Good morning. I am Ken Apicerno, Vice President of Investor Relations for Thermo Fisher Scientific. On behalf of the entire management team, we want to welcome everyone to our 2013 Analyst Meeting. We are always excited to be here to tell you about the progress we've made over the last year. This year is no different. We are also very excited to tell you about the year ahead. We are, again, very excited to be here to tell you about that. Let me just briefly cover the schedule with you. As you can see on the agenda, we are going to have presentations by our CEO, Marc Casper, our CFO, Pete Wilver, and several of our primary business leaders.
We are going to take a short break in the middle of the program, and then when we come back after the presentations are done, Marc will come back up with a few closing comments, and then we will open it up for Q&A. When we get to the Q&A portion of the day, we ask that if you'd like to ask a question, please raise your hand, wait for a 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 would appreciate it if you could put those on mute. 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 investor 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 will 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. With that, it is my pleasure to introduce our CEO, Marc Casper.
Good morning. Welcome. It is great to be here. It is nice to see so many familiar faces. I would like to take this opportunity also to welcome our board of directors who, as in all years past, have joined us here today as well. I am very pleased to kick off the analyst meeting today.
We have a lot of exciting things to talk about. 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. Even the video gives you a sense of how all 39,000 of us are really focused on enabling our customers' 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 already behind us. About a month ago, we announced our acquisition of Life Technologies. 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. I have to admit that I've never been more energized about our outlook and our future. 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. Most of you are familiar with the facts and figures on the chart. 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 through 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. Let me give you a quick overview of how we're organized. As you know, we have three complementary business segments. A little less than half of our business is our Laboratory Products and Services segment. 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. 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.
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 billion 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 one to two points relative to historical trend rates.
When we think about the longer term, we remain quite confident that these markets in aggregate will grow 3%-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. 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 five years, averaging 6%. We've been able to use our operational discipline to translate that into strong earnings growth, both at the operating income level as well as at the Adjusted EPS level. In fact, over that five-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&D project, a capital project, or a strategic M&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 sense of 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 2009 when I became CEO. What are we trying to accomplish for the long term?
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 1st. We bring in our top 250 executives from around the world, and we start out with the measure of our progress on these long-term objectives. I have to say that, as we started 2013, because of the commitment of all 39,000 colleagues we have at 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 three important things here I want to talk about because it will frame much of the Analyst Day, and they are really around the growth strategy elements that we have within the vision. One of which is around innovation and bringing out breakthrough products that make a real difference for our customers. The second is about how our three brands create significant value for our customers through our unique value proposition. The third is continuing to scale our presence into a leading presence in the high-growth regions of the world of Asia-Pacific and emerging markets. From this point on in my remarks, I'm going to focus on our customers.
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 our customers are trying to accomplish, and they are really focused on making a huge difference in the world that we live in. Primarily, trying to ensure that the world that we live in addresses the major healthcare challenges, disease challenges, environmental challenges that are out there in the world. I think this slide gives you a sense of some of those headlines that we read every day about what folks in the healthcare community, the environmental community are working on, and we're very excited to play an important role in that. 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 and really gets us to work every day focused on helping our customers meet those societal challenges. Obviously, what we do we think is very vital to society. We fulfill that mission in slightly different ways for our four end markets. As you know, our four end markets are roughly balanced at about a quarter of our revenue. When you look at it, we start with healthcare and diagnostics. Our customers are focused on improving patient care through better diagnostics, and 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&D pipelines to bring out new drugs, new medicines as quickly 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 continue to do cutting-edge research. Finally, in industrial and applied markets, we really focus on helping our customers meet the increasing regulatory standards and 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.
When you look at our growth strategy, it's focused on three things: technology innovation, our value proposition, and emerging markets. I want to delve into each of them with three very brief vignettes that give you a sense of how we're focused. I'm going to start with some facts, 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 million on innovation and R&D. In 2013, we'll spend over $400 million on R&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. It is supported by an amazing scientific advisory board with members from the leading healthcare and academic institutions from around the world. Our vitality, or the revenue we get from products launched in the last two years, is 15%, and 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 three major aspects of what we're focused on. You're going to hear more about that in the subsequent presentations. The first example is around building on our industry-leading technology platforms. 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 launched the Q Exactive, which allowed us to use that core technology and get into the QTOF market and that hybrid market and built out over $100 million franchise focus there. At the American Society for 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. 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 outside the lab into the field. We have a very strong track record of taking miniaturization techniques to bring high value-added information to create new markets. While in portable analysis, those are the product needs, 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 applications so that you can tell whether the pharmaceutical is fake or not. TruNarc, used by police departments to be able to prevent having to open up a plastic vial, a plastic bag to determine whether an illicit drug is just powder or it's something that can be dangerous. Brand new that Alan will talk about, microPHAZIR is our movement into the agricultural market. Again, high value-added information at the point of need. The final example is around how we converge life science tools into diagnostics. Andy Thomson will 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 whole new sets 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 billion franchise serving the biopharmaceutical market. We use our unique value proposition, our channel, our outsourcing services, our analytical technologies to create significant value for those customers. When you look at the facts over the last 5 years, biopharmaceutical R&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. 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 this something that we're excited about for the future?
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. 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 7 years to other markets. You'll get 2 nice customer examples in the customer's own words in academia and in contract testing labs about how we're actually using that value proposition to create value for those customers. 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 in Asia Pacific. Last year, more than doubled to 21%, that's been a steady focus on building out our capabilities. You can see some of the milestones that we've had over the years. Building out manufacturing, R&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, I'll hit a few of the key points. Obviously, we're very focused on China. You'll get a good sense from Syed on why we're bullish about the outlook for China for Thermo Fisher.
You'll also see how we're ramping up in high-priority markets like South Korea and Russia, as an example, starting to build a funnel of additional opportunities. There are a number of markets like Turkey, as an example, where we see good growth for the future. I select Turkey because I just had the opportunity to meet with members of government last week, as Vice President Biden and Secretary of State Kerry really had a delegation of U.S. business leaders to look at ways to collaborate in significant growth in Turkey. 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 million of costs this year. The pie chart gives you a sense of the areas that has allowed us to expand margins. Every year, the percentages vary a little bit, but it gives you a feel for where we drive our productivity. Pete, in his remarks and presentation, will cover this in more detail. 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.
If you look back since 2010, about a third 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. About two-thirds of our capital deployment was on M&A, and I'll highlight that in a moment. From a return of capital perspective, Pete's going to go into more details. 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 de-leveraging, 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 they 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&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 Dionex, 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 a portfolio into a very high-growth, significant business for us.
Those are two examples in our instruments business of how selectively we've targeted M&A to build out our capabilities. In specialty diagnostics, we've built out a $3 billion 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. The acquisitions of B.R.A.H.M.S. and Phadia and One Lambda have really given us significant critical mass. 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. Let's talk briefly about Life Technologies.
This is an acquisition that continues to strengthen our industry leadership. We think it'll 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'll 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 two 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.
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-Generation Sequencing? Obviously, we think that's great for the Thermo Fisher Scientific shareholders. When we looked at the business, when we did our diligence, we clearly were excited about Ion Torrent. I have to admit that 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. We're quite excited about welcoming not only the Ion Torrent team, but all 10,000 colleagues at the Thermo Fisher Scientific once we close the transaction.
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 three-quarter of a billion dollar R&D budget. We'll be bringing together the leader in proteomics and the leader in genomics, and long term, we think that's going to be quite compelling from the impact it'll 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-Generation 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're quite energized by the combination and what it'll do for our customers. Finally, we've accomplished a lot in the last month. When we close the transaction, about two-thirds of our business will be high tech analytical technologies, biosciences, and specialty diagnostics with very differentiated positions. 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. I've had the opportunity to meet with about 2,000 of the Life Technologies employees through town halls, round tables, 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.
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 value. 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. I'd like now to turn it over to Pete Wilver, our CFO.
Thanks, Marc. 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, move on to our expectations for 2013, 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 one this year as a result of the pending acquisition of Life Technologies. I will give you some insight into how we're thinking about the combined financial performance of the two companies.
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 company. With that, I'll begin with a review of our historical financial performance. Here's a snapshot of our financial performance beginning in 2007, the first full year after the Thermo and Fisher merger. Since then, our revenue has grown at a 6% CAGR per year, and Adjusted EPS has grown at more than twice that rate at a very strong 14%, almost doubling over that five-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. 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 five 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 four 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, that provides stability in tougher end market conditions. As Marc said, this recurring revenue stream will become even larger once we complete the Life Technologies acquisition.
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% five 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, Syed will provide additional color on our future plans later on in his presentation. Now let's take a look at our performance 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 2012. 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 a standout 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. 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&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 on self-manufactured products both have greater than 50% gross margin. These segments are also where we spend the bulk of our R&D dollars. 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%-16% growth with significant contribution coming from price volume 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%, three percentage points above the high end of the range that I guided to last year in May. We did this by performing well across the board. We met the high end of our price volume mix 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. 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. 2012 feels like ancient history right now. 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. 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%-3% organic revenue growth. We're expecting 30 to 50 basis points of margin expansion and free cash flow of $1.8 billion-$1.9 billion.
All of this gets us to high single-digit Adjusted EPS growth of 7%-9%, which excludes any further buybacks for the balance of the year as we build cash to fund the Life Technologies transaction. 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 just 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. Second, the overall macro environment will likely keep growth muted in our core industrial markets, although we expect applied markets will fare better.
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. 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 operationally. 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 five key areas to drive growth, and Marc highlighted three 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 one or the other, depending on market conditions. First, as Marc's mentioned, new products. We're committed to investing in R&D to bring to market successful, high-impact new products across our portfolio. We continually look at customer needs to focus on solving their problems. Second, share gains. We have an unparalleled depth of capabilities that continues to provide our exclusive opportunities for us to grow with both existing and new customers. Marc covered this in his discussion about our unique value proposition. Third, emerging markets. As Marc explained, we're continuing our emerging market growth investments to increase our commercial strength and expand product localization. I'll give you an example of product localization in China a little bit later.
Fourth, we're also keenly focused on driving price to deliver incremental growth and margin. 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 and 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 2009 economic downturn. As I said earlier, we're targeting 30 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.
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 % 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 bridge. Over the past three years, we've consistently driven annual productivity of about 200% using our key levers, which I'll cover in detail on the next slide. You can count us to deliver strong productivity again in 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.
This year, we have two 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. We, along with many of our peers, are experiencing a negative margin impact from the significant weakening of the yen over the past six 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 consistently drive productivity.
Now, let me give you a bit more detail on our key productivity levers. You saw this slide in Marc'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 million of savings in 2013. A big portion will come from our practical process improvement business system, which is ingrained in our culture. PPIs are a 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. 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&D to production to sales and delivery of the product or service. One example from our laboratory equipment business, which is 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 in the pictures, the benefits were more than just a clean, organized factory floor.
The team also significantly improved safety, 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 company. In total, we expect to achieve $100 million of savings from our PPI and PPI lean efforts this year. 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 five 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 million of savings in 2013 from further reducing our manufacturing footprint, which is a portion of the $75 million 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. 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 and 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 million to $600 million. We're targeting another $100 million this year, which we expect will contribute about $20 million of savings. Given that this is only about 10% of our total manufacturing revenue, we still have a lot of runway into the future to drive additional savings.
In addition to optimizing production, we've been shifting our SG&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% of our SG&A head count in these regions, more than double the amount that we had in 2007. 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. 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 in an 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, 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. As I mentioned, we suspended share buybacks due to the pending Life Technologies acquisition. 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 strategic growth investments in R&D and emerging market commercial resources, for example. Finally, our 2012 acquisitions, including One Lambda and Doe & Ingalls, contribute around $0.09, which demonstrates that we're being effective at successfully integrating acquisitions. This all adds up to our current guidance of 7%-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 earnings.
We've 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. On a relative basis, we also exceeded the free cash flow yield of both the S&P 500 and S&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 Marc discussed, we've been very good stewards of your capital.
This is something that he and I spend a lot of time on, let me recap the past few years. Since 2010, we've generated over $11 billion in capital from a combination of our free cash flow, increased leverage, and a few strategic divestitures. During the same period, we deployed about $7.4 billion on acquisitions, $3.6 billion to buy back our shares, and another $200 million 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. 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 suspended share buybacks given the pending acquisition of Life Technologies.
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 billion and a combined pro forma leverage ratio of 4.3 to 4.4 times upon close. At this leverage ratio, we expect to maintain our investment-grade credit ratings. 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.
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 Scientific. 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&D, new facilities, or acquisitions, are all evaluated using return metrics. As you can see on this slide on the left, since 2007, 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 million of cash on the One Lambda acquisition. In 2013, we expect to increase our return by another 50 to 70 basis points or around 10%. 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. 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.
Although 2013 does have some incremental challenges, given the multiple levers I described, I'm very confident that we can 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. Finally, as I discussed, our business generates great cash flows, and we expect to continue to do so as we grow our adjusted earnings. In terms of what the outlook is with Life Technologies, as Marc 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. To reiterate, we modeled 3% organic growth and $75 million of revenue synergies by year three.
This certainly doesn't represent our growth aspirations for the combined business. It's important to note that we were able to generate good financial returns using this as a baseline assumption. We expect to generate $275 million of operating income synergies by year three, with $250 million coming from cost actions and $25 million resulting from the pull-through on the $75 million of revenue synergies. In terms of the cost synergies, about one-third will come from eliminating redundant public company costs and corporate administration, and about two-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 $1.00 of Adjusted EPS accretion in the first full year.
Finally, we expect the addition of Life Technologies to add about $750 million of free cash flow to our existing profile, with the combined company generating over $2.5 billion of free cash flow per year. All this results in what I think is a very compelling financial outlook. To wrap it up, you got a good sense of our strategy from Marc, a good sense of our financial outlook from me, now you're going to get some great insight on how we're going to get there from the rest of the team. Now I'd like to introduce Alan J. Malus, 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 J. Malus, 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, we're helping customers in laboratories, we're helping them on the production floor, also helping them in the field as well. Over the years, we've built an impressive leadership position in our offering, it clearly sets us apart from the peers in the industry. Really what differentiates us further is that we continue to innovate in our businesses. You noticed in Marc's presentation earlier today, we invest over 5% of our manufacturing revenue in R&D. You'll see a lot of that happens in the Analytical Technologies businesses.
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 just going to share with you some of the new exciting opportunities that we have for growth going into the future. First, the analytical technologies is a $4 billion segment. This includes four 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 pull through an extensive portfolio of consumables and services to support these customers, and those customers could be a research laboratory in the U.S. or an air monitoring center in China. 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.
You have to think, in these areas, as economic growth is fast, they're experiencing an increasing need to analyze and monitor and protect the health and safety in those regions as well. Those of you who've 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. 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 instrumentation, software, and consumable technology.
If you look at all of these, what they're enabling our customers to do is to achieve two goals. The first is to accelerate their innovation, and the second is to drive productivity in their businesses. If you look at all these, they've all driven growth for our company. What I wanted to do was just spend a few more minutes on one area of technology that's really made some meaningful advances in helping our customers to do their work, and that's mass spectrometry. As you know, we've had a tremendous legacy of innovation in mass spec technology, and each evolution of our platform has really provided significant capability advancements for our customers and positioned Thermo Fisher to take share in the mass spec market. If you look back to 2005, we took a major step forward when we launched the first Orbitrap.
This was a result of a team of ours, of scientists of ours, did some amazing work led by Alexander Makarov. The Orbitrap redefined mass spec analysis and completely converted a $100 million Fourier mass spec market. In 2008, our next generation Orbitrap platform positioned us to take significant share in the $700 million triple quad market. In 2011, we launched the Q Exactive. This is a hybrid quadrupole Orbitrap mass spectrometer. The Q Exactive's having a profound impact on the $250 million 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. It's always refreshing to us, as we interact with our customers, to really understand the value that our technology is contributing to the work that they're doing.
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 Dr. Matthias Mann. He's one of the world's leading researchers. He heads up the Proteomics Research Center at the Max Planck Institute of Biochemistry in Germany. Let's listen to a bit about what he has to say.
The proteomics field exists, depending on the definition, since the mid-'90s. I've been involved in that field from the very beginning. With electrospray mass spectrometry, I've been involved with that for 25 years now. Proteomics has been just as fast as in any other field, for instance, as in computers. What took us literally weeks is now done in sub-seconds. The collaborations with Thermo Fisher are extremely important to us. We wouldn't be here doing these things if it hadn't been for individuals like Alexander Makarov and others at Thermo Fisher Scientific. The attraction of proteomics is, in some ways, it's the logical next step in biochemistry in general. In biochemistry, we've been looking at proteins one by one, 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 the 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 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 and impact of proteomics. I think that's well within the technological possibilities that we have at the moment.
It's really great to hear how our technology and innovation is really accelerating the innovation that our customers are doing. Really, when you think about what Dr. Mann was talking about, this is really enabling our customers to 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. We're always thinking about how we can make the technology better. What is the next breakthrough? What are our customers expecting us to do? I'm pleased to tell you that 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 ASMS meeting on June 9th.
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 to. We're going to be launching our next generation Orbitrap technology. This is an ultra-high resolution, ultra-fast 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. In addition, we're also going to be launching a new triple quad platform. Here, we're confident that this is going to help us take shares and applications and quantitative applications and analysis that are in the mass spec market. Lastly, we're going to launch a suite of application-specific software that helps our customers really streamline instrument control and data analysis. As you recall, at Pittcon, we launched the Chromeleon 7.2.
We've talked a fair amount about managing data and the challenge to do that, and 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 in these analytical tools into knowledge, and drive progress in the work that they're doing to meet their goals. 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 Chromeleon 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 some of our customers, this is going to translate into reducing data processing times and analysis cycle times by up to 50%-60%. In addition, they're going to be able to network and use this across labs throughout their organization. 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.
Even with all the technology advancements that we've been discussing, I think we're really just barely scratching the surface of what our customers are accomplishing and what they can accomplish. 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. 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 Marc highlighted earlier today. 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.
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 Dr. Matthias 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. Part of what we have to recognize, that roughly 70% of 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? Well, 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 UltiMate 3000 BioRS. This combines the performance advantages of UHPLC, but it also has 100% corrosion-resistant flow path. This is needed to handle very biologically challenging assays. Then with this, we couple the Q Exactive 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 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. You probably know of our strong position in bioprocess production, where 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 that drug companies can quickly respond to changing market needs. Those needs could be a drug shortage in the U.S., or they 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 Aegis5-14 film.
This is a premium material that pushes single-use technology to new performance levels. This 514 film meets customers' needs for the highest quality levels, has the lowest leachables and extractables profile 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's going to significantly enhance the manufacturing flexibility and productivity of our bioprocess customers. Now let's turn to some applied markets and some opportunities here. In terms of protecting our food supply, this is a growing global challenge. The problem is really twofold from an analytical perspective. First, there's an ever-increasing number of contaminants. Second, 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 quadrupole 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 650 pesticides. 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 traditionally takes days for a compound to be validated and ultimately added to a menu. This is a significant advancement in productivity for these customers. Let's turn to another example of measuring potential contaminants in food.
You may have read about concerns of arsenic in 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. 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. Key customers are adopting this workflow at this early stage of work. As an example here on the slide, you can see the National Food Institute in Denmark. They've already adopted our solution for the work that they're doing in research to support the European 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. Let me turn to our portables portfolio. Here, almost every year, we unveil a new technology and an ever-expanding line of portable analysis instruments.
As Marc 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 before they get the results back from the lab. After the fact, they're understanding the issues that they have. Now, what are we doing about it?
We've just launched, or are in the process of launching, our microPHAZIR AG. This is a portable technology that 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. 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. All of this is ultimately going to contribute to having a healthier food supply as a whole.
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. We have a strong innovation track record. We're continuing to invest in 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. We continue to develop highly differentiated capabilities and gain share and accelerate growth in this part of our business. 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 applause. We're 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. It's 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?
Good morning. As Ken mentioned, my name is Andy Thompson. I have the privilege of leading our Specialty Diagnostics businesses, 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, I hope you'll leave here this morning with the feeling that we share that the future is even brighter.
I'm going to touch on a little bit of grounding on where we are with our business and how we're structured, talk a little bit about M&A, discuss some of the trends that are providing some very favorable tailwinds to our business. 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 practice. 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. With that, we'll jump in. As a reminder, our businesses are made up of six distinct divisions, and they comprise our $3.1 billion of revenue.
This has been a very productive part of the company. Over the last five 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 the acquisition of One Lambda that closed in September of 2012. Very pleased to say that the integration activities are proceeding ahead of schedule. Also of note is our immunodiagnostics business. At 18%, is now our third-largest business in the segment. That is the [Foreign language] business that closed well over a year ago. 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, or a crushing commercial focus. Our core capabilities you see on the 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. Lastly, we are leading in driving the convergence of life science platforms and in vitro diagnostics platforms to create new markets. With that as a grounding, I'll touch just briefly on our M&A landscape.
As a reminder, we've been in this business for a long time. While it's been a particularly busy and productive recent years, our strategy in M&A, which mirrors our total strategy for specialty diagnostics, hasn't changed. 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. As Marc indicated, there isn't a hospital laboratory or a commercial reference lab around the world that doesn't have at least one of our products in routine daily use. As we look to the future, our focus shifts to flawlessly integrating our most recent acquisitions and to concentrating on our organic growth.
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. It's worth spending a moment on them, on these trends. The aging population, specifically in the Western markets, has created unprecedented demand for healthcare. 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 in vitro diagnostics.
Our customers are looking more to the research tools for increased sensitivity and specificity that ultimately leads to a much improved clinical utility. Our mass spec liquid chromatography instruments are at the forefront of this conversion. 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. With that, I'd like to just highlight the way we look at the three 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. 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. But as you'll see from the slide, even after all this success, the 10-year survival rate for one of the most common organ transplants in kidney is still only 27%. We and our customers are very focused on increasing the survival rate.
I'm pleased to say we've launched recently a very valuable tool for the practicing physicians, and that is our C1qScreen assay. This is a simple screening blood test as opposed to the very invasive needle biopsy that is the current standard of care. The C1qScreen assay enables a physician to identify early and chronic rejection, enabling preemptive personalized treatment. 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 result 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. Shifting gears from two products that have been commercialized and 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 overprescription of antibiotics has led to an increased prevalence of these resistant strains. The practicing physicians have very few weapons with which to address this issue. The current standard of care has been receiving results in six to 16 hours. This is simply too late for them to immediately adjust care.
As an overabundance of caution, they are prescribing antibiotics, and in 50% of the case, at least, it is unnecessary. 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. This is a good time for me to pause and hear from one of the world's leading microbiologists. Professor Haroun Shah leads the microbial identification unit at the Health Services Group in the U.K. This is the equivalent to our Centers for Disease Control, and his team is responsible for first response to disease outbreak in the community. 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 ten years or so is many of these technologies that have been in research and run is moving towards the diagnostic laboratory. Across this laboratory, on the far side of it, are next-generation sequencers. Genomes are being sequenced there. We hope to be the first lab in the U.K. where the proteomics is going on at the other end of the lab, genomics are there. What that presents to us is the blueprint and the proteins that are expressed. The two 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 to the type of pathogens and toxins that are being 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 outbreaks. 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.
We're not the only company to identify this as a tremendous opportunity, 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 this 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 business. I'd like to talk through three 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 that these novel assays ultimately may lead to a change in practice. This is a difficult task, but the rewards are great when we have been successful, and we've been very successful in the allergy market, where our 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. 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. Lastly, in partnership expansion. We have, as mentioned, enjoyed success 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 with these companies. 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 has protected these markets for us. I want to talk about one last partnership example, and that is our companion diagnostics. 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 strong relationships we have with our clinical diagnostics business, and also outside of the Specialty Diagnostics businesses in the biopharma services business, 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. Like in pharmaceutical development, one size does not fit all here. 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 midterm, they're looking for regulatory expertise, someone to manage the clinical trials, to navigate the complex regulatory environment.
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. Again, we think we have unmatched capability in this area. In conclusion, I've talked about a lot of things. I've hoped 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. We'll continue to build on our core life sciences strengths, our assay 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 we'll lead in the integration of life sciences and diagnostics. Lastly, we'll continue to invest to strengthen our global position. Thank you very much.
It's now my pleasure to welcome Ed Pesicka 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 his markets.
Thanks, Andy. As Andy said, I'm Ed Pesicka, and I'm extremely excited today to talk about our customer value proposition that Thermo Fisher Scientific has, and 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 Marc 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's 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 proposition for our customers. 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 $6.1 billion segment that's made up of three major areas. The first is the research and safety market channels or the Fisher Scientific channels.
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. Lastly, the last 13% of this segment is focused around the Biopharma services, which is the leading outsourcing provider for clinical trials and logistics services. Enough on the segment. Let me move now specifically onto the value proposition. 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 a significant amount of time with our customer to understand what their goals and their needs are, and there really are two underlying objectives of our customer. First is innovation.
How do we help them accelerate innovation? Second, not necessarily in order, is productivity. How do we continue to improve the productivity of the customers? We do that with the three 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 I will do is if we remember this wheel going forward, we'll talk about how those capabilities are utilized in developing that unique value proposition. 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.
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. Let me first give a recap of pharma bio. Again, you saw this chart earlier from Marc. Here's the way I'd like everyone to think about this. 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. The way you think about it is more on a linear approach. When you think about research and development, it goes from research to development, to pilot, to production, to prescription in the biopharma space.
Across that entire linear approach, Thermo Fisher Scientific, our capabilities enable us to serve the customer there to drive productivity and innovation. 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 equipment, to 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 to put application approaches together that do two things. One, it increases the throughput and output for the scientist, which drives productivity and ultimately accelerates innovation.
The last step on there is really with our services to make sure the scientist spends 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 them 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.
The other thing we have on this chart, while you may not think about it in production, is some of the technology, again, Alan talked about this morning, some of the handheld technology. 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 while it's tested offsite or tested somewhere else. Again, helping drive productivity and ultimately accelerating innovation. The last thing here in an entire life cycle is 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 accelerated innovation that frankly, no one else in this industry can provide that level of service to our customer base. 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 two specific examples, one in academic or specifically medical research, and then later applied industry. We spent time with our customer, this one, Dana-Farber, trying to understand what their needs are. Really the main goal of this customer was again, to increase productivity, and they want their researchers to focus on research.
How did we do that? We looked at the capabilities of our company and we provide a solution to them. One, through the channel, we simplify the order process. Two, with the products we offer, our laboratory equipment and consumables, our life science tools, our instrumentation, we're able to make sure that the customer gets the right products to do the work. We then help them optimize and drive faster productivity, more accelerated innovation in the fact that we're able to use our application expertise to solve customer-specific problems. Finally, taking and providing services, so again, the scientists can spend more time focusing on the research, as well as we collaborate them on R&D. 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. Within a handful of square miles, we have to supply all of our faculty and all of our principal investigators at the 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 in?
Within the last year, really tried to make the program more robust in delivering on-site consigned product to our researchers. If they order by 11:00 A.M. that day, they'll get that product same day. If it's after noon, 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.
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 one, I'll leave you with another way I remember this, is I had a customer come to me during a meeting and they said, "Hey, thanks. I really want to thank what Thermo Fisher Scientific's 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 scientist to have his belly or her belly at the bench as much as possible." That's what we're able to do to help drive productivity for our customers, very similar to what we're able to do with 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 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 consistency in testing. This increased organic growth is going to be in other parts of the world, not just traditional Europe and North America. This is where our ability to service them, you're going to hear a little bit about it from Syed 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. Lastly, services to drive efficiencies. 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. 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, 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. It used to take two weeks to test for 50 pesticides.
Now we can test within 24 hours for 500 pesticides. That enables the client to test all of their samples before they are sold to the customer. The whole testing industry will change a lot in the next five years, and Eurofins will be investing heavily. We've earmarked EUR 1 billion to invest over the next five 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 we'll be active in within five years.
There's another good example of how the value proposition translates into the specific market, that being the applied industrial. In summary, this is why I get excited every day to come to work, in the fact that we have the ability to partner with our customers. We have the ability to leverage the total strength of Thermo Fisher. 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 and 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.
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. With that, I'm going to turn it over to Syed Jafry, who's 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 Jafry, 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 that we are making in China and our strategy to continue to maintain our growth momentum in China. Lastly, I will touch on how we are expanding our presence in some of the very important other emerging markets around the globe. Let me start with a brief recap of our strategy that I also 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, 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. 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 billion.
Over the next five years, our plan is to grow our business at a CAGR of 11% to reach $3.4 billion. China will continue to remain a very important contributor towards our future growth. At the same time, we are building capabilities in many other markets to ensure that we are accelerating growth across a broader region. Next up, I want to share with you how we have taken a prioritized approach in resourcing and investing in various emerging markets using a three-pronged strategy. 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. 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. These markets represent a very large number of countries. 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, providing you more details, starting with China.
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. The healthier aspect of our company's mission in China is 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. Basically, over the next two years, the Chinese healthcare industry will become the second 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 their manufacturing and R&D operations in China because they 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. 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.
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 is 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 are familiar with some of the stories in the news. Three 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. 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.
We think that the Chinese government is beginning to take actions. 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, which now reports to the State Council. While in the past, the Chinese FDA reported into the Ministry of Health. They are modernizing the FDA by working closely with the U.S. and the European FDAs. 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 in the future.
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 five-year growth plan for investment, the key elements of which you see on the right side of the slide. In order to better serve the growing markets of 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 these markets. 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.
To meet the growing domestic demand in China, we've continued to expand our operational footprint all across the country. In their five-year plan, the Chinese government is also making innovation a big priority. Anticipating that, we have been strengthening our R&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. The last aspect of the five-year plan is focusing on reducing pollution. On that, I already shared with you my comments on the previous slide. Our strategy in China is working effectively, and 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 billion market, which is growing between 8%-10% over the next five 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 five years, our goal is to continue to grow our business in China at a CAGR of 14% to reach $1.5 billion 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, that we have built our business in China by focusing on a diverse set of markets. In the future, our goal is to continue to maintain the diversity of markets that we participate in.
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, and environmental monitoring. Now let me take you back to our strategy page, focusing on the middle section. I wanted to share with you how we are resourcing and investing in some of the emerging economies such as South Korea and Russia. South Korea, it's about a $1.2 billion served market, which is growing between 6%-8% over the next five years. We grew our revenues in South Korea by over 15% last year, and we plan to grow the business over the next five 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. As a part of that strategy, about two years ago, we opened our first demo center in Seoul, which is being used extensively by our customers for training and application support purposes.
In the spirit of translating best practices, we translated our focus 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 million served market, which is growing between 7%-9% over the next five years. We grew our revenues in Russia over 30% last year, and our plan over the next five years is to grow at a CAGR of about 13% to reach $170 million. In Russia, the market that is 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. Last couple of years, the Russian Government introduced some new regulations which are forcing some of the manufacturers to produce products in Russia.
Several of our large global pharmaceutical customers, they are establishing manufacturing facilities in Russia. That is creating an interesting new market for us in the pharmaceutical area in Russia. We see some great possibilities in food safety and industrial markets such as oil and gas. 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 and 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 efforts as they are expanding their manufacturing capabilities in Russia.
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 third aspect of our strategy, as I said earlier, this is focusing on expanding our presence in emerging markets. As I said, that we are focusing on a select number of countries at this time. On the next page, I will share with you some of the growth drivers that we are excited about in four key countries in these markets. These are the four countries that I want to talk about briefly, where we are seeing the economy growing between 5%-8%, and our served markets there are growing at a higher rate than the GDP growth in these countries.
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 from 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 are also seeing heavier investments coming into the universities and education.
In the Middle East, we believe that Turkey is a stable country where there is significant economic growth in the future. Marc talked about that a little bit in his presentation. This is where we are pursuing opportunities in pharmaceutical industries, healthcare, and environmental. Those are three of the key ones that we believe we will see opportunities in the future. 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. 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.
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. 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. With that, let me invite Marc back on the stage to share his closing remarks and the Q&A session. Thank you.
We're looking forward to the Q&A session. Let me give a couple of quick thoughts. I think you got a good sense of the company 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. We'll get more into that upon the closing of the Life Technologies transaction. 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 process.
Hey, Marc. Jon Groberg with Macquarie Capital. Everything I saw in the presentation actually to me showed how complementary Life could be. I guess, I just have a few kind of questions around bigger picture, because I know you're not getting into details there.
One, it looks like you initially reached out in 2011, according to the proxy for Life. I'm just curious, one, what area or areas of the business most interested you? Two, oftentimes when you have kind of a year lag like this, competitors will be out there saying, "Look, this is a great chance for us to take advantage of some of the distraction out there." I'm curious, what you think the keys are to retaining key employees at Life. 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 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 for the businesses. Thanks.
If I don't capture them all, Jon, you may need to remind me. We see a very complementary fit between the businesses. We've had dialogue for a number of years, between how to put the companies together and did it make sense, and then obviously, kicked that off more at the end of 2011. Over time, Life Technologies evaluated that opportunity, 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 of some of the other M&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&A. As we built out specialty diagnostics, One Lambda, B.R.A.H.M.S. made sense.
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. That's how we thought about it from a strategic standpoint. It's really important for both companies to be really focused on our customers and really on our business objectives for 2013 while we're going through the regulatory process and those things. If the way I think about it, and I've had the opportunity to have town halls at both companies with quite a few of our colleagues. 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. For 49,800 people, it's business as usual.
The teams get it, they understand it, and I think they're very focused on making sure that we do a good job, both with Thermo Fisher as well as Life Technologies in this interim period.
Marc, 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 transform it. Obviously, to Jon's comment about the proxy, a lot of folks showed up here, probably more than many of us thought.
Clearly others are sort of thinking about their strategic positioning in the market. 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, Brian wanted Thermo to become. How do you feel like that sort of impacted the competitive aspects of the industry, assuming this transaction closes at some point next year?
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? That's how the world has bifurcated for a long time. I've been in the industry for, I don't know, 15 years plus. If you look at what Thermo Fisher is, we are the product of all the industry consolidators, right? If you step back, Thermo Electron, Fisher Scientific, Apogent, Applied Biosystems, and Invitrogen, that's all one company, right? The people that believed in the benefits of scale built the DNA about how to use scale to create your advantage is now in one company, right? There are still other companies that think about it narrowly, and I'm sure they'll evaluate their own strategies in this context.
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. Marc and Pete, you alluded to it today, but as we look out post-Life and you get to 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 of that return, which is certainly different than what we've seen in the past from Thermo. 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 unknowing assumptions that would lead you to want to focus more on the dividend versus buybacks?
In terms of capital deployment, as Pete said, 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, de-levering back to our target leverage ratios, and then moving to a more normal capital deployment strategy, of which there'll be a balance between return of capital and to the extent they're available, both on M&A. When we think about return of capital, we had just initiated a dividend in 2012, and our general philosophy is we were going to grow that as our earnings grow.
We do have very active dialogue with our shareholders, I think, if the world was today where we would, at that period, where we would de-lever it, I think our shareholders would say, "We want some level of return of capital through buyback and probably a little bit more through dividends." That seems logical, but two years from now, two and a half years from now is a long way out in the future. We'll talk to our shareholders at that point in time and figure out the optimal mix.
Hi, Derik de Bruin from Bank of America. I have 2 questions, Marc. First off, when you think about share gains in the space, and I think about Fisher Scientific pre and post the deal. The Fisher Scientific business was roughly, I think, 70% North America at the time, about 30% Europe. I guess, how has that sort of changed over time? I guess, can you talk about, now that you're adding Life Technologies to the portfolio, how you think potential share gains in the space are going like that? Obviously, your biggest competitor in the catalog business isn't going to have that portfolio. Just some thoughts about how Fisher Scientific has changed and what you see going forward on that. That's the first question.
In terms of the focus, right after, the first year after we closed on a merger between Thermo Electron and Fisher Scientific, about 10% of our revenue was in Asia Pacific and the emerging markets, and it's at 21% today, right? A lot of that expansion was leveraging the very strong capabilities that Thermo Electron at the time had in those markets, taking the outstanding services and products that Fisher Scientific brought to the company and actually accelerating growth in those markets. I think you got a sense from Andy Thomson and Syed that healthcare is a great opportunity for us to have built out in those markets, and we see a bright future. 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.
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. I see us as a combined entity being able to really gain share of wallet with our large customers. We look really to the future as really great opportunities for growth.
Just 2 other quick questions. 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 there? The other question is just now that 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. 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. 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. We feel like we're well-advised and that 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 one seems like a reasonable assumption in terms of the way 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, I'm not sure that right now there's a path to get there. I think those are the type of assumptions, which means that if that plays out, the end market's actually a little better than what we're seeing right now in 2013. Hi, Tony.
Marc. Tony Butler, Barclays. Thank you very much for your comments. Really two questions. One is around R&D spend, three-quarters of a billion dollars likely coming next year. While we could talk about is $750 million enough, 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? The second question is, sorry to go back to the dividend, but really around payout ratio.
Can you actually just discuss the dividend with respect to payout ratio and whether 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. I think over time you'll hear us 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 three-quarter billion dollar budget is very substantial. In fact, if you think about the broad world, it's one of the largest R&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.
I think the level is good, but there's lots of exciting areas. Maybe Andy, you might pick one and then Alan, one that we're energized about.
Sure. When we think about Life Technologies, much of their diagnostics business is nascent, they're just getting into that space. We see with the application of our relationships and our existing channels to market, there's a number of areas that we'd like to turbocharge that they are investing in. Chief among those is likely the Ion Torrent. We have a number of areas that we'd like to protect for ourselves, there's a number of areas that we think we can partner with others and very quickly develop those markets. Probably the Ion Torrent is the one that I'm most excited about, but as I say, they're investing in a number of very attractive areas.
I would say, based on the presentation I had today, 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. 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. I can say that wherever there's great opportunity, we'll continue to invest in that. If that warrants more investment, we'll do that if it provides the appropriate return.
Tycho Peterson, J.P. Morgan. Maybe just following up on that last final question. Can you talk about some of the areas you're most excited about from a revenue synergy standpoint? Also, as we think about the channel, how easy is it to drop the majority of the Life products into the catalog? Do you need a technical sales force to kind of supplement that?
Yeah. I think the revenue synergies that are most obvious, first is around the workflow that scientists purchase through Life Technologies today, right? Life Technologies is a very strong biosciences offering. What we add to that is lab consumables and lab chemicals, and those are very much in use in the workflow. 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. There are a number of markets where, Syed, I was giving you a sense of what's the next tier and the critical mass you get from the 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 is quite productive. You go by application itself. Andy referred to some areas of specialty diagnostics where you could envision very complementary offerings between the companies and a way for Thermo Fisher to help move along the good growth drivers that Life Technologies has because we have such a strong channel and such a strong regulatory set of capabilities serving the diagnostics market.
One quick follow-up. If we think about your kind of migration to larger deals, you highlighted Dana-Farber and Eurofins today. Are the margin profiles of these collaborations comparable to most of your existing business, or are you having to make investments as you move into these larger strategic type arrangements?
Generally, our large customers 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. Generally, we've been able to, over time, expand the margins by making it even more efficient in terms of the relationship.
Hey there. Isaac Ro, Goldman Sachs. Just two questions for you, Marc, one on Ion and then a second one on Asia Pac. On the Ion, you mentioned in the beginning some enthusiasm after meeting with the team there. Could you maybe put some specifics around either from a technology standpoint or a strategy standpoint, what's gotten you more excited about that? Mm-hmm.
Yeah. 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 at the business and what they have in the R&D pipeline. When you get into that and understand what the ultimate customer benefit is, you become very enthusiastic from that capability. I think that's really what I took away from my visits with the team.
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. Just trying to figure out as we look at the guidance for the balance of this year, what's kind of assumed in those two regions specifically?
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, Marc, 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 has 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?
Right.
Are these processes what prompted you to not provide updated guidance for the long term? 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?
Doug, at a view of where we are, we form 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 first quarter. 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 manage the business well. 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. 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. That's the view.
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 the delta.
Marc, 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 wondering if you could comment around that.
-and the targets of 25%, that seems rather muted versus historicals. Just wondering if you could comment around that.
Yeah. What I would say is that we have obviously, over the last five years, have doubled the percentage of our total in Asia Pacific, and what we're assuming is about a point a year in shift of the mix. I think just based on what we think the market growth outlook is, we think that 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.
Hi, Marc. Dan Arias from UBS. 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?
Yeah. 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 the yen doesn't continue to weaken the way it has. Even since we gave our guidance in Q1, it's deteriorated even further, and it's probably $0.03 headwind since that time. Going into 2014, if you take away that 40 basis points, we're right back into that 50-100 basis points range. That's what we would expect.
Okay. Then Marc, Andy mentioned the intersection of life sciences and diagnostics, clearly you're excited about your mass spec franchise. I guess, how do you see the opportunity for that technology in the clinical setting?
Yeah. We think it is a profoundly important tool in diagnostics. Last year we talked about it in what I would say is a complement to immunoassay technologies on 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, 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 can help us size some of the opportunities for the products that you're going to unveil at ASMS in June.
Yeah. 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. When I look at it, the triple quad market, that's a $700 million 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 is well over a half a billion-dollar business for us. It's relevant when you launch two brand-new high-end platforms. That typically is pretty exciting. Lots of excitement starting on June 9th in Minneapolis. Don't miss it. 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 in 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, Really our intense focus on our customers, which will-