Ready to go? Great. Well, welcome to the 45th Annual TD Cowen Healthcare Conference. I'm Dan Brennan, Head of Life Science Tools and Diagnostics. Really pleased to be joined on stage here with Marc Casper, Chairman and President of Thermo Fisher Scientific. Marc, welcome once again to the TD Healthcare Conference.
Dan, thanks for having me. And great to see so many colleagues, investors, friends, all in the audience today.
Great. So in 2024, Marc, it was good to see the life science industry modestly improve through the course of the year. It appears in 2025 things are likely to see ongoing progress. With Thermo Fisher posting good fourth quarter earnings and 2025 financial guidance, it would be great to have you kick it off with kind of a State of the Union. So how did 2024 play out versus expectations? How did Thermo Fisher adapt to the market conditions? And how are you framing out the guide and the key drivers for this year?
Yeah, so, Dan, when I think about last year, I'll try to frame how the market's evolving, how did we perform, what's the setup for 2025, and then we can field all the questions about the short-term environment that we're navigating as well, so I think backdrop matters, right? 2023 was a difficult year for the industry. What we said at the beginning of 2024 was that the markets would improve sequentially every each quarter. What was implied in our guidance was the markets would be down slightly for the year, that we would continue to gain share, and what was really positive, and actually 2024 was a very good year for the company, what was really positive is that it was pretty much a noiseless year. The markets recovered throughout the year. The markets returned to growth. We were able to raise our guidance throughout the year.
I'm proud of what the team performed. We ended with a fourth quarter of 4% organic growth, 8% EPS growth, and really set our company up with great momentum. We had an active year of capital deployment. Really, the strategy continues to drive really strong performance. As we went into 2025, and with that performance, really very muted stock price performance, right? As you get into 2025, what we said is continue to expect the markets to improve, that it would be low single-digit positive market growth, that we would effectively grow organically 3%-4%, continuing our share gain momentum, and that because we're still in a recovering market, that we were going to focus on delivering really strong adjusted earnings per share growth, right?
And we signed up for, as in our guidance, 6%-8% growth and basically manage the P&L strongly so that we would deliver excellent results irrespective of the pace of the market improvement. Not that we're expecting that to be different, but that was something that we believe would be differentiated. And the stock reacted very positively during the course of January because, one, the markets are improving. Two, that we have the levers to be able to drive really strong earnings performance, right? So that sets up the year ended on January 31st. Thumbs up. It's been a very volatile February in terms of not performance, not in terms of our outlook or perspective, but the headline risk I know is quite overwhelming in terms of each day. There's something that is new.
As I think about 2025 today, we're incredibly well positioned to navigate what the environment is. I feel good about our outlook for the year. Let's talk about the details of it. In a certain respect, sometimes it's good to put the paper away, which I did this morning, or turn off the phone because there is a lot of volatility out there that just has to be thought through. Nonetheless, we're in a great position.
Great. That's a great opener, Marc. So kind of as a segue to that, the Trump administration is proposing a substantial amount of policy. In the last four weeks, we've seen a number of announcements for the life science tools industry. Specifically, the policies most relevant are potential tariffs, Canada and Mexico, China, restricted exports to China, and then obviously the potential cap on NIH indirect costs. So as you reflect on what's been announced, are there some high-level insights, excuse me, that you think investors should think through and any thoughts on how these policies could impact Thermo?
Yeah. So now we sit in the environment today, right? And I think the first premise, which I think doesn't come out clearly, is that we're in an administration or a period of time in the U.S. that is trying to be more business-friendly and trying to put the economy on a long-term sustainable path, right? So relative to the environment that we've been navigating, that's quite different in terms of what the priority is and likely less regulation. Again, quite different. And that creates confidence, right? That's sort of the macro backdrop. And then there's an enormous number of policies that have been executed or announced over the first month.
If you go through them and think about it, first of all, as a company and as a management team, we've navigated. I think we've seen something of everything over the past 24 years that I've been at the company. Stephen, our CFO, of similar duration, as is the broader management team. We've managed the company through the upswing of the pandemic, the downswing of the pandemic, the global financial crisis, sequestration, you name it. We've kind of managed through it. I look at this today and say, I'm excited, actually. I think there's amazing opportunities and there'll be some good intellectual challenges. If I start with NIH and government spend, right? If I think about that, I'm sure we'll talk about academic. It is not a huge direct driver or indirect driver of the business.
Probably low single digits of our revenue is affected by it. And with any change, there's always opportunity, right? And we'll talk more, I'm sure. But it's one where we'll help our customers navigate that. And we'll also educate the administration on sort of the importance of the academic markets. On tariffs, if I think about the three major geographies that are in the focus areas, in terms of China, we don't export much out of China. So the tariffs there don't pick up a lot. It's more what are the reciprocal actions that sort of would be the thing to pay attention to, of which we really don't know. The first wave of reciprocal actions really don't have much effect on us, but we'll see how that plays out. And then Canada, not significant, we'll navigate through that. Mexico, a little bit devil in the details.
We have one facility in Mexico that's a sister facility to U.S. capacity that we can pivot back and forth and maybe some lag in time depending on how the rules are and what the duty drawbacks exist. So we'll figure that one out. But at that point, I think we have a rough handle on how we would handle the environment that we're in.
Great. So yeah, so let's jump on academic and government. We'll start with that first end market, and then we'll kind of move through your other end markets. So give us a little more flavor, if you would, on the global view of academic and government demand as we look back at 2024 and in the fourth quarter and kind of how are you kind of thinking this plays out in 2025?
Yeah. So we had a strong year of performance. We ended with high single-digit growth in the fourth quarter in academic and government globally. We actually saw strength across all geographies, right? Whether it was Europe, North America, Asia, really quite strong finish to the year. I always think it's helpful to think about what's the long-term historical and likely future trend for academic and government. It is a low to mid-single-digit growth market long-term. That's the true dance. Sometimes a little bit higher, sometimes a little bit lower, but that's really where it reverts to the mean. So when I think about the environment today, if you look at NIH, you have a little bit of uncertainty, right? Which is right now the indirect cuts that are being proposed, which is basically changing a reimbursement rate for academic institutions, is being proposed to be reduced.
It affects different institutions at different magnitudes. That's in the courts right now so that those executive orders have been put on hold. We'll see how that plays out. What the administration's policy is today is to redirect any savings to additional R&D funding, so obviously devil in the details there, but what it really is right now is a reallocation, and I've had enough dialogue to know that that's what the intention is. That doesn't mean it won't change, but it's really about redeploying to highest impact research efforts, so the way that I think this plays out in this period, you'll see some level of customer caution in the academic environment at certain institutions in the U.S. as there's less certainty about do changes affect historical grants, does it affect only new grants, what does the rate mean for me.
So there's a lot of that sort of unknown. And therefore, I think you'll see some level of caution. Interestingly enough, I was looking at the various academic institutions. I get kind of a weekly report on sentiment within our own business. And several of the major ones have come to us and said, we'd like to consolidate more share with you, right? So they have understood the trusted partner status that we have. And they say that we trust you, that you can help us navigate any of the uncertainty. And therefore, that's actually a share gain opportunity at some, which is good. And I think there'll be some level of headwind as this gets sorted out in the short term. But given the percentage of our total revenue, it's something that we'll navigate through and we're well positioned for a strong year in academic and government.
Great. Thanks for that. So moving over to pharma and biotech, obviously your largest market. So kind of talk through the progress that you made kind of in 2024, frame what the outlook is for this year. And particularly, you did cite some encouraging comments regarding large pharma and biotech on the fourth quarter earnings call. So maybe flesh that out.
Yeah. So when I think about pharmaceutical and biotech, right, it's our largest customer set, a little under 60% of our revenue. We are involved from enabling the early research to a scientific idea through the designing of trials, executing the trials, developing the medicines, giving them the technologies to produce the medicines, or producing it for them in-house. We literally can run the suite of capabilities from an idea to a commercialized medicine. And with that, we have developed a trusted partner status that is truly unique, right? And if I think about that, and I mean, what a company says is they don't have a strong customer relationship. I think everyone says that.
But the level of integration we have with the executive teams of our customers and the frequency of communication has put us in an incredible position and has allowed us to gain meaningful market share over a long period of time. And that has been the reason why it's now about 60% of our revenue, is really because of the exceptional growth that we've been able to deliver. Market conditions improved during the course of the year, right? There was a large headwind of the rolloff of the vaccines and therapy-related activities, mostly in clinical research and in production. And for us, we were able to have a normalized growth in the low single digits that improved throughout the course of the year. And we're well positioned to have a strong year in pharma and biotech. Then you get down to the actual dialogues. What's the tone?
You talk to the large pharmaceutical company executive teams. Wow, there's a lot of excitement. Excitement on the science, health of pipelines, and GLP-1s has had a profound impact, but it's not about the GLP-1s. It's that if you bring out a relevant medicine that meets an unmet healthcare need, you can scale it at an incredible pace, get reimbursement around the world, and basically hugely impact human health, and there are so many other diseases that companies have taken confidence that the dream is truly alive in this industry in terms of what the possibilities are for great products, right? Great new medicines that meet unmet needs, so the tone is incredibly positive, and the challenges that that industry, our customer base, has gone through is largely behind it, right? The adjustments to IRA, the adjustments to portfolio, those things that happened, right?
And the confidence that we're growing R&D spend. We're seeing molecules progress. I'm quite excited about the state there. Biotech is better, especially if you have data and making progress, you're accessing funds. If you're a company that went out to market at a very high valuation and you haven't progressed, it's a tougher time. But certainly, biotech confidence is improving and that bodes well. And we have very strong relationships there as well. So I feel really good about the long-term growth prospects here. Over time, that will return to a high single digit plus type growth rate for us in terms of our organic position in that market.
Great, so we'll stick in pharma and biotech and we'll kind of dig in a little bit on clinical research. So last year, there was a lot of noise in the CRO market regarding potential impact from cancellation rates, pipeline rationalization, which you just alluded to. In 2024 and the fourth quarter, you guys had strong performance in that business, so just give us some color again specifically on that part of the business, how it evolved through last year, how you see it playing out this year, and if you could touch upon the accelerator solution, which I think you've begun to discuss more now, certainly with investors, and how that might be contributing to the performance relative to peers.
Yeah. So if you think about the clinical research business, we're one of the largest CROs. And last year, we delivered low single digit organic growth. So we had very strong performance relative to others. We had good authorizations momentum in the latter part of the year. And that bodes well for the future. As you look at where the CRO industry is in its cycle, right, it lags the upturn that you've seen in some of the other segments, bioproduction, some of the research tools. So you'll see lower growth in the first part of 2025 in that part of the industry. You'll see that it's embedded in our numbers, but that improves as the year progresses and should be well positioned for 2026 just based on the cycle.
It is your lagging business, which is in a way why it helped prop up growth over the past year and effectively will return to that in 2026, so when I think about our competitive position, we are doing incredibly well here, right? We launched Accelerator Drug Development, so what is that in the essence? It is taking the insights from having the physical development and manufacturing of medicines and handling all of the physical aspects of clinical trials with all of the execution of the clinical trial itself. We're the largest of the contract manufacturers and we're a top three clinical research organization. We've spent over three years looking at optimization points to shave time out of that process. We had a hypothesis when we acquired PPD that that would work. That hypothesis has been validated.
We've done over a hundred projects with customers where we've been able to leverage those capabilities. And we went out broadly to market it, if you will, as a capability. And the customer excitement here is huge, right? Because if you can shave a month out of a multi-year process, it changes the NPV for developing a drug, right? That last month of extra exclusivity is hugely valuable to a customer. If you can shave a month out and be the first to market versus second to market, profoundly different results for your customers. So we are winning really strong business and our customers love the capability. And it's super exciting because it's not something anybody else can replicate, right? These things don't come randomly. It comes out of years of hard work of optimizing.
That's why our CRO and our CDMO are so well positioned for continued share gain.
Great. So maybe we'll just jump into the CDMO side and Patheon. Maybe give us an update there. Similarly, 2024, kind of what's embedded for 2025. And it'd be helpful if you can update us on the transition from COVID-related work to other areas. Finally, competitive landscape, do you see any changes following Novo's acquisition of Catalent?
Yeah. So Dan, when I think about the second of our service business, it is our contract development and manufacturing capabilities through our Patheon brand, right? We are the market leader in sterile fill-finish, which is taking an injectable medicine and putting it in its final dosage form. You really need to have very deep technical skills to do that well. And we have high market share because of it. We played a large role in the pandemic, right, in terms of the vaccines in that regard. And I'm very pleased that we've been able to pivot all of that demand to new contracts across multiple classes of medicines that effectively takes 100% of that capacity, plus has given us the ability to add additional capacity, which is coming online in 2025 and 2026. So we've had incredibly strong demand because of our capabilities.
And it's global in nature, right? We're doing it across our sites in Europe, North America, as well as in Singapore. And that business is well positioned for strong growth. When I think about the competitive dynamics, obviously, Novo Nordisk bought Catalent, which is a CDMO, and took the sterile fill-finish capacity where we're the market leader and took it offline. Effectively, it's not as a CDMO anymore, but rather in-house capacity and kind of run off the existing relationships over time. That bodes really well because it takes a node out of the capacity of the industry and we'll be well positioned to serve our customer demand because of that. So when I think about that business, performance matters. We have a good track record here. And that's a high single digit long-term growth business, if not better. And it's performed well.
We'll continue to look for opportunities to expand that business and grow it organically.
Great. So maybe shifting over to instruments. Your analytical instrument business delivered solid performance in 2024. You ended on the high note, right? Fourth quarter, 8% growth. Maybe give us some color there, like what's been driving the strong performance and kind of how do you see that business evolving this year?
Yeah. You've heard me say in different venues that we navigate environments well, right? When we say about what do we mean by that, right? It's obviously delivering short-term results that are differentiated and proud that we're proud of, but it's also about setting the company up for long-term success. During the pandemic, we doubled down on innovation in our instruments business, right? Had nothing to do with the pandemic, right? We were performing at a good level. We saw that a number of the other instrument companies were cutting back on R&D, and we put our foot on the accelerator. And what you've seen is a steady cadence of new product launches in electron microscopy and life sciences mass spectrometry and our core ICP-MS, which is an environmental application, and ion chromatography, also an environmental and applied application. We literally have been launching every quarter products.
The adoption has been phenomenal. The 8% growth last year in the fourth quarter, the 3% organic growth for the full year, and really quite muted market conditions, right? We were able to gain meaningful share and well positioned. That's a business that benefits when China strengthens, so in terms of 3% growth in that environment, the team has done a really good job. We're well positioned to continue to drive our share gain because our pipeline of products that we're launching this year, super cool actually in terms of what's ahead. I know that for those of you that listen to earnings call, there's always the three minutes I spend on innovation. It matters to our customers, right? It really does.
Customers want to know if they're spending hundreds of millions of dollars with us each year, that they are getting the very best products that make a difference to their work, instead of life's work, and where they trust a partner to do that.
Great. So you touched upon share gains several times throughout this conversation. Just wondering, kind of can you delve into kind of what's the playbook or what's something special about Thermo in terms of these sustained share gains, kind of just kind of point to where you've had success? Where do you think the biggest opportunities are as we look forward in share gains?
Yeah. So when you think about the power that the company has developed, consistent strategy executed over a long period of time, adjusting it on the edges to make sure that it's fit for purpose in the environments that we navigate. We're great at innovation. We have a unique commercial engine that can reach the world very cost-effectively, in person, digitally, AI-enabled now. And it's just an incredible way of commercializing our capabilities and a trusted partner status that is totally ingrained with our customers across the customer set, right? Whether it's large pharma, the biotech, academia, the large clinical reference labs. And we're continuing to strengthen that. So that's what's driven our share gain and why we're so well positioned to continue to grow above market for the years ahead. So it's really quite exciting times at the company.
And if I think about the different levers we have to pull to help drive growth in this environment, it's amazing in terms of the opportunity set that we have. So this will be a year for us to continually differentiate our performance relative to others.
So maybe let's flip over to cap deployment. You've had a great long-term track record. Maybe just give us a sense of how some of the recent deals have done, Binding Site, Olink, and now you've just done the Solventum deal, right? I think that was last week. So give us a little flavor there. And also looking ahead, kind of what's the pipeline look like? Maybe give us a sense on the size of assets, valuations, any key areas of interest.
So when I think about our capital deployment strategy, right, don't do bad deals, right? It's very simple to say. It's actually very hard to execute. We have a two-decade track record of not doing bad deals, right, and delivering on the return expectations that we set out for our investors, right? And if you think about PPD acquired in 2021, business is humming, right? We're gaining share. I highlighted on the earnings call at the end of January, the Binding Site, which was two years within the company, just crushing it, right? It's growing incredibly strongly, well ahead of the model, super happy customers, great innovation. When I think about Olink in the early days, it's great. I mean, we went in the UK Biobank study for that acquisition, which was just really six months after close, the largest human proteomics study.
But more importantly, the interest in that technology right now, I mean, our customers are totally excited about what we're doing across the world. And we live in such a fragmented industry. Solventum's purification filtration business, which we announced last week, is going to be a great bolt-on, right? It's meaningful in size. It's a $4 billion acquisition. It's very complementary to the capabilities that we have. We understand how it fits, how we're going to grow it, and generate really great returns, right? We're going to take a business that today is a modest growth business that is modestly profitable in terms of its operating margins.
We will be more profitable day one because our cost of running, a lot of the cost to stay with Solventum, is going to be lower and a very clear path of actually driving really strong margin growth while accelerating the top line growth. Even last week, post-announcement, having the opportunity to talk to a couple of customers about this, there's great excitement, right? There's a great excitement that we're entering a logical adjacency with the bioproduction and with a solid set of capabilities that we'll be able to build on over time. So that's the track record of thinking about what deals fit, how do you generate strong returns, being very comfortable passing on most things we look at because they don't meet our criteria, and when I think to the future, we have plenty of financial capacity, managerial capacity.
In a volatile world, this is a great time to be a buyer, right? Because our time horizons are longer, right? We don't need to optimize to the week, right? Our company's over 100 years old. We're excited for the long term. We're going to generate great short and long-term returns for our investors through our capital deployment strategy. We'll continue to be steady returns of capital, right? We've raised our dividend by 10% this year. We bought back $2 billion of shares. We bought $4 billion back last year. We'll continue to be a steady return of capital as well.
So let's maybe dig into the guidance for 2025, organic growth of 3%-4%. I think there's a one-point drag from COVID in there. So underlying ex-COVID 4%-5%. You're assuming really strong operating margin expansion, right? 90 basis points. It's double the expansion under normal conditions that you target. So can you speak to the underlying market conditions evolving through 2025? What's the opportunity to continue to drive share gain? And also talk about what are some of the key drivers for the margin expansion and kind of what's sustainable as we get beyond this year?
Yeah. So when I think about the ability to grow 3%-4%, what that implies, and it's about a point of headwind from the last of the pandemic unwind, what that implies is market growth around 1%-2% underneath it. So a continually slowly improving end market conditions. And I think we're well set up for that to happen and our ability to deliver that top line growth. So I feel good about that. What we do as a senior management team is allocate time, right? And we allocated time to driving margins this year. So we don't talk about it in savings targets or other things. It's disruptive to the momentum of the organization.
But we're incredibly disciplined about cost management, driving productivity, leveraging technology to do so that will allow us to be able to deliver margin expansion this year at about twice the rate of normal. And that'll translate into strong EPS growth. And I feel good about it, right? And we'll navigate what the environment holds. And if there's something wildly positive or wildly negative, we'll articulate it, right, in terms of if the market has changed. But at this point, steady as she goes.
Great. So the long-term formula that Thermo espouses, market growth 4%-6%, and you grow 7%-9%. We've got you realizing mid-single digit growth in the fourth quarter of this year. So slightly below kind of the long-term formula. So what has to happen for Thermo to get back into that 7%-9%? And how do you feel about the long-term formula as we sit here today versus when you first established it back in September of 2021?
Yeah. So then when I think about the progression of the market that we're assuming, it's going to get a little bit better each quarter, right? And as the exit rate, if you will, will be just below the normal market conditions if it plays out that way. And for the year, still not fully there, right? If the full year is in that sort of 1%, 2% type growth, we're progressing in the right direction. So I actually think it's not that long-term anymore in terms of the market growth being at normal. I'd say it more as a getting into 26-type environment. We'll see that as the year plays out and articulate it. But I feel good about that. And our ability to gain share, I feel incredibly confident on.
Great. So Marc, we covered a lot of ground here. We have about a minute left. You guys have a strong track record, good business orientation here. Just the stock really re-rated meaningfully since you offered that fourth quarter guidance, excuse me, since you offered the 2025 guidance on the fourth quarter call. But it has pulled back along with the rest of the tools group since then. So kind of what do you think the Street is underappreciating for Thermo?
Yeah. And I think it's a little bit of my opening comments, right, which is you get overwhelmed by the news. When you start to look at a company that has $100 million of annual revenue or even $1 billion of annual revenue, and you take any of the data points there and apply it to Thermo Fisher, you're going to get lost, right? I mean, we're incredibly well positioned to deliver very strong performance. And we're very focused on doing a great job for our shareholders. Nothing has changed in that regard. And I'm excited for 2025, right? This is a year that we're going to differentiate ourselves once again and set up for an incredibly bright future.
Dan, thank you.
Thank you, Marc. Thanks for being here.