Citigroup. Happy to have Waters Corporation with us for what is the last life sciences presentation of our conference. With me is Chris O'Connell. He is the CEO of Waters. Sherry Buck is in the audience, and then Bryan Brokmeier is also here. So thanks, guys, for being with us today. Happy to discuss the business. Chris, maybe we just start off with you making a couple of introductory comments so we can set the tone with that.
Sure. Great way to start. Thank you, Dan, for having us to the Citi conference, and it's always good to be here. Yeah, I'll just start off by recapping, especially for those of you who might be a little less familiar with the overall Waters story at this point. Just some high-level comments on how we think about the value creation formula at the company. We've been trying to be very clear and transparent and explicit about our five-point value creation model. I'll just tick through those five points pretty quickly to give you kind of my fresh perspective on each of those levers, if you will. First of all, what's important to Waters, and has been for some time, is a great consistency in our overall corporate strategy that is characterized by selective participation in structurally attractive markets.
I think, as most people know, we're a focused innovator. We tend to prioritize segments that have favorable growth and profitability characteristics. And certainly, a lot of those core markets, we feel really good about pharma, material science, clinical, biomedical research, and food and environmental. A lot of these market segment focuses for us are really driven by kind of what feels to be an increasing pace of innovation. And obviously, as a technology company that supports innovation, we think we're on the right side of that equation. And then, in addition, a lot of the trends that we see around the world in different markets towards rising regulation and rising standards of regulatory compliance also are important characteristics of the markets that we participate in and we're well positioned in.
We do have a leading position in a number of different segments, both in terms of the technology categories we participate in, the market segments, as well as the geographic segments. And I'd say the final point on just our positioning, and it just continues to impress me as I spend more time and get deeper into the company with customers and influencers, is just the strength of the brand. And not just the Waters brand, but the TA brand and a number of the other brands we have. But Waters and TA and the other brands in the portfolio are really trusted and respected at a fundamental level that is a function, in my view, of the innovation heritage of the company, but also the manner in which we engage in customer support and serve our customers and truly deliver benefit through those interactions.
The second part of our value creation formula is really a growth strategy that's mostly driven by organic innovation. Innovation and R&D has been my clear top priority as I've come into the company three years ago. We continue to raise the investment in organic R&D, and I couldn't be more excited about the pipeline that we're building of new technology coming to market and the benefit that that's going to have for the business. We continue to focus, of course, on best-in-breed technologies across all of our key categories: LC, mass spec, informatics, chemistry, thermal analysis, rheology. But moreover, and even a bigger opportunity is our transformational engineering initiative where we're really trying to bring together the totality of those capabilities towards more of a solutions orientation and a system solution to meet the specific line of business needs of our customers.
And so becoming more market-driven, more systems-oriented in our innovation process. And I've talked before about one example of that, which is our BioTOF program, which is getting very close to commercialization and couldn't be more excited about it. It's really got the organization really amped up for that launch. It's really an opportunity to bring really a new capability into biopharmaceutical method and process development and ultimately into QA/QC through really harnessing the resolution power of high-performance mass spectrometry, but in a highly usable, robust, reproducible, and compliant-ready package. And beyond the BioTOF program, of course, there are many other examples where we have depth and breadth building in our product development and commercialization pipeline. The third element of the value creation model is really around operational improvement.
And certainly, we are very blessed with very strong margins and returns on invested capital, but we don't believe in any sense we're optimized in that regard. In fact, we've been operating to a programmatic continuous improvement model within the company for the last couple of years, and Sherry Buck, our CFO, is leading this process. And I think we've already seen benefits of that, maybe in smaller ways, as we've worked our way through this year, for example, that we've been able to really protect the bottom line while also preserving the right level of investments to grow the business for the future under a variety of top-line scenarios. And that type of flexibility, that type of sort of allocation of resources internally is a continuous opportunity for the company.
As we do that, we're going to continue to seek the balance between growth, investment in the business, profitability, and returns on invested capital. The fourth topic within our value creation model is really a continued disciplined approach to capital deployment. And I've said it once, and I'll say it many times, for us, U.S. tax reform was a game-changing moment for the company. Based on the nature of where our cash flows are and obviously the tax structure, we were very locked on our balance sheet, and we were moving towards less and less flexibility. That all changed overnight. We've taken a very careful multi-step process in close consultation with our board to really develop our capital allocation framework. Of course, it all begins with growing the business. Our top priority is investing in R&D, and we've increased our investment in R&D steadily as a percentage of sales.
We're also being more aggressive now with capital spending. Earlier this year, we announced really the largest capital investment in the company's history with the rebuild of our Taunton chemistry operations, which is a really core competency for the company and something that drives both innovation but also high quality and ever more leverage on the production side, and we continue to look at capital investments and have been increasing our capital budget because of this, and of course, in terms of growing the business, there's always the opportunity for tuck-in M&A, and we've done a few things, smaller things this year. We've also been building a corporate development department to make sure we have kind of a forward-leaning posture to take advantage of opportunities to improve our core business and augment our core business through purposeful, selective, and very strategically driven M&A.
The second priority within capital allocation is optimizing our balance sheet, and that's where we've had a lot of the great discussion with the board on what's the right capital structure for the company. And as most investors know, at the end of the last quarter, we announced some new targets as it relates to a net leverage ratio, a modest net leverage ratio, and work our way towards that in a flexible manner to really optimize our cost of capital and our overall balance sheet while retaining enough flexibility to be opportunistic as well. And of course, that's the third part of the model, which is to return capital to shareholders, and that's our buyback program. So we did that in a two-step process. Earlier last year, we announced a new authorization and a stepped-up deployment to the buyback program in 2018.
As we announced at the end of last quarter, we're going to exceed our original targets on that score. And furthermore, really put the balance sheet to work next year in moving to that roughly two and a half times leverage ratio over the foreseeable future. But it's all, again, very event-driven from the standpoint of tax reform, and certainly, the buyback is of secondary importance to the primary importance of investing to grow the business. I guess the fifth point is really around our management and governance processes, which we're really excited about. It's very important to me as the leader of the organization to pay close attention to the values and the culture of the organization and really build the human capital in the company to really build the business.
This year, we just celebrated our 60th anniversary as a company, and it was really an amazing look back at really what's been a very steady development of the company over time, the really building on the core values of the organization, which are enduring and give us a culture that is incredibly innovative and responsive to customer needs, while at the same time increasing our investment in people and developing both the great talent that's within the organization, but also adding some incremental new skill sets from the outside, and we've really struck that balance very well, and I couldn't be more excited about the team and what's going on within Waters in terms of the talent and the people development and the increasingly diverse and global employee base that's driving our business forward.
I guess the final note really on the people and the culture side is the board, and we've had the opportunity to bring on three new board members in the last two years to bring incremental experience and skill set in pharmaceuticals, in clinical research organization, and in material science. Tremendous new additions that are really working very closely with me and the rest of the management team to shape our strategy, to be a sounding board for resource allocation, and to guide us into the future, so a lot of good developments really on all elements of the value creation formula at Waters, and really looking forward to everything that's ahead of us, so with that, I'll pause and let you jump in, Dan.
Perfect summation of where we are today, and maybe a jumping-off point from there would just be to talk about some of these fundamentally positive structural portions of your business, which pharma certainly is. Biopharma is a big end market for you. I believe you're up year to date 2%, but you've gone to great lengths to talk about the positive outlook that you have for that end market. Can you maybe just walk us through what it is that you think about biopharma right now? I think there's a difference geographically between what you're seeing in the U.S. and Europe. I'd love to hear just a little bit more thought on what might be driving both the strength and a little bit of softer stuff in Europe.
Sure. Sure. Yeah. There's definitely been some puts and takes over the course of 2018. Biopharma sector, which would include the traditional pharma, small molecule plus the large molecule world that's really growing in front of our eyes. There have been some puts and takes, and we do have somewhat of a unique portfolio in the industry in biopharma. Of course, we have a great concentration with about 60% of our revenue coming from the biopharmaceutical world. There have been some challenges this year. For example, India has gone through a period of a lack of growth, really. It started about a year ago with the implementation of the GST tax reform program, and a lot of the infrastructural investments that our customers needed to make really distracted away from capital purchases in our area.
Because of our uniquely high market share and position in that sector relative to competition, we've probably felt a bigger impact. We think the GST piece has worked through pretty well, but there's some other macroeconomic factors in India right now that have persisted. Certainly, the rupee is down more than 10% year over year. There's some political uncertainty heading into the elections next year. The Indian market historically has gone in fits and spurts, and it tends to be a patient buying group. We still have a lot of confidence in that market. We still see a ton of activity relative to generics and even more interest in the biosimilar world. We think there's good things to come, and we've got a great team there. I believe that to be somewhat of a temporary phenomenon.
We've also seen a little bit of softness in Europe over the course of the year. Part of that is a huge comp. We had a very big year in Europe the year before. But incrementally, there's been a little more macro noise in Europe, and that's affected some of the purchasing among the pharma companies, in particular around Europe and Brexit, and then some Eastern European factors like Turkey, for example. On the other hand, we've seen tremendous continuity and strength in China. China has been a key driver for our growth for a long time. Again, not always on a perfectly straight line, but the core fundamental demands in pharma in China are strong. I was just in China a month ago.
I go often and really try to have a ground view of the investments that a variety of companies are making, both in traditional small molecule drugs, biosimilars and biotech drugs, and also don't discount the traditional Chinese medicine sector, which is experiencing tremendous growth, and there's a huge pull for analytical methods to support that part of it as well. U.S., which started off stronger as we reported in the last quarter, actually has been gaining strength through the second and third quarters in pharma. So I think there's kind of enough puts and takes there and enough good signals for some pretty big markets out there in pharma for us to generally feel good about that end market. And certainly, if you look at our innovation pipeline, a lot of what we're doing is really trying to take advantage of some of the big trends there.
The BioTOF program that I mentioned earlier, really trying to target it at the heart of what we think is a massive opportunity in the multi-attribute monitoring world to bring highly robust, reproducible, compliant-ready mass spec, high-performance mass spec into routine methods in late-stage development in QA/QC. A lot of the things we're doing, both in innovation and in the field, are really playing into the strength of that market that we see going forward.
Okay. Very helpful. I'd like to get into some of the product elements that you mentioned, but before I do that, just spending a few minutes more on the geographic view. When you look at 2019, and we'll run into the fact that you haven't guided to 2019 yet, but just at a high level, when you look at Europe in 2019, do you feel like some of these macroeconomic elements that you're dealing with today could mellow out, to use a slang term? Or when we look at the way that the world might look in 2019 and what we're contemplating today, does it feel like current trends might persist? And I guess the flip side would be in U.S., is there anything to make someone think that the strength that we're seeing in the U.S. is about to change?
Yeah. It's a really good question, and I guess I'd say I have to probably see another quarter of reality before I forecast 2019. And we just want to take this step by step. I mean, we're obviously focused on running the business, and we'll see where it all lands at the end of this quarter, and then do the best we can do to anticipate what trends might continue, what trends might moderate. And you do tend to see I mean, we have seen this pattern historically where Europe and U.S. sometimes offset each other, and sometimes, especially with global customers, kind of pacing their purchasing activities in one geography or another depending on different factors. So I think it's probably too early to say.
We'll approach our guidance for 2019 in the same way we've approached it historically, which is to try to take a balanced view, to not necessarily assume everything goes right, and to do the very best we can with the information to anticipate market trends. I think overall, at a macro level, I look at indicators of the pace of innovation, and I don't see any troubling signs that the pace of innovation in biopharmaceuticals is moderating. In fact, I think there's greater drive than ever in multiple sectors, whether it's the pharmaceutical companies or whether it's even the biomedical research community. There's just so many interesting things going on around open innovation and different sectors coming together to innovate in different ways. There are different molecule types that are coming more into focus.
All of that, plus just the rising regulatory scrutiny, is going to be pulling better and more extensible analytical methods, and that's where our focus is.
Okay. And maybe nearer term for the fourth quarter, regardless of geography, it doesn't sound like you've assumed much in the way of biopharma flush activity, just thinking historically about the way that those customers have spent money, but realizing that it has been a little different in recent years than it had been in some of the past years. The current outlook seems like it embeds not a lot of that. Is that a fair comment?
Yeah. What we guided to at the end of last quarter was that we didn't assume any unusual changes in trend line. We looked at the trends through the first three quarters of the year and said our outlook for the quarter is sort of a continuation of those types of trends. Obviously, we have a little tougher comparison in Q4 because we had a strong close to last year, but we basically said, "Look, let's just look at a kind of a balanced outlook for the rest of the year given the experience we had in the first three quarters, and then we'll go from there.
Okay. Let's talk about mass spectrometry. Certainly had plenty of discussion on that technology segment this year. A lot of big players there, a lot of technology development, but also, to your point, a lot of stickiness on the part of the customer. Can you talk a little bit about what it is that when you talk to customers, they find to be the features of systems that are most attractive, and I don't mean you need to throw resolution numbers at me, but if we think about what's gone in this year, there are certain platforms and certain companies that have just flat out done very well, and I don't think anybody would argue with that, but when you go forward and you say, "How are we addressing what is now the new customer demand profile?" What do you think are those metrics that matter most?
And that probably moves us into a conversation on the BioTOF, which it sounds like it might be more tailored to what the customers are looking for today than perhaps other boxes in the past. So there are probably several parts of that question that you could go at, but any way you want to do that would be great.
Sure. Well, I mean, I want to start out by just expressing my enthusiasm for mass spec driven systems. I mean, frankly, mass spec, when I was on the outside looking in, thinking about coming into Waters, I marveled at this technology in terms of what it's capable of in the world. And just as a personal reflection, it's amazing on one level how sophisticated this technology set is, but yet on the other hand, how underutilized in the world it is. And I think the reason it's underutilized relative to its potential is because we as an industry are going through a process of making it more routine and making it more accessible. And there are a couple of different elements of the technology portfolio. Certainly, there's a lot of attention on high-resolution mass spec. We'll just start at the high end, and that's obviously an area.
Waters and before that, Micromass and VG and all the predecessor companies have always focused on, and we truly have a lot of differentiated technology, but we're admittedly a little later in some of those product cycles. High-resolution mass spec, which is oriented towards the research applications in biomedical research and pharma and a few other segments, is a small part of our overall mass spec portfolio, and mass spec is a smaller part of Waters overall, so sometimes it gets a little more attention, probably even it over-indexes on attention sometimes, but it is important because it's the proving ground for new technology. One of the things I've tried to do with that portfolio is to understand what are some of the real winners that are in that portfolio for next-generation performance at the specification level.
And we have some amazing technologies that I felt ought to be accelerated, and so we actually carved out a little while ago a sort of a special purpose unit to really sit apart from the volume mass spec business and to drive these technologies towards the market faster. We are coming forward with the first set of technologies in that area, and I know I'm being a little bit vague because we want to be competitively protective there, but in 2019, we'll see the first steps of a whole new generation of capabilities in mass spec that will be tailored towards the unique needs of the research customer and maybe a more narrow customer set, but high-value technology that ultimately will work its way down.
And then over the next several years subsequent to that, we have even more coming, and that kind of tiger team, if you will, within the company has accelerated that process. On the other hand, I think back to your original question, and it was well framed. The needs are changing. In order for our customers to harness the power and the resolution power, the kind of economic value power of mass spec towards more routine usage, it has to become more accessible. And so we've experimented with that historically with the ACQUITY QDa, which is a mass spec single quad detector for chromatography workflows.
It's been a really great learning experience for us and really paved the way for a lot of new thinking around how do we make mass spec technology more robust and more routine and ultimately move it into workflows that have a high bar for regulatory compliance and really leverage a lot of the strengths Waters has on the HPLC side into the product development in QA/QC world in biopharma, for example, and that's where we're targeting BioTOF. We'll say a lot more about this in the coming year and want to save the deeper kind of run through that story for our investor day, which is going to be on February 28th here in New York, but tremendous excitement within the company. We're also doing things differently. We're doing a tremendous amount of customer validation before we launch.
In fact, I personally participated in a live customer demo of the system a few months ago in the UK, where, in our research lab over there, and this was a great story. It was a major global pharma company from one of the European countries, and this particular user had previously outsourced all mass spec work to a contract lab because she wasn't a traditional mass spec user, say, out of the research community, but could easily operate this system and get a great result in the data package she was looking for in a rapid format, and eyes were just opening, and we've seen this over and over and over again from customers that have used the system, and this is new for Waters. It's exciting, and there's other things we're doing that are unique around the commercialization that we'll get into at a later time.
But I think ultimately, this is a step in a process. It's not a one-and-done. It's first in a series of these types of innovations that really is a new era for us, and we hope in this way to bring the power of mass spec technology to a wider range of users and embed it more squarely into the heart of the operational area of biopharma, which is an area of our traditional strength. So that's what I like about the strategy.
Okay. So I would not be erroneously putting words in your mouth. If I were to characterize 2019 as a year where research customers have reason to believe that there are exciting new portfolio products that make the dynamic amongst other players worth pausing on for Waters, quite honestly. I mean, so if you're thinking about a new QA/QC tool, you must sort of at least acknowledge that Waters will be to the market with something interesting if it's not mid-2019, at least by the end of the year, and I'll let you put the timing on it when the time is right. But is that fair?
Yeah. I mean, I think we're probably, interestingly enough, probably talking more about the BioTOF program than we traditionally would have. And part of that is by design. It's not just promotional, but it's really because we've had customers more deeply embedded in the final stages of development and the sort of live demo process to fine-tune the system before we put it in the market, which I think is a terrific best practice, actually. And I think that's creating some chatter, and I think that's hopefully building some demand for the product that when we get ready to go, we'll have a receptive audience.
Okay. That's great. So that's research. Let me ask about clinical mass spectrometry. The reason I do that is because if you've followed the field, it's kind of been one of those things that's always been beyond the horizon, the next year. This will be the year where clinical mass spec really takes off. But we did do a survey this year that had 70% of those that we asked thinking about 2019 as being an important clinical mass spec year. What we do know is that there are companies, your peers, that are developing platforms specifically designed for the clinical customer. So even if the market may not be there, it feels like the vendors will be there with products for the market.
How do you get customers and investors comfortable that should that market actually develop, Waters will be there with a competitive product relative to Thermo, Roche, Agilent, etc.?
Yeah. Yeah. That's a good framing. Clinical is something that we've been involved in for a long time. In fact, Waters was one of the forerunners as it relates to IVD labeling for mass spec systems. And I think, as most people know, we're focused in a couple of areas like neonatal screening and drugs of abuse and therapeutic drug monitoring. And mostly in the lab-developed test world, we do have a couple of intended use applications, but we're mainly a general-purpose IVD. We've actually done a lot of work in that area in recent years because I think enthusiasm is growing within our company, within the industry. We've seen other players that you mentioned take more of a focus here. We see a pull from the marketplace coming.
I think at the end of the day, mass spec, when it gets into the right configuration, is a superior tool because of its sensitivity and specificity of detection and the scalability of multi-analyte testing and everything that goes with that. So we did actually recently launch a kind of a refresh technology in this area with the RenataDX. And so we've continued to innovate. We have a pipeline. We've actually been building capability in the team and in our clinical diagnostics function. I think a lot of people historically, when they looked at Waters in the space, were probably focused a little more on some of the research applications. We certainly have some very differentiated technology long-term, like the REIMS technology for direct sampling, aka the iKnife, and some other things. But the reality is the core of the clinical business is really around the LDT world.
And I think that space is incrementally more positive to us now than maybe we would have said three years ago. Plus, we've done a lot organizationally to develop the capabilities to execute through this growth opportunity. And if there are more players in the industry excited about it, then that market will develop faster. That's one of the golden rules of market development: if multiple players focus on it, it'll happen faster. But certainly, from a clinical testing standpoint, I talked to everywhere from CEOs to lab managers of clinical diagnostics organizations and medical centers, and they're all waiting for the industry to continue down this path.
Okay. Helpful. You mentioned the REIMS technology. At the ASMS, that was sort of unveiled to folks, there was a lot of enthusiasm around that platform. Do you still hold the enthusiasm around the clinical side? It sounds like applied markets are more of a near-term application for that technology. And so the question would also be, how do you feel about that product ramping in the next couple of years for what is a more near-term opportunity, it seems?
Yeah. Certainly, a lot of the initial press around the REIMS technology or the iKnife was towards really a breakthrough opportunity to use this technology intraoperatively in margin detection, cancer margin detection. Look, as a former medical device person, I couldn't be more excited about that, but I also understand what needs to happen from an evidence generation standpoint, and both on the bench and the lab and ultimately multi-sites. We'll go down that path appropriately. To your point, other sectors are taking the REIMS technology more quickly where they can, such as the food industry, certainly from the standpoint of food authenticity and food fraud detection. The idea of direct sampling and immediate feedback is appealing to many. We do see more near-term opportunities.
It's not a huge product or revenue line, but I think the bigger picture of REIMS is that it's part of a portfolio of direct ionization mass spec techniques that Waters has been aggressive on in terms of developing technology. We've always been in the MALDI business. We recently, this year, completed the acquisition of the DESI, which is the desorption electrospray technology from Prosolia. So now we really own that market. REIMS is very differentiated, and there are others as well. But we do feel, from a research standpoint, that the world of ambient ionization and direct ionization mass spectrometry has got breakthrough potential long-term, and so we're carefully cultivating some of the core technology components to get there in the future.
Okay. So is it fair to say that if we're thinking about where the greenfield opportunities, so to speak, for Waters are, that would be on the list? I mean, it's not lost on anybody that's a lot of big companies knife-fighting each other for mass spec market share, and obviously, pharma is a tough market, but there do seem, to your point, to be areas where mass spec is underutilized. So for those that are thinking in multi-year time frames, your view is that you'll be where some of these newer opportunities are when the time is right for them to sort of emerge as an application?
Yeah. I think that's a good way to think about it. I mean, I think about it in a long timeline, and there's certainly a lot of great mass spec opportunity near-term. And the one part we didn't talk about were the applied markets, the core tandem quad market in food and environmental and material science even. And some of those applied markets have great near-term potential, certainly the biopharma thing we talked about with moving mass spec into routine use. But these technology elements have almost unlimited potential that you can only begin to imagine to get a wide variety of samples directly into a mass spec. And as mass spec becomes more usable by many, there are many fields that that can operate in and clinical as well.
We do see this as a very long game, and we're trying to do the right things to create the foundations, both from a technical standpoint and an evidence standpoint, to give us many new engines of growth to light for a long time.
Okay. Questions, anyone from the audience?
Chris, when you use the word routine in research, I mean, obviously, more samples is what you're referencing, but it's pretty widely used mass spec in QA/QC applications. So routine is broad-based, right? So what's the delta between your routine today and what's going on today and what your routine comment is going forward?
Yeah. And when I say routine, I'm talking about widespread use among a wide range of users. So mass spec is used in development, and I think I'd call it more limited in QA/QC today. But all of the technology in that end of the market today is really research-grade mass specs that have been sort of repurposed, if you will, for use in the same. We participate in that. We sell QTOFs into that space today. But when I talk about routine, I'll give you an example. And take HPLC plus UV detection plus Empower software and the bespoke chemistries that go with that as really the gold standard for lot release in QA/QC and small molecule. And you can look at the number of units that are out there doing that all over the world in both innovator areas and generics in multiple countries.
Now imagine sort of the same footprint of mass spec. And part of the thing with mass spec and the reason with its orientation towards the research world is that the software systems that go along with mass spec historically have not been as robust from a regulatory compliance standpoint and an overall data management standpoint. And that's really a lot of times we talk about the device, but really it's the overall system and the software that ultimately have to be you have to get right to make it that usable. The trend, obviously, is multi-attribute monitoring. And if you just look at the number of attributes that are being monitored today versus a decade ago on any particular molecule, it continues to rise.
And so the increased appetite for all the different attributes around mass measurement, intact mass, peptide mapping, glycan analysis, you can just keep going down the list, continues to grow. And so it is a bit of a moving goalposts, if you will. And so routine to me means when you can have kind of a robust system that can be deployed at scale with more of a routine set of users versus a mass spec specialist with a system that's been kind of one of a kind designed in a particular laboratory because that's the way the footprint looks today. But thanks.
Maybe just switching up a little bit to TA. 2% growth, I believe, in the quarter. I think you pointed to timing as an element there. I'm curious if that was in October. I'm curious if you still feel that way, and then when we think about the way in which I think some of us thought that business would trend, it was very much driven by new products because it does feel like there are multiple product lines that have been refreshed. And I don't know if you could say that about all the competitors. So as we head into 2019, how do you feel about the trajectory of TA, if you can, parsing out new products from end-market demand? I know that's always difficult, but that's useful.
And I think what that does is it kind of brings about the bigger question, which is if we're all kind of contemplating how you get Waters back to mid-single-digit growth, peer-level growth, does the macro environment that's obviously affecting the industrial markets allow you to do that?
Yeah. We'll want to take, like I said earlier, a fresh look at the different market segments, including industrials, as we roll into the year. But just to speak specifically about TA, it was interesting, and I'd say at some level disappointing on the sales line in TA in the quarter because of, a, the underlying strength of the business and the kind of consistent order rates we'd seen all year. And we even in the report did cite the underlying orders health simply because it was a point off the line on the sales side, which had to do a lot with a very different mix right towards the end of the quarter and some backlog build that we didn't quite anticipate. But that's on us. We have to do a better job on our supply and demand planning to make sure that that doesn't happen.
But I feel good about the underlying franchise there around the product portfolio. What you're referring to in the new launch is the Discovery series of thermal analyzers that continues to mature. That's a multi-step offering started with DSC and TGA, and then you go down the line towards all the different configurations. And now, as that technology platform gets fully out into the market, we have a whole new opportunity and wave around accessorization of that family and some good follow-on technology coming. So that's a major product cycle. I mean, that's a once-in-a-decade type product cycle in thermal. And then we have some additional visibility to rheology in some of the new products and some of the acquired areas. But so from my standpoint, I'm confident in the portfolio and what we're doing from an R&D standpoint.
I do expect more consistency in performance, which I think we'll see. But as it relates to end-market conditions, we have to get our next set of data to look at that to think about how we want to set expectations for next year. But again, like in pharma before, we'll probably take a balanced view of that.
Okay. Let me touch on margins as we're finishing here so that Sherry doesn't get offended. One of the things that's very clear amongst life sciences players is that there's a need or a desire to do product improvement efficiency initiatives. Several of your peers have been pretty successful in driving annual margin expansion just from that alone. How much do those types of exercises feel like they're appropriate inside Waters? I believe at the analyst day two years ago, you kind of touched on that being a potential area that you're going to focus on. Is that still something you think about?
Yeah. I'd say we've evolved our thinking on that from, I'd say, more instinct that there's opportunity. Like I said in my opening comment, I think there's a view out there that Waters is optimized somehow, and I think we're very profitable and we have high returns on invested capital, but I don't think any of us feel we're optimized. But it's a more complicated formula because, yes, margin's important, but we also want to make sure we're making the right investments as well. So we do have now more of a programmatic approach to that. I think this year is an example where we've actually got some modest operating leverage with a little less top line and delivered a bottom line because of our control over the operations. And I think that's a good thing. So we'll continue to update our progress on that.
But as we scale the business, we do see a lot of opportunities to aggregate marginal gains across the enterprise. But really, our goal is to optimize how we invest to grow the business.
Right. Okay. We are out of time. So, Chris, it is always a pleasure to see you, and I would just say happy holidays, and we'll see you in 2019.
Thanks a lot, Dan. Appreciate it.