We're pleased to be joined with me here on stage, Marc Casper, Chairman, President, CEO of Thermo Fisher. I'm going to first say thank you, Marc, for coming.
Of course.
Really appreciate it.
Great to be here.
Eileen Patterson, here in the front row. I thought, Marc, maybe you can just kick it off with some opening remarks, and then we'll go into Q&A.
Sure. Thanks, Dan, for having us. It's great to be back. I was telling Eileen on the way in, this was the very first investor conference that I ever did, which was back in 2002, and there was 3 people in the audience, and one of which was looking for a job. We've grown a lot in the company, and certainly Cowen, TD Cowen, has changed a lot over the years. That was not the most important message. In terms of the highlights, the company is a well-positioned industry leader. Our industry has incredibly strong long-term tailwinds, and we've been able to gain market share consistently over the last decade plus.
When I think about the company today, I think the thing that's super differentiated about the company is the relationships we have with our customers. It's funny, as folks were coming in, one of our customers, you know, kind of came sprinting down the room to say hello, knowing that we were here. That says something about sort of the relationships that we build.
Terrific. Well, you've been CEO now for, I think, almost 15 years. Over this period, I think, you know, inarguably, the performance has been exceptional. You've led the company through many different economic periods and environments. What, what strategic actions do you look back on as the ones that most materially, you know, strengthened the company's value proposition as a trusted partner to the industry?
Dan, I think the thing that really has differentiated Thermo Fisher is about culture, right? Actually, when we focused the company's strategy, it was all about success was on we do a good job for our customers, then we're gonna have a bright future. Right now, what company says we're gonna do a bad job for our customers, right? It's not the philosophy, but rather it's actually deeply ingraining that about how you recognize people, reward people, and what you have as important, right? When you do that day in and day out, you get no short-term benefit for that, right? That's the long game, right, of how you build a business. What that has translated to over time is our ability to expand our served capabilities for our customers.
If you think about how we serve the pharmaceutical and biotech industry, we started out as an instrument provider. We added all of the consumables. We added the channel, so we represent other companies. We were able to build out the, 1 of the largest contract developer manufacturers medicines. Today, we would be the 2nd largest clinical research organization as well. That's all because our customers embrace doing more with us, right? That they have a choice, right? They're choosing to do more with us. That's really been the thing that has set the company up for a flywheel effect of continually being able to grow more quickly, gain more market share, reinvest, and create a bright future.
Terrific. maybe looking forward then related to that, I shouldn't have put the questions down. how do you repeat the success you've had over that timeframe?
Yeah, you know, history is interesting, the future is more important. The things that, as I look to the future, one, we're much stronger today than we've ever been, right? In terms of the relationships we have, the capabilities we have, the differentiation, all of that creates wonderful opportunities to continue to grow the business at an industry differentiated rate of performance for the long term. When I think about the other aspects, and I'm sure we'll delve into it, the industry continues to be fragmented, so there's opportunities to build the capabilities through capital deployment as well. We'll continue to strengthen our offering both organically and inorganically. We have a great management team, so we're excited about what the future holds.
With 2022 now behind us, can you discuss the benefit in hindsight, how the year played out say versus original expectations? The industry did well. Many of the companies are here today. Thermo grew 14%. That even stands out in a really attractive industry.
Yeah. Dan, when I think about 2022, the year turned out to be just a spectacular year, right? The first thing is that the end markets were good, right? You can look across the industry and the end markets were definitely strong. At the same point in time, we were able to give a differentiated performance. I think the things that worked out for us, in particular was the integration of PPD went extremely well. It was our largest acquisition in our company's history. We had closed it in December of 2021, and it went phenomenally well. That business grew, in the, you know, in the high teens, from a core perspective. It was very strong.
The rest of the company grew at a very high rate of growth. It turned out to be a year where we were able to raise guidance throughout and, meaningfully beat the EPS number and invested very significantly for the future. We exit the year with strong order book, as well as a really incredible competitive position.
You know, from a high level, how does 2023 look, and what are some of the notable areas of opportunities and risk? I mean, in particular, what's the confidence in the 7% organic growth you guided to, particularly in light of the very tough comp that the company's facing?
Yeah. I mean, when I think about the 7% growth, right? You know, I like, you know, the whole management team, we're paid to create tough comparisons, right? That's what our jobs are, right? We have a tough comparison for this year. That's okay, right? When we think about the 7% growth, what we think about is that the markets that we serve revert to more normal conditions, right? 2021, 2022, there was definitely elevated growth. Our assumption is that market's gonna grow around 4%-6%. With that rate of growth in the market, we're well positioned to grow 7. If the markets continue like they continued in the previous 2 years, we'll grow well above the 7%.
If the markets are worse, if the economy turns down or something of that standpoint, then we'll grow lower. I think it's reasonable, from an assumption standpoint on the 4%-6% market growth to be able to deliver the 7%.
You know, from the deal environment. Sorry for the backdrop. Maybe I'll move over here. Go ahead, Terry.
Thank you.
We're talking about the Exactive Series. Probably in September of 2022, you and I had a conversation that you just do the math and look at when things were really bad outside of GFC, and it was -7%, +7%, which would argue you can grow revenue through another recession. Do you still subscribe to that way of thinking?
Yeah. Yeah. The question that Terry refined Dan's question on was really around if the economy gets worse, if you think back to the global financial crisis, what is the implications on the growth of the company? You know, every recession, I've been around long enough that I've seen, I think, three variants of recessions, they're all different. When I think about it, I think it's reasonable to believe that the company will grow through a recession. You never know, right? I don't mean that flippantly, which is, you know, if there's something that drives very different demand profile in pharma and biotech and healthcare, you know, you're not gonna grow.
If it's, you know, if I look at historical patterns, you're likely to be able to have modest growth in a, in a, in a very tough economic environment. Not foreshadowing that or anything, but just sort of how I think about scenarios out there for the longer term.
Sure. Stock prices in the industry are still down, you know, certainly from the 2021 and 2022 highs. Good time for acquirers, though obviously higher rates can dampen maybe some of the return profile. What is the environment like today, and can Thermo execute on a large transaction in 2023?
Yeah. Dan, I think this is a favorable M&A environment for the well-capitalized companies with a track record, right? Which is, valuations are down a bit. You know, the financing costs are up, it makes the return hurdles harder for the, you know, for certainly private equity and certainly for buyers that don't have the balance sheet or the track record. From that standpoint, you know, we have a competitive advantage, along with a couple others, in terms of the ability to be able to win contested sort of type transactions. We take the long view, right? We have not lowered or raised our return metrics over the last 20 years, right?
We didn't lower the m-return hurdles when the interest rates were near zero, and so we've been, you know, we've been operating in an environment where, you know, we know that we can do transactions. I'm excited about the bolt-on that we completed on January third, which is The Binding Site in the diagnostics field. We have a very active pipeline, right? I think there's some really interesting things we're looking at. In terms of the large deals, you never know. It's not about the ability to afford it's not about the ability to do them. You just don't control the timing. They happen when they happen. If the right large transaction happens, you'll see us do it, but those are every few years and it's not correlated with anything other than company specific, you know, is ready to be a seller.
Kind of the areas today that we would say are the key focal points from M&A for you, whether end market or type of product or capability?
Yeah. You know, from my vantage point, we have an incredible set of capabilities. I think a lot of the M&A is about building out the portfolio that we have today. We're pretty agnostic whether it's, you know, product or service, and we certainly, you know, have great capabilities in serving pharma and biotech, so that typically would be the area of focus. When there's the right diagnostic asset, you saw us buy one in January, occasionally we'll add there as well.
If you go back to your last Investor Day, I think the long-term plan, you set out to deploy nearly $50 billion in capital over the coming years. Are you confident you can achieve this level? If not, will you return more to shareholders?
Yeah. When we did our, you know, 3-year outlook, back in last year, you know, the $50 billion is something that the company can afford to do. We'll do that with one caveat, and I think the caveat's always implicit. We're not gonna do deals for deals' sake, right? We're gonna do deals that create shareholder value to strengthen the company strategically and are valued by our customers, right? I don't wake up saying, "I've got, whatever, $47 billion to go." It's not how I think about it, which is we give you a rough view of what is, you know, the right level of affordability. We have an incredible track record of actually doing more than what we say we're gonna do, but we'll only do the transactions if it makes sense for the company.
Yes, we would certainly return more capital to shareholders if we didn't like the M&A opportunities out there. I'm quite bullish about what the opportunities are, but you don't want me I have to be so committed to something that I do stupid deals to make a number.
The regulatory environment for M&A seems less friendly, less industry friendly under new government leadership. You know, how does that influence your M&A strategy?
I, forever you think about risks and transactions around antitrust, right? In different periods of time, you have less or more accommodating antitrust environments. That factors into what kinds of transactions you're willing to do or not because, you know, when you can either have a lengthy review or have an unsuccessful transaction. That informs what we do. You know, nonetheless, the market is so large and fragmented, there's much that we can do.
I feel like in the last, you know, 18 months or so, maybe couple of years, you've gotten more and more outspoken about Thermo share gains. I mean, you've always said you're gaining share, but I feel like it's been more pronounced. This has come up on certain, you know, quarterly calls and whatnot.
Mm-hmm.
Just what areas of the business are you gaining the most share in, and why?
Yeah. I don't know if I'm outspoken or maybe I am. I don't know. I think the practical side is I do like to read transcripts and what I've yet to find many that where teams say we finished the quarter, we lost share, right? There's a lot of noise out there in sort of how folks view their business. I've accentuated it because the facts are very clear that we've gained share, right? Trying to say it's not in the typical noise of putting a positive spin on everything. In terms of the where, right, obviously, our instrument business has performed very well in a good market, right? You look at it, the market's quite good, but our growth has been, you know, at the mid-teens, it's been very strong.
It's very clear that our channel business has done very well, the Fisher Scientific channel has done very well over a period of time. Bioproduction has been really strong. It's harder for investors to actually see it because it's within a segment, there's many other businesses in that segment, there we've grown faster than the companies that have reported for a period of time. That's done quite well. Then our CRO, which is young, it's only 1 year plus, the numbers have had a great first year as part of Thermo Fisher.
Great. Well, that's certainly a good transition to instruments, which will be a focus, I'm sure, at the conference.
Mm-hmm.
We do an LCMS panel later this afternoon, which should be interesting. As you mentioned, you know, it's about 15% of revenues broadly for that space, you know, grew mid-teens. It's about a 7% three-year stack. I think investors are definitely focused on what drove the upside, what drove the strength, and where do we normalize to in 2023. Just give us a sense of a little more color about what really drove that growth for you, and are you expecting a material slowdown in 2023 for yourselves or kind of what's the right zip code for that in 2023?
Yeah. Dan, thanks for the question. In terms of the instrument business, when I look at the outlook, first of all, you know, versus the 7%, you know, view for the year, the instrument business should be accretive to the 7% growth that we're outlining. We have good visibility to the first half. It is very strong based on the bookings that we had in exiting the year. What we've said, nothing's changing, and I'll answer the question from what we said back at the earnings call, is, we expect that the second half to be more moderate. We have less visibility into it in terms of that. That's how we thought about it.
A very strong first half, a little bit more moderate second half and, you know, above the 7% would be the rough guideline for the full year. Hopefully, that gives you a rough sense. The second half is an assumption, right? It's an assumption on, you know, because you have less visibility to the order book, so it could be better than that or, you know, I don't think it'll be worse. What drove it? You know, if I think we invested very significantly in R&D in 2020 and 2021. We preserved the R&D expenditure. We had great new launches in 2022. We have a very strong pipeline in 2023. Innovation matters in terms of driving growth.
Within the specifics of Thermo Fisher, our electron microscopy business is also growing very strongly. It serves material science applications. Things like battery technologies are big customers and next generation semiconductor is also a big customer set, and both of them have been very strong.
How about one quick follow-up there just on LCMS?
Sure.
You know, you have a huge.
Right.
there. Just any color on, you know, the past and then the future in terms of how we think about the 2023 setup for LCMS?
Yeah. You know, my innovation comments were primarily around the LCMS business. We had very strong launches, and we have a really exciting American Society for Mass Spectrometry coming up late spring. We're well set up for this year. That business is growing very well. It's growing above the average of the segment, so well positioned there.
Before we get into bioproduction, maybe just a high-level view on biopharma-.
Yeah.
-R&D.
Yeah.
Right? I know the last couple of years, there's been a lot of concerns on the emerging biopharma with what's going on with capital markets now with IRA. Is drug pricing having an impact on spending? Just what's kind of a high level view of pharma R&D, steady, worsening, improving?
Yeah. When I think about it's probably worth even saying one level above.
Mm-hmm.
which is, you know, what's our role in pharma and biotech, right? From our historical perspective, you know, our fastest-growing end market the last several years growing in the teens. Our expectation in the 7% assumption for this year is that growth moderates, which is nothing surprising there, but still be faster-growing segment than the average, right? It should be our fastest-growing end market in terms of that perspective. When I think about the R&D portion of the spend, you know, it's clearly growing. Our expectation is it isn't probably growing at the same rate that we enjoyed the last couple of years, but still seeing a growing end market there.
Is there any impact from, like, the fact that maybe it's not as robust? Is that just comps coming out of COVID? Is there anything?
I think it's more of the comp issue in terms of I don't think there's anything significant. I don't think the IRA has. I don't think the industry knows what the longer-term implications are. You can make a bull case or a bear case around it, in terms of how clinical trials are done and, which indications and so forth. I think that shakes out over time. I also think it's gonna be different by company. I don't think that's a next year or two thing that kinda has a big impact one way or the other.
Got it. Then you already addressed or brought up in terms of share gains, you know, the bioproduction business. We had that growing, and I forget if you said this, but I know, you guys give, you know, enough crumbs on your calls. You know, we had that growing about mid-teens in 2022.
Mm-hmm.
Excuse me, that was broader biopharma. Sorry. In terms of the bioproduction, obviously, a key debate has been this inventory issue, which you've been pretty steadfast. You guys haven't really seen it. Just maybe a little more color on maybe why you haven't seen it to the magnitude of others and/or what are you assuming in 2023 for maybe any modest inventory risks that you guys may have.
When I think about bioproduction, right? I think it's one where interestingly, if I look at how much investor dialogue across the industry is on this topic, I think a little bit of it is the super short-term view. If you take a look over the last five, 10 years, you know, the industry has grown hugely. You know, you can strip out all the COVID and all that. It's been a great sector, right? Of which we've grown our share and our competitive position meaningfully over that period of time. We're the industry leader in cell culture media and single-use technologies. We have a rapidly growing purification business. Really strong competitive position.
We've been growing in the pandemic period, not necessarily because of the activity with the pandemic, but also as the industry supply got tighter, we were able to pick up market share. We grew faster than others. It would be my take on looking at the numbers that have been reported. When I think about 2023 and what we said in our guidance call on February 1 was we expect growth to moderate, the first half being, you know, more modest than the second half where growth will be stronger. It is purely to do with comparisons. We had very strong growth in the first half of last year. That's the way that we're thinking about the end market. Long term, it should be fantastic, would be my expectation.
Okay. you know, when you think about within that 7-9, I'm sure it came up at the investor day, but did you bake in, you know, mid-teens, low double digit, any color about what the durability of this over the next, you know, beyond 2023 is for this business and, you know, Thermo's position?
Yeah. We, we don't necessarily do the bottoms up of every business. I mean, bioproduction for simplicity is about 10% of our revenue. You know, historically, it's been our fastest growing business. The kinds of numbers that you're talking about over the long term seems like a reasonable assumption.
Okay. A leading life science tools peer was cited in a recent press article to be interested in acquiring a leading CDMO. To the extent such a deal were to occur, what type of impact could this have on you and/or the market?
Yeah. So you really can't comment much on speculation out there. But what I would say is, it's a great market, of which we have been in it since 2006, right? There's a lot of knowledge about how do you operate a contract developer manufacturer, which, you know, we have, you know, more than 15 years of experience in doing it. It's, you know, if others want to enter, it doesn't change the dynamic in any meaningful way because you have to buy something that exists that would be a credible competitor. So, you know, for us, that business is terrific. I think our outlook for continuing to grow the business is strong. We're investing organically in terms of the capital to grow it. And we add inorganically.
Sometimes we buy smaller capabilities that are complementary to our business, and sometimes we buy sites from the industry as well. We'll be opening up, you know, capabilities this year at our large-scale biologics facility that we acquired from CSL. We're constantly building out the business, and there'll be more opportunity to deploy some capital to strengthen it as well.
Is there an opportunity for you to participate in further consolidation in the CDMO space? I mean, given you've got this strong position with Patheon or maybe from a market share basis, certainly Phil Fisher, I know you guys are pretty high or strategic fit. You think M&A, particularly on the CDMO space, is less likely for Thermo?
No. I think the way I would think about M&A in the CDMO space in a way would be how I would think about it in the CRO space. You would think about M&A to strengthen the capabilities. It's not about buying share. It's really about accentuating the strengths you have. Kind of bolt-on type acquisitions. Obviously for us, bolt-on can be quite large given our scale, but that's how I would think about it. We have an incredibly strong position there. You would just complement it with M&A.
Maybe staying on that topic then with PPD and Patheon, I know you addressed it on the call, but just remind us in terms of the 2023 outlook for each, and then how about from a revenue synergy basis? Like, where are we in terms of what you've been able to capture, and has it played out, in line better, worse than you know, kind of your expectations?
When we think back, we did the acquisition of Patheon in 2017 to build out our CDMO to complement what we have with Fisher Clinical Services. It's been a terrific acquisition, right? It's gone incredibly well. We've been able to scale the business. We far exceeded the cost and revenue synergies, far exceeded the deal model. Really super successful acquisition. It also gave us the confidence and the right to enter the CRO space, right? You know, our customers valued our capabilities that we brought, and we had plenty of time in the last few years to discuss whether expanding our service line to CRO would make sense and got confident that it would.
If I think about the revenue synergies associated with the acquisition of PPD, what we said at our last investor meeting was that we'll generate $250 million of revenue synergies in year 3. We feel good about the ability to achieve those. So that's tracking well. We've won significant work, right? So the authorizations required to generate that, we're in a good spot. There's not really risk to our ability to achieve that. I ultimately believe there will be revenue synergies that continue to grow meaningfully for our CRO in the years to come.
So maybe switching over to China, give us a sense, I know, you know, for the shorter term, your guide assumes weakness in 1Q and then recovery, I think to reach like, you know, 7% or kind of mid-single digit plus for 2023. Maybe a little bit of color on the puts and takes there, kind of what you're seeing today. There's obviously a lot of excitement about stimulus and reopening. Then how does it play into the longer term view? I think the way you've articulated in the past is China will be an above, it'll, you know, that market will grow above what it's historically, you know, what the company's growth rate is, but how much above do you see the potential?
Yeah. When I think about China, I think about, you know, historically fast-growing end market, you know, pre-pandemic for the industry and certainly for us as well. When I think to the future, I still think it'll be the fastest or one of the fastest growing end markets, although I think the gap will narrow versus others from that perspective. When I look at our assumption at 2023, right? Last year, we grew in the high single digits. The second half of the fourth quarter was disrupted because of the end of the COVID policies. Our expectation is that growth is muted in the first quarter as things continue to shake out, but that the balance of the year should be, you know, quite positive.
The stimulus programs around instrumentation look very encouraging and so I feel good about the ability to have good growth in China in the, during the course of 2023.
We have a few minutes left. you know, Thermo, I think is down a couple of % year to date. tools group, I think, might be down 5 to, you know, 10, but, you know, lagging the broader market. Last year, you were about in line with the market after 5 meaningful years of outperformance. What, you know, everything I'm hearing here today is, you know, long term, check, short term, check, competitive position, check. With the stock where it is today, like, what do you think the biggest, you know, maybe misconceptions are, if you will? Or, you know, what are people worried about, maybe they shouldn't be?
Yeah. I think the challenge that we have to do at Thermo Fisher is really just communicate clearly, right? Which is we definitely, in times of anxiety, suffer from irrelevant news affecting our stock price, right? We have companies with, you know, a $2 billion or $3 billion market cap that, you know, bombs out and our stock goes down, you know, $10 billion, right? You're looking at it and going, "Oh, that's a head scratcher," right? A lot of our job is just deliver good, consistent results day in and day out, do a great job for customers, gain market share, and that rewards our shareholders, right? That's on us. That's not on the, that's not on the investors. We just have to do a good job of communicating, answering the questions about some of the themes, right?
What I think about is we don't get a lot of questions, right, about resiliency of the industry and the particular resiliency of Thermo Fisher if you have a bearish view on the world, right? That's Terry's question, right? If you have a negative view, this is an unbelievably well-positioned company to navigate headaches, right? I'm not saying we're gonna have headaches, but if, you know, our peak to trough revenue changes are very minor, right, relative to almost any part of the economy. So the downside on how we operate is minimal, and we're very levered to, you know, the great science going on in pharma biotech and enabling it. We're quite bullish about the long term. I'm excited about the prospects, and our job is to create shareholder value day in and day out.
In, you know, in terms of COVID, obviously disrupted things. I mean, underlying organic growth remained really robust. You did an amazing job during COVID on the upside, and now some of the stated growth rates are obviously, you know, lower just given that comp. When you think about the confidence in reaching your long-term targets you laid out at the investor day, even with, how do you feel about those today?
Yeah. We feel very good about the ability to deliver the 7%-9% long-term core growth, and we feel very good about the mid-teens EPS growth. We've obviously grown much faster than what we articulated, in the, you know, in the investor day, so our business is bigger. The ability to deliver the top line and to deliver the EPS, we feel very good about.
Terrific. Final one. I went all in on Aaron Rodgers, but now I'm second guessing maybe Derek Carr. I don't know where you stand on this one, if you have a view.
As I always say that, it's good to have a distraction outside of work. The Jets are definitely a distraction. Makes work look easy all the time.
Great. Well, thank you, Marc, for being here. Appreciate it. Thank you all.
Thanks, Dan.
Okay.