Good morning. I'm Ken Apicerno, Vice President, Investor Relations for Thermo Fisher Scientific. On behalf of the entire management team, I want to welcome everyone to our 2013 So we're always excited to be here to tell you about the progress we've made over the last year. This year is We're also very excited to tell you about the year ahead. So we're again very excited to be here to tell you about Let me just briefly cover the schedule with you as you can see on the agenda.
We're going to have presentations by our CEO, Mark As for our CFO, Pete Wilbur, and several of our primary business leaders. We're going to take a short break in the middle of the program. And then when we come back after the presentations are done, Mark will come back up with a few closing comments and then we'll open it up for Q and A. When we get to the Q and A portion of the day, we ask that if you'd like to ask a question, please raise your hand, I'll wait for microphone to be brought over to you and then please state your name and your organization and then ask your question. One other housekeeping item, if you have cell phones, other electronic devices, we'd appreciate it if you could put those on mute.
So before we get started, let me just quickly cover the Safe Harbor. 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 Securities 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 those discussed 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. Therefore, you should not rely on these forward looking statements as representing our views as of any date subsequent to today. Also during the presentations today, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP, including adjusted EPS, adjusted gross margin, adjusted operating margin, adjusted ROIC, adjusted ROE and free cash flow.
Definitions of these non GAAP financial measures, and for historical purposes, a 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 CEO, Mark Casper. Good morning. Welcome. It's great to be here.
It's nice to see so many familiar faces. I'd like to take this opportunity Also to welcome our Board of Directors who in all years past have joined us here today as well. I'm very pleased to kick off the Analyst Meeting today. We have a lot of exciting things to talk about and you'll get a sense during the course of the day why we're so incredibly bullish about our future. You'll see my presentation and many of the presentations throughout the meeting focused on our customers.
And even the video gives you a sense of how All 39,000 of us are really focused on enabling our customer success. Our company is clearly a really exciting place to be right now. We had a good 2012 despite the challenging environment. We're off to a good start in 2013 with a strong Q1 I'm already behind us. And then obviously, about a month ago, we announced our acquisition of Life Technologies.
So a lot of energy, A lot of great things going on at the company. My colleagues and I will discuss this morning our excellent financial track record, our prospects And our key drivers of our growth. For me, it's my 12th year at the company, and I have to admit that I've never been more energized about our outlook and our future. And it comes Every morning I wake up, I'm just excited about what we're working on and what our future holds. You know us as the world leader in serving science, and most of you are familiar with the facts and figures on the chart.
So, I'm not going to hit those. But at a high level, the company is known for our scale and our depth of capabilities. What I really want to stress now is, most importantly, is that we're not sitting still. We're strengthening our depth of capabilities every day. So, the investments we're making in our growth platforms as well as in the strategic moves that we're making, We're constantly improving the company to have a very bright future.
Our overriding goal is to be the best possible partner for our customers. So let me give you a quick overview of how we're organized. As you know, we have 3 complementary business segments. A little less than half of our business is our Lab Products and Services segment. And within this, we're focused on improving the productivity of our customers And accelerating their innovation.
Our Fisher Scientific channel is the leading channel in the world. We also have our lab consumables and lab equipment offerings in this part of our business, which is a very strong market position, as well as our high growth biopharma services business, which is focused on clinical trials, logistics, and packaging. About 25% of our revenue is in specialty diagnostics. We've built a leading position Where we have very strong market shares and serve all of the major medical centers around the world and have been growing our capabilities here to focus on improving patient Care and creating greater access to improve medicines for all the communities around the globe. And then finally, analytical technologies, About 30% of our revenue, it's the combination of our leading instruments business as well as the biosciences capabilities that we have.
Here, we're focused on our cutting edge technologies and really bringing them not only for research settings, But also to a broader set of applications in industrial and applied markets as well. Looking at the same breakdown, but this time thinking about it from the served markets perspective, our markets are about $85,000,000,000 in terms of what we're serving. We have plenty of growth Opportunities ahead. When you look at the world of tougher economic outlook as well as sequestration, in the very short term, looking right now in 2013, We think the overall market growth is probably depressed by 1 to 2 points relative to historical trend rates. And when we think about the longer term, We remain quite confident that these markets in aggregate will grow 3% to 5% and you get a sense of the different growth rates in the markets that we serve.
We've been able to turn those growth positions in the markets we serve into very strong financial performance. And when you look at our key financial metrics, We're very proud of what we've delivered. We've delivered good top line growth over the last 5 years, averaging 6%. We've been able to use our operational discipline Translate that into strong earnings growth, both at the operating income level as well as at the adjusted EPS level. In fact, over that 5 year period, We've nearly doubled our adjusted EPS.
Always focusing, of course, on the returns on invested capital, whether that's on an R and D project, A capital project or a strategic M and A move, we're always focused on making sure that we're generating true economic value for our shareholders. And I think you get a Our strong financial track record. When you think about what drives us and what is our long term focus, What are our aspirations for the future? I put up this exact same slide a year ago, and this was a slide that looked at our vision for 2020. The management team generated this slide and put it together at the end of 2,009 when I became CEO.
And so what are we trying to accomplish for the long term? And we use this constantly as a reminder of what we're focused on, what is our strategy and then how do we use this in terms of measuring our progress. Every year, we start with our annual leadership meeting. We do it right after January 1. We bring in our top 250 executives from around the world, We start out with a measure of our progress on these long term objectives.
And I have to say that as we started 2013, of the commitment of all 39,000 colleagues we have with the company, we're making incredibly strong progress in achieving our long term vision. And I think it really rallies all of us at Thermo Fisher, for what a bright future we have. I'm not going to hit all the points on this slide, but there are 3 important things here I want to talk about because it will frame much of the Analyst Day. And they're really around the growth strategy elements that we have within the vision, one of which is around innovation and bringing out breakthrough And the third is continuing to scale our presence into a leading presence in the high growth regions of the world in Asia Pacific and Emerging Markets. From this point on in my remarks, I'm going to focus on our customers.
And you know The environment that we're living in, the economic challenges, but really, I think in a way, we put that to the side and we look at the fundamentals of what Customers are trying to accomplish, and they're really focused on making a huge difference in the world that we live in, primarily trying to ensure The world that we live in addresses the major health care challenges, disease challenges, environmental challenges that are out there in the world. And I think this Slide gives you a sense of some of those headlines that we read every day about what folks in the health care community, the environmental community are working on, and we're very excited to play an important role in that. And when you think about it, our mission, I think, says it best. We enable our customers to make the world healthier, Cleaner and safer. It's clearly a complex world, but the mission is quite simple.
And it really motivates and energizes all 39,000 of us It really gets us to work every day focused on helping our customers meet those societal challenges. And obviously, what we do, we think, is very vital to society. We fulfill that mission in slightly different ways for our 4 end markets. As you know, our 4 end markets are roughly balanced at about quarter of our revenue. And when you look at it, we start with healthcare and diagnostics.
Our customers are focused on improving patient care through better diagnostics. What we do is help them lower the cost of care and bring out new novel diagnostics that help them treat patients more effectively. In pharma and biotech, we're helping our customers meet their productivity goals so that they can fund their R and D pipelines to bring out new drugs and medicines As possible to the market. Our customers in government and academic institutions in certain parts of the world are facing a tougher Economic environment, and what we're doing is ensuring that even in that environment, they're not sacrificing their research objectives, and we're helping them navigate that so they can Good morning. I'm continuing to do cutting edge research.
And then finally, in industrial and applied markets, we really focus on helping our customers meet the increasing regulatory standards Quality control standards that are going into effect across the globe. Those needs of our customers and the challenges that they face really become the pillars that define our growth strategy. And when you look at our growth strategy, it's focused on 3 things: Technology innovation, our value proposition and emerging markets, and I want to delve into each of them With 3 very brief vignettes that give you a sense of how we're focused. I'm going to start with some facts and then I'll give some examples of the future. As always, I start with innovation.
It's the lifeblood of our company. We spent last year or invested last year about $375,000,000 on innovation and R and D. In 2013, we'll spend over $400,000,000 on R and D. It represents over 5% of our manufacturing revenue. We have 3,000 scientists working across the company.
We generate significant intellectual property, almost 3,000 patents issued over the last few years. We have a world class set of talent and it is supported by an amazing scientific advisory board With members from the leading health care and academic institutions from around the world. Our vitality or the revenue we get from products launched in the last 2 years This 15%, we think that's a good track record that we've been able to demonstrate consistently over a number of years. Looking forward, in terms of our innovation pipeline, there really are 3 major aspects of what we're focused on, and you're going to hear more about that in the subsequent The first example is around building on our industry leading technology platforms, and I'll use our mass spec position as an example. We redefined mass spectrometry a number of years ago when we launched the Orbitrap technology.
But we didn't stop at the Orbitrap. We then launched Q Exactive, which allowed us to use that core technology and get into the Q top market and that hybrid market and built out over $100,000,000 franchise focus And at the American Society of Mass Spectrometry in June, you'll see a new generation Orbitrap That will once again redefine our customers' work in research and in routine applications. So Minneapolis this year is a must see in early June. The second part of our strategy is to take our core technologies and to take them from the laboratory and move them into the outside the lab into Phil. We have a very strong track record of taking miniaturization techniques to bring high value added information to create new markets.
And while in Portable Analysis, those are the product names, I just want to remind you of how we've used our core analytical technologies to create new markets. TruDefender, handheld use for security applications for the military primarily, but incredibly important. TruScan, pharmaceutical counterfeit application so that you can tell whether the pharmaceutical is fake or not. True narc used by police departments to be able to prevent having to open up a plastic vial or plastic bag to determine whether an illicit drug is just powder Or it's something that can be dangerous. And brand new that Alan will talk about, Microphasor is our movement into the agricultural market, again, high value The final example is around how we converge life science tools into diagnostics.
And Andy Thompson We'll give you examples of how in the area of microbiology, we're taking our historical strength in automated ID and automated susceptibility testing And combining mass spectrometry to provide a whole new sense of information for doctors to provide better patient care. Moving to the second aspect of our growth strategy, our value proposition. We've built out over a $3,000,000,000 franchise serving the biopharmaceutical market. We use our unique value proposition, our channel, our outsourcing services, Analytical technologies to create significant value for those customers. And when you look at the facts over the last 5 years, Biopharmaceutical R and D spend has grown on average 2% over that period of time.
That's a pretty good proxy for the rate of growth for our industry serving those customers. We've grown at triple that rate in terms of that period of time. So we've gained significant market share in terms of how we serve our biopharmaceutical customers. One of the questions I ask is this something in the past or is it something that we're excited about for the future? And when you think about the future and the relationships we have With the large biopharmaceutical customers, we see incredible opportunities to continue to grow our share of wallet with those customers.
And you'll get a sense when Ed Pesicka presents our value proposition, not only a little bit about how we work with pharmaceutical customers, but more importantly, how we're applying the learnings of the last to other markets. And you get 2 nice customer examples in the customers' own words, in academia and in contract testing labs, about how we're actually using that value proposition to create value for those customers. So we feel good about how our value proposition drives long term growth and helps us gain share. The third aspect of our growth strategy is around the high growth regions of the world. You know that we have a significant presence In those regions, we started in China a long time ago, really building out our capabilities in the early 1990s, have been expanding significantly.
In 2007, about 10% of our revenue came from emerging markets and Asia Pacific. Last year, more than doubled to 21%. And that's been a steady focus on building out our capabilities. And you can see some of the milestones That we've had over the years, building out manufacturing, R and D, demo applications labs, really building out the infrastructure to be able to capitalize on the strong growth. I'm not going to steal Syed's thunder on what he's going to be talking about from a strategy standpoint in the high growth regions, but I'll hit a few of the key points.
Obviously, we're very focused on China. You'll get a good sense of sight on why we're bullish about the outlook for China for Thermo Fisher. But you'll also see how we're ramping up in high priority markets, like South Korea and Russia, as an example, and starting to build the funnel of additional opportunities. There are a number of markets, like Turkey as an example, where we see good growth for the future. And I select Turkey because I just had the opportunity to meet with members of government Last week, as Vice President Biden and Secretary of Sekhri really had a delegation of U.
S. Business leaders to look at ways to collaborate Insignificant growth in Turkey. And I think those type of examples show that there's a lot of legs in our high growth regions for us. That gives you a sense of our growth strategy and the 3 major pillars. This is all built on our foundation of operational excellence And deploying capital effectively.
That combination has allowed us over the past number of years to invest significantly to build out those capabilities While still delivering incredibly important results from a financial perspective for our shareholders. From an operational excellence perspective, We are focused on taking out $250,000,000 of costs this year. The pie chart gives you a sense of The areas that has allowed us to expand margins and every year, the percentages vary a little bit, but it gives you a feel for where we drive Our productivity and Pete, in his remarks and presentation, will cover this in more detail. But we have very, very deep operational excellence capabilities, which allows us to expand margins, drive earnings growth and fund our growth initiatives. The final pillar of our strategy is around capital deployment.
And if you look back since 2010, about onethree of our capital deployed was return of capital to our shareholders, Primarily through buybacks, but also we initiated a dividend in 2012 and increased it towards the end of the year. And about twothree of our capital deployment was on M and A, and I'll highlight that in a moment. From a return of capital perspective, Pete's going to go into more details. But what our focus is in the short term is getting ready for the financing of Life Technologies. And once we get back into a period of deleveraging, We'll get back to a more normal return of capital mode for our shareholders.
Looking at acquisitions, our criteria is well known. We look at acquisitions that clearly strengthen the company strategically, that make a real difference for our customers and clearly create shareholder value, Primarily measured by return on invested capital. Looking back at some of the M and A that we've done, I think you're probably pretty familiar with these transactions, and I'll just give you a quick synopsis of how they fit together. When we acquired Dionix, it allowed us to build out A leading position for our mass spec and chromatography business. It gave us really significant strength in the routine part of the analytical instruments market and really was very complementary To our mass spec business, in our portable instruments, both organically and inorganically, we've been able to build out our Our portfolio is a very high growth significant business for us and those are two examples in our instruments business of how selectively we've targeted M and A to build out our capabilities.
In Specialty Diagnostics, we've built out a $3,000,000,000 business, a leading business, by picking very specific assets that have very strong market positions, Very defensible, good growth prospects and very high profitability to allow us to have customer relationships with every major Hospital around the world without the goal of trying to be the biggest company and trying to avoid commoditizing segments and the acquisitions of Brahms and Foddy and One Lambda have really given us significant critical mass. And then finally, in the Biosciences business, we made some smaller moves, but clearly, The big story here is going to be the upcoming acquisition of Life Technologies, where we're able to put together an industry leading position. So, let's talk briefly about Life Technologies. This is an acquisition that continues to strengthen our industry leadership. We think it will have a very meaningful impact in a very positive way for our customers because our customers will benefit from our increased scale and our improved depth of capabilities.
It will improve that in the areas of Research and Specialty Diagnostics and Applied Markets. I'm going to cover more of that in the next slide. I think we'll also become a significantly stronger company globally as a partner for our customers as you put the 2 organizations together. From a shareholder perspective, we believe the Life Technologies transaction is compelling, and we will create significant shareholder value. We believe that we'll be able to deliver meaningful cost and revenue synergies.
We expect significant accretion to our adjusted EPS. Clearly, the combined company is going to generate significant cash flow. And importantly, we expect to achieve a very significant return On invested capital, one of the more common questions that I get asked, certainly over the last month, is what do I think about Ion Torrent? What do I think about next gen sequencing? And obviously, we think that's great for the Thermo Fisher shareholders.
When we looked at the business, when we did our diligence, we clearly were excited about Ion Torrent. But I have to admit Having had the opportunity to meet the team in Guilford, Connecticut and spending time with them and having time meeting the team in the Bay Area, you cannot leave The Ion Torrent business without being wildly enthusiastic about what the future holds for that business. And we're quite excited about welcoming not only the Ion Torrent team, All 10,000 colleagues to Thermo Fisher once we close the transaction. So let me give you a little bit more detail on the combination. From a technology perspective, we clearly will be the innovation leader with a $0.75 billion R and D budget.
We'll be bringing together the leader I'm the leader in trigenomics, and long term, we think that's going to be quite compelling from the impact it will have on research and in healthcare. We'll have very strong offerings in serving the bioproduction market. We'll have strength in applied markets as well as very complementary in the specialty diagnostics field Where we have an incredible channel to the market and we'll have the benefits of having next gen sequencing as a technology that we can have in our portfolio as well. From a customer perspective, we have the leading channel. Combining that with the leading e commerce capability, we think our customers will be even better served going forward.
We were quite energized by the combination and what it will do for our customers. And then finally, we've accomplished a lot In the last month, when we closed the transaction, about 2 thirds of our business will be high-tech analytical technologies, biosciences and specialty diagnostics with Diagnostics with very differentiated physicians. And over the last month, we've had the opportunity to have a number of executive meetings between the companies. We've appointed our integration leaders. We have our teams starting to form.
We've had the opportunity I've had the opportunity to meet with about 2,000 of the Life Technologies employees Through town halls, roundtables, and you really cannot leave those meetings not being very impressed with the capabilities of the colleagues at Life Technologies, And you sense the enthusiasm and the energy they have about creating an even stronger industry leader. We anticipate the transaction will close early in 2014. So let me conclude, with really where I started. Our long term goals, we're building out a company focused on serving our customers in a distinct way and building out our industry leadership. With the strategies that we've outlined, we're clearly very focused on our customers and obviously focused on creating shareholder Ali.
I'd like to thank you for joining us this morning. We're looking forward to the day and your questions as we get through the materials. And I'd like now to turn it over to Pete Wover, our CFO.
Thanks, Mark. Good morning. It's great to be here with you today to talk to you about how we're continuing to create shareholder value through consistent financial and operational performance. I'm going to start with a snapshot of the past, I'll move on to our expectations for 2013 and then end on why I believe we're positioned for a great future. I'm sure many of you have probably already flipped to the last page of my presentation to look for our longer term financial model.
We didn't include 1 this year as a result of the pending acquisition of Life Technologies. But I will give you some insight into how we're thinking about the combined financial performance of the 2 companies. And when we close the transaction, which is expected to be in early 2014, we'll give you a more detailed view of our go forward view on our financial performance of the combined So with that, I'll begin with a review of our historical financial performance. So here's a snapshot of our financial performance beginning in 2007, the 1st full year after the Thermo and Fisher merger. Since then, our revenue has grown at a 6% CAGR per year.
And adjusted earnings per share has grown at more than twice that rate had a very strong 14%, almost doubling over that 5 year period. There were several key contributors to that growth rate, Including top line growth, margin expansion, our tax planning efforts, as well as disciplined capital deployment. So you can see the breadth of leverage we have in our company to drive earnings growth. I think you'll agree that we've demonstrated very strong financial performance over the past 5 years. Most of you have seen this slide many times, but it's still very relevant Because it shows the diversity and strength of our revenue profile, which benefits both our customers as well as our shareholders.
Our revenue is distributed pretty evenly among our 4 end market segments. This gives us the ability to apply similar technologies across a wide range of customers. It also gives us the advantage of being able to focus on Markets that are growing quickly during times when other markets may be more challenging. Our product mix is heavily weighted towards recurring, Consumables and service revenues and that provides stability and tougher end market conditions. And as Mark said, This recurring revenue stream will become even larger once we complete the Life Technologies acquisition.
And our geographic mix on the right shows the results of our investments in Asia Pac and Rest of World, which combined total 21 of our revenue today compared to just 11% 5 years ago. Our investments in emerging markets are clearly delivering significant returns, contributing 12% organic growth in 2012. Looking at our geographic breakdown in a different way, emerging markets currently represent 16% of our total revenue. We expect to expand this percentage into the future as we leverage our existing footprint and make further select investments to strengthen our presence. This is an exciting growth opportunity for our company and Syed will provide additional color on our future plans later on By segment, starting with revenue, you can see in the top line that we delivered mid single digit growth at the total company level for the full year in 20 12.
In fact, we delivered 4% every quarter. All three of our reporting segments also delivered mid single digit growth For the full year. When you look at the drivers of our organic growth along with the emerging markets that I just highlighted, our biopharma end market was stand out in 2012. We grew in the high single digits in this customer set by continuing to deliver our unique value proposition, which primarily benefited our Analytical Technologies and Laboratory Products and Services segments. Ben, on the next line, when you look at the relative penetration of our segments in emerging markets, it's clear that we're well established in analytical technologies at 28%.
It's also clear that we have significant opportunity for more accelerated growth in our other two segments, which are the focus of our emerging market investments. Moving to the bottom section of the slide, I've given you some detail on our total company and segment performance in 2012 relative to gross margin, R and D spend and adjusted operating margin. I won't go into a lot of detail here, but you can see that the two segments of the company that are focused primarily self manufactured products, both have greater than 50% gross margin. These segments are also where we spend the bulk of our R and D dollars. And finally, we delivered 19% adjusted operating margin in 2012, up 60 basis points from the prior year With all segments contributing to that solid expansion.
Here's the year over year adjusted EPS guidance bridge that I presented to you last year. We guided to 13% to 16% growth with significant contribution coming from pricevolume mix and productivity along with some benefit below the line from our tax rate and share repurchases. Now let's take a look at what we actually delivered. Adjusted EPS was up 19%, 3 percentage points above the high end of the range that I guided to last year in May. And we did this by performing well across the board.
We met the high end of our pricevolumemix goal. We exceeded the high end of our productivity goal. We delivered more value through tax planning and capital deployment, including the One Lambda acquisition. And finally, we reinvested some of that upside into our Strategic growth initiatives, primarily emerging markets to continue to accelerate growth in those regions. Overall, it's a great result And I'm proud of the way our teams executed in 2012 to deliver such strong performance.
But 2012 feels like agent history So I'm going to spend the rest of my presentation walking you through the reasons why we're confident that we'll continue to deliver excellent financial performance In 2013 and beyond. So this is our current guidance for 2013, Which is unchanged from our Q1 earnings call in April. I'll provide more detail on the upcoming slides, but here's the high level view. On the top line, we're expecting 3% reported growth in revenue and 1% to 3% organic revenue growth. We're expecting 30 basis points to 50 basis points of margin expansion And free cash flow of $1,800,000,000 to $1,900,000,000
All of this gets us
to high single digit adjusted EPS growth of 7% to 9%, Which excludes any further buybacks for the balance of the year as we build cash to fund the Life Technologies transaction. So let me remind you of the key assumptions we used in our current 2013 guidance. These are also unchanged from our Q1 earnings call, but I wanted to highlight A few things related to our organic growth outlook. First, we expect sequestration in the U. S.
Will continue to create challenging conditions in our academic and government end market. 2nd, the overall macro environment will likely keep growth muted in our core industrial markets, Although we expect applied markets will fare better. And last, while biopharma continues to perform very well, Our growth in 2013 is expected to be somewhat affected by difficult comparisons as a result of our high single digit organic growth with this customer set in every quarter of 2012. So now I'll get into a little bit more detail on the key contributors to our 2013 guidance. And I think you'll see why we're very confident in our ability to deliver another very strong year operational.
So earnings growth starts with top line growth. And you heard me say earlier that we have a strong track record here. We're focused on 5 key areas to drive growth and Mark highlighted 3 of them. These really haven't changed much over the past several years, but that's the point. What's been driving growth for us in the past several years is going to continue to drive growth for us in the future as well, although we may push harder on 1 or the other depending To bring to market successful high impact new products across our portfolio.
We continually look at customer needs to focus on Solving their problems. 2nd, share gains. We have an unparalleled depth of capabilities that continues to provide our exclusive For us to grow with both existing and new customers. Mark covered this in his discussion about our unique value proposition. 3rd, emerging markets.
As Mark explained, we're continuing to our emerging market growth investments to increase our commercial strength and And product localization. I'll give you an example of product localization in China a little bit later. 4th, we're also keenly focused on driving price to deliver incremental growth and margin. And last, we gain revenue synergies Through our strategic acquisitions. This is another area where I believe we're uniquely positioned.
Integration is one of our core strengths and we're able to achieve acquisition revenue synergies to drive growth by leveraging our commercial scale unique customer value proposition. Turning to adjusted operating margin, We also have a great track record of driving margin expansion. We've averaged 45 basis points of expansion per year since 2007, A period that includes the 2,009 economic downturn. And as I said earlier, we're targeting 30 basis points to 50 basis points this year. We've made consistently strong progress here, but we still have plenty of runway into the future and I'll talk about that a little bit more later.
But now I'd like to show you how we expect to drive margin expansion in 2013. Here's a bridge of our 2012 actual adjusted operating margin percent to our 2013 guidance. As you know, executing on productivity is an area where we continuously excel and you can see the benefit we expect to drive on this Ash. Over the past 3 years, we've consistently driven annual productivity of about 200% using our key levers, Which I'll cover in detail on the next slide. And you can count us to deliver strong productivity again 2013.
Our ability to drive productivity has enabled us to continue to invest in the business while still delivering margin expansion. We're also getting some expansion this year from price volume mix as well as acquisitions. But this year, we have 2 headwinds that we haven't seen in the past and we don't anticipate seeing in the future that combined are diluting our margin by about 40 basis points. The medical device tax took effect at the beginning of the year and once it's built into our run rate, it shouldn't create any further margin dilution in subsequent years. And we, along with many of our peers, are experiencing a negative margin impact from the significant weakening of the yen over the past 6 months.
Since we don't have any manufacturing costs in Japan, the yen has a more significant margin impact for us than most other currencies. Despite these headwinds and the inflation pressures that we experience every year, we still expect to expand our adjusted operating margin this year because of our ability to Drive productivity. Now let me give you a bit more detail on our key productivity levers. You saw this slide in Mark's presentation, but I'm showing it again because it's important to our financial performance. Operational excellence is a core competency of the company And it's positioning us to drive an expected $250,000,000 of savings in 20.13.
A big portion will come from our practical Process Improvement Business Systems, which is ingrained in our culture. PPI is our methodology for improving the efficiency across our operations and functions Throughout the entire company. We've also been pretty aggressive the past couple of years in driving out costs through facility, rationalization and restructuring actions And this year will be no exception. And finally, global sourcing and low cost region manufacturing are also expected to drive a good portion of our productivity savings Again this year. Every day our employees use our PPI business system to make the company better And deliver the highest quality products and services to our customers.
They identify specific areas for improvement, form teams, And complete about 5,000 projects a year to drive world class business processes. At the same time, they're reducing waste, Increasing efficiencies across our entire value chain from R and D to production Sales and delivery of the product or service. One example from our laboratory equipment business, which pictured here was a global project to lean out their manufacturing sites across the U. S. And Germany.
You can see the process and the results And the pictures, but the benefits were more than just a clean, organized factory floor. The team also significantly improved safety, I addressed a number of quality issues, reduced inventory, increased capacity by freeing up a large amount of floor space And drove about $350,000 of savings annually. This is just one of many great examples of how our employees drive productivity across our Anthony. In total, we expect to achieve $100,000,000 of savings from our PPI and PPI lean efforts this year. So continuing the productivity discussion, we have a proven track record of driving manufacturing productivity.
The first component of this on the left is our heavy focus on reducing our global manufacturing footprint. We've consolidated about 70 manufacturing sites since the Thermo and Fisher merger in 2006 and we've increased our revenue per manufacturing site By 53% over the past 5 years. Because we've also added sites through acquisitions, we still have around 125 manufacturing sites, Which provides us additional cost reduction opportunities into the future. We're expecting over $20,000,000 of savings in 2013 From further reducing our manufacturing footprint, which is a portion of the $75,000,000 of total restructuring savings that I mentioned on our Q1 earnings call. Moving to the right, we've also continued to expand our manufacturing footprint in low cost regions.
Two major highlights in 2012 were The expansion of our low cost region facility in Lithuania and the opening of our new laboratory consumables and equipment plant in Suzhou, China. Our goal here is not just about reducing costs, although that's a major factor. We also do this to produce more localized products And be more responsive to our local customers. One good example of localization is our ultra low temperature freezer line. We used to import the majority of our ULT freezers we sold into China.
But recently, we launched in country production of our performance ULT freezer line at our Suzhou manufacturing plant. This will result in a significant decrease in product cost through local manufacturing sourcing, we also expect to benefit from reduced finished goods and lower freight expense, 50% shorter lead times And improved product availability and order fulfillment rates. Since 2007, we've tripled the amount of our revenue manufactured in low cost regions From $200,000,000 to $600,000,000 And we're targeting another $100,000,000 this year, which we expect will contribute about $20,000,000 of And given that this is only about 10% of our total manufacturing revenue, we still have a lot of runway the future to drive additional savings. In addition to optimizing production, we've been shifting our SG and A resources to higher growth regions in Asia Pac and Rest of World. I presented a similar slide last year where I laid out a 2012 goal of 20%.
You can see in the middle pie chart that we exceeded that goal and now have 21% our SG and A headcount in these regions, more than double the amount that we had in 2,007. On a go forward basis, We'll continue to shift resources and further invest in these regions to improve our efficiency of spend and more importantly drive growth. So I've covered the drivers of our revenue growth and margin expansion. And now I'll shift gears and talk about how we expect all of that to translate to high single digit growth and adjusted earnings per share this year. Starting on the left, the negative impact from inflation is similar to previous years At a little more than $0.30 Foreign exchange is again a headwind this year, which is as a result, as I mentioned previously, Most of this resulting from the significant weakening of the Japanese yen, which is a high pull through.
Next, below the line, We're benefiting primarily from our tax planning initiatives, including tax synergies we're realizing from some recent acquisitions. This bar also includes a few cents of benefit from a lower share count as a result of our share buyback program. But as I mentioned, we suspended share buybacks due to the pending Life Technologies acquisition. So the benefit shown here is lower than what you would have seen in prior years. Price volume mix drives about 4% of adjusted EPS growth and the productivity actions that I just discussed are the most significant driver at about 10% growth.
We're reinvesting some of the productivity savings to continue to fund Growth investments in R and D and Emerging Market Commercial Resources, for example. And finally, our 2012 acquisitions, Including One Lambda and Dolan Ingalls contribute around 0 point This all adds up to our current guidance of 7% to 9% year over year growth in adjusted EPS. In addition to adjusted EPS growth, another indicator of our solid financial performance is free cash flow. Our teams have done a great job of consistently generating strong free cash flow at around 90% of our adjusted net income, which approximates our cash We delivered solid results in both good and bad economic times, which shows the resilience of our business model. One related metric and one that I feel is underappreciated about our company is free cash flow yield.
In 2012, we delivered a 7% free cash flow yield on our ending stock price, which is a great return On an absolute basis and on a relative basis, we also exceeded the free cash flow yield of both the S and P 500 And S and P 500 Healthcare Indices, which further indicates the strength of our results. We also continue to be very effective at deploying the cash that we generate, Creating shareholder value in both the short and long term. As I outlined last year and as Mark discussed, We've been very good stewards of your capital. This is something that he and I spend a lot of time on, so let me recap the past few years. Since 2010, we've generated over $11,000,000,000 in capital from a combination of our free cash flow, Increased leverage and a few strategic divestitures.
During the same period, we deployed about $7,400,000,000 On acquisitions, dollars 3,600,000,000 to buy back our shares and another $200,000,000 on dividends. We closed Q1 at 2.7 times leverage, which is down from 2.9 times in Q3 of last year following the One Lambda acquisition. So it's clear that we have a number of options for deploying our capital to create shareholder value. To give you some insight into our future capital deployment plans, As we mentioned, we've suspended share buybacks given the pending acquisition of Life Technologies. But we'll certainly continue to pay dividends And we expect to increase the amount over time as we increase our adjusted earnings.
Any cash that we generate between now and the close of the deal Above our model assumptions will be used to reduce the equity component of the related financing. With our assumption that the Life deal will close in early 2014, we expect to have total debt of just under 18,000,000,000 And a combined pro form a leverage ratio of 4.3 to 4.4 times upon close. At this leverage ratio, we expect to maintain our investment grade credit ratings. But to do so, we need to allocate Our post dividend available cash in subsequent periods toward paying down debt until we return to our target leverage ratio of 2.5 to 3 times. Once we're back within our target, we would expect return of capital to be closer to historical levels.
And given the even stronger cash flow profile of the combined company, depending on shareholder sentiment at the time, there's a high likelihood that we would change the mix to increase the level of dividends. Return metrics are often an important point of discussion with our investors and they also get a lot of focus within Thermo Fisher. Like you, We measure our returns and judge our performance based on them. All the investment decisions that we make, Whether it's people, R and D, new facilities or acquisitions are all evaluated using return metrics. As you can see on this slide on the left, since 2,007, we've increased our adjusted ROIC by an average of 30 basis points per year, which includes a number of acquisitions.
We closed 2012 at 9.3% Within the range I communicated to you last May, even after deploying over $900,000,000 of cash on the One Lambda acquisition. In 2013, we expect to increase our return by another 50 basis points to 70 basis points or around 10%. And on the right, we've delivered even better performance in terms of our adjusted return on equity as a result of prudently leveraging our strong balance sheet. So looking ahead to the future, on a standalone basis, We continue to believe that our company can deliver mid single digit organic revenue growth annually. This is based on the strength of our markets And the numerous growth drivers that I shared with you earlier.
Next, I spent a lot of time talking about productivity. It's in our DNA. And although 2013 does have some incremental challenges, given the multiple levers I described, I'm very confident that we can Good morning.
I'll continue to deliver 50
to 100 basis points of margin expansion per year for the foreseeable future. This should lead to annual adjusted EPS growth In the low to mid teens, including reasonable assumptions for return of capital and excluding acquisitions and divestitures. And finally, as I discussed, our business generates great cash flows and we expect to continue to do so as we grow our adjusted In terms of what the outlook is with Life Technologies, As Mark said, we're just beginning the integration planning. So I don't have a lot to share with you beyond what we told you when we announced the transaction in April. But to reiterate, we modeled 3% organic growth and $75,000,000 of revenue synergies by year 3.
This certainly doesn't represent our growth aspirations for the combined business. But it's important to note that we were able to generate good financial returns using As a baseline assumption, we expect to generate $275,000,000 of operating income synergies by year 3 With $250,000,000 coming from cost actions and $25,000,000 resulting from the pull through on the $75,000,000 of revenue Alex. In terms of the cost synergies, about 1 third will come from eliminating redundant public company costs and corporate administration, and about 2 thirds will come from integrating the operating businesses and leveraging the scale of the combined company. Along with the related financing costs, these assumptions would contribute $0.90 to $1 of adjusted EPS accretion in the 1st full year. And finally, we expect the addition of Life Technologies to add about $750,000,000 of free cash flow to our existing profile.
With the combined company generating over $2,500,000,000 of free cash flow per year. All this results in what I think is a very compelling financial outlook. So to wrap it up, you got a good sense of our strategy from Mark, A good sense of our financial outlook for me. And now you're going to get some great insight on how we're going to get there from the rest of the team. So now I'd like to introduce Alan Mallis, President of Analytical Technologies, who's going to talk to you about the importance of innovation in solving our customers' challenges.
Thank you.
Well, good morning. I'm Alan Mallis and I lead our analytical technologies businesses in the company. In these businesses, we have a great track Record of developing high impact innovation that's really helping our customers deal with an ever changing landscape of challenges. We have unique offering and applications expertise and we're helping customers in laboratories. We're helping them on the production floor And also helping them in the field as well.
Over the years, we've built an impressive leadership position in our offering, And it clearly sets us apart from the peers in the industry. But really what differentiates us further is that we continue to innovate in our You noticed in Mark's presentation earlier today, we invest over 5% of our manufacturing revenue in R and D. You'll see a lot of that happens in the analytical technologies businesses. So today what I'm going to do is I'm going to focus a bit on The value that we create with this investment and I'm also going to share with you some of the new exciting opportunities that we have for growth going into the future. So first, the analytical technologies is a $4,000,000,000 segment.
This includes 4 highly complementary businesses that serve customers in each of our key end markets. We have the most comprehensive portfolio of instrumentation. This ranges from chromatography to mass spec to elemental analysis. We also pulled through an extensive portfolio of consumables and services to support these customers. Those customers could be a research laboratory in the United States or an air monitoring center in China.
Now in the past few years, we've had great success in bringing these technologies to new and emerging geographic regions of the world as well. And you have to think in these areas as economic growth is fast, they're experiencing an increasing need to analyze and monitor and protect health and safety in those regions as well. Now those If you followed us over the years know that we have a long legacy of innovation. And it's really the lifeblood of our company. Our portfolio of analytical instruments is unmatched and we're continuing to invest to strengthen that position.
Now I'm showing you this slide here which has a lot of information on it and it's really for one simple purpose and that is that If you look at 2012, we had significant launches across all of our key technology platforms in the company. With these, we've had very specific applications that we've been supporting, but also with all of them, there's unique differentiated Software and Consumable Technology. And if you look at all of these, what they're enabling Our customers to do is to achieve 2 goals. The first is to accelerate their innovation And the second is to drive productivity in their businesses. Now if you look at all these, they've all driven growth for our company.
And what I wanted to do was just spend a few more minutes on one area of technology that's really made meaningful advances in helping our customers to do their work and that's mass spectrometry. So as you know, we've had a tremendous legacy of innovation in mass spec Technology. In each evolution of our platform has really provided significant capability advancements for our customers And position Thermo Fisher to take share in the mass spec market. If you look back to 2,005, We took a major step forward when we launched the first OrbiTrak. This is a result of a team of ours, Scientists of ours did some amazing work led by Alexander Makarov.
The Orbitrap redefined mass spec analysis completely converted $100,000,000 for a year mass spec market. Then in 2,008, Our next generation Orbitrap platform positioned us to take significant share in the $700,000,000 triple quad market. And then in 2011 we launched the Q Exactive. This is a hybrid quadripole orbitrap mass The QXacto is having a profound impact on the $250,000,000 Q TOF market. I can tell you it's far exceeded our expectations.
It's exceeded our customers' expectations, and it continues to be well received In research markets and numerous applied markets as well. Now we've always it's always Refreshing to us is we interact with our customers to really understand the value that our technology is contributing to the work that they're And it's really helpful to hear it in their words as they explain how our innovation is impacting the work that they're doing. What I want to do next is share with you a brief clip from a customer of ours who we've been collaborating with for years. This is Doctor. Matthias Mann.
He is one of the world's leading researchers. He adds up the Proteomic Research Center I'm at the Max Planck Institute of Biochemistry in Germany. So let's listen to a bit about what he has to say.
So the proteomics field exists depending on the definition since the mid-90s and I've been involved In that field from the very beginning, with electrospray and mastectomy, I've been involved with that for 25 years now. Probably it has been just as As fast as in any other field, for instance, as in computer. What took us literally weeks is now done in sub second. The collaborations with Thermo Fisher are Extremely important to us and we wouldn't be here doing these things if it hadn't been for individuals like Alexander Makarov and other Thermo Fisher Scientific. The attraction of proteomics is in some ways it's the logical next step in biochemistry in general.
So in biochemistry, we've been looking at proteins 1 by 1. And now we're looking at all of the proteins all of the time. That's the goal. The other direction is as a Counterpart to genomics and other omics technologies, it's important not only to look at DNA or RNA because The proteins are as important or more important. The technology is becoming more and more powerful.
But one thing that my group is very, very interested in And working together with Thermo especially is to encapsulate this to make it into a system that everybody can then use and that would dramatically extend the reach an impact of proteomics and I think that's well within the technological possibilities that we have at the moment.
So it's really great to hear how our technology and innovation is really accelerating Our customers are doing. And really, when you think about what Doctor. Mann was talking about, I mean, this is really enabling Our customers do things that really weren't even possible before. This is really exciting for us and our customers. As you know, we've built a leading position in mass spec and we're always thinking about how we can make the technology better.
And what is the next breakthrough? What are our customers expecting us to do? And I'm pleased to tell you You're going to see that within the next month. We have some major new instruments that we're going to be unveiling at the upcoming SMS meeting on June 9. This is definitely a show that, if you're going to take an opportunity to see any one ASMS show, this is one you're going to want to go We're going to be launching our next generation Orbitrap technology.
This is an ultra high resolution, ultrafast system That provides maximum experimental information. This is an innovative technology that's going to provide Significant advancements for leading life science researchers around the world. Now in addition, we're also going to be launching a new triple quad And here we're confident that this is going to help us take shares in applications In quantitative applications and analysis that are in the mass spec market. Lastly, we're going to launch a suite of application software that helps our customers really streamline instrument control and data analysis. As you recall, at Pittcon, we launched The Chameleon 7.2, managing and we've talked a fair amount about managing data and the Challenge to do that in the sophisticated analytical tools that we have for customers to manage that data.
There are really exciting opportunities for us to work further in this area and enhance the capabilities that our customers can really turn the data that they create And these analytical tools and the knowledge and drive progress in the work that they're doing to meet their goals. So let me share a little bit more about software innovation. Our software innovation really can have a significant impact on our customer from both an innovation and productivity perspective. We use our expertise in informatics to help manage and analyze vast amounts of data generated for our customers and their experiments. As I mentioned earlier, we had a major breakthrough with Chromelion 7.2 at Pittcon in March.
Our customers can now run Both chromatography and select mass spec capabilities and data processing on a single data platform for the first time. This is a true breakthrough in the industry. For our customers, for some of our customers, this is going to translate into reducing Data processing times and analysis cycle times by up to 50% to 60%. And In addition, they're going to be able to network and use this across labs throughout their organization. Now this is just one of the latest steps that we have in a longer term commitment to focus on simplifying the use of analytical tools in the laboratory and really making their impact on our customers' results even more powerful in the work that they're doing.
Now even with all the technology advancements that we've been discussing, I think we're really just barely scratching surface of what our customers are accomplishing and what they can accomplish. The life In the world like the world that we live in really is becoming increasingly complex and that means that our customers are facing more and more new challenges all the time. Now our company was built on the notion that many of these challenges can be solved through innovation, And it's clearly happening across all of our key end markets that Mark highlighted earlier today. So now what I'd like to do is transition to discussing a bit about how we're collaborating directly with customers To provide new analytical tools and workflow solutions to address some of their specific challenges and needs. So first, in the research marketplace, leading life science researchers continue to push The boundaries of technology to develop effective treatments for disease.
Thermo Fisher plays a critical role in collaborating to develop new tools to advance the work of these scientists in emerging fields and disciplines. Now you heard in the clip that we showed from Doctor. Mann that we've had a significant impact with our leading technology to advance proteomics. This is a study of proteins in our blood, which is critical to developing new biotherapeutics. Now this type of research in proteomics is evolving into glycomics, which is the study and analysis of glycans.
Glycans are carbohydrates that bond onto proteins and researchers have discovered that they need to analyze them Because they influence the activity and stability of biotherapeutics. And part of what we have to recognize that roughly 70% Protein based drugs today contain glycans. The challenge is that glycans are very difficult to analyze. What they require is a very high resolution chromatography system and they involve complex assays That are very difficult to handle. Now what are we doing to help these researchers and evolve this area of research?
We're positioned to help the researchers with a novel and complete solution. We've developed unique Glycan column separation capabilities that no one else has in the industry. We've also introduced a rugged new instrument, The biocompatible Ultimate 3000. This combines the performance advantages of PLC, But it also has 100 percent corrosion resistant flow path. This is needed to handle very biologically challenging assays.
And then with this, we couple the QXactive and its specialized software. This provides high resolution, accurate mass detection And an analysis that's essential to doing this type of challenging research. All of this is adding up to an industry leading solution for what's a really exciting, emerging and important area of research. Now let's transition from Research to biopharma production. So you probably know of our strong position in bioprocess production, We've been a leader in disposable technology and single use systems.
This is a market that's been growing rapidly Due to the introduction of new biosimilars and an expanding vaccine market. In addition, the trend continues towards more flexible manufacturing solutions, So the drug companies can quickly respond to changing market needs. And those needs could be a drug shortage in the United States or there could be a flu outbreak in Asia as examples. Now what are we doing? We're continuing to improve our market leading Position relative to Biocontainer Technology.
We've just introduced the new Aegis 514 film. This is a premium material that pushes single use technology to new performance levels. This Bio available in the industry. Bioprocess containers produced with this film will improve compliance, Prevent product contamination and will be available for
a much
broader portfolio of manufacturing cell lines. In addition, they're going to provide increased productivity for these customers. This product is going to significantly enhance flexibility and productivity of our bioprocess customers. Now let's turn to some applied markets and some opportunities here. So in terms of protecting our food Pley.
This is a growing global challenge. The problem is really twofold from an analytical perspective. First, there's an ever increasing number of contaminants. 2nd, the detection limits are becoming more stringent To meet an ever growing regulatory environment. Now we have numerous applications and a depth of expertise To support these customers with comprehensive solutions.
One I wanted to highlight here is our new pesticide analyzer. This is based on our TSQ 8000 GC Triple Quad technology. It's a complete solution For food safety workers who really need to test for a multitude of pesticide residues. The system has an extensive compound database that automatically runs tests on more than 6.50 In addition, what's unique is that we have a flexible software tool with it That enables customers to quickly and easily add new compounds of contaminants to their menu in just a matter of hours. Now this is traditionally takes days for a compound to be validated and ultimately added to a menu.
So this is a significant advancement in productivity for these customers. Let's turn to another example of measuring potential contaminants You may have read about concerns of arsenic and rice. Historically arsenic has not been tightly regulated Or if it was regulated, it was only regulated at a total arsenic level as opposed to certain specific species of arsenic. What's recently been discovered is that select species of arsenic are directly linked to human illness, Including cancer. So in light of this discovery and information, numerous government authorities are rigorously evaluating and considering What new regulatory standards need to be put in place to measure arsenic levels in food products?
As research focuses on these subspecies of arsenic, what's needed are much lower levels of detection to do the analysis. Now our leading iCap Q technology has the selectivity and the sensitivity specifically needed for this level of analysis. In addition, if and when the regulations come into play, our customers will also be able to use our FDA compliant Qtegra software To meet all the reporting requirements that they'll have in this area as well. So now key customers are In Denmark, they've already adopted our solution for the work that they're doing in research to support EU Commission's effort to develop standards for testing arsenic. This is just simply another great example of how we're enabling our customers to make the world safer.
So now let me turn to our portables portfolio. Here almost every year we Unveil a new technology in an ever expanding line of portable analysis instruments. As Mark mentioned earlier, we've continued to bring Laboratory technology to a range of field applications. There's lead paint, explosions detection, Counterfeit drugs, illegal narcotics. Now our newest instrument brings portable Technology to the agricultural industry.
The quality of feed for livestock directly contributes to the quality of food that's produced by dairy. What's happening today that farmers often have to send The feed that they're receiving, a sample of that off to a laboratory for analysis when they receive the goods. This process most likely takes up to a week to get that result back from the lab. As a result, what ends up happening, Substandard feed is consumed by cattle and before they get the results back from the lab. So after the fact, they're understanding the issues that they have.
Now what are we doing about it? We've just launched or in the process of launching our microphasor AG. This is a portable technology The farmers are going to be able to use to analyze the quality of their feed at the point of delivery in a matter of minutes. So what our customers are going to be able to do is make sure that the quality of the food for their livestock meets the appropriate quality standards that they've set to produce their right end products for their business. This is going to have a significant productivity impact on these customers and they're going to know immediately that the quality of what they're purchasing is right For their livestock and it's going to help them to maintain the quality of their end products as well.
And all of this is ultimately going to contribute To having a healthier food supply as a whole. So I've given you a few examples of the important role that our innovation plays in solving new challenges And how it applies to customers in numerous end markets for us. Now we have a strong innovation track record. We're continuing to invest Our pipeline across numerous technology platforms. Today, I highlighted just a few examples of some of the significant activity that we're doing to Support our customers.
ASMS is around the corner. You're going to hear a lot more about exciting new breakthroughs for us in a few weeks. Our technologies are supporting numerous emerging applications and brand new markets are being created. Now we continue to develop highly differentiated capabilities and gain share and accelerate growth in this part of our business. So thank you.
And now I'll turn it over to Ken Apicerno who will give us some guidance relative to our upcoming break.
Thanks, Alan. We're going to take a very short break. Go ahead. Please going to take a short break. We're going to start back up at 10:40.
Thank you. Can I have everyone take your seats, please? We're going to get started again. Okay. My pleasure to introduce Andy Thompson, President of our Specialty Diagnostics business.
He's going to talk about improving human health with novel diagnostics. Andy?
All right. Good morning. As Ken mentioned, my name is Andy Thompson. I have the privilege of leading our Specialty Diagnostics businesses. And I'm going to use the bulk of my time today hopefully conveying just how excited we are about the prospects for this market.
It's been a busy time and we've enjoyed considerable success, but I hope you'll leave here this morning with the feeling that we share that the future is even brighter. So I'm going to touch on a little bit of grounding on where we are with our business and how we're structured, I'll talk a little bit about M and A, discuss some of the trends that are providing some very favorable tailwinds to our business and then I'm going to get into the meat of the presentation and that is examples of where we are truly innovating, Bringing novel content to the market to solve unmet medical needs and in many cases changing medical Marcus. I'll close with a focus on the investments we're making in our global commercial infrastructure And a very compelling companion diagnostics offering that we have. So with that, We'll jump in. So as a reminder, our businesses are made up of 6 distinct divisions And they comprise our $3,100,000,000 of revenue.
This has been a very productive part of the company and over the last 5 years, this has enjoyed a cumulative average growth rate of 9% and that growth is driven both organically and through some timely acquisitions. Of note on the slide, you'll see our transplant diagnostics business. This is our newest business that came to us through gentlemen. Also of note is our immunodiagnostics business at 18% is now our 3rd largest business In the segment, that is the Saudia business that closed well over a year ago. So our strategy hasn't changed.
We continue to pursue and grow markets in specialty segments that provide High returns, both on growth and on profitability in markets that are protected either through intellectual property, scientific know how Our core capabilities you see on the left slide, left side of the slide, we have broad And multiple assay development technologies, we've got a very rich pipeline of novel content. We bring this novel content to market through our direct channel and also through some very well established IVD relationships with all of the large players. And lastly, we are leading in driving the convergence of life science platforms and in vitro diagnostics platforms to create new markets. So with that as a grounding, I'll touch just briefly on our M and A landscape. As a reminder, we've been in this business for a long time.
And while it's been a particularly busy and productive recent years, Our strategy in M and A, which mirrors our total strategy for specialty diagnostics, hasn't changed, and you'll see from the names here on the slide, We've been putting strategy into action quite effectively. In addition to building out these niche specialty portfolios, We've also achieved what we've sought after for some time and that is critical mass. So as Mark indicated, there isn't A hospital laboratory or commercial reference lab around the world that doesn't have at least one of our products in routine daily use. So as we look to the future, our focus shifts to flawlessly integrating our most recent acquisitions and to concentrating on our organic growth. So diagnostics is a business that we focused a lot of attention on in recent years.
And the reason is we like the end markets. We think the dynamics and the trends over the long term are very, very strong And we think we will execute well in those segments. So it's worth spending a moment on them, on these trends. The agent population, specifically in the Western markets, has created unprecedented demand for health care. In developing markets, it's a different dynamic.
The rising middle class is putting extreme pressure on governments to Expand access to healthcare. And in many markets, this is leading to growth in healthcare exceeding twice that of the GDP. In the industrial side, the pharmaceutical companies are using companion diagnostics to stratify patient populations And improve outcomes through more targeted therapies. None of that change in strategy would be possible without invitro diagnostics. Our customers are looking more to the research tools For increased sensitivity and specificity that ultimately leads to a much improved clinical utility.
And our mass spec Liquid chromatography instruments are at the forefront of this conversion. And lastly, there's not a week that goes by With a front page story of a new food safety concern, Alan highlighted some of the solutions in our analytical technologies business, But the in vitro diagnostics industry and specifically in Thermo Fisher has a very attractive suite of products, Assays and Technologies to address the food safety concerns. So with that, I'd like to just highlight the way we look at the 3 distinct areas that we're investing to drive future growth. Firstly, with our novel biomarkers, we're bringing content to unmet clinical needs. And this content in many cases is changing how we practice medicine.
We're also integrating on our core platforms, in our life science tools and our diagnostics and bringing these together to create new markets. And lastly, we're strengthening our global position with critical mass in the laboratory and investments in infrastructure to expand our reach in new markets. I'd like to turn now and talk to just a few examples of how we're innovating To meet unmet clinical needs. The first example is in transplant diagnostics. There has been tremendous success over the last 20 years in increasing the survival rate for organ transplant.
Well, as you'll see from the slide, even after all the success, the 10 year survival rate for one of the most common organ transplants in kidney It's still only 27%. So we and our customers are very focused on increasing the survival rate And I'm pleased to say we've launched recently a very valuable tool for the practicing physicians and that is our C1Q Screening assay. This is a simple screening blood test as opposed to the very invasive Biopsy, needle biopsy, that is the current standard of care. The C1Q assay enables a physician To identify early and chronic rejection, enabling preemptive personalized treatment, And this assay is only available from Thermo Fisher. Shifting gears to the allergy market.
Our scientists are working on a point of care platform that with help of multiplex biochip technology, we're able to concentrate 112 compounds from 51 different allergens onto the surface of a chip that is the size of a postage stamp. Making this even more compelling is results in seconds with a single drop of blood. The benefits are clear. A much less invasive blood collection methodology, Particularly important for testing in young children, immediate results, interpretation, and if necessary, immediate application of therapy. This is a product that's launched.
It's well accepted in the market and it's in use in over 150 centers in Europe. So shifting gears, from 2 products that have been commercialized and are receiving are very warmly received to a product that's in development. The spread of superbugs is often front page news in newspapers. The cause is undisputed. The over prescription of antibiotics has led to an increased prevalence of these resistant The practicing physicians have very few weapons with which to address This issue.
The current standard of care has been receiving results in 6 to 16 hours. This is simply too late for them to immediately adjust care. So as an overabundance of caution, They are prescribing antibiotics and in 50% of the case at least, it is unnecessary. So with the help of our industry leading mass spectrometry and our microbiology identification platform and some sophisticated bioinformatics, we're bringing this all together to produce a solution that will yield results In minutes, not hours and put in the hands of the physicians the tools they need to impact care. So it's a good time for me to pause and hear from one of the world's leading microbiologists.
Professor Harun Shah leads the Microbial Identification Unit at the Health Services Group in the U. K. This is the equivalent Our Centers For Disease Control and his team is responsible for first response to disease outbreak in the community. So with that, we'll hear from the video.
Microbiologists are always very anxious To be able to get the most rapid technology because the quicker you can treat a patient, the better your chances are of curing the disease. What we are seeing now in the last 10 years or so is many of these technologies that have been in research environment Moving towards the diagnostic laboratory. Across this laboratory, on the far side of it, our next generation sequencers, Genomes are being sequenced there. We hope to be the 1st lab in the U. K.
Where the proteomics is going on. At the other end of the lab, genomics are there. And what that presents to us is the blueprint and the proteins as I express. The 2 absolutely complement each other. I think both for patients and doctors, practicing clinicians alike, this would have a major impact on disease because We feel that it will not help us only to rapidly identify what the pathogen is, but it will give us clues as the type of pathogens and toxins That have been produced simultaneously.
No other instrumental technology is able to do that at the moment. The HPA has had over 100 years experience in major pathogens, major disease outbreak. We feel that, that expertise in collaborating with a leading edge company such as Thermo Fisher Scientific will lead to a product That we feel will be unbeatable.
So we're not the only company to identify this as a tremendous But we do feel we are uniquely positioned to pull this off. As you'll see from the slides, this is an ambitious project that requires bringing together of a whole host of core competencies to get to the solution. Whether it's leading mass spectrometry and liquid chromatography or the knowledge and commercial strength of our microbiology teams, We clearly believe we are strongest positioned to capture this opportunity. I'd like to pause just for a moment on the last Line item there, our Global Healthcare Commercial Organization. For it's not just critical in this initiative, it's critical for all the entirety of our Specialty Diagnostics And I'd like to talk through 3 distinct areas where we're investing in our commercial reach.
The first is focused on growing our markets in the adoption of our novel assays. I've mentioned a couple of times These novel assays ultimately may lead to a change in practice. This is a difficult task, But the rewards are great when we've been able to when we have been successful and we've been very successful in the allergy market, Where a large team of clinical specialists calls on allergists, pediatricians and GPs And provides them with a viable alternative to a time consuming and painful skin prick testing solution that is often not reproducible nor transportable with the patient. We've also sought a good return or enjoyed a good return on our investments in emerging markets. So we're doubling down, Particularly in the case of China, where we're investing in our infrastructure, but also in our localization of product development.
And lastly, in partnership expansion, we have, as mentioned, enjoyed I'm tasked with virtually all large in vitro diagnostic companies through a variety of partnerships. The one I've called out here is our PCT partnership. PCT is a gold standard test for sepsis and we've enjoyed long standing relationships These companies. And in recent times, over the last 6 to 12 months, we've enjoyed or we've seen Several significant new license contracts, they've re upped with us In part because it's been such a successful collaboration and in part because of our investments in new clinical utility has resulted in clear intellectual property that So I want to talk about one Last partnership example and that is our companion diagnostics. And in companion diagnostics, you can have the greatest program in the world, But if you don't have access, your value proposition will fall on deaf ears.
Because of the mentioned Relationships we have with our clinical diagnostics business and also outside of the specialty diagnostics businesses in the biopharma services We have fostered and created terrific relationships that enable us to get to the right audience the first time. When we think about our program, we think about it along a timeline. In the near term, our pharma partners are looking for assay development. And like in pharmaceutical development, one size does not fit all here. So our multiple assay development technologies and our 500 scientists working across the globe Put us in a unique position to serve the pharma base.
In the mid term, they're looking for regulatory expertise, someone to manage the clinical trials, to navigate the complex regulatory environment. And then once on the market, they want a global supply chain and commercial reach That can put them in every single lab or every single hospital that their therapies are being prescribed. And again, we think we have unmatched capability in this area. And so In conclusion, I've talked about a lot of things. I hope to have conveyed that we've got an extremely bright future For both the market as a whole and for the offerings that Thermo Fisher brings to this market.
So we'll continue to build on our core life sciences Our strengths, our asset development and our channel management and we'll build on this to expand into markets with attractive growth, to bring novel content to innovate in human health and will lead in the integration of life sciences and diagnostics. And lastly, we'll continue to invest to strengthen our global position. Thank you very much. It's now my pleasure to welcome Ed Paseka to the stage. Ed is our President of our Customer Channels Group, and he'll speak to you about how we're delivering a unique customer value proposition to these markets.
Thanks, Andy. As Andy said, I'm at Faseca, and I'm extremely excited today I'll talk about the customer value proposition that Thermo Fisher Scientific has. I'm really excited in the fact that I'll be able to talk about the unique capabilities we have that enable us To create really an unmatched value proposition for our customer. You saw this morning when Mark presented, we're focused around technology innovation, The value proposition as well as emerging markets for growth. Alan and Andy just talked significantly about the technology innovation and how that helps Our customers drive productivity and innovation.
Later you'll hear from Syed and Syed is going to talk about emerging markets and how we're investing in those emerging markets, Not just for the growth in those markets, but as our customers from Europe and North America move there, we're there in advance of them to be able to help them. Take those two aspects As well as combining it with the other capabilities and strengths of Thermo Fisher Scientific, which enables us to create this truly unique and strong value Position for our customers. But before I do that, let me give you a little bit of background on the last segment, the Laboratory Products and Services segment. As you can see, it's approximately a $6,100,000,000 segment. It's made up of 3 major areas.
The first is the research and safety market channels For the Fisher Scientific channel, that's really focused around the market leading channel for research by providing strong supply chain efficiencies. Next, You have laboratory products, which makes up about 29% of this segment. That is really the most comprehensive portfolio of products From equipment, ULTs to high speed centrifuges as well as consumables. And then lastly, the last 13% of this segment It's focused around the biopharma services, which is the leading outsourcing provider for clinical trials and logistics services. So enough on the segment.
Let me move now specifically onto the value proposition. So you heard a lot today about the customer And that's what our value proposition is driven by. At the center of our value proposition is the customer. We spend
I'll take an amount of time
with our customer to understand what their goals and their needs are. And there really are 2 underlying objectives of our customer. 1st is innovation. How do we help them accelerate innovation? And second, not necessarily in order, is productivity.
How do we continue to improve the productivity of the customers? We do that with the 3 brands as well as all of the capabilities that Thermo Fisher Scientific has to offer. I'm not going to talk specifically on each one of these capabilities because what will do is if you remember this wheel going forward, we'll talk about how those capabilities are utilized in developing that unique value proposition. So you saw this slide earlier and you think about the unique value proposition, why do we have this up here and why do I have this? Historically, we've talked about that value proposition in the biopharma space.
But today, I'm going to talk specifically on biopharma, but then we have two examples from our customers of how This value proposition easily translates into the other segments. Specifically, I'll have a little segment on academic And then after that about implied industrial. So let me first give a recap of Pharma Bio. And again, you saw this chart earlier from Mark. But here's
the way I'd like everyone
to think about this. So we've said strong growth in the biopharma segment over the last few years and you heard earlier today very strong growth in that same segment in 2012. But the way you think about it is more on a linear approach. And you think about research and development, it goes from research to development to pilot to production of prescription in the biopharma space. And across an entire linear approach, Thermo Fisher Scientific, our capabilities enable us to serve the customer there to drive productivity and innovation.
And let me dive a little deeper into how we do that. First on the research and development, the first phase there. We have the ability with our channel to optimize supply chain to drive tremendous amount of productivity for the scientists doing the research. We then combine that with our products, everything from the life science tools, laboratory consumables and Instrumentation, so they have the right products they need to do their research. We then spend time with them with the technical expertise and collaboration I put application approaches together that do 2 things.
1, it increases the throughput and output for the scientists, which drives productivity and ultimately Accelerates innovation. As they and then the last step on there is really with our services to make sure the scientists spend more time doing research, less time doing ancillary work, they can spend more time actually doing that research. As it moves from research and development into the pilot phase, we have the capability to service With our biopharma services from clinical trials and supply chain as well as in the pilot phase of production. When that moves from there into production, We now have the capability to serve them with our bioprocess production. Alan talked about that today and how that technology that we have in bioprocess production drives faster innovation as well as drives a high level of productivity.
And the other thing we have on this chart, while you may not think about it in production Some of the technology, again, Alan talked about this morning, some of the handheld technology. So if I think about pharmaceutical companies, There's a tremendous drive right now to increase working capital and improve working capital. With some of that technology, our portable optical analysis technology, We have the capability to scan product as it comes in, immediately validate it, so it doesn't have to be held up in quarantine whilst tested off-site or tested somewhere else, Again, helping drive productivity and ultimately accelerating innovation. And the last thing here in that entire lifecycle It's when you think about prescription, and Andy just talked about that. It's the ability to have companion diagnostics that Thermo Fisher Scientific can work with our customers to create So the right prescription is determined for the right patient or the right illness.
It's that continuum where we are able to drive productivity As well as help with accelerate innovation that frankly no one else in this industry can provide that level of service to our customer base. So enough on the pharma and biotech. You've heard a lot about this in the past as well as today. I'm now going to take you through 2 specific examples, 1 in academic or specifically medical research and then later applied industry. So we spent time with This one, Dana Farber, trying to understand what their needs are.
And really the main goal of this customer was again to increase productivity and they want their researchers To focus on research. So how do we do that? We looked at the capabilities of our company and provide a solution to them. 1, through the channel, we simplify the order process. 2, with the products we offer, our laboratory equipment and consumables, our life science tools, our instrumentation, we'll be able to make sure that Customer gets the right products to do the work.
We then help them optimize and drive faster productivity, more accelerated innovation and the fact that We're able to use our application expertise to solve customer specific problems. And then finally, taking and providing services, so again, the scientists can spend more time on the research as well as we collaborate them on R and D. But enough of me talking about it, let's listen to John from Dana Farber and see what he has to say.
When I came to the organization, it was really a strategy around transformation of the supply chain. We have over 250 principal investigators in the organization. So they're very distributed across the campus. As you can imagine, we're in an urban setting. And so we don't have the luxury of having all employees in one location.
So within a handful of square miles, we have to supply all of our faculty and all of our principal investigators at Same level of service. We want to make the ordering process as easy as we can, the searchability, the finding of the products as easy as we can To again allow the scientists to focus on their research and not have to worry about where am I going to find this product or how am I going to get this product So within the last year, we've really tried to make the program more robust in delivering on-site consigned product to our researchers. So if they order By 11 am that day, they'll get that product same day. If it's afternoon, then they'll get it the next morning. We're really trying to create an environment for the scientists to focus on their research.
The on-site representatives from Thermo Fisher Scientific really provide insight into some of the products that you offer, but also Are an extension of what we're trying to create in the research supply center. Knowing that there's someone available to say, I need to find this or I Need to find that. It's not in our lab supply center. Can you help me get it? That's what we're looking for is that responsiveness and the reaction to helping the demands of the scientific community To continue their research as they believe it should be continued internally.
So you can see in this case, Taking that value proposition was easily applied into the academic or in this case medical research. Before I move on to the next, I'll leave you with another way I remember this. As I had a customer come to me during a meeting and they said, hey, thanks, I really want to thank what Thermo Fisher Scientific has been able to do for us. He said, you know, it's around productivity. He said, the way I look at it is I want the scientists to have his belly or her belly at the bench as much as possible.
And that's what we're able to do to help drive productivity for our customers, very similar to what we're able to do at Dana Farber. Let me move From this to an industrial or applied industrial space. This next opportunity was for us to partner with Eurofins. In In a very different circumstance, if I think about the goals of Eurofins, obviously they wanted to create growth was one of their goals. They needed higher level of productivity.
They wanted And this increased organic growth is going to be in other parts of the world, not just traditional Europe and North America. And this is where our ability to service them, you're going to hear a little bit about it from Saia later, as well as some of the instrumentation that we're creating was able to create differentiation and strong value for this customer. How did we do it? We leveraged that global scale. As they're in other places or moving to other parts of the world, we're already there and we can help them set up quickly.
It's the depth of capabilities we have across the world. It's the ability to provide a consistent offering, whether that's our lab consumables, equipment, life science tools, everywhere in the world for the customer. We work collaboratively with them to develop new and unique assays to leverage our instrumentation that can ultimately create higher throughput for the customer. And then lastly, services to drive efficiencies. So with that set up here, let's listen to Gilles from Eurofins and see what he has to say.
Eurofins Scientific is the number 1 in the world in the field of food testing, of Pharmaceutical product testing and of environmental testing. The pharmaceutical industry does a lot of testing. It's probably the industry that tests the most, But not only for quality control purposes, but also for research. It can be the early stages discovery. It can be also the Preclinical world, bioanalysis is important and then the pharmaceutical product development itself and the quality control.
Our main business is testing for Basically anything that can happen to food. Basically we provide the most comprehensive range of food testing services available anywhere on the planet. Eurofins is still a young company. We've been growing very fast, but we're still building the company. And Thermo Fisher was an excellent partner.
There are very few global companies who can support us in so many countries. One of our big programs is to standardize testing equipment of consumable, of maintenance services, of software. We have programs whereby we will standardize across the world our testing platforms and therefore working together with a company like Thermo Fisher which has a huge distribution platform It will definitely be of benefit. The food testing market and the market for testing the environment and pharmaceutical are very exciting. They are growing very fast.
There is a lot of innovation that makes new types of testing possible. We as a company we are developing together with equipment manufacturers and automation companies ways to make testing much faster, much more efficient and to cover a much broader range of potential contaminants. So it used to take 2 weeks to test for like 50 pesticides, now we can take test within 24 hours for 500 pesticides and that enables the client to test all of their samples Before they are sold to the customer, so the whole testing industry will change a lot in the next 5 years and Eurofins will be investing heavily. We've earmarked €1,000,000,000 to invest over the next 5 years To grow our business and be able to provide better services, more sensitive services, higher quality services to our clients in about the 40 countries will be active within 5 years.
So there's another good example of how the value proposition translates into the specific market, that being the Applied Industrial. So in summary, here's this is why I get excited every day to come to work and the fact that we have the ability to We have the ability to leverage the total strength of Thermo Fisher. And the reality is There isn't anyone else in the industry that has that ability to leverage that amount of strength to really help drive value to our customers, specifically around innovation In accelerating innovation and productivity, as you can see, this applies to multiple markets. It's not just where you would think traditionally in biopharma. It applies very well into academic and it applies very well into applied industrial.
I could have done one on the healthcare because it also applies significantly into that space. And it's really our ability to put this together to enable our customers, obviously, to make the world healthier and cleaner and safer, but also drive a higher level of innovation as well as a higher level of productivity. So with that, I'm going to turn it over to Syed Jeffery, responsible for Asia Pacific and Emerging Markets and he's going to talk about strengthening our global presence and accelerating growth. Thank you.
Good morning. My name is Syed Jafar, And I'm responsible for our business in Asia Pacific and Emerging Markets. Today, I will share with you how we are Strengthening our global presence to accelerate growth. I would also talk about the progress You're making in China and our strategy to continue to maintain our growth momentum in China. And lastly, I will touch on how we are expanding our presence in some of the very important other emerging markets around the globe.
So let me start with a brief recap of our strategy that I also I presented to you last year. This morning, you heard from most of my colleagues that Our business in emerging markets is becoming a larger part of our global revenues. We as a company Continue to build our scale and depth of capabilities in these emerging markets. We are aggressively Expanding our commercial organization to extend our reach and now we have Over 5,600 employees located in these regions. To improve our Customer experience and satisfaction, we are resourcing and optimizing our supply chain and service Capabilities and very importantly, we are developing more products locally in order to be more competitive in the mid level markets And that gives us a significant advantage over the local competition.
Today, We have the largest footprint in our industry in emerging markets and we continue to expand our operational presence In the low cost region as a part of our localization strategy. Our performance in emerging markets has been good and we are very confident about A very bright outlook for the future as well. Last year, we grew our business by 12%, Reaching $2,000,000,000 And over the next 5 years, our plan is to grow our business at a CAGR of 11% to reach $3,400,000,000 China will continue to remain a very important contributor towards our future growth. But at the same time, we are building capabilities in many other markets To ensure that we are accelerating growth across a broader region. Next, I want to share with you how we have taken a prioritized approach in resourcing and investing In various emerging markets using a 3 pronged strategy.
So in countries such as China and India, We have had a long history, a well established infrastructure and strong management teams. In these countries, our strategy is to leverage the deep knowledge and experience of our leadership teams on the ground And continue to lead and grow our businesses in these countries. In the Tier 2 countries such as South Korea, Russia and Brazil, we have strong commercial presence. And here, we are translating the best practices And management processes that made us successful in areas such as China and India, and our strategy here is to invest aggressively And drive strong results. The third aspect of our strategy is focused on the additional emerging markets And those are Southeast Asia, Eastern Europe, Middle East and Africa.
Now these markets Represent a very large number of countries. And our strategy here is to focus our resources on a select number of countries Where we expect to see high growth potential and build our direct presence in those countries. During the rest of my presentation, I will spend the time to focus on these three aspects of our strategy, I'm providing you more details, starting with China. So China remains our top priority In the emerging markets, I'll talk about the growth drivers in China and also why we are bullish about China In the context of our company's mission of enabling our customers to make the world a healthier, cleaner and safer place. So the healthier aspect of our company's mission in China It's very much based on the growth drivers that you see on the left side of the slide.
The Chinese government is reforming the Healthcare sector, they are building new hospitals. They are revamping and improving the current infrastructure. And basically, over the next 2 years, The Chinese healthcare industry will become the 2nd largest in the world. By year 2020, we believe that A majority of the Chinese population will be reaching the status of middle class and that means that there will be further increases In the healthcare spending, there are many global pharmaceutical companies who are in the process of Establishing the manufacturing and R and D operations in China because we are encouraged by the domestic demand And also by the operational availability in China for production purposes. An example that I'll give you is that now China has become the largest producer of vaccines in the world.
The growth drivers for the cleaner aspect of our mission are probably best represented By the picture you see in the middle of my slide, pollution in air, water and soil is at all time high In China. And the Chinese government is recognizing that and they are enforcing stricter regulations. We as a company are in a great position to serve many of these issues and concerns related to pollution Because we have the environmental instruments business headquarters right in China. So we feel very confident about being able to address Many of the issues in the environmental aspects of the Chinese developments. The safer aspect of our mission It's connected to several growing critical needs and one of those is food safety.
Contamination in food is a big concern in China and I'm sure over the last several years we all I'm familiar with some of the stories in the news. 3 years ago, there was a huge issue in China with the melamine contamination in milk, Which unfortunately resulted in the death of many children in that country. And most recently, I think that some of you have heard the news also that outside Shanghai, some farmers decided to Dump thousands of dead pigs and dead ducks in the Huangpu River outside Shanghai. You can imagine the potential impact On the contamination of water through that act. But we think that the Chinese government is beginning to take actions.
And one of the things that we have seen is that the new Chinese government elevated the status of the Chinese FDA to a ministry level, I wish now reports to the State Council. While in the past, the Chinese FDA reported into the Ministry of Health And they are modernizing the FDA by working closely with the U. S. And the European FDAs. And we have been present in this market in China for many years and we consider food safety inspection as a very large growth opportunity for us So our strategy in China is in line with The growth drivers that I just shared with you and it is also in sync with the Chinese government's 5 year growth plan for investments, The key elements of which you see on the right side of the slide.
So in order to better serve the growing markets Healthcare and Pharmaceutical, we have formed commercial teams that are absolutely dedicated and focused On driving growth in the Healthcare and Pharmaceutical Industries, positioning the scale and depth of our company's capabilities In this market, to match the rapid urbanization that is taking place in China, We are making sure that we are deploying more commercial resources in Tier 2 cities of China. So we have People available to work with customers locally in those cities. And to meet the growing domestic demand in China, We continue to expand our operational footprint all across the country. In the 5 year plan, the Chinese government is also making innovation A big priority and anticipating that we have been strengthening our R and D capabilities in China, expanding our technology Center in Shanghai and making sure that we are prepared to support their efforts to focus more on innovation. And the last aspect of the 5 year plan is focusing on reducing pollution.
And on that, I already shared with you my comments on the previous slide. So our strategy in China is working effectively. We are very confident that in the future, we will see high growth in this country. The Chinese served market that we are Interested in is about a $6,000,000,000 market, which is growing between 8% to 10% over the next 5 years. We grew our business by over 20% in China last year.
We grew our large focus accounts business over 30%. And over the next 5 years, our goal is to continue to grow in China at a CAGR of 14% to reach $1,500,000,000 in revenues by 2017. The investments that we are making in our service capabilities have been very helpful in improving customer satisfaction And they are also resulting in increasing number of repeat customers coming back to us. As you can see from the slide We have built our business in China by focusing on a diverse set of markets. And in the future, our goal is to continue to maintain the diversity of markets that we participate in.
But one difference that you will see is that over time, We will increase our presence and share in some of the key markets and those being healthcare, biopharma, food safety Strategy page, focusing on the middle section and I wanted to share with you how we are resourcing and investing In some of the emerging economies such as South Korea and Russia. So South Korea, It's about a $1,200,000,000 served market, which is growing between 6% to 8% over the next 5 years. We grew our revenues in South Korea by over 15% last year and we plan to grow the business over the next 5 years at a CAGR of about 10%. In South Korea, the markets that we find very interesting are healthcare, pharmaceutical, bioprocessing, academic research. And we are also very encouraged by the keen interest that is being shown by the new government in South Korea in supporting and investing more in innovation.
In the country, we have a very solid leadership team And we have a number of distributor partners that we work with in terms of selling our products. Moving forward, we are investing more In improving and expanding our direct commercial presence in the country and as a part of that strategy, about 2 years ago, We opened our first demo center in Seoul, which is being used extensively by our customers for training and application support purposes. And also in the spirit of translating best practices, we translated our focused accounts program from China into South Korea, Leveraging that to work with some of our larger life sciences customers in South Korea. Russia is another interesting market, about $700,000,000 served market, which is growing between 7% to 9% Over the next 5 years, we grew our revenues in Russia over 30% last year and our plan over the next 5 years is to grow at a CAGR Up about 13% to reach $170,000,000 In Russia, the market that It's growing the fastest from our perspective is the healthcare market and that is driven by the aging population and also by the growing middle class. Also last couple of years, the Russian government introduced some new regulations which are forcing some of the manufacturers to produce products in Russia.
So several of our large global pharmaceutical customers, they are establishing manufacturing facilities In Russia, so that is creating an interesting new market for us in the pharmaceutical area in Russia. And also we see some great possibilities In food safety and industrial markets such as oil and gas. So our strategy in Russia is to further strengthen our commercial organization by Adding resources that are focused on specific vertical markets, getting us penetrated in those markets And supporting those customers such as pharmaceuticals in the healthcare related customers. The other area that I want to highlight here is that we are partnering with several of our pharmaceutical customers supporting their Our efforts as they are is to expanding their manufacturing capabilities in Russia. And lastly, I want to highlight that we are leveraging our manufacturing operations in St.
Petersburg to meet the requirements of the Russian government relative to the localization on manufacturing in the country.
Let me take you
to the 3rd aspect of our strategy. And as I said earlier, this is focusing on expanding our presence in emerging markets. And as I said that we are focusing on a select number of countries at this time. And on the next page, I will share with you Some of the growth drivers that we are excited about in 4 key countries in these markets. So these are the 4 countries that I wanted to talk about briefly, where we are seeing the economy growing between 5% to 8 Ascent.
And our served markets there are growing at a higher rate than the GDP growth in these countries. So Malaysia, for example, this is where we are seeing increasing investments in university research labs. And also, healthcare is fairly high on the agenda of the newly elected Malaysian government. We have about 200 people on the ground in Malaysia. We have a manufacturing operation and a dedicated team that focuses on providing our customers turnkey new lab construction projects.
Vietnam is attracting investments Pharmaceutical companies establishing production facilities there and also there are some major investments being made in steel and chemical manufacturing in Vietnam, and we are involved in several projects in those industries in Vietnam. Indonesia is experiencing significant growth in the mining industry. And also over the last few years, with the increasing political stability in the country, we're also seeing Heavier investments coming into the universities and education. And in the Middle East, we believe that Turkey It's a stable country where there is significant economic growth in the future. Mark talked about that a little bit in his presentation.
And this is where we are pursuing opportunities in pharmaceutical industries, healthcare and environmental. Those are 3 of the key ones that we believe we will see Opportunities in the future. So we are excited about these new emerging areas where we are getting more involved in the future and we will be investing here To ensure that we are a part of the growth that is taking place in these countries. So in summary, I wanted to leave you
with a few key takeaways.
First, we believe that our strategy To expand commercial presence and build local capabilities in emerging markets has been successful. And moving forward, Our goal is to continue to build on the momentum that we have established in these countries. We have very solid teams on the ground with deep knowledge of the markets and experience in these areas. And with their support, we are confident that in the future, we will continue to uncover new opportunities and make significant contributions Towards our company's organic growth. So with that, let me invite Mark back on the stage To share his closing remarks and the Q and A session.
Thank you.
So we're looking forward to the Q and A session. Let me give a couple of quick thoughts. I think you got a good sense of the company's strategy today. Our major focus is on growth, around innovation, our unique value proposition and our expansion in emerging markets. Pete gave you a good sense of our historical financial track record, more importantly, our goals for the short term and at least a framework to think about The longer term objectives and we'll get more into that upon the closing of Life Technologies transaction.
So as I said at the beginning today, We're really, really quite energized about what the opportunities are ahead. Our 39,000 colleagues around the world are focused on our customers And we enable our customers to make the world healthier, cleaner and safer. With that, we'd be delighted to take your questions. Ken Apicerno will be our moderator in terms of that Good morning. John Groberg with Macquarie Capital.
So Everything I saw in the presentation actually to me showed how complementary life could be. So I guess I just have a few kind of questions around bigger picture, because I know you're not getting into details there. But one, it looks like you initially reached out in 2011 according to the proxy For Life and I'm just curious, 1, what area or areas of the business most interested you? And then 2, Oftentimes when you have kind of a year lag like this competitors will be out there saying like this is a great chance for us to take advantage Some of the distraction out there. So I'm curious what you think the keys are to retaining key employees at Life?
And then Finally, I'm just thinking in the history of other transactions that you've done, obviously this is a big one. I'm just curious kind of how long you think it takes you Once the deal does close to really get your hands around the potential greater opportunities, synergies and who the right leaders are So if I don't capture the model, John, you may need to remind me. But we were obviously We see a very complementary fit between the businesses. And we've had dialogue for a number of years between how to put the companies together and do it make sense And then obviously, kicked that off more at the end of 2011 and over time, Life Technologies evaluated that And the good news is we're able to bring that to fruition. When we think about the strategy and you look in the context Some of the other M and A we've done, we have a clear view on how we're going to win and we understand what we want to do organically and what we want to do through M and A.
And as we build out specialty diagnostics, Good morning. Thanks, Fadia. One Lambda Brahms made sense. And when we thought about biosciences, Life Technologies was clearly our priority in terms of building out a very strong capability That our customers would value from Thermo Fisher. So that's how we thought about it from a strategic standpoint.
It's really important for both companies to be really focused And really on our business objectives for 2013 while we're going through the regulatory process and those things. And if the way I think about it and I've had the to have town halls at both companies with quite a few of our colleagues. And my message is there's roughly 50,000 colleagues around the world between the companies. Probably 200 are going to do some level of work on integration. So for 49,800 people, it's business as usual.
And the teams get it. They understand it. And I think they're very focused on making sure that we do a good job both at Thermo Fisher as well as Life Technologies in this interim period.
So, Mark, you've had a thesis At Thermo back from when you were in the operating role about sort of what this industry was going to become and you've been sort of at the forefront of helping transforming. And so obviously to John's comment about the proxy, a lot of folks showed up here probably more than many of us thought. And so clearly others are sort of thinking about their strategic positioning in the market. I mean, how do you feel like between this transaction and some of the others you've done over the last few years, You've kind of executed against that vision of what you wanted and others, Orion wanted Thermo to become. And how do you feel like that sort of impacted the competitive aspects of the industry assuming this transaction closes at some point next year.
Yes. I think that if you take a very high level industry view, there are some companies that have believed in scale And there are other companies that have focused very narrowly on a single product, technology or service, right? And that's how the world has bifurcated for a long time. I've been in the industry for, I don't know, 15 And if you look at what Thermo Fisher is, we are the product of all the industry consolidators, right? If you Thermo Electron, Fisher Scientific, ApoGen, Applied Biosystems and Vitrogen.
That's all in one company, right? So the people that believed in the benefits of scale I built the DNA about how to use scale to create your advantage is now in one company, right? So, there are still other companies that think about it narrowly and I'm sure they'll evaluate their own strategies in this But we're excited because as we've gone through the many acquisitions that we've gone through, we've had very smooth integrations. We've achieved our synergies. We've gotten good returns on invested capital Because the businesses are very complementary.
They have a shared view of the market, a shared view of how to serve your customers, and ultimately, it creates a great opportunity for our shareholders.
Dan Brennan with Morgan Stanley. So Mark and Pete, Pete, you alluded to it today, but as we look out post life and you get It's kind of debt levels that allow you to return capital back to shareholders. There seems to be certainly a focus on raising the dividend or making the dividend a bigger component That return, which is certainly different than what we've seen in the past. So maybe could you speak to maybe some of the thought process behind that? While I know it's many years out, what are some of the Annoying assumptions that would lead you to want to focus more on the dividend versus buybacks.
So in terms of capital deployment, as Pete You can highlight it in the following. During the course of 2013, we're focused on preparing for the financing of the transaction. 2014, part of 2015, delevering back to our target leverage ratios and then moving to a more normal Capital deployment strategy, of which there will be a balance between return of capital and to the extent they're available both on M and A. When we think about return of capital, we had just initiated a dividend in 2012 and our general philosophy is we're going to grow that as our earnings grow. We do have very active dialogue with our shareholders.
And I think if the world was today where we would at that period where we would delever, I think our shareholders would say We want some level of return of capital through buyback and probably a little bit more through dividends and that seems logical. But 2 years from now and 2.5 years from now is a long way out into the future. So we'll talk to our shareholders at that point in time and figure out the optimal
Hi, Derek De Bruin from Bank of America. I have a couple of questions, Mark. So first off, When you think about share gains in the space and I think about Fisher pre and post the deal, the Fisher business was roughly I think 70% North America at the time, about 30% Europe. I guess, how has that sort of changed over time? And I guess, can you talk about now that you're adding life to the portfolio, how you Potential share gains in the space are going like that.
I mean, obviously, your biggest competitor in the catalog business isn't going to have Just some thoughts about how Fisher has changed and what you see going forward on that? That's the first question.
So in terms of The focus, right, at the time right after the 1st year after we closed on a merger between Thermo Electra and Fisher Scientific, about 10% of our revenue was in Asia Pacific and the emerging markets, and it's at 21% today, right? And a lot of that expansion was leveraging the very strong that Thermo Electron at the time had in those markets, taking the outstanding services and products that Fisher brought to the company and actually Accelerating growth in those markets. I think you got a sense from Andy and Sai that healthcare is a great opportunity for us to have built out in those markets We see a bright future. So, when I think about Life Technologies, obviously, we're going to have even more scale in the high growth regions and that benefits the whole portfolio. So, I see the mix Continuing to shift to more and more coming out of the faster growing regions of the world.
I see opportunities for Lab consumables that we have being offered on the e commerce platforms that Life Technologies brings and I think that's a great Opportunity for more growth and I see us as a combined entity being able to really gain share of wallet with our large customers. So we look really So the future is really great opportunities for growth.
So just a couple of other quick questions. So You're going to need approval from the U. S, European and Chinese regulators.
Have
you had any conversations so far to suggest there's any potential problems And the other question is just now that you're going to get a bigger you're going to have a bigger academic and government exposure with life, I guess, how are you thinking about 2014 and the government budget as they sort of roll out going forward.
Okay. So in terms of the regulatory process, We have great advisors and counsel. We've done lots of regulatory filings over the years in terms of bringing the companies together. And when we look at our closing, we're targeting early in 2014 to allow us to work with the various regulators and go through the timelines that are consistent That we're seeing with other transactions around the world. So we feel like we're well advised and that the process should go smoothly.
From the 2014 academic budget, I'm not a big crystal ball type person, but I'd say from The dialogue that we're having, at least in the U. S, is that somewhere in the flat to down 1, seems like a reasonable assumption in terms of why sequestration is likely to happen. I think both sides of the aisle in D. C. Would like to see a little bit more funding For things like NIH, but I'm not sure that right now there's a path to get there.
So I think those are the type of assumptions, which means that If that plays out, the end markets are actually a little better than what we're seeing right now in 'thirteen. Hi, Tony. Hi, Mark. Tony Butler, Barclays. Thank you very much for your comments.
Really two questions. One is around R and D spend, dollars 3 quarter of $1,000,000,000 likely coming next year. And while we could talk about is $750,000,000 enough and I'd like for you to spend a minute on that, Especially given some of the business heads actually making comments about really strong opportunities for where they can capture revenue growth, Maybe spending some more money, more importantly, with the rate of that, which has been changing from year to year, would the rate of that actually move up Given that you have so many opportunities, especially with now Life under your belt. And the second question is, sort of go back to the dividend, but really around A payout ratio, can you actually just discuss the dividend with respect to payout ratio and whether that there is a target or whether you're thinking and the Board is thinking About an overall target. Thank you.
Let me do the dividend one first. We're young with the dividend. So I think over time you'll hear us I'll clarify that. I think you should expect it to grow as our earnings grow and we'll come back with more details As we mature in terms of paying out a dividend. In terms of our technology, I'll start at a high level, maybe Andy and Alan will make some additional comments.
At a high level, I think the $75,000,000,000 budget is very, very substantial. In fact, if you think about the broad world, it's one of the largest R and D budgets out there, excluding pharmaceutical and some of the high-tech companies. It really is an incredible budget. We believe that we can fund not only what we're doing today, but actually fund some of the cross linkages that we see in the company. So, I think the level is good, but there's lots of exciting areas.
Maybe Andy, you might pick 1 and then Alan, one that we're energized about.
Sure. When we think about Life Technologies, much of their diagnostics business is nascent. So they're just getting into that space. And so we see with application of our relationships and our existing channels to market, there's a number of areas that we'd like to turbocharge They are investing in. Chief among those is likely the Ion proton the Ion Torrent.
We have a number of areas that we'd like protect for ourselves, but there's a number of areas that we think we can partner with others and very quickly develop those markets. So probably the Ion Torrent is the one that I'm most excited about, but they're as I say, they're investing in a number of very attractive areas.
So I would say based on the presentation I had today, I mean there are a lot of different areas that we're really interested in as it relates to advancing Our capabilities of analysis from an instrumentation perspective. The thing that's happening though that I see is that there's Greater integration relative to techniques, the software, the data management and so forth. So through that, Through driving to lower cost regions and so forth, I see that we're going to expand capabilities as well and efficiencies As we build out to those opportunities and I can say that wherever there is great opportunity we'll continue to invest in that and if that warrants More investment and we'll do that if it provides the appropriate return.
Tycho Peterson, JPMorgan. Maybe just following up on that last line of questioning. Can you talk about some of the areas you're most excited about from a revenue synergy standpoint. And then also, as we think about the channel, how easy is it to drop the majority of the light products into the catalog? Or do you need a technical sales force kind of supplement that.
Yes.
I think the revenue synergies that are most obvious, first is around the workflow that scientists purchase through Life Technologies today. Right? Less technology is a very strong biosciences offering, but what we add to that is lab consumables and lab chemicals. And those are very much used in the workflow. So you would envision fairly quickly some of those products being available Through the Life Technologies website.
The second big area is obviously looking at the high growth regions of the world And the combined scale will allow us to further accelerate our penetration for both companies. And there are a number of markets where I think Sai was giving you a sense of what's the next tier And the critical mass you get from a combined company allows you to really start to replicate what we've done in China and India in a number of more markets. I think that obviously It's quite productive. And then you go by application itself, right? Andy referred to some areas of specialty diagnostics where you could envision Very complementary offerings between the companies in a way for Thermo Fisher to help move along the good growth drivers that Life Technology has because we have such a strong channel and such a strong regulatory set of capabilities serving the diagnostics market.
And then one quick follow-up.
If we think about your On migration to larger deals, you highlighted Dana Farber and Eurofins today. I mean, do these are
the margin profiles of these collaborations comparable to most of your Just
in business or are you having to make investments as you kind of move into these larger strategic type arrangements?
Generally, our large customers You don't have good margins. We usually have a lower cost to serve. They'll have some level of price advantage, given their volume, But they typically are very efficient and we're typically very connected, which keeps our costs down. And generally, we've been able to, over time, expand the margins By making it even more efficient in terms of the relationship.
Isaac Ro, Goldman Sachs. Two questions for me, Mark. 1 on ION and then a second one on Asia Pac. On the ION, you mentioned in the beginning some enthusiasm after meeting with Could you maybe put some specifics around either from a technology standpoint or a strategy standpoint, what's gotten you more excited about that? Yes.
I think
We'll talk more about it post close. I would say at a high level, what you get a sense of is the depth of the scientific expertise the business and what they have in the R and D pipeline and when you get into that and understand what the ultimate customer benefit is, you come away very enthusiastic capability. So I think that's really what I took away from my business with the team.
And then on Asia Pac, just Maybe touch a little bit upon what you're expecting for the balance of the year. There's obviously a lot of hope, I think, across a lot of end markets you serve that back half of the year will pick up. And then maybe in Japan, we're hopefully going to get some stimulus benefit as well. So just trying to figure out as we look at the guidance for this balance of this year, what's kind
of assumed in those two regions In terms of the Asia Pacific region, we have mid to high single digits assumed for the full year in terms of our growth for the region.
Hey, Mark. Doug Schenkel from Cowen and Company. Your lack of long term financial targets, while this was a deviation from what you've typically done, I think it's fair to say this was not a surprise to many given the ongoing life process. That said, keeping in mind, As we've learned in the proxy last night that you've been looking at Life for a bit of time. And also keeping in mind that The revenue growth rate targets you're attaching to Life are a bit lower than what Life Management is typically talked about.
I have a couple of questions. First, what processes are ongoing right now and are expected to get going over the coming months that could potentially alter The outlook that you presumably already established as you chose to go after life.
And
Are these processes what prompted you to not provide updated guidance for the long term? And second, what do you see as the major differences between the targeted growth rates at the top line that you've attached to Life Relative to those that Life Management has historically and typically talked about with the investment community.
Yes. So Doug, as a view of where we are, we formed the integration teams. We have a very collaborative relationship with the team at Life Technologies. We're doing the planning. They're very transparent about how the business is performing and they obviously had a strong Q1.
So I think right now we're all focused on both doing the steps we need to do to close the transaction, integrate it successfully and then to business So that's what's happening with a lot of transparency, with a lot of collaboration and a lot of working together during that period of time. When you think about the big differences, we've been very clear about how we thought about our communication strategy At the time of the announcement of the transaction, which is we generate very strong shareholder returns at the 3% rate of growth That we talked about, plus the synergies on the revenue and the cost side, that doesn't mean that's our aspiration, but we generate a very good return at that level. As we finish the integration planning, as we have all of that done and we come out in the beginning of 2014 as one combined company, Then we'll give our long term guidance, right? I think it makes more sense when you own the business to talk about the details of how it's going to come together and set those expectations. So That's the view.
And then the big deltas between the 5% -ish growth that was in the proxy and the 3% assumptions, really about growth rates on Ion Torrent As well as growth rates in the base business, we assumed in the 3% Ion Torrent grows at the rate of the market for sequencing. There's some share gain assumptions in the 5, and we had a little bit more muted growth in the end markets than they did. That's a delta.
Mark, just considering the growth you've had in the Asian business or the APAC business and the targets of 25%. That seems rather muted versus historicals. Just wondered if you Comment around
that. Yes. What I would say is that we have obviously been over the last 5 years have doubled the percentage of our total in Asia Pacific. And what we're assuming is about 1 point a year in shift of the mix. I think just based on what we think the market growth outlook is, we think that sort of 10% type plus growth seems reasonable in the higher growth regions within Asia Pacific and Emerging Markets.
So generally, we remain quite bullish on the outlook there.
Mark, Dan Arias from UBS. Just or maybe Pete, just a clarifying question on the way that you're looking for 2014, given the execution and maybe at the macro level how you're headed there. Do you think that The way you're looking at next year leads you to believe that the 50 to 100 basis points of op margin expansion that you look for in a normal year is achievable?
Yes. So if you look at 2014 when I did the bridge on adjusted operating margin for this year, we have the 40 basis points of headwind This year that I hope that again doesn't continue to weaken the way it has, although even since we gave our guidance in Q1, it's deteriorated even further and it's probably $0.03 headwind since that time. But going into 2014, if you take away that 40 basis points, we're right back into that 50 basis points to 100 basis points range. So that's what we would expect.
Okay. And Mark, Andy mentioned the intersection of life sciences and diagnostics. And clearly, you're excited about your mass spec franchise. I guess, how do you see the opportunity for that technology in the clinical setting?
Yes. We think it is a profoundly important tool in diagnostics. And Last year, we talked about it in what I would say is a complement to immunoassay technologies, things like therapeutic drug monitoring, Vitamin D, things of that sort. This year, we're talking about the opportunities in microbiology and what the value is. And moving from an RUO, a research use only tool, over time to a clinical analyzer, we see that evolution happening In a thoughtful pace as the regulatory bodies evaluate those technologies.
Sure. Hi, Jeff Elliott from Baird. I appreciate all the focus on innovation today. I'm wondering if you could help us size some of the opportunities for So we are excited about ASMS. When we had the initial investor communications early in January, we talked about that ASMS was going to be a big deal for us this year.
And when I look at it, the triple quad market, that's a $700,000,000 market that we're going after. Obviously, the Orbitrap franchise is our largest franchise and bringing out a cutting edge phenomenal product obviously is significant. Our mass spec business It's well over $500,000,000 business for us. So it's relevant when you launch 2 brand new high end platforms that typically is pretty Exciting. So lots of excitement starting on June 9 in Minneapolis.
Don't miss it. So let me wrap it up by thanking everyone for Your interest and your participation today. Clearly, as we look to the future, our focus and goals on 2013 is To continue to focus on gaining share in these market conditions, preparing for a successful integration of Life Technologies, which we anticipate closing in 2014, And really our intense focus on our customers, which will