Okay, we're going to go ahead and kick it off. Good morning, everybody. Welcome to day one of the conference. I'm Tycho Peterson from the Life Science and Diagnostics team. It's my pleasure to introduce our first company this morning, Waters. Breakout's going to be right after in the Sussex Room. And with that, let me turn it over to Chris.
Excuse me there. Great. Thank you very much, Tycho, and thank you for having us. To JP Morgan again, we're looking forward to the week. Good morning, everyone. I'm also joined today by our CFO, Sherry Buck, our Head of Corporate Development, Rob Carson, and our Head of Investor Relations, Bryan Brokmeier, in the room, and we look forward to our presentation today, as well as all the discussion throughout the day in the breakout and in the one-on-ones. Looking forward to 2020. I'm going to cover today kind of a broad overview of the company, particularly for those of you who may be a little bit newer to the story, and I'm going to emphasize in particular our innovation strategy and some of the latest as it relates to the investment we've made in new product development and innovation.
And I'm also going to touch on the announcement we made earlier this morning of the intent to acquire Andrew Alliance. Before I jump in, I just want to point everybody to the cautionary language that you're well aware of and is in our K. I would also remark that because we have finished our fiscal year but not yet reported, we'll report on February 4th, that all references to 2019 that I will make will be to the results that we posted through three quarters that we discussed in our last earnings call. Just getting started, first of all, the statement of our purpose and our values. Waters is a values-driven company. Given to us by our founder, Jim Waters, is an ethic within the company to deliver benefit in everything we do to all of our stakeholders, customers, employees, shareholders, and society.
We're now over 60 years old and continue to operate with a very focused culture, very driven by our purpose to advance science and analytical measurement technology to enhance human health and well-being. Quick snapshot of the company broadly, these are 2018 figures. We'll update this slide, obviously, as we get through our reporting period. But Waters is a very focused, strong, and global company. More than 70% of our revenues come from outside the United States. From an end market standpoint, pharma and biopharma is our biggest end market, and with a split of about 70/30 between small molecule and large molecule pharma, with other big focus areas in the industrial category, particularly materials sciences, as well as in the academic and government area.
We're relatively evenly split between recurring revenues of service and chemistry consumables, as well as instruments, and then instruments, and we're very well split geographically between the Americas, Asia, and Europe. Again, when you pull out Latin America, the United States business accounts for just a little bit less than 30% of the business. The greatest strength of the company is the employee base, about 7,000 people on a worldwide basis, the majority of whom are directly in the field serving customers with a great depth of application expertise, technology expertise, and scientific acumen. We continue to invest in that capability, as well as through our in-house engineering and science functions. And in total, we have more than 1,300 scientists or engineers within the company. You're all familiar with the results through three quarters.
We had seen slower markets in the business and therefore slower growth for the company, really driven by macro headwinds, in particular government policy changes in China that affected the food safety testing market, as well as generic pharma. They were big factors given our concentration in those markets. As we've said consistently, we believe that those changes, those policy changes, ultimately will be quite positive for the instrument business and for Waters, but obviously affected customer purchasing activity at various points during the year. In addition, the pharma sector itself, particularly small molecule pharma, saw a slower growth profile throughout the year, and that's really driven by a variety of factors, including preferential capital purchases in the biopharma segment, from which we did benefit. But of course, given our concentration in small molecule LC-based workflows, that did have an impact on us.
And then, of course, a variety of other macro conditions, particularly in Europe and northern Europe around Brexit, affected us during the year. From an earnings standpoint, our operating efficiencies and our share buyback program allowed us, despite the softness in the top line, to deliver upper single-digit earnings- per- share growth through that period. Really, to frame my comments today, I'm going to talk about some of the key elements of our five-point value creation framework. This framework is now three years since we've articulated this to the street. And it begins with making sure that our strategy is focused on a specialty positioning in what we believe are structurally attractive markets. Our growth strategy is driven by organic innovation.
It's where the most significant investments have been made over the last three years or so, as well as where some of the most exciting changes within the company have come. Despite the fact that we have industry-leading margins, we believe there is continuing opportunity for operating efficiencies across the entire business and innovation, our channel, and our operations, all designed to free up our cash flow and our operating expense to invest in our core strategies. U.S. tax reform, number four, provided us with an opportunity to step back and revisit our capital allocation priorities. And I'll get into that in a little bit. But certainly, our ability to deploy our cash flow to growth-oriented activities, as well as optimizing our balance sheet and returning cash to shareholders, has been a big benefit to the company.
Finally, most important, the bottom line for me is the investment we make in our people. I'm very proud of a lot of the work we've done to continue to drive and enhance our performance-driven culture and management team. I won't go into the details here on our overall business portfolio. But again, for those of you newer to the story, we focus on five key end markets, all of which are characterized by attractive growth profiles. Because of our specialty focus, we choose to participate in a smaller segment of each of these categories. As I mentioned earlier, the pharma sector is our largest, with just over 50% of our focus. Number two, materials science, then food and environmental, clinical, and biomedical research. In each of these cases, there are solid underlying growth drivers, secular growth drivers in these marketplaces.
From a technology portfolio, the specialty strategy really starts with a focus on high-value technology. Within the Waters portfolio, that's LC - M ass Spec, and the associated chemistries and informatics. Of course, service is very much a product and not mentioned here, but accounts for a meaningful part of our revenue. On the TA Instruments side, we have leading market positions, and we're a leading innovator in thermal analysis, rheology, and microcalorimetry in a more fragmented marketplace, but one that's very focused on advanced materials and all the innovation that's happening in that space. Our vision at Waters is to perform and be recognized as the world's leading specialty measurement company.
Our definition of specialty measurement is the highest value analytical technologies, as well as the scientific expertise that accompanies them for chemical, biological, and physical measurements that enable our customers to innovate, to comply, and to make all their most mission-critical decisions. Our vision will be achieved through a corporate strategy that is focused on three areas. First is to advance our core technology organically, which is why the thing that I like to talk about most is the investment we've made in R&D and look forward to updating you on some of the latest there. But also, as I alluded to earlier, the expertise that we have in the field to provide the top-level support to our customers and create a very differentiated customer experience through every interaction is critical to our competitive advantage.
And then finally, a very purposeful approach to selectively expand our portfolio into adjacent categories and have one example today, a new example to talk about in the area of robotics and automation. From an innovation standpoint, let me focus on that here for a little bit. We have a comprehensive approach to our innovation strategy. It starts with investment. Since I've come into the company, we've grown our R&D investment more than 40% to make sure that we accelerate the most promising new technologies to market. Waters has a very rich pipeline of research, technology, and scientific efforts underway. We've done quite a bit of work to integrate previously distinct product centers into a more cohesive R&D organization where we can drive more effectively towards system-level solutions that our customers are asking us for. At the same time, we've actually rationalized our portfolio.
We're actually doing less but making bigger investments in the more promising technologies with a whole new disciplined approach to portfolio management and project selection. At the same time, we've also retooled our marketing efforts within the company to strike the right balance between pure technology innovation, but also more purpose-driven innovation from the standpoint of what are the latest needs of our customers, and certainly, some of the key innovations we've talked about provide a good example of that. We are also executing a platform strategy. I'll talk about that both in technology and hardware as well as software in a minute, and we think there's tremendous opportunity, and we've seen a little bit of this already, to leverage our TA Instruments franchise more effectively in the overall strategy and innovation approach of the company. Let me focus now a little bit on the productivity of R&D.
The investments we've made in our R&D are really leading to the most exciting new product cycle the company's seen in a very long time. Last year alone, when you look across Waters TA and our Waters Instruments TA and our chemistry offerings, we launched a significant number of new products. This list here on the slide is representative, and it's certainly the most significant launches, but it's not complete because we also had a number of other platform extensions and chemistry launches as well, including a refreshed research roadmap. But the results of, really, what I'd say is a preferential investment that we've made in R&D are really beginning to deliver and are resulting in a cadence that's bigger and more regular than we've seen historically. In addition to the individual technologies that have been launched, we've also developed a complete five-year roadmap across all technology categories.
And so we have more visibility to the next two, three, five years than we've ever had within the company. Of course, some of the big headlines there are the BioAccord System, which I'll comment on in a minute, as well as the SELECT SERIES Cyclic IMS, both of which were launched last year. In addition to that, some other great mass spec platforms like the SYNAPT XS, which is a significant overhaul of our flagship high-resolution system, and two new tandem quad systems, including the Xevo TQ-S Cronos. On the TA Instruments side, we continue to quietly innovate there as well. I think we have a more forward-leaning innovation strategy than our competitors in the field of materials science. And the TMA 450 and a new ElectroForce device for physical measurement are two examples of that.
And then the chemistry examples are just two of a whole portfolio of chemistry offerings. And that'll become important when I talk about the automation strategy through robotics that we pursued through this acquisition this morning. From a BioAccord standpoint, this may be really the flagship launch of the last year. And it's important strategically because of the investments that are being made in the biopharmaceutical space. Clearly, our belief is that analytical needs are changing. That as the biopharma era grows, the market is demanding more integrated solutions. And so we took all the core technology capabilities of Waters from mass spec to separation science, informatics, chemistries, and our whole support organization to create a totally integrated platform that we call SmartMS that really simplifies complex workflows. We first launched the BioAccord.
In the first quarter, the initial release had three core applications for peptide mapping, intact protein, and glycans. Then we took another step in the fourth quarter and launched another version of the BioAccord that now incorporated a suite for oligonucleotide therapeutic analysis. Oligos are obviously very front of mind for many of our customers and innovators. Because BioAccord is a platform, it allows us now to spin multiple versions over the coming years. So you should expect to see more versions of BioAccord coming into the market this coming year, as well as in the out years. From a customer reception standpoint, the feedback has been nothing short of exceptional. It's been a great privilege for me to be able to visit probably five or six of these different companies that have purchased the BioAccord in just a couple of months.
Don't just take it from me. These are our customers' comments and the themes that we hear continue to revolve around the high quality of the data, the integrity of the data, the ease of use, robustness, and reliability of the platform. You see the comment from Allergan there, as well as a quote from a Chinese biopharma company called QL that immediately was able to deploy BioAccord in a very user-friendly manner to get consistent and reliable data.
Another example is a partnership actually between a large global pharma company and a CRO in Germany who wanted to outsource their intact protein mass analysis and previously were standardized on a competitive mass spec platform, but saw the scale that they needed and the flexibility between different venues to move this type of intact mass analysis out of a core laboratory into more routine regulated laboratory and have since both adopted BioAccord on both ends of this equation. So you can read the comments there and the enthusiasm of both the innovator in terms of the pharma company as well as the contract company who's seeing data that's really equivalent to the time of flight to the more complex time of flight instruments. And I've personally heard this feedback myself as I've gone around and visited customers who have adopted BioAccord.
We're really excited about what's ahead. We think we have the right technology and the right system to meet the market need at the right time. This will play out over the coming year and years in this area and then to leverage that type of technology approach towards other key workflows and value streams. Speaking of important real-time innovations, I did want to comment briefly on Waters Connect. We mentioned Waters Connect briefly at our investor day we held last winter a little less than a year ago. Many of you are familiar with the huge investment that Waters has made in informatics. Of course, at the very foundation of our competitive advantage is the Empower Chromatography Data System, which is very much the industry standard for compliance in chromatography data. We have well over 500,000 users of Empower.
Now we are in the process of moving to our next-generation platform technology that will bring Empower to the cloud to leverage all of the development we've done around the UNIFI architecture, which is really a platform technology to ultimately now be able to bring in mass spec data into the regulated environment with the same type of compliance profile, but also to design in industry-leading third-party application developer links so that our customers can have a suite of applications that all stand up to the type of performance characteristics and compliance standard that they're accustomed to on Empower. We've seen a development of Empower from a workstation product to an enterprise implementation and now moving more towards the cloud, which opens up a lot of opportunity to expand and also to consider new business models in the cloud-enabled SaaS world in the future.
This is really one example of many things happening in the company of an overall digital transformation that we're very, very excited about investing in at Waters. Let me just pivot a little bit to capital deployment and reiterate our three priorities for capital deployment. Our first priority is to invest for growth. I've mentioned R&D. We've also significantly increased our CapEx, both from an operating standpoint and through new facility expansions like our new Taunton Precision Chemistry Technology Facility, which has gone very well. And we've also built a robust M&A pipeline. As you can imagine and as I continue to reiterate, we're very disciplined about M&A, but we do see it as a key opportunity to deploy capital growth-oriented investments like the one I'll mention here in a minute.
At the same time, use the full strength of our balance sheet and our cash flow to optimize our balance sheet to retain the flexibility to invest and then to ultimately return capital to our shareholders to the extent it's not deployed directly inside the company. Those priorities remain consistent, and we continue to execute to this framework. Earlier this morning, we announced an agreement to acquire a company called Andrew Alliance, which is a Swiss-based company that is one of the real innovators and leading technology platforms for this whole new world of automation in the laboratory. It's a very exciting deal. We made a minority investment in this company a little more than a year ago. They've been a partner, so we know them very, very well. They're a relatively small, early-stage company, but rapidly growing and already with a global footprint.
They serve the LC-MS segment as well as other key segments such as next-gen sequencing and quantitative PCR. Really, at the heart of their technology platform is browser-based robots and browser-based pipettes. Even more interestingly, a very well-developed cloud-based informatics platform called OneLab that will be able to snap right into Waters Connect platform as that gets up and running. The strategy is really to address an unmet need within our customer base for automation. When you look at the kits and the workflows that we develop within Waters as well as partner organizations develop, they are increasingly being designed for automation. As the analysis itself has become more efficient and faster, greater and greater need is being placed on sample preparation and automation on the front end.
And so this is a classic strategy to broaden our technology portfolio in a very thoughtful way and will slot right into many of the conversations we're having with our customers, particularly in the life sciences, biopharmaceuticals, as well as into the food safety testing market. So this robot is in the liquid handling area. It will not only provide a revenue opportunity with the instruments and the informatics, but also it'll add differentiation to Waters Instruments and Chemistries and pull through Waters Instruments and Chemistries as we really amplify the great technology of this small firm throughout the global Waters portfolio. And like I mentioned earlier, the informatics platform of OneLab will be a great example of another capability that customers can access directly from Waters Connect.
So this is a good example of something that I've talked about quite a bit, which is looking for acquisitions that complement our core technology, that make our competitive position stronger, and that open up new growth avenues in areas that are critically important to our customers' success in their laboratories. Just a quick comment on our sustainability report. Some of you read the sustainability report that came out at the end of the year. We're very proud of the progress we're making as we point the organization towards a true shared value model. Some of you also know that throughout 2019, we did a lot of work with a materiality assessment to really step back and look at the ways that we can most materially contribute to the sustainable business environment around the world.
As a result, we articulated and have launched our 2025 sustainability goals, very focused on very Waters-specific ways that we can add value around our innovation ecosystem. The reduction of our environmental footprint and our greenhouse gas utilization was down more than 10% last year. Our sustainable supply chain and, of course, the most important investment we make, which is in our people and our culture. I look forward to sharing more in the coming months and years on the progress towards our sustainability objectives. Just a couple of closing comments. I mentioned earlier our five categories of focus: pharma, materials, food, clinical, and biomedical research. Despite some of the more short-term headwinds we face from a market standpoint, we still very much believe in the underlying secular growth drivers in pharma. Of course, generic drug volume continues to grow.
Biopharma is accelerating with an increasing demand on analytic technologies for the molecular complexity that scientists are working with. Of course, material science continues to tilt towards high-performance, low-impact materials where we have a unique suite of technologies to support, and then all the demographic changes around the world really can support, over time, a robust business in food, environmental, and clinical, and within biomedical research, both of the private and the public funding dynamic within both the government and academic category remains solid. We're very focused on the ongoing health of these end markets and dividing our business strategies and our investments to make sure that we are taking advantage of all the growth opportunity that's out there, so in conclusion, we did see a set of challenging market conditions in 2019 that negatively impacted our growth for the year.
As I mentioned, most focused on the first three quarters of the year, as I signaled at the beginning. But even with that, we're maniacally focused on our specialty strategy driven by innovation, primarily organic innovation, but also supplemented by purposeful M&A when we find the right properties. And all the investments we've made continue to support our confidence in our ongoing growth outlook. And the entire focus, finally, of the management team at this point is on our near-term growth acceleration as we roll into the year. So anyway, I look forward to updating everybody further at our earnings report on February 4th and interacting with many of you through the day. Thank you very much.
Welcome, everyone, to the Waters Breakout Session. Maybe I'll just get us started with a few questions, but if at any time anybody has any questions, we'll reach out. All right.
So maybe Chris, starting at a high level, I mean, obviously, last year you had some market headwinds that affected your growth. But just as we look forward into 2020 or into a midterm guidance, can you talk about your level of confidence of sort of re-accelerating the company into this single-digit growth, considering that on the one hand, you're having easier comps and you have multiple new product launches in your favor, but at the same time, there seem to be remaining end market uncertainties? So how should we balance these two factors into thinking about?
Sure. Thanks, Julia. And thanks for the questions. And thanks, everybody, for the full room here. Yeah, certainly a couple high-level points. We will obviously give some outlook for the year coming up during our earnings call on February 4th.
And so I don't want to get too far ahead of that in terms of near-term expectations. But of course, the goal is absolutely, as you allude to, to return to mid-single-digit plus growth. And we fully understand the type of headwinds we've seen in markets where we have particular concentration in the prior year or so. And we're just staying very, very focused on our strategy to invest in innovation, to invest in capital deployment that gives us the best chance to accelerate growth and get back to where we expect to be.
Speaking of capital deployment, you guys announced a small acquisition this morning. Can you talk about maybe your thoughts on your M&A strategy going forward? Are you done with this acquisition, or are you expecting something maybe of larger size or more deals in the pipeline?
And in terms of focus area, is lab automation now the kind of adjacency areas you're particularly focusing on expanding into, or are there more other areas in terms of adjacency?
Sure. Yeah, sure. The acquisition that we announced this morning of Andrew Alliance, I think it's a very good example of what I've been talking about as it relates to our acquisition strategy. We certainly look at our strong ability to generate capital and cash flow and look then to deploy that primarily to growth activities. And so we've been less active than many companies in the M&A world over time, but more recently, we've been building up a capability and a pipeline to be very focused and very purposeful about really extending our growth and innovation strategy through deploying capital to M&A.
As I've said many times before, we don't view M&A as a strategy per se where we're trying to put a certain amount of capital to work in a certain period of time on a routine basis, but we look at it more opportunistically and as a kind of a tactic, if you will, to implement our business and innovation strategy. And so the area of laboratory automation is a really good example of an area that sits immediately adjacent to our core technologies. In fact, it makes our core technologies more valuable. It's a strategy that's come from listening carefully to our customer needs. As I mentioned in the presentation, the analysis of many key workflows has become so efficient that there's more and more pressure on the sample prep side of the equation. This is true in LC-MS workflows.
It's also true in other workflows that Andrew Alliance is active in, including nucleic acid extraction, next-gen sequencing, quantitative PCR, and other areas like that. So it also gives us exposure to some of those markets, which is interesting. And if you look at our own development within Waters in the chemistry consumables area, in the kits area, a lot of what we've been doing in biopharma in particular has really been designed with an eye towards automation. So we think automation is a really important trend. It's an early trend in many of the workflows that are important to our customers. And so this particular acquisition made a lot of sense. And as I alluded to before, we already had a minority investment in the company. We know them very well. It's going to fit like a glove.
The folks at Andrew Alliance are very, very excited to become part of the Waters family.
Could you read the questions for the webcast?
Sure. Absolutely. There's a question back here. Yeah.
You talked about the BioAccord launch in the presentation. Can you quantify that market size or the revenue opportunity for that one?
Yeah. So the question is the BioAccord opportunity. Can we quantify the opportunity? The market that we're focused on with BioAccord is currently the development laboratory, the regulated development laboratory for the method development and the process development of new biopharmaceutical drugs. The ultimate goal is to move this technology downstream into QA/QC, where there's an increasing trend towards the monitoring of critical quality attributes or the MAM, multi-attribute monitoring world.
Obviously, when we look at the market size for something like that, I don't want to get overly specific because it is a significant market development task at this point in time. There's thousands and thousands of new biotech drugs out there right now, and there's very, very little mass spec data that's used in routine testing for multiple critical quality attributes, and so in the same way that over time, HPLC plus optical detection became a standard of analysis for small molecule pharma, we believe that easy-to-use, robust, and compliant mass spec data will become a standard of analysis for biopharma, and that could be a very big market over time. In the meantime, we're focused on the innovators within biopharma and calculate the number of development projects that are currently underway and seek to introduce this technology into those realms.
But it's a significant opportunity that's going to play out over years. And we're one year into it, a little less than one year into it, and feel very good about the trajectory of that strategy.
Are there any color you could share on the installed base or the order book so far? And as you sort of develop this market for biopharma and QA/QC, are there any challenges that you've run into as customers consider adopting?
Yeah. I don't want to get overly specific on the order book at this point in time, but we were pleased with the progression over the course of last year from the initial marketing activities to some of the customer demoing activity. And we employed a totally new sales enablement process and market development process to try to get as many customers as we could into the demonstration laboratory.
In fact, we did a lot of that before launch. It's the first major platform technology where Waters has actually done a significant early customer access phase even before the launch of the product so we could just fine-tune, if you will, the workflows and get it ready for launch. And from there, from the demoing activity, we build an order book or, sorry, a quoting book, which then can lead to orders. And we'll probably give some more specificity on that as we look forward. I don't want to do that at this point in time. In terms of challenges, it's all the challenges you might expect when you bring a new technology into a market that's only beginning to develop. And it's obviously a conservative laboratory environment. And when there's a new technology like BioAccord, a decision has to be made to build methods.
And on that type of technology with the specific type of measurements that the BioAccord uses, of course, there's capital constraints, particularly in the near term of the launch that we faced last year as customers work their budgets to accommodate a meaningful investment. And of course, in the analytical environment, there's a bit of conservatism. And so just working through those early successes, you heard me talk in the presentation about some of the really positive customer reaction. And as word gets out, as the platform wins awards, won a few awards, the word is getting out. And I think the market is taking greater and greater notice. So we'll provide a little more specificity as we talk about our outlook for 2020 in the coming weeks. But I think all of us are quite pleased with the very early phases of the launch.
Yes.
So you're here for it for guidance and price optics throughout a little bit about where it's been going recently. Should we interpret that as an investment ahead of this Andrew Alliance acquisition and other acquisitions? Or aside from FX, what's driving that slight optics? Are you beefing up the corporate organization so that you can acquire a few things? Maybe you could expand on that. And then you also talked about potential for margin expansion and efficiency longer term. Where is that stuff most likely to come from over the long term?
Sure. Maybe, Sherry, you want to take a crack at that, and I'll add anything.
Sure. Yeah. So the question was about our implied operating expense in the fourth quarter and then opportunities for margin expansion. So I'd say when you look at our fourth quarter, it's our largest sales and buying quarter of the year.
And so the question was, is that ramp-up expenses going into Andrew Alliance? And I'd say no. It's just our kind of normal ramp-up and seasonality of the fourth quarter. So no read-through on that. And then as far as operating margin expansions, I think we all know that our operating margin expansions are very high and very strong, particularly against our competitor set. A lot of that has to do with the markets and the specialty strategy that we have. But we do believe we have opportunities for improvement. Some of those areas, you think about the investments that we've made in R&D and think about R&D leverage going forward. A lot of the work, particularly in BioAccord and some of the other R&D areas of investment, is really we've developed a platform strategy.
So as we have this platform in place, we'll be able to get to market more quickly for new innovations. So that's a type of efficiency that we can see. We've also been making investments in our sales organization and some tools, Salesforce.com, etc. So there's opportunities for leverage there. And then the third bucket I would put it in is kind of your traditional kind of productivity types of things. So how do you continuously do business process simplification and other types of improvements? So we look at these. We want to drive efficiencies. And some of those things, savings that we gain, we may reinvest back into the business. And we'll evaluate that kind of each year with our annual plan.
Great. Thanks.
Yes, right there in the back.
Yeah. You talked a lot about some of these new product launches out of the Waters crew, the BioAccord, Cyclic, SYNAPT. Could you just help us think about, one, which one you think has the greatest potential contribution? And then two, separately, just in terms of cadence, which one do you expect to get more near-term risks kind of the longer term?
Sure. Sure. For those on the web, the question was really around the portfolio product launches and how do we see the impact relative to each of them over time. Obviously, the portfolio enhancements that we spoke a lot about last year were very centered in mass spec technology. And as many people know, that's probably the area where we have been under competitive pressure in recent years. And so we have been making a disproportionate investment in our mass spec technology.
There’s really quite a range of impact there. If you look at the very high-end, the Cyclic IMS system is a very high-end research-grade instrument that has a $1 million price tag on it. It is sold in smaller numbers, but it’s critically important to some of the most advanced research centers in the world to do ion mobility analysis, be able to do ion mobility analysis of the type they haven’t been able to perform. That type of system had a strong market reception and has a pretty immediate impact within a very well-defined customer group. In the kind of workhorse category, if you will, the new Tandem Quads as well as the SYNAPT XS are well-understood technologies that are really better versions of technology that’s in the market today and can be adopted pretty quickly.
BioAccord platform, as we talked about before, is really more of a new technology that ultimately is more of a market development effort and will take time to play out, but ultimately in the medium to long term should actually have the biggest impact on our growth in the medium to long term timeframe, particularly as it moves into more routine workflows in QA/QC.
As we look at your R&D pipeline, I mean, you have the BioAccord, which targets the final production runway. You have the Cyclic IMS, which targets the research market. And then I think longer term, you also have DESI that maybe has more clinical applications. So as we think about your future new product pipeline, I mean, is there a strategic focus or direction on which particular market you want to have a bigger footprint in?
And how does that tie to your sort of assessment of where Waters has the biggest competitive advantage?
Yeah. Absolutely, Julia. The question, again, was really about strategically how do we think about the portfolio rolling out and how are these investments tied to our business strategy. Of course, with our primary focus in the company on pharma and biopharma, particularly the fast-growing biopharma world, that's where a lot of our innovation has been pointed. Even if you look at what we're doing on the LC side, our UPLC franchise brings fundamental advantage to those laboratories. And alongside of this mass spec innovation that we've talked about, we've also been quietly introducing a number of new platform extensions in the LC world and a really robust suite of chemistry products, a couple of which I mentioned this morning. So it really is a total portfolio play.
And really what we try to do is to look at how does our total overall portfolio benefit the customers. BioAccord is an example of a portfolio play where we're bringing together all of our key technology elements into a system and deploying it in a way that's very purpose-driven. So pharma, biopharma, certainly some of the technologies I mentioned on TA and material science is our second largest business where I think we're a step ahead on innovation versus competition. And there's a lot more coming this year in TA Instruments from an innovation standpoint. We've done a lot of work over the last three years in the R&D program in TA, which is exciting. And then you alluded to clinical as well. Clinical is a smaller business for us, but one that's actually over time been one of the most consistently fast-growing businesses.
We've done quite a bit with our core platforms to broaden our suite of IVD-labeled products, including the RenataDX, which was launched last year. But we also have a very interesting suite of research-grade clinical and biomedical research technologies like DESI, like REIMS, and other direct mass spec technologies that are increasingly being looked at within the clinical realm. So you can draw a pretty straight line from the market priorities of the company, from our view of the changing customer needs into where our portfolio is headed. And that discipline, that kind of outside-in market-driven innovation strategy is something that we think will pay dividends over time.
How should we think about the resiliency of your recurring revenue stream over time? Obviously, you had some pressure on your recurring revenue stream this year. Could you maybe talk about the utilization patterns you've seen across different end markets?
Is your consumable revenue locked in for your instrument, or could there be competitive pressures involved in your recurring revenues as well?
Sure. The question's about the recurring revenues. The recurring revenues are split between the service business, which is actually bigger than the consumables business. And so you really have to look at both ends of that. As you point out, in the beginning part of the year, we had a little bit slower recurring revenue growth than typical, although through three quarters, that had stepped up a little bit each quarter. And really, there is some element of the recurring revenue, particularly on the chemistry side, where there are some consumable sales at the time of an instrument purchase. And so if instrument purchases are a little bit light, then you can see some impact on the consumable piece at the install.
But we have great confidence in the resiliency of that franchise. We continue to invest in our field service organization. We continue to try to increase the service attachment rate. We've got very good data that that's headed in the right direction. We also continue to offer new services, such as our professional services, which is more of a system integrator type approach. On the consumable side, it's been a competitive industry for a long time. There's nothing really new as it relates to competition on the chemistry consumable side. It's been competitive for a long time. We have a very strong offering that keeps getting stronger. Obviously, as we've pointed out, the attach rates on our HPLC workflows tend to be a little bit lower than the attach rates on our UPLC workflows.
And so as UPLC workflows and HPLC workflows continue to gain traction in the market, that has a beneficial effect on our overall chemistry portfolio. And of course, as I mentioned earlier, the effect of the investment in biopharm where it's not just columns, but it's also kits and reagents for glycans, proteins, and other areas. And then, of course, the ability now through the acquisition of Andrew Alliance to add in an automation play that'll build over time. It's a relatively early-stage company, but one that is on a nice growth trajectory. And then within the Waters portfolio, can be very additive, particularly on the consumable side. That's actually where you'll see quite a bit of synergy, if you will, as those workflows and those kits get developed for biopharma and beyond.
What are the services that are driving the increase in the service attach rate?
How meaningful can that be over time?
A lot of the service attach rate questions on the service attach rate, a lot of the service attach rate growth is really a geographic mix question. If you look in the developed markets of the U.S. and Western Europe, you see relatively high attach rates of service plans, 40% or better. If you look in the more emerging markets, the attach rates are lower just because the installed base is newer. Generally, as the installed base matures, you see a higher attachment rate of service contracts. So really, the fundamental driver behind an overall service attach rate growing is geographic mix. We continue to provide more services.
For example, mass spec servicing, as that product line grows within the portfolio and mass spec becomes more commonly used by a wider range of users, particularly some of the more routine methods that we've introduced in the past, like QDa and now BioAccord, there's some opportunity there, and then the professional services piece is really fundamentally around enterprise deployment of informatics and some of the more system-wide solutions where there's not just a servicing and an upgrade element, but there's also a consulting element, a consultative scientific partnership where customers really benefit from some of the things we can help them do across their enterprise. Yep. Question over here.
Your U.S. pharma business has had some ups and downs in the last few quarters. Can you talk about what you're hearing from that customer base in terms of how they're thinking about this upcoming year?
Yeah. Questions on U.S. pharma. U.S. pharma exactly has been up and down. The overall capital purchasing environment has been a little bit lumpier, I would say, this year and in recent years, just reflecting a variety of factors in terms of the industrial market backdrop, in terms of some of the merger activity in the space. Within the generics realm, there was some noise around the sharp increase in user fees last year. There's just a variety of factors that drug pricing rhetoric that's out there, some of the litigation that's out in the market in various ways, opioid and otherwise. It just created somewhat of a noisy environment, and we did see some inconsistency and some real ups and downs in that base. We know that customer base very well.
It tends to be a global base with a lot of the customers that we serve, having operations in different parts of the world. And we certainly understand their capital purchasing patterns and maybe don't always like them, but we just hang with it and ultimately believe in the underlying growth characteristics of that market. So we'll give another update as we roll into the beginning part of 2020 and keep a close eye on it.
How about China pharma regarding the 4+7? Given the ongoing national rollout into across more drug categories, do you think you expecting improvement in 2020, or do you think there could be more volatility ahead?
Yeah. The 4+7 rollout is becoming more and more well-known. Obviously, at this time last year, it was a shock to the system with the pilot program where there wasn't a lot of information coming into the year.
We saw the pilot activity, 25 drugs in a limited number of cities, 11 cities. We saw phase two of that rollout in September, which extended to 26 or 27 provinces, same a lot of drugs, but also some changes in terms of multiple winners. We expect there'll be a third phase here coming in 2020 where that gets expanded to a larger number of drugs. I think there was quite a shock in the system early in the year, and that's why we saw a real chill on purchasing activity earlier in the year. We saw some of that come back. Certainly not back to normal. We'll give an update at our earnings call as to increased understanding of what happened more recently as well as what we expect going forward. The market's in a bit of a transition.
I would say that underlying all of this continues to be a desire of the government to increase access of generic drug prescriptions to more and more of the population, so throughout this whole process, we expect volume to continue to rise. Our understanding of the next phase of 4+7 is that there will be even more winners per drug and larger numbers of drugs, and so I think that's all healthy for growth and expansion in the market. Generally, the bigger companies are winning the tenders who are people we know well and are generally better customers for us. There is also an increasing global element where firms outside of China, particularly Indian companies, are participating and winning in these tenders, and so that's an opportunity for us as well because we're very, very strong in India.
I'd also say that another reason for this, and I was just visiting China in December and sat down with a number of our own people as well as key customers in a panel on this topic. The other thing that's going on here is that as the volume needs grow, there's an attempt to bend the cost curve. And another reason for that is the government is trying to encourage the development of more of an innovation economy for pharmaceutical drugs. And so really, you're seeing R&D activity step up in China as the secular shift happens from just a pure focus on generics to more and more local innovation. And there's an overall balancing act on how the investment for that all moves forward. So we think positive things for the market long term, and we're very, very focused there. We've got a fantastic team in China.
And we'll give more and more updates as we roll forward and learn more. So, great. Thank you very much, everybody.