happen. Wherever it is in the world, whatever it is that the investigators are undertaking, we're there to help them. On the bioproduction side, it's kind of really its gold standard products enabling bioproduction customers to know that their bioproduction is going to get done with the right level of quality. So we're a trusted supplier to the key bioproduction industry, very fast growing business. If you look at the chart on the right hand side, very high consumables, revenue stream in Life Science Solutions, that's a highly profitable segment for us.
Moving on to analytical instruments. So here, we have a very broad array of analytical techniques to enable our customers to basically get through their complex challenges in terms of analysis. In the lab setting, We've got fantastic products in mass spectrometry, chromatography and electron microscopy. And then going out of the lab and into the field, Portable analytical instrumentation, environmental monitoring, to name a couple. So really strong presence.
Wherever the customer is, we're there to help them with their analytical needs. A very strong installed base, and with an installed base like that comes a very strong recurring revenue stream in terms of services. And we think about the geographic focus for this part of the business, approximately half the revenue for analytical instruments today comes Asia Pacific, rest of the world, the high growth markets. We're really well positioned there and taking full advantage of the high growth and continuing to take share as well. Then specialty diagnostics.
This is an excellent collection of niche diagnostics businesses, very strong franchises. Look at the strength of the consumables portfolio that comes with that in terms of the recurring nature of the revenue stream. As Mark mentioned, we're also then this is the we're enabling the translation of life science tools into a diagnostic setting. A deep understanding of the diagnostics industry and what it takes to actually operate Actually, in a validated regulated environment versus just a research lab, this business is helping us lead the way and make that translation. And our deep connection with the customers in the diagnostics area is also enabling that to happen.
So attractive individual businesses And then a great way to be able to take a unique position, I think, we have in the industry to take that life science tools and bring it into a clinical setting. And then last but not least, you've got lab products and services segment, fully focused on driving customer productivity. So you have lab products, And then you've got the research and safety market channel, every day driving customer productivity In a very complex customer environment, this is not just a click and buy. This is actually then driving productivity deep within a customer at all levels in the customer. And actually in Greg's presentation, he'll take you through that complexity and how we solve that for our customers day in, day out.
We're very embedded with our customers to enable their success. And also in a segment fully focused on driving productivity for customers is our pharma services group. So we brought together Patheon plus our clinical trials logistics business to create the industry leading CDMO business, which will really enable our customer success. And Michel Lagarde this morning will take you through Much more detail on that business and why we're so excited about the future. And it's a very strong business in itself, but the connectivity across the rest of Company, particularly with the customer connections we have, but customers large and small is going to make a really material difference in the industry.
That's a quick snapshot of each of the segments. Moving on to the PPI Business System. Mark showed you this slide earlier on. I'll just add one thing to it. To me, the most powerful thing about PPI Business System is the first P in PPI, is practical.
All 70,000 colleagues across the company Can understand the methodology and can actually do something with it
so
that they're better today than they were yesterday, or they're working as a team to be better today than they were yesterday, Well, they're working to make the whole business better today than it was yesterday. I have a couple of examples to bring that to life where we're constantly using the PPI business system to improve performance across the business on multiple metrics. As Mark mentioned, it's the whole P and L and cash flow. It's about organic growth and how can we make a difference in terms of customer allegiance and Keep improving the customer experience. And there's quality to make sure that the right products get the customers in the right way and on time to the right quality level.
And yes, it's productivity and capital that come with it as well. So two examples, 1 at a kind of a micro level and 1 at a macro level for the business. The first example here is in bio Production. This is a picture of a filling line in our site in Grand Island, New York. And this is an example where The operators that run this line use the PPI business system to run a Kaizen event to figure out how can we actually get more output out of this filling line.
We were looking to actually add another filling line. This is a way to avoid CapEx. So how can we sweat the assets more and get more out to our customers? But it's also about throughput, making sure that we get the right quality, which also benefits profitability as well as cash flow. And just this natural work team working together Made a pretty impressive change to the output from the filling lines you can see on the page on the left hand side.
This is just one example of Natural work teams working together. We've got thousands of those happening every single year across the company. And in fact, in this one site in bioproduction in Grand Island, Approximately 100 of these types of projects went on in 2017, saved the business $3,000,000 on an annualized run rate business run rate basis. So Material impact when you add it all up, of all these teams working together to make a difference. Slightly higher level example is how Actually enable a business success by using the PPI business system.
And Mark mentioned, as we do acquisitions, we look to quickly roll out the PPI business system to help us execute. And this example is FEI, our electron microscopy business. So FEI was an okay growth business, Pretty long lead times between ordering and getting an instrument. And we spent a lot of time focused on accelerating the organic growth of that business. So yes, strong market conditions, but also we're driving significant share gain by bringing together FEI with the rest of the company.
And that left the business with a good problem to have, which is how do you actually operationally execute against that high growth in the business? How can we actually get the output out to customers without extending lead times and actually shrinking lead times? We did that with the PPI Business System. We quickly trained the colleagues that came from FEI on the methodology. So this isn't about seeding tons of other people from the rest of the company into FEI.
This is exact same colleagues Working in the same business but using the PPI methodology to enable that success. And they focus on 2 things. 1 is The supply chain outside of the company in, we're struggling to keep up with demand. We work with them with different projects using the PPI businesses and methodology That enabled them to catch up and make sure that they can keep up with that growth profile for the business. And then within our 4 walls, How can we shrink the time from actually an order coming in and then the instrument getting in the hands of the researcher in structural biology to make sure that they can Further there, advances in science.
We spent a lot of time, how do we shrink that down? And that was the benefit there, is how do you then not need to add extra real estate to be able to then fuel the growth. And can you shrink lead times? The shorter the lead time, you actually get more people ordering products. So actually, that helps organic growth as well.
So really major impact on the business. And you can see the results on the left hand side of the page here. So that's an example where 2 examples. First one in bioproduction, a business we've owned for many, many years, continuing to make an impact. And then this example, recent acquisition, I think a huge impact in terms of the PPI business system.
As I said, these are things that are going on every single day across the company, A lot of runway to go in terms of improvements for the company. So the financials. So 'seventeen was, I think, a really excellent year on all of the key metrics see here on the page. We really delivered in 'seventeen, and it adds to a long track record of execution by the company. And 2018 is setting up to be more of the same, really strong financial performance.
Just as a quick reminder, these are the assumptions underlying the guidance that we gave back in a weeks ago back in April on our Q1 call. And this is the output of that guidance. So another really strong year, about 5% organic growth, 14% to 15% adjusted EPS growth. So that long track record of execution, basically doing what we say we're going to do, It's really important as a base for history. But what's most exciting is the future look.
And as Mark mentioned, that proven formula for success has a long way to go to impact our customers. So we can tap into the strong market growth, and we can continue to take share. Combination of that and executing well gets you this long term model. This is the updated long term model, same 3 year convention, 2019 to 2021, moved it forward a year from last year, and the outlook is 13% to 15% Adjusted EPS growth on average each year over that 3 year period. So very strong outlook for the long term model.
So the structure of the model is very similar to what you saw last year. I split it into 2 pieces. First of all, how do you expect us to run the assets that we own today and what results you'd get from that. And then layering on capital deployment on top and the combination of those two things gets you to the 13% to 15% EPS growth. And let me take you through each of those two pieces in turn.
So this is kind of the organic view, What to expect from us running the businesses we own today. Again, the assumptions at the top are results of the bottom. Assumptions haven't materially changed from last year. 4% to 6% organic growth. So as Mark said, 3% to 5% market, 1% share gain gets you to the 4% to 6% organic growth.
From a margin expansion standpoint, 40 to 50 basis points of expansion from that 4% to 6% organic growth. Plus, you get the run up of the synergies of the acquisitions we've already completed. And in this 3 year time horizon, that's Patheon and some legacy FEI synergies that get you the extra 20 basis points. So you combine those 2, you get 60 to 70 basis points of expansion each year for that 3 year period. Let me just go back to the 40 to 50 basis points from the 4 to 6 for a second.
I often get asked, When do we cap out in terms of our margin expansion opportunity for the company? Well, I think about this 40 to 50 is a long runway to go past the 3 year time horizon we have on the page because roughly half of that comes from running the business well, using the PPI Business System To get volume leverage and a little bit of price. That gets you roughly half of that expansion. The other half comes from Continuing to use the PPI business system to get full benefits of scale of the company, defragment a still complicated company under the covers. Got over 150 manufacturing sites.
We're working that number down about 10 sites a year. That helps improve margins over time. Getting the full benefits of scale from strategic sourcing. A lot of the productivity I showed you, like the example in Grand Island, that kind of continuous improvements at the site level gets you that margin piece of margin expansion. And we're at the early stages of shared services across the company, another benefit we'll see Come in over time.
The company so that drives that 40 to 50 basis points of expansion for a long period of time for the company. That's why you see at the bottom, we've got, in the 3 year time horizon, getting margins to between 25% 26%. So the output of kind of the organic view is very strong. So at the midpoint, over $27,000,000,000 of revenue by 2021, As I said, margins between 25% 26%, strong growth in adjusted operating income dollars And then continual focus on return on invested capital on organic basis increasing over 100 basis points a year over this 3 year time horizon. So very strong operational outlook, but there's more than that.
Then you layer in capital deployment to add even more benefit to the company. The one bridge page here to go between the two pieces of the model. The proven formula for success is on the left. It's well known to you. Making an impact, continues to make an impact.
And I've added a couple of details around capital deployment. No change from what we presented last year to indicate How we will be deploying capital over a long period of time. This example is over a 5 year period. And what this indicates is the primary focus is on M and A. We think where we can have the biggest impact long term for the company and our shareholders, but at the same time, still returning substantial amounts of capital to shareholders as well.
And we generate substantial amounts of capital to deploy. So yes, we generate strong EPS, The EPS growth matches with cash flow growth over a long period of time, so make sure that, that translates into cash we can deploy. And then we have strength from our balance sheet as well. A very talented tax and treasury team taking full advantage of the capabilities of the company enable us to get strong leverage out of the balance sheet as well. So by focusing on maintaining investment grade on our debt, we actually have the best of both worlds.
We've got BBB flexibility, so still BBB investment grade, flexibility to flex up the debt when we need to when the right acquisition comes along. But at the same time, the cost of debt is much closer to A rated debt. So I get that best of both worlds. We get that because we have the long track record of execution and then the strength of balance sheet driven by the team. And I think we're really good then at deploying that capital in an effective way, making sure that we're picking the right things to work on.
We're not buying something because we can, we're buying something we should and then executing really, really well. And it's the execution on the synergies. Yes, the 3 year synergies that we but the long tail of synergies that come with these deals as well. And then as Mark said, it's making that base business as good as, if not better than it was under the previous ownership. That's a powerful combination.
We bring all that together, solidifies the industry leading position and generates very strong shareholder returns, which is really shown on the second page of my financial model, gives you that 13% to 15% EPS growth. In terms of the assumptions behind the capital deployments, approximately $22,000,000,000 of capital deployed over the period 'nineteen to 'twenty one. Roughly $14,000,000,000 of that, I've assumed, is going towards M and A. And think about the source of the funds, it's approximately $15,000,000,000 of cash flow. The rest is balance sheet leverage.
And as you'd expect, we're going to effectively manage our tax position, keep it at a relatively low rate for the long term. I've assumed in my model increasing from 12% in 2018 up to 12.8% in 2021. So all of that generates Very strong EPS growth, a continuation of the great track record. So it looks good on a piece of paper or on a PowerPoint slide, But can we achieve it? I've been doing these models for a long time.
I've been presenting these models to you guys for a fair amount of time as well. I look back to 2015. I presented a 3 year model of 'sixteen, 'seventeen, 'eighteen. We effectively had $10.50 of the 2018 number. Our current guidance midpoint is $10.88 for this year.
So our current guidance for 2018 would be 14% Adjusted EPS growth on average over that 3 year period, 'sixteen, 'seventeen, 'eighteen. So yes, we deliver what we say we're going to do. We set out strong goals, and we achieve them. We fully expect to do with this long term model as well. It's why we think it's a really bright financial future that backs up what we said in terms of the strategy for the company.
So thanks for your time today. We're now going to transition to a series of presentations to bring the growth strategy to life for you. First presentation in that series is from Mark Stephenson. He's going to take you through how we use high impact innovation to enable our customer success. I'll hand over now to Mark.
Thank you.
Start off the discussions on how we drive growth, particularly in innovation. Innovation has always been Critical lifeblood of the company, who we are. It enables our customer success. And as you'll hear, working on some incredibly important problems for society. This is actually the first in a series of presentations, as Mark outlined.
So I'll start with the high impact innovation and how that drives out growth. And then my colleagues will take you through after the break 2 of the other aspects that are driving our top line organic growth. So again, let me start with the punch line of the presentation and the takeaways. Our track record, and I'll share some examples, is really proven in our process. We've been introducing world class products, And I'll give you some examples of those today.
I believe we're uniquely positioned to actually leverage our depth of capabilities not only in the individual domains that we're leaders in, but also working across the company to bring success to our customers. I'll give you some examples of how we've taken the products that are in research and driving them into applied markets applications and also into clinical markets. And then add in some of the digital capabilities that are now together in all our products adding new capabilities as we use those digital capabilities. Key at the end is we're focused on customers. We start with customers in our process.
We're enabling their They rely on us for innovation. And this is an incredibly important, therefore, growth driver for our business, which is why we're committed in the future to continue to invest in this way. So our innovations are not only the incremental innovations, Page here is shown on this slide. And they cut across different areas of our business, be it in production or bioproduction and biologics, allowing us to really revolutionize how customers think about doing batches of biologics and smaller reactions in single use bioretic Containers rather than in stainless steel really revolutionized what is cost effective production. Other examples, you've heard Mark talk about the example with to actually take an analytical technology out of the lab, put it into a frame that can be used in an applied market setting, In a very routine setting that just revolutionizes what you can do with those kind of technologies.
And finally, some of the diagnostic areas. Really taking through diagnostic tests to a different level of innovation. Pick one in allergy here. For those suffering in the
allergy season, you really ought to get tested in a
very robust way. In the allergy season, you really ought to get tested in a very robust way to really know what are the different allergens that are detecting you. And those are really breakthrough analytical technologies. As you've heard from Mark, our focus is around Enabling our customers with this mission. And this mission really opens up just a wide range of opportunities to innovate around.
The problems facing our customers come in at the start of who we are in innovation. And so we have a broad set to deploy As we think about new ideas for innovation. And if you look at examples just from the last year here of breakthrough innovations, You know, you see some of the changes coming through in the market here. Let's start in the case of what you heard about a new era that's really exploding in cell therapy is our broad innovation capability to work with a customer early on, design a revolutionary process to be able to take that out into the marketplace. In the case of Novartis and Pfizer, we took a new drug and new approach to work together to a companion diagnostic test.
In the case that you see in a breakthrough in cryo electron microscopy, you see the demand coming through in the marketplace. Recently, you saw the NIH Announced the intention to set up 3 centers across the U. S. That will fund over multi years, setting up really this revolutionary technology. And you see in some of the applied markets continued applications to bring forensic testing to routine use in crimes.
Increasingly, we're innovating to make it more sensitive, faster and adding rapid capabilities to this. As you would expect, when we're a leader in innovation, we have a very proven process to how we deploy our innovation dollars. It really starts with a customer centric approach. We have a very customer centric approach, and our scale and size Gives us access to really world class opinion leaders who want to work with us, want to share their ideas, want to be part of early access as we work through this. We have a scientific advisory board to give us advice on new trends, share with them ideas that we're thinking about and getting input.
And then we take that through into a rigorous selection process that each business follows to ensure we're getting the right return on investment for those projects. The areas that we then focused on are rigorous phase and gate through that. And then finally, we use our Chief Scientific Officer to actually collaborate across Teams to bring together capabilities across the company, be those in workflows, be those in new areas of science, and I'll share some examples of those. All that process leads to a really proven track record of delivering great returns on investment. And I'll share with you some examples of some of those products and also where we're going in some of our innovation ideas.
I'll use for the rest of my presentation this framework, and Mark shared with you earlier this Three areas, the 4th with the digital underpinning, to actually go a little deeper in our strategy as we go forward and where we're focused for investment of our innovation as we continue to drive our growth. The first areas for our businesses across the company each day, every day, ensuring that they're launching best in class products within their business area. You see across the top some of the wonderful track record that we have in introducing these products in a routine basis every year. What's also important, I think, to highlight is from some of the initial breakthroughs, we also build out large franchises across this. And shown in the bottom, Many of you are familiar with our orbitrap mass spectrometry that over the years not only has taken the initial high end of the range, but expanded out in That range of capabilities, we'll continue to innovate across that in really industry leading resolution and accuracy And spanning systems that come from research into other applications across the markets.
Similarly, in the qPCR franchise, Again, an early innovation that now leads to a range of instruments that come across. Both of these areas are multi 1,000,000 of dollars in franchises that we build out And they're enabled to the same Thermo Fisher cloud that it now is digital analysis of the data for our customers. And I'll talk more about the different applications that we're building out on this franchise. The second area that we drive into is levering in our depth of capabilities to really look at scientific advances and discoveries. Now you've heard about the acquisition last year from of FEI.
I think a couple of points I'd make at the outset It is the first is our ability and understanding of this market, understanding of the need and the unmet need in this case To be able to study proteins and protein structure led us to the assessment and acquisition in this area of what we thought would be a great fit and a great fit not only in doing protein structure analysis, but combining with our mass spectrometry tools to really build out a protein structure franchise. There's a tremendous area of interest biologically, as you see in this area. It's a tremendous breakthrough in technology, what you can do to image, to visualize protein as a native area, not only for the academics, but also as we come into the pharmaceutical discovery area. And as Mark mentioned, we've really been able to accelerate the growth here, not only With our access to the customers, but also heavily investing in R and D, in manufacturing to accelerate the capabilities. And we're just at the early stages for this technology.
As we work on further in R and D, simplifying the sample prep, Making it more successful is democratization of this technology. We see continued opportunities to move beyond where we are at the top tier of academic customers adopting today and at the top of the pharmaceutical industry to move to more and more adoption in academic and pharma at different processes through the drug discovery. And so that's a great opportunity that we've taken as we've both assessed that technology and will drive future organic growth for us. The second theme that you hear about, I'm sure in the news, you read about the opportunities that are out there is precision medicine. And we're really at the center of many of these programs.
Customers, be they large governments, be they pharma companies, be they academic Collaborators come to us for us for our expertise, to ask us advice as they're planning these products. I was recently in China and we held a large precision medicine seminar there, forum together with Academic leaders together with the Chinese government. It really is about shaping the policy and strategy of where our country engages. We set up precision medicine centers in China, in Guangzhou. We're opening one shortly here in the U.
S. In Boston that allow us to collaborate Our cost platforms with our customers and shape and take advantage of some of the funding opportunities that are coming out from governments and the change that's happening. I'm sure you hear a lot, as I say in the press about precision medicine, but at the end, it's about Targeting from a drug one size fits all to a precise targeted therapies that are right for the patient, right dose. And you see different aspects across this, across our life sciences industry, be that starting in stratifying the population, Be that for clinical trials, for understanding in biobanks. We see a tremendous change going on in how the research is going on in pharmaceutical companies and academic.
The molecular diagnostics now becomes a critical part to have a companion diagnostic as part of developing the drug and launching. And the way the targeted therapies are coming to market, their batch sizes, the change in the clinical trials process, To that, be that how we collect samples, some of these large government programs you see, like all of us, Start with collection of samples, start with biobanking those samples and how we end use our digital capabilities in bringing together data in this. So we're well positioned across these applications. We're engaged and we have multiple case studies of Examples, we're engaging with different groups. I'll perhaps just pick on one here, which is in the translational research area.
In the past, we used to see pharmaceutical and academic companies screening their drugs in very traditional ways for all the same targets. Now what we're seeing is the change of using new biological tools like CRISPR to reengineering what they're screening for. They're changing the way they're looking at those targets. They're coming out with new targeted drugs in that way. And we supply large Arrays of those CRISPRs that allows them to change their high throughput screening methods, in this case, working with an example in academic setting in North Western, paved the way for a new therapeutic target for a much faster development in the pediatric cancer patients.
The third area of focus for us is taking the research technology and then driving that down into applied markets applications, be that food testing, be that forensic, building around software capabilities and taking market share using those leading technologies into those applied markets. Let me drill down into the clinical area, to give you a couple of examples of what we're doing there. Clearly, as we go into these areas, Some of the same is true of the research. They want the same accuracy and sensitivity and improvement in these analytical tools. But they're also putting a premium on ease of use in productivity in those labs, often with less skilled operators that we see in the research environment.
It's a high utilization environment and so requires high uptime and commercial productivity. You see examples of our different solutions. Last year, we talked about really first in class to take a highly complex Technology like liquid chromatography mass spectrometry, bring that into a routine clinical market, which we're doing in the Cascadian and make a new gold standard. We're in the process of commercializing that technology later this year. I look forward to continued growth in the coming years of that kind of example.
We've also already taken through in qPCR, many diagnostic assays are approved. And recently, we were the first to take through a Next generation sequencing test for a multi attribute cancer method. Both there is FDA approval and also now we get reimbursement The 4th part of what we're doing in our innovation is ensuring that we make use of the latest digital tools, And you'll hear more about some of the examples. But let me touch on a couple of what we're doing in this area. The first is ensuring that all of our new instruments we launched are digitally connected.
They're connected into our Thermo Fisher Cloud, It allows our users to access and see data remotely. And we're beginning to build out in the second area from that, Remote diagnostics. We can see from the algorithms and the sensors and the systems that the status of the instrument, the instrument health, which allows us not only to drive productivity in our own servicing support, but increased uptime for our customers that they value. With this common digital platform, we can drive this across multiple of our installed systems, which gives us a good commonality across our customers who want a single portal to go through. We're also building out increasingly informatics tools that allow customers to take their laboratory workflows, make it more straight Forward, build that in a cloud based setting and then ultimately deliver back to them actionable data for their experiments.
So these are some of the case studies, and we'll hear more in the coming years about what we're building out in our digital franchises across enabling our innovation. So in summary, again, this first aspect of our growth strategy continues to be very important for who we are. We have a proven track record in our innovation process of selecting the right projects. We understand deeply where the market is, where the trends are. And so we can select the right areas to invest in and have a process to collaborate across the company.
So we continue to drive not only in the individual product areas best in class but also can drive differentiated across our portfolios. And it's all focused on driving our customer success. We believe we'll continue to enable their innovation. They'll reward us with continued share of wallet back with us from their great innovation. With that, I think I'll give Raff another great opportunity here to introduce the coffee break.
Thank you, Mark. So we're going to take a very short break here. We'll resume the presentation promptly at 10:20 a. M. So see you in a bit.
All right. With that, I think we have enough people back at their seats. So It's my pleasure to introduce Syed Jaffray. He's going to be talking a little bit more about our high growth emerging markets leadership strategy. So with that, let me turn it over to Syed.
Thank
you. Thanks, Ryan. Good morning, everybody. It's a pleasure being here today. And this morning, I will share with you our strategy to extend our leadership in high growth and emerging markets.
I believe many of you in the past have seen my presentations on the topic at previous analyst meetings. And you will notice that our strategy is consistent, and we continue to execute our plans. And We have seen some great success based on the efforts that we are putting into these markets. Over the last few years, our team has done a great job in delivering outstanding growth in these markets. And we have done that by leveraging our scale as a competitive advantage to deliver the best customer experience that we can to our customers in these markets.
So let me start upfront with the key takeaways from our presentation. And you will see shortly that we have built And industry leading scale and unique capabilities in these markets to offer our customers the most differentiated experience in these areas. Our investments have been driving growth, and we have a solid track record that you will see in a few minutes as we go through the financials in the future. And with a focus and consistent approach, We believe that moving forward, these markets will continue to be a growth engine for Thermo Fisher in the future as well. So here is a high level view of our industry leading presence in high growth and emerging markets.
We have over 15,000 employees who are located in these countries, serving our customers from a vast network of manufacturing facilities, R and D sites, application centers. And we have the most significant presence in our industry, and it continues to grow every year. Our strategy remains unchanged, And our global scale is a key advantage for us, and we have been leveraging the scale to grow the business and use our commercial reach to drive growth in all of our businesses in these high growth and emerging markets. This morning, you heard from Mark Stephenson about our focus on developing best in class products. Part of our strategy is to use these products to penetrate these new markets.
And in addition, We are leveraging our innovation centers in Singapore, in China, in India to also develop products that meet some of the unique local needs of our customers in these markets. We continue to offer better customer experience by optimizing our supply chain and our service infrastructure. And we have seen a market improvement in customer satisfaction over the last few years. Our manufacturing operations, They are very well established in these regions. We have the largest footprint in our industry.
And from a people perspective, we have built a team, hiring strong talent, providing them outstanding training opportunities and career opportunities in our company. And you can see the results that this company has delivered, 10% average annual growth rate in organic revenues over the last 6 years. So I want to provide you some more details, and I thought that it will be helpful to dive a little bit deeper into 3 markets, and those are China, India and South Korea. So I'll start with China. So China has been simply a great market for us.
And the outlook for the future is also very bright. The growth in China is driven a lot by the Chinese government that is Using the 13th year 5 plan to really address some of the long term issues in China. Chinese government is making investments in innovation. They are supporting and investing in the research by the universities and academic institutes. And they are setting direction for the country with 4 key priorities as a part of this 5 year plan.
In health care and biotech, the government is making significant investments that are leading to research in areas like biological drugs, cell therapy, precision medicine. I'm sure you're all familiar with the $9,000,000,000 commitment that the government has made there that they will invest over the next 12 years in supporting the precision medicine programs. Environmental investments are large in China, and they are doing that to improve the quality of water and air. And we are very much involved in a number of these programs. Over the next 5 years, $60,000,000,000 will be invested in China to build and grow the semiconductor industry, becoming the largest industry in the world in the future.
And then there is a huge focus on improving the quality testing across all aspects of the food supply chain. And that's an area that we are working with a number of field organizations there. So you can see that the prospects for growth in China are tremendous in the future. And Tomofisher has the scale and both the local and global capabilities to serve every one of these opportunities in the future. Our presence in China today is stronger than ever before, And we are the clear industry leader in our space.
We have the largest talent base in the country, in our industry, And we have 2,400 commercial employees, 600 service engineers serving our Customers all across the country leveraging our commercial centers, our application development centers and our very well established manufacturing footprint. And you can see the track record that our team has there over the last 6 years, 16% average annual growth inorganic revenues during that period. Our commercial and service organizations are unified under one country organization model, serving our customers, selling our value proposition. We continue to make investments in China. Over the last couple of years, we have made some significant investments to build digital capabilities, e business capabilities, And our customers are showing strong adoption in these areas.
Mark Stephenson mentioned about the precision medicine. We are leading in precision medicine in China, recently established our precision medicine science center in Guangzhou. Mark was at the last summit that we had, which was one of the kind summit for Precision Medicine that we held in Beijing in cooperation with the Chinese government. And we had about 4 50 top leaders from the world who joined in this effort. So we are making a lot of efforts there.
I would say in summary, We have incredible capabilities in China to serve our customers, and these capabilities are absolutely unmatched in terms of what we can provide our customers with our breadth and depth of products and technologies. So we are leveraging our scale, And we are doing that to benefit both our customers and Thermo Fisher. Our customers benefit from our scale in a number of ways. They benefit by having a better experience working with us because of the investments they've been making in e business, In logistics and supply chain improvements, they benefit from our global products and the local products that we are developing specifically for the local markets, And they benefit from having access to our complete workflow solutions. Thermo Fisher benefits by gaining the Economies of scale by lowering our manufacturing costs, by lowering our supply chain and logistics costs and by leveraging the commercial reach we have in China through a very cost effective organizational model that we have in the country.
Our scale has also enabled us to make some big bets, and we are making some major investments in digital science in China. And our customers are benefiting from it. So the Chinese market represents About 40% of the global B2C e commerce market, right? And there are about 700,000,000 users of Internet in China. And the data shows that they do spend a lot of time on their mobile devices.
And our investments in digital science are very much driven by these trends. We have made Major investments in building e business and e commerce infrastructure in China. And we have made sure that we design our interfaces in a way that they make access and applications mobile friendly. And last year, As a result of our investments, we generated about $250,000,000 in e commerce revenues in China. Our cloud solutions are helping our customers.
They're being adopted very quickly. Our customers are using Thermo Fisher Cloud to analyze, store and share scientific data. And I'll share with you a short example. Recently, there was a flu outbreak in China at the end of the last winter. And we were approached by the Center of Disease Control, CDC in China to offer some help.
And they worked with us in Basically, using the Thermo Fisher Cloud to analyze and store the flu virus sequencing data, And then they also work with us in using the cloud to track the virus spread across different cities so they can put some better controls in place. So that's a good example of how our cloud is being used in China. We are very excited about the fact that There will be many more opportunities that we will be dealing with because of the digital investments that we're making in China. And we believe that we are well prepared and well placed to win in this fast growing Internet savvy market in China. So let me just switch quickly to another high growth market, which is India.
As you all know, India is growing fast. And India is one of the largest producers of generic pharma in the world. We have great relationships with Indian customers like Biocon, Doctor. Reddy's, Zydus, and we are supporting them in their manufacturing efforts for this generic drugs in the country. We are working with a number of other industries in India as well.
So the Indian government is making some significant investments in building the infrastructure in the future, And that is leading to growth in some of the industrial markets, such as steel and cement production, environmental monitoring, for example. So we are working on a few projects there. The Indian government is also building a network of food testing Applications over the next 5 years. And just a few weeks ago, supporting their efforts, we actually established our first food testing application lab in cooperation with the Indian government in New Delhi. And just like China, we have a unified country structure in India.
Our commercial and service teams work together in using our value proposition to support our customers. The last thing I want to comment on India is that India is also a source of some incredible IT talent. So we established our Bangalore IT Customer Center of Excellence A few years ago, we have about 500 people, and they are responsible to develop the software for the company in different areas, and they're also managing our cloud capabilities from that team. South Korea has also been an outstanding market for us. We have worked with customers like Chart Group, Celltrion, Green Cross, who are some of the biggest producers of biosimilars and vaccines.
As you probably know, that Korea has almost a quarter of the world's biosimilars production in the country. So that's a big area of growth for us. Then the Korean government, it's somewhat like Chinese government, has been very involved in supporting innovation. They have been investing in small biotech startups, for example. And we see that trend continuing in the future in terms of having opportunities to grow in the research market.
Semiconductor industry obviously has been booming in Korea, And we have a leading position there. We are working with customers like Samsung, for example, where we are codeveloping products using technologies such as electron microscopy. So incredible growth opportunities in Korea, and you can see we have about 600 employees there serving our customers, and the organic growth rate has been outstanding at 12% over the last few years. Now, over the last few years. Now let me just switch gears and very briefly share with you the high growth markets and the emerging markets' role from a different realm, different lens.
And by that, what I mean is that these markets are not just producing revenues for us, but they are also a source of some great talent. I used the example of India from an IT perspective, and I'll use a couple of other just to give you a context that, For example, in Czech Republic and Singapore, these are the two areas where we We do innovation. We do product development, manufacturing of our high-tech products, products like electron microscopy, mass spectrometry, for example. And these products are being used by our customers all around the world. In China, we are producing products that are being used for local markets and for the global markets as well.
And then I wanted to highlight Vilnius. Ulyas is our operations site in Lithuania, where we basically have established our center of excellence for R and D and Manufacturing of Life Science Reagents. And the team there has done an incredible job in the way they had built that operation and delivered performance. And I wanted to share with you a couple of highlights from Vilnius here. So you can see that it was a manufacturing operation in 2010 that came into Thermo Fisher through an acquisition.
The team there adopted the PPI business system and did a great job in actually making that a best in class site in our company. 2 years later, because of all their work, we expanded our R and D and manufacturing capabilities there, added logistics and supply chain as well. And then 2 years later, we also added GMP Manufacturing at that site. So the site has had some incredible history, and they have been recognized for that. They were recognized by receiving this Shingo Prize, which is a prize for operational excellence that they received a few years ago.
And in 2016, There were a number of recognitions that I want to highlight briefly. Thermo Fisher Lithuania was a recipient of the Employer of the Year and most admired business. And this is among the local and multinational companies who are operating in Lithuania, So hopefully, this gives you a perspective in terms of how we use some of these low cost regions where we can have some incredible talent, and we produce products that are high quality and high technology. To wrap up, I'm going to reiterate what I said in the beginning, that we have built an industry leading scale unique capabilities in these markets to drive a differentiated customer experience. Our investments have been driving a strong track record of growth in this area, and we are gaining share.
And we believe that moving forward, using a focused and consistent approach, these markets will continue to be a growth engine for thermal efficiency.
So with that, let me
thank you, and I will introduce the speaker, Greg Harrima, who is our President for our customer channel business, and he's going to share with you how we are enabling customer productivity, Leveraging our world class channel business and service offerings. Thank you.
Thank you, Syed, for the introduction. And I appreciate the opportunity today to represents the company here at our analyst meeting. As Syed indicated, I'm going to share with you how we're enabling customer productivity to our world class channel and service capabilities in the company. So just a little bit of a recap. Mark opened this morning sharing some thoughts around the proven growth strategy in the company.
And he touched on the 3 pillars of that strategy: high impact innovation that Mark Stephenson touched a little bit early this morning. Sai had just touched on the scale that we're building in high growth in emerging markets that's allowing us to drive incremental growth to the company. And the last area that I'm going to touch on is the unique customer value proposition we have in the company. It's a value proposition that is all about enabling innovation and productivity. And I'm specifically going to touch on the enabling productivity aspect of that value proposition and how we deliver on that through our world class channel and the service capabilities we have within the company.
So first, just a few key takeaways relative to framing the section here. So First, many of our customers are facing real business challenges, whether it be in their drug pipeline or reimbursement rates or the need to deliver on acquisition synergies. And so because of that, our customers are increasingly focused on improving productivity across their entire enterprise. Manufacturing operation. And as a result of that, we see the opportunities, and we are able to enable productivity across the entire enterprise.
3rd, you see that we enable that productivity really through 3 scaled world class service offerings: our industry leading research and safety market channel, our comprehensive instrument equipment services and end to end pharma services. And last, what you're going to see is that these services not only contribute meaningfully to our ability to deliver on that customer value proposition, But they are driving growth in a very significant way for the overall company. So let me start first from the customer point of view to give a sense of where they need that productivity. As I indicated, they're facing real business challenges. And I think the benefit of our customer value as a company is and the focus on enabling productivity is we don't sit idly waiting for our customers to call us to help them in that regard.
We are proactively going out to engage with them. And when we sit across the table with them, these are the themes that we hear all the time. They want to leverage their volume to increase economies or achieve economies of scale in purchasing. They want to streamline their lab operations and achieve transactional efficiency. They want a higher return on investment for the investments they're making in equipment and instruments, and they want a seamless supply chain across clinical trials and production.
And then from a working capital perspective, the theme we hear over and over again is the need to improve inventory turns reduce the level of inventory they need to support their operations. And so within the company, you'll get a sense of the comprehensive capabilities we have and most importantly, How differentiated the capabilities we have are relative to any other supplier in your space. And so when you look at those customer needs, We overlay that with our solutions here. Today, I'm going to specifically touch on our industry leading channel the comprehensive suite of services that we have in our instrument and equipment business. And then we're going to turn it over to Michel Lagarde, who will touch on the end to end pharma services that we have within the company.
So as I indicated, our customers are looking for productivity across their entire enterprise. And this is a fairly simple schematic of what a customer operation might look like. And this is probably a good representation for a biopharma customer. So You see research labs, they have a number of QA QC labs and then, of course, production operations. In addition to having a need to deliver productivity enterprise, we think about that in the context of solutions that have to address the specific needs of many of the key stakeholders within our customers.
And you see examples here from a scientist perspective or a lab manager perspective and what they are specifically looking for from their solution providers in terms of delivering on those productivity opportunities. So our solutions are really tailored to meet their specific needs. And when you then take our service capabilities, the comprehensive offering we have across the company and overlay that on our customers' operations, You get a sense for just how differentiated that offering is. There's no other supplier in our space that's able to sit with our customers and talk about enabling productivity across center tire operations. As I indicated, I'm going to touch on the research and safety market channel.
In this particular business, we really span the entire customer operation from research labs to QATQ, QC to production operations. I'll touch on our been equipment services that are heavily focused in the laboratory environment, whether research or QA or QC. And as I indicated, I'll turn it over to Michele LeGarde, who will talk about our end to end pharma services. So let me do a little bit of a deep dive on the research and safety market channel. This is the business I run-in the company.
It is an absolutely great business, and I can assure you, is the leading channel in serving science. We've had about $4,500,000,000 worth of revenues over the last 12 months. The business has been growing organically in the mid- to upper single digit range in recent years. And you can see over $2,500,000,000 of that revenue is enabled through e commerce. And I think very importantly, within the business, we have 3,000 customer facing colleagues.
Over 60% of the entire resource base we have in the business is supporting our customers in many different ways. And I'll give you a sense of specifically where they're focused on that effort in a moment here. So I want to touch on the unmatched capabilities we have within the channel. First, we go to market underneath the Fisher Scientific brand. And our customers, when they think of that brand in the business, they think of it in the context of a one stop shop, One stop access for all of their scientific needs across the entire enterprise.
And this is how we go about doing that in the context of our capabilities. So It starts with having the strongest and broadest portfolio of leading brands. 2,500,000 products, actually many more than we think about the configured and customized products that we have from over 9,000 suppliers. And because of the technical nature of the products that we represent in the channel, We've invested significantly in field resources over 1,000 strong to consult with our customers each and every day, whether their questions are related to biology, chemistry or otherwise. And as Mark indicated earlier, because we have such a comprehensive portfolio of scientific products, Many of our customers have turned over essentially all of their procurement activities for that tail spend in the scientific supply space.
And we have created a set of capabilities that allows us to support and deliver on that in a very cost effective way and efficient way, whether online or offline. We're investing significantly in the business in 2 particular areas: our leading e commerce platform, and you can see that over 70% of the transactions we have in the business now are online. That's a platform that is tailored to the specific needs of scientific products in the context of rich content, integration with our customers to produce that very efficient process, transactions and then our purpose built supply And then I'm going to even go another click deeper to give you a sense of just how specialized those capabilities are to support the specific needs of our scientific customers and the suppliers that we represent. So those are all representative of the capabilities we have in the channel in a way, the four walls of our customers' operations. But we bring those capabilities into the four walls of our customer operations through our on-site inventory management and lab management services.
And here, again, over 1,000 strong in the terms of the number of resources we have out on-site with our customers, delivering productivity inside the four walls of their operations to complement and strengthen the overall productivity we have within the channel. So as you see, truly a one stop shop for access and in many ways, a real productivity machine for our customers. So I wanted to actually share even a little bit more insight around the purpose built nature of the business. And I'll Speak to that specifically in the context of supply chain, but the reality is we have specialized this channel over years to support the very specific and demanding requirements for scientific And you see a representation here of the leading brands that we represent. The top row being brands inside the company that we manufacture as a company.
And you see examples of leading companies and brands from outside the industry. What is consistent and common across all of these brands and suppliers is the confidence they have in our business to support their business and more importantly, to support their customers' needs. And I have to share with you, it is not easy. You can give an example or see just how demanding it is to support scientific products. So you see Very fragmented supply base, huge mix in the product categories that we support.
Many of these products are custom configured, many of them are sold into areas with very stringent regulatory requirements. And knowing that, that's what it takes to serve the requirements in this industry, We've built a very specialized business to support that. And you can see specific examples here. So first, a highly efficient online and offline ordering process. I mentioned already 70% of the transactions online.
But because many of the products in this space aren't conducive to online, we have a Super efficient process for offline ordering as well. Very importantly, you see these purpose built distribution centers and the supply chain that we've built around that. So the nature of these products, you have to handle frozen products, refrigerated products. You have to control the temperature terms of ambient for medical device products. And you have to handle hazardous goods.
We do all that within our distribution centers. And not only are there those specialized handling requirements, but for those regulated markets, there are additional needs around lock control, as an example, for medical devices in biopharma production. And because of the specialized nature of those products and the handling required, it's not enough just for us to do it within our distribution centers. We take orders all day long. We package those up into 1 pallet that goes into a carrier for delivery the next morning.
It's prescribed time by our customer. Those carriers just can't be any parcel carrier. You can see that they have to be certified for Department of Transportation hazmat requirements. And whether it's our fleet that represents 30% of the shipments that go out of our warehouses or those certified carriers, we're confident that we're doing that in a safe way to get our products to the customer's docks. And then because we know the nature of these products and our customers see that, they ask for us to Take that specialized knowledge and help support the storage and handling of many of these products inside their four walls.
And that's where, as an example, And the way chemicals inventory management are tracking, we have a huge presence inside our customers' operations to extend that Supply chain everywhere from our distribution centers into where the products are used within our customers' operations. So I want to give you another example of the investments that we're making to digitally enable the services that we have And another example of where we're bringing those services into the four walls of our customers' operations. So I touched on in the beginning, our customers really have a need to manage their inventory more effectively. And you can see examples here of what that looks like. And I can assure you, it is not easy for our customers.
If you think of laboratory operations and production operations, they have inventory all over the place in the labs themselves. They have storerooms throughout their campuses. They have refrigerators. They have freezers. And then out in the production floor, they have controlled access areas with inventory as well.
We've invested in inventory management platform that allows our customers to see that inventory across all of those stocking locations in a way that no other platform does today. We've mobile enabled that so that our customers can order those products. They can be right in the lab. You can see example here in terms of point of use. We have user authorization access controls for those regulated environments.
And I think most importantly, the platform we've developed is seamlessly integrated with our supply chain and the fisherside.com website. So when a customer goes to place that order using their mobile device, there's automatic replenishment that, a that goes to our distribution center for replenishment. And when they go to do data analytics on inventory management, They do that through our website, thefinitytersci.com website, which is where they're doing all their other activities around order management as well. A great new platform. We are literally launching this as we speak right now in a platform that we're confident is going to help us continue to deliver even greater productivity for our customers.
So I'd now like to close with just a couple of thoughts around growth. You get a sense of differentiated capabilities we have and understanding of how we do deliver productivity. As I mentioned, this is a business that's been growing mid to single upper digit growth organically. And these are the levers that we pull in the business. So we continue to expand the portfolio and increase differentiation in that portfolio.
We had suppliers each and every year. We're investing in that leading e commerce platform. And with new data analytics and digital marketing capabilities, We're able to drive more demand through that platform. We continue to invest in digitally enabled services like that inventory management platform that allows us to Continue to add more value in the context of the end to end service that we provide. And lastly, We leverage those customer facing resources to drive real synergies for the company with every new acquisition that we do.
So you take a step back, it's a business that has been growing mid to single, upper digit growth, and we're confident that we can keep that growth going the future. So let me shift now to our instrument and equipment service business and the comprehensive offering we have in that business. And you can see a representation again of the overarching capabilities we have there, and I'll provide a little bit more detail on that in a moment. So a little bit of an overview. I am just excited about what we're doing in this business as we are in the research and safety market channel.
Many of you that have been following the company for a number of years know that when I started in the company, I was running our instrument business. So I'm very familiar with the services we have here as well. And we really have built the most comprehensive suite of services for all instruments and equipment out within our customers' operations. The business today is about $1,800,000,000 in revenue with over 4,500 colleagues supporting Our installed base around the world. And here's a little bit more visibility into the capabilities of the business.
First, in terms of go to market, Our customers know this business underneath the Unity Lab Services brand. Our focus here, as I indicated, is on enabling a higher return on investment for the customers' purchases of the instruments and equipment, and we do that through increasing uptime and reducing costs. What you see here in terms of break fix, Warranty management, preventative maintenance and compliance. These are table stakes. This is the bread and butter of what we do each and every day in supporting the high-tech instruments and equipment we have.
But the scale of the business allows us to invest in systems and processes that allow us to do it in a more efficient way, we believe, than any other provider in the industry. We also have a very differentiated asset management platform, a software platform that allows us to Effectively support the management of not only the instruments and equipment that we produce in the company, but from other manufacturers as well so that we have an offering that we can go to our customer to support all of the assets that they have within their laboratory operations. And through the software we have and the ability to look at preventative maintenance entitlements and such, We're able also to share with our customers when they have a piece of an instrument or equipment that maybe is becoming costly to serve it's time in terms of life cycle management to make that next purchase. And because we're advising them on that, we have that visibility before anyone else in terms of when that next purchase is going to happen. And as Bart Stephenson indicated, we're investing significantly in digitally enabling many services.
And you can see examples here in terms of our instrumentation platform and services around remote monitoring and diagnostics and cloud based performance analytics, areas that we're focused on. And I want to provide you A very specific example of where we're deploying those types of new digitally enabled services. So you see an example here with the University of Michigan with their biological station. This station is in the Great Lakes Basin, about 200 miles north of where the university is itself, very remote location. So you can imagine if you're a lab in that environment.
If an instrument goes down, it's a fairly costly type of situation. And even with our 4,500 colleagues, not necessarily going to be there at the immediate diat instrument at the moment that instrument goes down. And then in the context of the work that they do, Very complex and varying mix of analytical methods. That means they have to either invest in a lot of inventory or if they don't have the right inventory on hand And they don't really have the right forecasting around the methods and what they're going to be running, they run the risk of running out of inventory, which, Again, in the context of very expensive instruments, that downtime is not good. This is a perfect example of how we are deploying these digitally enabled services.
And so Here, you see an example of remote monitoring as well as also data analytics for our ion chromatography instruments. We support 20 fourseven continuous monitoring, and we have online dashboards for consumables consumption and instrument health tracking. And while it's early stage with this customer, we've seen really positive results so far, a significant step up in customer productivity Through the key areas here, an increase in instrument uptime, a cost reduction in select methods by up to 50% in improved forecasting and budgeting because they have a better understanding of when they need those consumables more now than they did in the past. So as I indicated before, this is a business that has actually been growing in the upper single digit range. And We see opportunities to continue to keep that growth going.
You see example here, as I indicated, we already are supporting 200,000 instruments and equipment today. We see the opportunity to further penetrate that installed base. And these new digital capabilities, we see as really meaningful levers to create more value and to increase that penetration in the installed base. We have huge opportunities to drive cross sell and product pull through. Those 4,500 field service engineers, when they're out with their customers, they're talking to them about the consumables that are using those Tremendous to create real selling opportunities and pull through there.
And then lastly, as Sai had indicated, we're growing rapidly in high growth and emerging markets. 20% of this business is in those regions. And in that area, we're growing over 20% organically. So very strong complement to the overall strength that we have within our instrument and equipments business. So if I just close with just a few thoughts.
So You have a sense of the productivity requirements and needs that our customers expect of their suppliers and the unique position that we really are in to enable productivity across their entire enterprise and through our scale and world class service offerings. So I've touched on our industry leading channel and our comprehensive instrument equipment services. I'm now going to turn it over to Michel Lagarde. Michel will touch on our end to end pharma services and how they are enhancing innovation and productivity for our customers, And I'll provide a PACE on integration update as well. So Michel, I'll now go ahead and turn it over to you.
Thank you.
Thank you, Craig. Good morning, everybody. Last section of the day, I promise. We're going to talk about farmer services and specifically about how we used acquisition to significantly strengthen our customer value proposition and created something truly unique. And the Paytm acquisition, I think, is a great example of that, right?
The Thermo Fisher was an active participant in the CDMO space for a long time With a focused business centered on providing clinical trial support and with the acquisition of Patheon, was able to significantly expand That customer proposition and really drive a unique set of services, and that will allow us to continue to have significant growth and increase market share. Here are the takeaways. So we now have the world's leading CDMO business As part of Thermo Fisher. And the CDMO industry, and I'll take you through some of this, really has some very attractive growth characteristics. The position that we have in this attractive industry is really quite unique and should enable us to significantly expand our position over time.
And then lastly, I'll give you an update on how we're doing against the targets that we communicated when the business was bought And now about a year ago. So this is who we are today, about $3,200,000,000 of revenue, 12,000 colleagues coming to work every day in 20 manufacturing sites around the world. The business obviously has scaled significantly from when I first got involved in it in 2011 when it was 8 sites and maybe $750,000,000 of revenue. The growth has really been achieved Through a strategy that was focused on 3 aspects. 1 was performance for the customer and enabling our customers to be successful.
The second one was to build scale, and the third one was to build breadth of capabilities. And that really has enabled The growth to date, and those will be the main tenants of the strategy on a go forward basis. Why is this an attractive industry? If you look on the left, you can see the robustness of the development activity, right? There's a tremendous amount of investment and activity By our customers to bring new products to market.
There are more molecules being developed today than ever before. There's more money being invested into that development, and there's more active participants in that development cycle. And all of those things obviously bode really well for a sustained continued trend around drug development. If you go to the right side of the page, it's where we Look at the commercial drivers. So what drives commercial consumption of Pharmaceuticals, it really all has to do with these important trends around the globe.
More people, more older people, more people have access to High grade health care, and as a result, consumption of pharmaceutical is really up and growing and is sustained for the period to come. That's all great. If you're on our part of the industry in the CDMO space, obviously, The activity on the previous page is relevant, but most interesting is how much of that is then outsourced, right? Because that ultimately drives The size and the growth trajectory of the CDMO industry. And also there, we can talk about some very favorable trends.
1st and foremost, penetration rates of outsourcing are still relatively low, so we have a lot of room to sort of grow. And most importantly, real value creation occurs when people decide to outsource. And there's many reasons And individual reasons for an individual project or an individual company to outsource, but generally, they fall in these 2 buckets. People are looking to partner with a CDMO to accelerate innovation, to be able to drive speed in their product development in a way that they themselves could not. And that could be because Maybe they don't have the required expertise.
And in order for them to gain that expertise would take a long time. And partnering with somebody in the industry, we'll allow them to bring that product to market much faster. It might be that they don't have the capacity to run these projects. And as a result, partnering will allow them to be much faster to market. So real important value creation in the choice of outsourcing.
The other bucket is all around enhancing productivity. Outsourcing of these types of activities can really drive very meaningful economic benefits for our pharma customers. Again, it could be avoidance of investing in their own sites. It could be the fact that we can drive utilization in our sights at a much higher level and therefore can provide them with a sort of economic viable option. And The combination of those two things have created a large industry with very favorable growth trends historically and certainly Very favorable growth trends as we go forward.
Then our position. I think this slide actually is a good Illustration of what I said earlier around how acquisition enhances the value proposition, right? As you can see here through the Fisher Clinical business, Thermo Fisher had been a long time very successful participant in this industry with a very focused set of capabilities. And the acquisition of Patheon has allowed it to now create an end to end supply chain in bringing molecules all the way to patients. And when you're in that business, you need to do 2 things.
You need to create a drug substance. This is the active ingredient, a molecule that does the magic, right? You do that by a bunch of chemistry or you do that by growing tells. And now that you have this active ingredient, you still need to have a way of that active ingredient, a drug substance, Get it to the patient. We call that the drug product.
So what container, what form is that drug substance ultimately delivered to the patient? Could be a pill, Could be a liquid in a syringe, could be a powder. And in order to make a successful drug, you need to develop a drug substance, and you need to develop the drug product. And that's where our interaction starts. We do all that for customers of all sizes, across molecules, Small and large.
Now you have an active project. Now you need to see whether it's safe and whether It actually works, right? It's why people run clinical trials, and we help them with all of the logistics, distribution, packaging, labeling activities as they run their clinical trials. And then hopefully, if their product makes it through a commercial launch and gets approved, Well, now you need drug substance and drug product at commercial scale. And also that is what we offer as part of our comprehensive set of services.
And then lastly, at the end of the life cycle of a branded drug, many years into the future, you now need to think about how do you extend the life cycle, maybe through reformulation, maybe you have an authorized generics and we help customers with that. So we are really able to support our customers throughout that entire supply chain. And we do it at scale, as you can see at the bottom of the chart. And we do it at scale in each of these individual components. There Customers that come to us and only source a specific service line from us, that's fine.
But many more, and increasingly so, Are very attracted by the opportunity to partner with us across all these services. It significantly simplifies Their supply chain drives tremendous amount of efficiencies, both in speed and in value. And as a result, we've been entrusted with sort of important partnerships across all of these capabilities. To make this come alive A little bit more, I brought a video that gives you some insight into how these services get deployed in our network.
After all the research and late nights in the lab, the next journey begins To work with 12,000 dedicated pharma services specialists who know what it takes to deliver clinical to commercial solutions for big pharma With more than 1,000 molecules developed over the last decade, it's how clinical trials get done with global reach It's why the industry depends on Thermo Fisher Scientific for launching new medicines, 117 in the last decade, Twice as many as anyone and manufacturing more than 20,000,000,000 solid doses and 150,000,000 sterile doses year after year. All the way to manufacturing scale up. Experts who can design it, guide it and deliver and get some discovery
So that's what we do and ultimately create value for our customers. As I mentioned, the business is set up to serve all size customers. We work with 2 men in a molecule, and we work with the world's largest pharma companies. And the reasons they work for with us It's different, but they always fall back into these 2 categories. They might come to us because they have something highly complex that need to be worked on.
And we've had the benefit of gaining experience over a long period of time working on that. They might come to us because They say, look, we have an investment that we need to make internally to expand capacity to pursue the manufacturing of this medicine, But it's a much more efficient proposition to have it made by us. So the interaction that we have with our customers is really a significant driver of value for them. And as a result, the partnership, as we have it, with our partner, with our customers is significant. This is not a casual relationship.
This is a long term, very embedded a set of relationships. And if we do a really good job, it results in a very sticky business because there's really no reason for a company to change its partner on these services throughout the life cycle of the drug. It's very hard to do, right, because you have to go through the regulatory environment, and it's very expensive to do. So that's why our focus has always been On working with clients in development, we call it start here, stay here, which really allows us to work with The folks early on and really become embedded into the project and then throughout the life of the project, continue to be associated with it. Operational excellence is really at the core of what we do.
It starts with quality. We have 2,000 people in our quality function, Really super critical part of what we do. Obviously, continuing to make significant investments in that area. And then we have done it at scale, as I said. That's really important.
The role of the service line we offer, we really offer best in class scaled operations. And as a result, people seek us out to partner with us. New drug Applications, you heard it also referenced in the video. We've launched significantly more drugs than anybody, whether that's a pharma company or a CMO. And We're really proud of that record because it tells me a couple of things.
1, people really entrust us with the most precious, right? These are these new products that they are the ones that are going to drive tremendous amount of value for the patients, but also for these companies. And the fact that they entrust us With the launch of that, I think speaks to the capabilities that we have and experience that we have, but also the strength of the relationship that we have with our customers. It also speaks to the fact that I have the most youngest and refreshing book of business, right? So I make large volume commercial products, and I make them for a long period of time.
But because I continuously launch new products, I have a very fresh book of business, which really sets us up well to deliver continued good growth in the future. And our market share in launches significantly exceeds our market share in the overall segment. So I think that speaks to sort of the long term growth nature of our business. Then continuous improvement is a big part of the Patheon DNA and now significantly strengthened by the implementation of PPI. It's really wonderful as I go through the network now and meet with our sites that the being part of Thermo Fisher has really Significantly strengthened.
What we thought we were pretty good at, at Patheon now is operated at a very different level. And it's been said before, PPI is particularly powerful because it's really geared towards engaging the operators. They have the very best ideas on how to further improve a process, and this is not a bunch of smart people sitting in office Puking out good ideas. This is really engaging our workforce, coming up with ideas every day to make the process better. And that delights our customers, that drives a tremendous amount of efficiency, but it also creates an environment where people really want to be associated with this business and therefore, an important enabler of the business on a go forward basis.
Where are we on the integration? So last week was Exactly a year ago that we announced this transaction. We're 9 months in since the close, and we've made really great progress. Customers are happy. We monitor that closely, meaning we didn't get distracted or absorbed by the integration.
Good. My colleagues are happy. That's good. Retention rates have been strong, and the cultural assimilation into Thermo Fisher has been very successful. We're tracking ahead of the accretion plan.
That's good. Make Stephen happy. That's important. And we're ahead because we are We have been able to get to the synergies quicker than we thought. So the synergy number, we are achieving and we're achieving it a little faster, which is what puts us ahead versus the model.
And then we're on track to deliver the synergies as they were articulated at the deal announcement time in year 3. An important component of those Synergies are revenue synergies. And here, you see a little bit more detail on how those will be achieved. Of things I learned when we put these businesses together that the Fisher Clinical Services business and the Patheon business only had a 15% customer overlap, 1.5%. It's pretty remarkable because both were leaders in their respective fields and had built a business on the back of very different customer bases.
So as you can imagine, We're doing a very good job and a very active job now in introducing all of the great customers that we have on one side of the business to all of the capabilities that we have on the other side of the business. And 9 months in, we have one business, and it has driven growth, and we have a very strong pipeline of opportunities that come as a result of that cross sell opportunity. Access is the other thing that materially changed, A game changer, whereas, Patheon, I often struggle to get past the receptionist at some of our customers with Thermo Fisher, I have access to the CEO. And it's unbelievable how that amount of access has driven Our ability to have the pitch around the benefits of outsourcing, the pitch around the end to end services really to the right audience. And I'm really excited about the opportunities that, that has delivered.
And I think you really will see that, that will allow us to significantly gain market share over a period of time because we are uniquely positioned that way, and none of our competitors have that same level of access. On the midterm, this cross business collaboration is super exciting. My colleagues that run other parts of Thermo Fisher, I'm now connected with. I'm a big user of analytical equipment. I have thousands of scientists using equipment every day, and I can now go to Dan and can tell him these are the features we need and would be great if you can improve this and why have you designed a product like that.
If we really do a good job Establishing those feedback loops, not only will Dan's business be better because he gets customer insights directly, My business will be better because I'll have access to the very best and latest technology. And I think you'll see that there are so many touch Points between the Pharma Services business and other parts of Thermo Fisher that over time, if we do a good job, we can do something quite amazing. And then in Biologics, I call it out specifically because I think we have something very special in Biologics. I'm a little biased, but it comes to single use technology, we now have brought together the world's largest service provider of biologic services and single use technology the maker of the equipment. And I think over time, you'll see that, that integration of capabilities will provide to be very meaningful to our customers.
And This is obviously a fast growing part of our industry, and I think we're very well positioned to capitalize on the opportunities there. So life at Thermo Fisher, 1 year in, as I said it, I think the customers have been delighted. Customers have great trust in Thermo Fisher. Thermo Fisher's relationships, the breadth of these relationships are very real and sincere, and We have 70,000 people that come to work that think about the customer. And as a result, we really have been able to leverage that trust into the opportunity to expand our business with our customers of all sizes.
Access, I talked about, Really a game changer when it comes to my business and the ability to speak to the right people at our customers. And then we receive very good feedback. You saw the quote that Mark put up, but people are basically saying, look, I get it. It's end to end. It makes sense.
You are my partner. Let's develop and expand our relationships. Then from a colleague's standpoint, the transition has been easy, I think in part because Patheon's mission was to deliver a healthier world, which aligned perfectly. It was almost like we had designed it that way, but aligned perfectly with the mission of Thermo Fisher. So the people that I brought over, the 9,000 people from Paytm that came over, came over in an environment that they understood, He is a company very sincerely about pursuing that mission, and that was a mission that they were attracted by when they joined Patheon.
So I think that has really allowed for a pretty seamless integration. And it's been a spectacular culture to be a part of. This is a company that really focuses on the customer, is relentless in its pursuit to drive results. And those are things that I like, and I think are things we try to build at Patheon that are now significantly strengthened as part of Thermo Fisher. So with that, I'll hand it over to Mark to do some Q and A.
So we look forward to your questions. If you raise your hand, Ken and Raf will be walking around with microphones, and We'll start the process.
You obviously talked about $150,000,000,000 market. Can you just talk about whether I guess you're looking having to look a little further afield for acquisitions? And Would you consider adding another vertical? And then as we think about Patheon, obviously, you don't have an upstream business on the when we've asked you in the past, you said it's not an area you're really interested in. Have your thoughts changed at all since doing that deal?
So Tycho, thanks for the question. In terms of the business definition, the $150,000,000,000 market that we serve is the right market opportunity. So you won't see us looking for bigger verticals from that perspective. I think It's an incredibly attractive market. We have a unique competitive position.
We're growing strongly organically and opportunistically will continue to strengthen the company. When you look at this TDMO space that because of our clinical trials business, we're in it forever, right. And we expanded the offering with Patheon, and that's gone well. To your question about the CRO space, That's a business that is an important business, but it's one that we have never seen as a particularly strong fit with the company. And some years ago, we had a small CRO.
We actually divested it. So that's how we think about the CRO end market. Thank you, Tycho.
Sure. Derek?
Hi, Mark. Thanks. Just thinking about Saying these meetings over the last 10 years in sort of Life Sciences markets, we've seen organic revenue growth in The conversations go from the 3% to 5% range, and we see the thermos growth growth from 3%
to 4%. Your guidance go
to 4% go to 4% to 6%. And so right now, you're tracking really well at about 5% this year. The Life Sciences markets are about as strong as we've seen them in a number of years. So the basic question is your guidance is 4% to 6% on the top line. What do we need to see to get to the 6% range?
Yes. So Derek, thanks for the question. So As I was thinking about the outlook and as the team was working through preparing for today, I think one of the things that's interesting is
if you take
a perspective of a few years back, right, and the view was, Is Thermo Fisher Scientific really a 4% growth business? And is that really the case? And Everyone really ignored anything above that, right? And if you actually look at 2015, 2016 2017, We've delivered 5% organic growth over that period. That's the average organic growth over that 3 year period.
And when you look at this year, that's the guidance that we're giving as well. When you look at the actions that we've been taking to strengthen the company, we're driving towards going higher in that range, right, which is As we've built out our presence in the high growth and emerging markets, it's not 21% of our revenue. It drives more growth. When you look at the track record on innovation And the scale of investments, again, that positions us for brighter growth. So we're always conservative in our outlook, but we feel good that we're consistently delivering 5.
We're setting our sights on 6 as the next goal, and that's what we're working towards, right? And I have great confidence based on the strength of the team and our competitive position that we'll continue to deliver growth that's at least 1 point faster than the rate of market growth that we're serving and drive to the highest possible growth that's sustainable over time.
Mark, Doug Schenkel, Cowen. Actually, just to start off, just a quick follow-up to Derek's question. So maybe to phrase it a little bit differently, but Is your expectation based on everything we've heard today, what you just described? And then just thinking about how the mix of the business has evolved, mean, just thinking even last year about Patheon and what that would have done to core growth if it were in the core, you would have been well above 5 percent. So just to be clear, even though you talk about 4% to 6% again, is the expectation your expectation that you're going to do at least 5% for the next few years?
Yes. And if you look at Stephen's model that he articulated on behalf of the team, the assumption in that model is 5% organic growth, right? If you look at what's embedded in that period of the next 3 years, that's the average that's assumed there. And as you know, if you look back over different periods, whether you look at 3 years that Stephen articulated since he presented the first time. But if you go back even further, we deliver or exceed those numbers.
So our goal is to deliver in that range or better. That's how we would think about it.
Okay. And then just on the topic of cloud connectivity that was Covered in several presentations today. Mark Stephenson and I were talking about it at the break, and it sounds like it's only about 5% or so of your customers that are on the platform the way you described it today. Recognizing it's Still early days. Is there evidence that getting folks on this platform leads to more stickiness, More ordering, better visibility internally?
And if so, how much are you investing pursuant to this? And where do you think that 5% can go over time?
Sure. So Mark, do you want to talk a little bit about the digital evolution, where we are today and the impact you see it having in terms of stickiness over time?
Sure. This one on. So I think the way we see it Is, as I mentioned, sort of launching all the new systems that are connected. It is also the same ecosystem that Greg mentioned in the inventory management And the same ecosystem that also drives our e business. So we begin to gather data about our Customers.
And so over time, what we see is the value not only to the customers of using that data but also to understand better what are the experiments that they're doing. And based on that, we can also analyze what other products we think will be appropriate to them and begin to really move our industry using more Data science, as you've seen other industries do. So that's really our goal. And over time, you'll see more and more applications that are useful to our customers and more and more use of that data science Sales and Marketing and Commercial Effectiveness.
Jack Meehan with Barclays. I Data into the clinical development process. Is there a way you can take these systems a step further and develop unique Service offerings in biopharma services, which could be a big edge?
Yes. From my perspective, If I take the clinical trials view, right, I remember the early dialogue, which is we, the pharmaceutical company, do this much better than anybody else to how the dialogue is switched to, okay, you are the low cost, high quality producer. You have invested more in systems processes, making everything digitally connected between our capabilities and the customer. We've gone through that evolution in one part of the business. And over time, That's created greater share, right?
And we took a business that was smaller, modest profitability, kind of in the low double digit profitability to well over 20% margins by really adding more value. And you'll see us do that And over time, in terms of how we work across Pharma Services.
Great. And if I can squeeze in one more. Just the theme of riding The amount of innovation going on in the biologics landscape now, what's the type of cadence we should expect in terms of expansion of your capabilities there and The footprint you have.
Yes. So we announced an expansion of our St. Louis facility, and you got to see that, the picture of it on the video, which was a $50,000,000 expansion and which is underway, and that will serve us well for a period of time. We are always in the sort of what's the most cost effective way to drive capacity. And sometimes it's expanding what we have and sometimes you're acquiring facilities.
But right now, I think we're certainly well served for a period of time based on our internal expansion plans.
Mark? Dan Arias from Citigroup. Over here. Okay. Perfect.
Yes, perfect.
Hi,
Dan. Just following up on China, I guess, thanks The commentary on the 60% growth in the historical period, what do you feel is a good CAGR going forward if we look at the next 3 to 5 years?
Yes, what we're assuming is double digit growth, right, in that period of time. We've been growing in the mid- to high teens. And I think based on the market growth, north of 10% over a long period of time seems a conservative And likely it'll be higher than that. The interesting thing about China is the management team, we go there often. And the view that all of us have when we come back is that the opportunities are better what we thought going in.
I mean it is amazing how dynamic the market is. And so I'm giving you a kind of look on numbers. But if you say how did I feel when I was there the 1st week of May, I haven't been more bullish on China in any period than I was in the past. I mean, it's Unbelievable, the excitement on in the market in terms of what's happening, and I think that bodes well for the future. And I think Sai did a good job of articulating not only what's happening in the market, but why our strategy puts us in a unique position to be successful in the market.
Okay. And if I could just ask one more on biopharma.
If you think about what
you can do there, is the bigger opportunity on the large side just given the magnitude of going on? Or is it on the smaller side given they've been less plugged in, less penetrated? I mean, I'm sure the focus is both, but I'm just curious how you would compare the wallet, so to speak, on each one?
Base, basically doesn't have the capability, right? So from that perspective, they don't have the expertise and they don't actually have the capability. So our Track record there is exquisite for helping them go from the discovery phase through the clinical phase ultimately to commercialization. Because of our relationships at large pharma, we're actually having 2 different types of capability discussions. 1 is often the networks that they have were built for different pipelines than what they have today.
So they are in the same boat of saying, do I do this myself or do I actually partner with somebody? So because of our access, we're actually having a lot of relationships with us saying, how do we help them grow. And at the same point, they have overcapacity in small molecule, and they're looking to us to say, how can you help us be more effective as We're migrating down some capabilities as well. So you're seeing good opportunities both at the established companies as well as the emerging companies.
Mark, Catherine Schulte with Baird. Michelle commented that prior to the acquisition, Patheon and Thermo only had about 15% Can you give us an update on where that is today in terms of customers using both offerings? And any anecdotal commentary on cross Selling success.
Yes. So obviously, because it's relatively new, the percentages aren't going to be dramatically different today. But what we have been doing is holding customer events in different parts of the world where we're actually doing the introductions and actually articulated what is the end to end value proposition, how that helps our customer base, and that's gone very well. And Whether if I think of the examples, I've seen small biotech and pharma companies that are on the emerging side starting to use us much more holistically. But interestingly, as Michel said, there are a number of customers that just from an access standpoint, Patheon is a stand alone business, just didn't have strong access.
And as these large customers were really asking for us to expand our capabilities, The excitement that they've had about working with us is awesome. And the way it works is they give you trial projects, right? They basically say, okay, I like it. Here's a trial project, get it going, deliver there, and then we'll look at much bolder things. So we're in that funnel, and it's very encouraging in the early days right now.
Thanks, Catherine.
Hi, Mark. Dan Leonard here from Deutsche Bank. Two unrelated questions on 2 of your newer growth platforms. So first off on cryo EM, Mark Stephenson made the case that you're trying to broaden the adoption of cryo EM. Can you elaborate and put some numbers around that, What your installed base is today versus what it could be or maybe use a baseball analogy or something to help us flavor that?
And then secondly, On Patheon, the consolidation opportunity in CDMOs was a big part of the Patheon standalone story, but it wasn't something Michel touched Don in his presentation in a meaningful way. So can you articulate a bit how you're viewing that consolidation opportunity as part of the Fisher strategy going forward.
Yes. So Dan, thanks for the questions. In terms of the baseball analogy for cryo electron microscopy, It's probably in the 3rd inning and the starter looks as strong and dominant as possible. It looks like it's going to be A complete game is the way I would say it. And why do I say it's around there, right?
We've it's obviously been out for a few years, and we've been tracking it. And obviously, we made the acquisition 2016 based on our mass spectrometry knowledge base with the customers and sort of the feedback we were getting. So we knew that the technology was going to be well received. But we also knew that FEI is a stand alone company. Every single meeting was a new meeting for that customer base basically they didn't have the academic relationships where we had very strong ones.
So we've been able to accelerate it. And now you're starting to see The momentum, right? You're seeing it in the NIH announcement last week about their commitment to the $130,000,000 to expand this at 3 centers across the country, including training a number of scientists so that they can drive adoption. You're seeing that across the world in terms of excitement. So we think it has a very exciting growth runway ahead.
In terms of The opportunities in Patheon or pharma services and the consolidation play, the combination was a consolidation play, right, which is if you think about it, you had a $2,000,000,000 business and it acquired a $1,000,000,000 business within Thermal Fisher to build out the industry leader, right? So that was a huge move in putting those capabilities together, and we now have the full range of capabilities. And then over time, you'll see us be selective. There are things that we can do. Our capabilities are strong enough that we don't have to do M and A, but I think They'll present themselves over time to continue to expand our offering.
Thanks. Sure.
Mark, it's Steve Bischalff from Morgan Stanley. Over the last couple of quarters and
I would argue over the
last couple of years, a number of things have actually changed, which is remarkable for a company as big as Thermo Things to be notably different, right, like the addition of FEI, the addition of Patheon. And the relative growth of the company as compared to the sector has actually gotten better and better over the last couple of years. And when I listened to the presentation today, there's a number of binding threads. One of them is being bigger and better in a very customer First way. So I'm inclined to say let's put those together and say number 2 explains number 1 that it's really about being customer focused in a broader and broader way and that's why you're growing fast.
Is that the right way to think about it? Is it you're just doing a better job than ever of getting close to the customer? Or is there some other Set of drivers that you would spike out for relative performance as compared to the market?
Steve, from my perspective, The transformation of the company over a long period of time was really based on a view the customer base, which is this was a technology industry, and there happened to be customers, right? And we had a view a very long time ago that if you focus on customer success, that customers will want to do more business with you. And that actually was something that was not intuitive, And it was actually not well accepted either back in 2002, 2003, 2004, that time frame. And over time, both scale and that relentless focus on the customer base really has changed the industry, right? And as we have grown, others growth has slowed.
And as it has slowed, we've basically been able to acquire the companies we want and then revitalize them. And that's been what we've done over a very long period of time. And I think it's all about Making our customers successful today, the thing that we come to work in every single day is helping our customers win. And when we do that, We really have an awesome offering, right? I mean, it's incredible the capabilities we have.
But as long as the customers know that we care about them, we want them to be successful and we are the key partner for them to do that, We have an amazing bright future ahead of us. So yes, that is the core thread. But the other thread is the financial results, And that's the PPI Business System. It is unbelievable. It was launched in 2002 in San Jose.
I remember the first training session that we went through And the evolution of how that has transformed the company from a company that had roughly 10% operating margins back then to a company today that's well on the path to have 25% to 26% operating margins with very, very strong cash generation. So those are the 2 threads. 1's an external thread, 1's an internal thread about what has differentiated Thermo Fisher from others in the
industry. Mark?
Hi, Steve Willoughby, Cleveland Research. Kind of a broader kind of competitive question across some of the presentations this morning. They're talking about emerging markets and the channel business. I was just wondering, I guess, first, within some of the emerging markets, why do you think Then that you haven't seen more emerging market kind of competition for some of your equipment and consumable lines across the industry. Then secondly, within the channels business, kind of an update on the competitive environment there, the success that you're having And maybe some of the new market entrants there and what impact they're having in the market?
And then I guess finally, on the Pharma Services business, With the integration, vertical integration that you guys are showing today, do you expect and what kind of impact do you expect from your competitors react to that.
Yes. So in terms of emerging market competition, what's really wonderful about Life Science Tools and Diagnostics and Our CDMO business, this is a generally a low volume, high mix business. So it's very hard to build a scale tough competitor in any particular geography because you have to have global access to the markets to be able to be effectively cost effective, right? So There are low cost competitors. There are emerging market competitors, but they're relatively minor, and they are in very commoditized range of the products.
Basically, there were 2 major players, ourselves and now Avantor. Avantor is an excellent company and has done well. So it's been a very stable set of market conditions over a long period of time. And remind me of the Pharma Services question. Right.
We have good relationships with the other players in the industry, and We're a core supplier to them, just like we're a core supplier to a Vonterm VWR. And we make sure that we continue to serve them extraordinarily well and help them be successful, that's allowed us to continue to grow our offering across the range of what we do.
Mark, we have time for one more question. Sure.
Mark, thanks. Patrick Donnelly from Goldman Sachs. Just one on the CDMO market. Definitely appreciate the color on the drivers of the outsourcing penetration rate. Guess, can you help us think about where that penetration rate is today and where that could go maybe over the next 5 years?
And then as we think about your growth rate, how much is dependent on the penetration rate Increasing versus share gains versus smaller competition.
Sure. Michel, do you want to talk a little bit about penetration rates and how do you think about share gain and growth?
Sure. So I'd say penetration rates probably are in the 30s, depends a little bit on which service line, right, because Penetration in drug substance manufacturing is significantly higher. That started 25 years ago, and penetration is pretty high when it comes to Drug product formulation, it's early on. But if you average it out, let's say, it's in the low 30s. And where can it go?
If you look at some of the other Pharma Services outsourcing place like CROs, it's probably 10, 15, 20 points higher than that. It's going to take a while for that to occur. This is a business where change occurs slowly just for the nature of the type of activity that we do. But I think there is significant sort of impact and drive to see those penetration rates go there. In terms of market share gain, I think we benefit from all of it, right?
So we benefit From a growing industry, you think that as the industry expands, the larger players are going to get the most benefit of that because Most of our customers, if not all, talk about the need to simplify their set of relationships. So I think my expectation is as this industry grows, It will accrue mostly to the larger players. And as a result, we hope that we can get our fair share and then some of that. And I think The market share gain will come from the fact that our capability set is unique, and I think we compete effectively on this end to end offering in a better way than some of our competitors. So hopefully, we can benefit from the industry growth, benefit from the fact that it accrues to the larger players and then benefit from the fact that we have a unique Value proposition.
So
we should be in
a pretty good position to continue to gain share.
So on behalf of the management team, thank you. We always appreciate the attention and support that you have of Thermo Fisher Scientific, and I'll end with where we started. We couldn't be more excited about the bright future that we have because of the attractive markets that we serve and the unique competitive position that Thermo Fisher has. That bright future will be driven by the markets. It will be driven by the proven growth strategy, the benefits of our PPI business system and our ability to continue our track record of rigorously managing your capital and creating shareholder value.
So thank you, everyone. Look forward to keeping you updated quarterly on our progress.