Ladies and gentlemen, thank you for standing by. Welcome to today's conference call and webcast to discuss Thermo Fisher 's acquisition of Phadia. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask your question at that time, please press star one on your telephone keypad. To remove yourself from the queue, press the pound key. I would now like to turn the call over to Ken Apicerno, Vice President of Investor Relations at Thermo Fisher Scientific. Please go ahead, sir.
Thank you, and good morning. Welcome to the conference call to discuss Thermo Fisher 's acquisition of Phadia, which, as you know, we announced earlier this morning. On the call today, we have Marc Casper, our President and Chief Executive Officer, and Pete Wilver, our Chief Financial Officer. We'll be running through a brief slide presentation during today's call. The presentation is available in the Investor Relations section of Thermo Fisher 's website. After the prepared remarks, Marc and Pete will be available to take your questions. During the call, we'll be making certain forward-looking statements, so please review the safe harbor language found in our presentation on slide number 2. Before we begin, let me briefly cover our safe harbor statement.
Various remarks that we may make 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 Thermo Fisher 's most recent quarterly report under the caption "Risk Factors," which is on file with the Securities and Exchange Commission and available on our website, as well as the possibility that expected benefits related to the transaction may not materialize as expected, the transaction not being timely completed, if completed at all, prior to the completion of the transaction, Phadia's business experiencing disruptions due to transaction-related uncertainty or other factors, making it more difficult to maintain relationships with employees, licensees, other business partners, or governmental entities, and the parties being able to successfully implement integration strategies. 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 call, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP, such as adjusted EPS, adjusted operating income, and free cash flow. We believe that the use of non-GAAP measures helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company's performance, especially when comparing such results to previous periods or forecasts. With that, I'll now turn the call over to Marc.
Thanks, Ken, and good morning, everyone, and thank you for joining us on such short notice. Let me begin by saying that we're very excited about this transaction because it really enhances our leadership position in specialty diagnostics.
You know that specialty diagnostics is one of our key growth platforms. The addition of Phadia is a major step forward in our strategy to build on our depth of capabilities here, and it significantly increases our presence in this high-growth market. Phadia is the global leader for in vitro allergy diagnostic testing and a European leader in autoimmune diagnostics. The transaction provides us with access to a large, growing, and underpenetrated market in the U.S. and Asia-Pacific. By adding Phadia's cutting-edge technologies, we will be able to expand our specialty diagnostics offering to our customers around the world. Financially, the transaction is compelling. Phadia is a fast-growing, high-margin business that will benefit both our top and bottom line. In particular, it will contribute to our ability to achieve our primary financial goal of delivering strong EPS growth.
It is clear that the addition of Phadia is consistent with our acquisition strategy because it accomplishes our three primary objectives. First, it will strengthen our strategic position in growing markets. Second, it will expand our offering for our customers. Third, it will create shareholder value. Turning to slide five, let me discuss a little bit of the terms of the transaction. We're acquiring Phadia for EUR 2.47 billion, or approximately $3.5 billion in cash. We will fund this transaction through proceeds from committed debt financing from Barclays Capital and cash on hand. The transaction is expected to be immediately accretive to our adjusted EPS. It also accelerates our adjusted EPS and organic growth rates, which Pete will discuss in a little more detail later on during the call. The transaction is subject to customary closing conditions, including applicable regulatory approvals.
We have a clear roadmap to completion, which we expect to achieve in the fourth quarter, if not earlier. Turning to slide six, for those of you who don't know Phadia, it's been a pioneer in bringing new allergy diagnostic tests to the market since its founding more than 40 years ago. Phadia is a leading specialty diagnostics company. As you can see on the lower right pie chart, their diagnostic tests fall into two primary categories. Allergy makes up the majority of the business at 85%, and autoimmunity constitutes 15% of their total revenue. As you can see from the other pie chart, Phadia generates almost three-fourths of its revenue outside the U.S., primarily in Europe and Japan. Phadia has consistently delivered strong growth, generating approximately $525 million in revenues in 2010, which represents a three-year compounded annual growth rate of 10%.
This is also a business with very strong operating margins. In 2010, Phadia's adjusted operating margin was 33%. Today, Phadia has over 5,000 systems installed in more than 3,000 laboratories in 60 countries around the world. This large install base provides a solid platform for future growth of its wide range of diagnostic tests. Phadia has approximately 1,500 employees globally, including a strong clinical marketing team, and we look forward to welcoming them to Thermo Fisher. Turning to slide seven, Phadia operates through two leading brands: ImmunoCAP for allergy and EliA for autoimmunity tests. Their ImmunoCAP brand is globally recognized as the gold standard for in vitro allergy diagnostics because of its high degree of sensitivity and specificity. These tests have led the way in identifying molecular-based allergens. This results in better information for physicians to diagnose food allergies, such as peanut allergies, that are affecting more and more children.
ImmunoCAP can test for the widest range of specific allergens from food to pollens. To support its extensive test menu, Phadia has a complete range of instruments that fit the needs of its customers, from low-volume clinical labs all the way to the largest reference labs. Phadia also has a rapid point-of-care test that provides results right in the doctor's office. Phadia is also a leader in Europe for autoimmune testing. Its autoimmunity brand, EliA, is used in some of the most prevalent autoimmune disorders, such as celiac disease, which is an intolerance to gluten, rheumatoid arthritis, and connective tissue diseases. The company has a variety of tests to help diagnose gastrointestinal and other arthritic diseases as well. Both the allergy and autoimmunity product lines operate on a common instrument platform that supports both productivity and cost efficiencies in clinical laboratories around the world.
On slide eight, let me talk a bit more about allergy in particular. It's the majority of Phadia's business, and it offers significant growth opportunities for us. These tests are important because they support better clinical decision-making, helping physicians diagnose, and helping patients make the right lifestyle choices. The allergy market has significant untapped potential, particularly in the U.S., where the common practice is skin prick testing, which you can see in the top photo here, and you may have had the pleasure of experiencing. In many ways, this is about parents and children. Given the significant amount of information you can get from a simple and painless blood test, the adoption of Phadia's in vitro tests has been steadily increasing. There is also a huge opportunity for these tests in emerging markets such as China and India, where at this point, little testing for allergy is done at all.
The demand for allergy testing is also expected to increase as new therapeutic treatments come to market. This will provide Phadia, and now Thermo Fisher, with a significant growth opportunity. Now that we've talked about the leading technologies this transaction brings, on slide nine, I will review how they fit within our specialty diagnostics platform and how they will accelerate growth. To briefly recap Thermo Fisher 's diagnostics portfolio, our key capabilities fall into three categories: anatomical pathology, where we focus on workflow solutions for tissue-based cancer diagnostics, microbiology technologies for detecting pathogens in food and a range of infectious diseases like MRSA, and specialty assays, including drugs of abuse testing and our biomarker business. These three businesses total $1.4 billion in revenues, with Phadia, our specialty diagnostic business, expanding by about 35% to $1.9 billion in revenues.
Simply put, Phadia is a strong fit strategically with our existing specialty diagnostics platform, significantly increasing our penetration of a high-growth market. This will be a great opportunity for Phadia to leverage our strong presence in emerging markets such as China and India, where we continue to expand our footprint and market reach. We also expect to benefit from Phadia's robust R&D pipeline. They have been at the forefront of innovation since they introduced the first in vitro allergy test over 30 years ago. In allergy, Phadia's R&D efforts are developing new products and improving existing products for earlier identification. In autoimmunity, Phadia is developing new markers for testing to expand its business with laboratory customers. Last, we expect to improve customer access to our specialty diagnostics offering.
Phadia has a unique clinical marketing model that is focused on educating physicians and patients about the value of in vitro allergy testing and supplying physicians a wide range of allergens to assist in diagnosis. We expect to leverage these relationships to introduce our specialty biomarker assays and other clinical diagnostic products to a broader customer base. We also see the opportunity to increase Phadia's sales to the U.S. market through our extensive healthcare channel. Now, I'd like to turn the call over to Pete, who will discuss the financial details of this transaction in greater detail. Pete.
Thanks, Marc. Good morning, everyone. I'd like to start by saying that I share Marc's enthusiasm about this transaction and the opportunities it creates to accelerate our adjusted EPS growth and create shareholder value. Turning to slide 10, Phadia has a strong track record of top-line growth, with a 10% compound annual growth rate over the past three years on a constant currency basis. This is a very profitable business, with 33% adjusted operating margin in 2010 and exceptional gross margins. The transaction will accelerate our adjusted EPS and organic revenue growth rates, and we expect it to be immediately accretive upon close. For the full year 2012, we expect it to add $0.26- $0.30 of adjusted EPS, which will accelerate our adjusted EPS growth rate by about 6 percentage points- 7 percentage points.
In terms of synergies, we expect to generate $35 million of adjusted operating income synergies by 2014, the third year following the close, and $10 million in 2012. Of the $35 million we expect to generate in 2014, $15 million will come from cost synergies as a result of leveraging Thermo Fisher' s global infrastructure and business processes, including PPI and PPI Lean Productivity programs, as well as our global sourcing capabilities. In addition, $20 million of adjusted operating income contribution will come from revenue-related synergies, driven by leveraging our sales channels and capitalizing on opportunities in high-growth emerging markets. We also expect to benefit from greater tax efficiencies by leveraging Thermo Fisher 's global structure. As Marc mentioned, Thermo Fisher intends to use proceeds from committed financing and cash on hand to fund the transaction.
At close, we expect to have a pro forma leverage ratio of about 2.8x total debt to trailing 12 months adjusted EBITDA, which is consistent with our current debt ratings. Post-close, our intent would be to pay down debt, utilizing a portion of our free cash flow. In summary, we have a proven track record of integrating acquisitions and achieving our synergy targets, so I'm confident that we can achieve these goals. Now, I'll turn the call back to Marc for some closing comments before we take your questions.
Thanks, Pete. Turning now to slide 12, slide 11. As we wrap up before Q&A, let me summarize the key points of the call and why we believe the acquisition of Phadia is so compelling from a market, technology, and financial perspective. With Phadia, we'll be the global leader in in vitro allergy diagnostic testing and a European leader in autoimmune diagnostics. With these added capabilities, we will have access to new, large, high-growth, and underpenetrated markets. The transaction significantly enhances our specialty diagnostics growth platform, resulting in great opportunities to drive innovation and market leadership. From a financial perspective, Phadia is a high-growth, high-margin business, and the transaction is immediately accretive and accelerates our adjusted EPS growth rate. When you add it up, the transaction is perfectly aligned with our acquisition strategy, which is based on strengthening our strategic position, enhancing our customer offering, and creating significant shareholder value.
With that, I'd like to open up the call to questions. Operator.
Once again, ladies and gentlemen, in order to ask your question, please press star then the number one on your telephone keypad. Our first question comes from Quintin Lai of Robert W. Baird.
Hey, good morning. This is actually Madden for Quintin. Congratulations on the deal.
Thank you.
Thanks.
Marc, this is kind of the first deal of size since Broms within specialty diagnostics, and I'm just kind of wondering if you could walk us through a little bit more, you know, the opportunities here. It seems as though Phadia had a lot of focus, you know, Europe and Asia-Pacific, but opportunities for adoption that you see as you look at kind of U.S. opportunities and then elsewhere as well.
We're very excited about the addition of Phadia to our specialty diagnostics business in Thermo Fisher as a whole. When you look at the opportunities for growth, the business has got nice momentum in the U.S., but blood-based testing is still in the early days of adoption here in the U.S. Roughly, of the $500 million U.S. market for allergy testing, about 20% of it is blood-based testing, and about 80% of it is skin prick testing, and blood-based is continuing to grow very rapidly. We see a good opportunity in terms of penetration in the U.S. market, and certainly, that's an exciting growth driver for us.
Thank you for that color. I know a lot of people are probably on the queue, so just one more from me. There's been a wave, you guys have been kind of active on the M&A front. I don't know that, given Dionex just closed, if there's any commentary just either on how things are progressing with some of the deals that have come through and future capital deployment, any comments there? Thank you.
This has been a really exciting week for the company. We closed Dionex over the weekend, and we had our day one this week, and things are off to a wonderful start. I had the chance to meet the team out in Sunnyvale, which was the legacy Dionex headquarters and their main site for ion chromatography, and people are really excited. Our colleagues are chomping at the bit, and we're off to the races there. That's really good. Obviously, we're looking forward to welcoming the Phadia team to Thermo Fisher when the transaction closes.
Your next question comes from Marshall Urist of Morgan Stanley.
Hey guys, good morning, and congrats on the deal. Marc or Pete, maybe you could just walk us through how you think about ROIC on this deal and what the hurdle was, and as we think about where is that going to be by year two or year three?
Marshall, thanks for the question. When you look at the acquisition, the first thing is we look at our criteria, and Phadia is an excellent fit with our criteria, which is strengthening the strategic position of the company, clearly giving us access to good growth markets. Second, expanding our offering for our customers' benefit. Third, creating shareholder value. When you look at shareholder value, this deal is clearly above our hurdle rate, which we use as about 10%. When you look at it, obviously, it's very accretive immediately. We feel good about the economics of this transaction.
Okay, thanks, Marc. Maybe as a second question on the strategy here, can you just help us to understand a little bit more about the channel, you know, in terms of what's driving this market on relative, kind of the relative contribution of the direct physician office channel in terms of driving, you know, conversion to blood-based testing and kind of how much of that is already in place in Phadia? What portion does Thermo really bring to the table in terms of the kind of U.S. distribution channel on the kind of lab and maybe hospital side and less on the physician office side?
Right. You can think about the model in the U.S., Marshall, as you have a clinical marketing organization that generates primary demand with the doctors, with the pediatricians. That is something that Thermo Fisher will benefit from because there are other things that we have in our portfolio that those clinical marketers over time can actually generate demand. In terms of how this will, you know, how the combination will benefit from our channel, it's going to be really in two areas. One is we have strong relationships with the actual labs that are doing the testing already, and that's obviously a positive from an efficiency standpoint. Then, over time, as autoimmune enters the U.S. market, that's something that clearly can leverage our channel in a major way, as that would be something right up the alley of our channel business.
Gotcha. Just to be clear, though, the biggest piece of growth here is that conversion at the physician level rather than necessarily availability of blood-based testing for allergy at a lot of reference labs or smaller hospital labs.
It's really getting the doctor to prescribe the test, because once the doctor makes that decision, there's ample install base in the U.S. to run it. This is about, it's actually generating a medical practice, and they've done a great job. The business is growing in the U.S. the last three years over 20%, and the outlook is very strong.
Great. Just one last one from me. Pete, the 2012 accretion number, could you break that down for us in terms of how much of that is tax rate versus cost versus kind of incremental return on revenue synergy?
Sure. If you look at the accretion, it's basically split 75%, which is just the standalone operations of the company, and then about 25% from operating and tax synergies, and then the operating and tax synergies are split about 50/50.
Okay, great. Thanks for taking the question.
Thanks, Marshall.
Your next question comes from Doug Schenkel of Cowen & Company.
Hi, good morning.
Morning, Doug.
Pete, let me start with a financial question for you. The last financials provided by Phadia, I believe, indicated that they had over $1 billion in debt. What was the debt number at the time of the deal, and how's that being treated as part of the $3.5 billion in consideration?
The numbers are pretty comparable to what they last reported, and we will be paying down the debt upon close, refinancing it with our own debt.
Okay, and that's built into the $3.5 billion?
Yes, that's in the full consideration, yes.
Okay. Components of debt versus cash for you guys, based on the ratios you provided, it sounds like it's about $2.5 billion in debt. Is that in the right neighborhood?
No, it's about $500 million of cash and around $3 billion of debt.
$3 billion in debt, okay. You got a couple of questions already on M&A strategy. Just to be clear here, while your balance sheet and cash flows look to be very sufficient to do additional deals, you're integrating two fairly big assets currently, or you will be over the next year. Could you do more deals of this size over the next 12 months? If so, is it fair to assume they're unlikely to be in separations or specialty diagnostics?
We're thrilled, really, to have both Dionex as part of the family and soon to have Phadia coming into the family because they really are compelling transactions that fit with our strategy. Obviously, we look at different things because of our footprint as an industry leader, and we have financial capacity, we have management capacity, but we're very, very focused on making sure we deliver the return that we've committed to our shareholders here.
Okay. And one last one. You know, you talked about the margin profile of Phadia, which remains pretty impressive. You know, when you look at how they've been tracking, if you just keep growing this business for the next couple of years at the same rate it's been growing the last few years, you're talking about a company that could do $650 million in 2012 sales with gross margins in the 80% range and operating spend of probably about $300 million. Keeping that in mind, $10 million in synergies was at the low end of the range of what I would have expected. Is this because you guys don't want to alter the sales footprint of the business given how well they've been doing? If that is the case, are you expecting to funnel more products through their infrastructure, which actually could create the potential for sales synergy upsides?
When you think about the fit here, this is a very complementary business, but there's also not a lot of overlap with the business. There are some obvious cost reductions that are going to come out, including overlapping G&A, as well as they have standalone costs. As a private company, they had fees to private equity and so forth. There are some costs that are going to come out, but revenue synergies, which are going to be significant over time to accelerate growth here, that takes time to actually get going. You're really getting your revenue synergies in year two. It's just a matter of you got to train people, you got to get call patterns, you got customers to make decisions. You don't get super fast synergies on the revenue side. That's how you get 10 of the 35 in year one.
Okay, thanks for taking the questions, and congratulations.
Thank you, Doug.
Your next question comes from Peter Lawson of Mizuho USA.
Pete, I missed your comments about debt. What was the amount of debt that Phadia had, and what's the rate on your $3 billion of debt?
I didn't talk about the rate on our $3 billion, but we're assuming around 3% on the debt. There's $500 million of cash and around $3 billion of debt, and Phadia's debt's a little over $1 billion that we'll just pay down just upon close.
Perfect. Just around the process, how did the transaction transpire?
Peter, we've known, each company has known each other for a long time, have had dialogue over the years, and in recent times, that dialogue really picked up, and we got into an exclusive period of discussions to lead up to what is an incredibly exciting day for Thermo Fisher and Phadia today.
Was that a bidding process?
No, this was a negotiated transaction between two parties.
Awesome. Thanks so much. Thank you.
Your next question comes from Amit Gala of Citi.
Hi, good morning. Marc, I wanted to, can you go into a little bit more detail about the U.S. market and conversion from skin prick testing to blood-based? At the doctor's office, it is pretty straightforward to go through skin prick testing. Can you talk about how that transaction or the transition is going to actually take place?
You actually should think about this as a complement to skin prick testing. Obviously, skin prick testing happens at the allergist's office, and the majority of the blood-based testing happens at the pediatrician or primary care physician. The way that this happens is you educate the primary care physician or the pediatrician about allergy. They get a patient that's demonstrating symptoms, and they prescribe a test. That test can help rule in, rule out things. They make a medical decision about whether they have enough information to tell the patient what to do, or they will take that blood test and refer it to an allergist. That's typically how it works.
I'm sorry, go ahead.
Keep going.
I guess sensitivity and specificity between skin prick testing versus blood-based testing, are they equivalent?
You know, I'm not going to make any claims from the equivalency, but we've seen extremely good adoption because of the clinical relevance of the blood-based testing that's done.
Okay, and just a quick follow-up. In terms of the Phadia allergy business, can you just split out what percentage of that is point-of-care versus lab-based and just talk about the economics between the two for the company? Thanks.
Point-of-care is primarily a Japanese application, and the economics are not particularly different for the business. It's primarily, the majority of the allergy is an instrument reagent business.
Okay, thank you.
You're welcome.
Your next question comes from Jon Wood of Jefferies.
Hi, Jon.
Hi, this is Brian Tanquilut in for Jon this morning. Marc, how would you characterize the competitive environment in allergy? I believe the primary competitors are Siemens and HyCor, and we've heard that Siemens may be competitive on price. Just curious how you'd characterize the dynamics there.
Yeah, you know, in allergy, Phadia has a very, very strong market position globally, continues to do well in expanding the business, has a unique commercial and marketing approach, and is extremely competitive. They've always paid attention to the competitors to make sure that they have a great position. We will as well. I feel confident about the market position for Phadia.
I believe Phadia utilizes a reagent rental model with the ImmunoCAP instrument. What is the CapEx profile of the asset, and is the working capital profile dramatically different from the core Thermo profile?
Pete, do you want to start?
Sure. The working capital percentage is a little bit higher than our metrics. In terms of CapEx, they do have some amount of reagent rental. It runs around $50 million a year, so a little bit higher as a percentage of revenue, again, than our company.
Okay, great, thank you.
Your next question comes from Sung Ji Nam of Gleacher.
Morning.
Hi, thanks. Morning. Thanks for the questions. I'm not quite familiar with, obviously, the company. Could you maybe talk about when, you know, if these products are FDA approved currently and, you know, how long they've been, I guess, commercially available just globally or in Europe?
Yes, these products have been on the market for 30+ years globally. In terms of the U.S., they are FDA-cleared products, and they have a very good market presence. I don't remember the exact dates of clearance, but they go through an FDA clearance when they bring out new products.
In terms of the U.S. market for allergy testing, as well as autoimmunity diagnostics, how much physician education do you think is necessary, and what kind of role would Thermo take in that? Is this pretty well established, or is this gaining traction that Thermo should benefit from? I'm just curious as to what kind of capabilities you currently have in terms of maybe even Salesforce facing the allergist and pulmonologist offices to primary care, and how you might be able to roll this out in an effective manner.
You know, one of the things that's interesting because of our strong channel business in the U.S., we know the diagnostics business incredibly well and all of the various capabilities of the industry participants. We think Phadia has by far the strongest clinical marketing capability for generating primary demand in the industry, and that is a leverageable asset. We think it's an incredibly unique, incredibly talented group of people. It's something that over time we will leverage that capability to drive more growth. It's really, really a fantastic thing we're adding to Thermo Fisher.
Great, thank you.
Sure.
Your next question comes from Tycho Peterson of JP Morgan.
Hey, good morning. A number of my questions have been answered, but you mentioned in the slides their unique marketing model. Can you just elaborate a little bit more on what was unique about what they were doing?
The unique, and it was part of the comment I was just making, the unique aspect is that they have almost 200 people in the U.S. that are calling on physicians and pediatricians to generate primary demand for these tests, and that is a very, very strong capability, very talented people. The only thing we can leverage further with additional tests is they can generate demand from doctors, which is terrific. That's a really unique aspect of the model. At the same time, the autoimmune business is going to benefit from our channel, and the entire Phadia business is going to benefit from our leading scale and presence in emerging markets. This is a really good complementary fit commercially.
You touched on some of the aspects of the U.S. market. Obviously, 20% is blood-based, but to get higher conversion there, it sounds like you weren't willing to comment on sensitivity and specificity. What is going to be the key driver to get that north of 20%, and can you talk at all about the relative economics versus skin testing?
Sure, the economics are very compelling on the blood-based testing. It's a much lower cost to the healthcare system to do blood-based testing. That one is very straightforward. This is about physician education. We've done our studies of doctors' ordering patterns and things of that sort, and basically, there's a period of time where doctors get familiar with it, and you just see them be using it more and more in their practice. We feel good about the growth prospects for the U.S. penetration of blood-based testing.
Okay, great, that's it for me. Thanks.
Thanks, Tycho.
Thanks, Tycho.
Your next question comes from Isaac Ro of Goldman Sachs.
Hi, good morning. Thanks for taking the question. Hey, Pete, on the transaction, are you guys using overseas cash for the cash portion of the transaction, and could you maybe comment on how this changes your plans for buyback pacing throughout the next year or two?
Yeah, we do plan to use some amount of overseas cash as far as the cash portion of the deal, which, as I said, is around $500 million. In terms of buybacks, this wouldn't materially impact our previous guidance, which was that we would utilize the existing authorization that we have that has around $700 million left through its expiration in February of 2012.
Great. If we look at the debt that you're retiring on Phadia side, are there any fees associated with paying that off early? Secondly, on your leverage ratio post-deal, can you remind us if you have any outstanding debt covenants in place?
In terms of the fees on the debt, to be honest with you, I don't know the numbers. They're not significant if they exist. In terms of covenants, the only thing we have a covenant on is our revolver, and we don't break that covenant with this leverage ratio.
Got it. Okay, and if I could ask one more maybe on just the two areas in which Phadia plays, allergy and autoimmune, can you give us a sense of relative market share concentration in those markets?
In terms of allergy, you can think about Phadia having north of 70% share globally. In terms of autoimmune, they're clearly a leader in Europe, but significant opportunities as those products get regulatory approval in other parts of the world.
Got it. Thanks so much.
Sure.
Your next question comes from Ross Muken of Deutsche Bank.
Hi, good morning, guys.
Morning, Ross.
As you think about this transaction in the context also of what you've done with Dionex, it's been a major reshaping in the business the last six months. Marc, you've been in the seat now as CEO for quite a bit. As you think about what the asset now looks like post-deal versus the asset you inherited, how do you feel like you've sort of made your print on the business, and how do you feel like the growth profile on a longer-term basis or margin profile has sort of been augmented?
You know, it's really our 37,000 employees that have made a remarkable imprint on the business and shaping it for a bright future. Together, what we have done over the last couple of years is continue to position the company for accelerating growth, expansion of our operating margins, and of course, focusing on driving our primary financial metric, which is our adjusted EPS. I think the actions we've taken together have been really major steps forward. If you break it down in detail, the company's had a big focus on Asia-Pacific, big focus in terms of R&D and new products, and I think everyone on this call is going to be very excited about what they see at ASMS in a couple of weeks. It's quite compelling. I'll leave it at that.
We've been building out the portfolio with really excellent businesses with Dionex and with Phadia becoming part of the business, as well as some smaller bolt-ons. When you look at that combination, the business has got a better growth profile. It's going to have higher margins, and it's going to have a very strong adjusted EPS outlook.
Great. Maybe quickly, on the transaction, you talked a little bit about the history and that it was a sole negotiated deal. As you think about sort of, we're getting to like a 12x synergized EBITDA number. If you think about that in the context of other transactions you guys have embarked on and how you think about that relative to what else is transpiring in the market that you've been involved with that maybe we haven't seen, how do you feel like the value you've gotten for the growth and the margin profile here stacks up versus how other transactions in the market have been printed?
I think that this deal is very, very strong and compelling from a financial perspective. This is an incredibly strong business with very good growth prospects, with very strong operating margins, and that business gets even better as part of Thermo Fisher . When you look at it, you know, this is one that we think is a great fit, a great return for our shareholders, and it's one that we've been courting for a long period of time, so it's one that we feel great about.
Great, Marc, and congrats to everyone again.
Thank you, Ross.
Our next question comes from Paul Knight of CLSA.
Hi, Marc. What do you think the ideal level of geographical sales would be with Phadia relative to now?
That's a great question, Paul. The way I would think about it, if you take a five-year perspective, you'd get to a more normalized opportunity in the U.S., which typically might represent 35% or so of the total, maybe as much as 40%, and then you'd see emerging markets become a meaningful portion of the pie as well. Clearly, Europe's going to continue to grow. Japan's going to continue to grow on a revenue basis, but probably going to shrink as the mix where you'll see higher growth in the U.S. and emerging markets.
Pete, what was the level of R&D at Phadia as a percentage of sales?
You know, we don't have the numbers totally nailed down yet because they report on IFRS and obviously report on GAAP, but it's significantly above the company average.
Mid-single digits is roughly where the R&D is.
Okay, thank you very much.
Operator, we have time for one more.
Our next question comes from Derik de Bruin of UBS.
Hey, good morning.
Hi, Derik.
Morning.
Hey, a couple of questions. I'm not familiar with the technology that is being used here for this testing. They have a 5,000 instrument installed base. I guess the question is, is there other tests that you have that are compatible with this technology that you can basically expand the menu with things that you have there, basically to make it even a more attractive platform for physicians, for hospitals?
Sure. This is an immunoassay methodology. The technology, they have a wide range of instruments for that technology from low volume to very, very high throughput. Yes, you can imagine putting some other specialty assays on this. Obviously, you're going to have to get regulatory approval. You're going to have to do the development work.
Right.
They've done it successfully by adding autoimmune to allergies. You think about it, they have this large business in allergy. They got into autoimmune, built out a nice franchise leveraging the same detection technology. One of the things that we believe is that our biomarker business over time will explore opportunities to leverage that large installed base.
Great. Just out of curiosity, what are the reimbursement differences in terms of you doing a skin test versus an in vitro diagnostic test?
In terms of typical cost, you're talking $1,500 to a couple thousand dollars for the skin prick panels, and you're talking in the, you know, a couple hundred dollars for the panels for, you know, if you do a fairly wide range of blood-based testing from, and this is, you know, at the reimbursement level, but it depends on how much you're obviously doing, if you're doing it now or abroad.
Great. Great, thanks.
Great. Thank you very much for joining us today. We're obviously very excited about the combination of Phadia and Thermo Fisher Scientific. It's another step forward in executing our strategy to position the company for an incredibly bright future and accelerate our adjusted EPS growth. Thank you.
Ladies and gentlemen, that concludes our conference for this morning. We appreciate your time. You may now disconnect.