Q4 2020 Danaher Corp Earnings Call
[music].
Good morning, My name is Maria and I'll be your conference facilitator today.
At this time I would like to welcome everyone to Danaher Corporation's fourth quarter 2020 earnings results Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If he would like to ask a question during that time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question. Please press the pound key on your telephone keypad.
I will now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.
Okay.
Thanks Maria.
Morning, everyone and thanks for joining us on the call.
Today, our Rainer Blair, our President and Chief Executive Officer, and Matt Mcgrew, Our executive Vice President and Chief Financial Officer.
I'd like to point out that our earnings release, the slide presentation, supplementing today's call and the reconciliations and other information required by SEC regulation G relating to any non-GAAP financial measures provided during the call are all available on the investors section of our website www Dot Danaher dot.
Com under the heading quarterly earnings.
The audio portion of this call will be archived on the investors section of our website later today under the heading events and presentations and remain archived until our next quarterly call.
Replay of this call will also be available until February 11, 2021.
During the presentation, we will describe certain of the more significant factors that impacted the year over year performance the.
Supplemental materials describe additional factors that impacted year over year performance on.
Unless otherwise noted all references in these remarks and supplemental materials. The company specific financial metrics refer to results from continuing operations and relate to the fourth quarter of 2020, and all references to period to period increases or decreases in financial metrics are year over year.
We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals or are available only in certain markets.
During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.
These forward looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings and actual results might differ materially from any forward looking statements that we make today.
These forward looking statements speak only as of the day. They are made and we do not assume any obligation to update any forward looking statements, except as required by law.
As a result of the size of the city of acquisition and its impact on Danaher is overall core revenue growth profile, we're presenting core revenue on a basis that includes the sales references to core revenue growth includes a team of sales and the calculation of period to period sales growth compared to the current periods I tell you the sales to the historical period say to you the sales.
Prior to the acquisition.
With that I'd like to turn the call over to Rainer.
Well, thanks, Matt and good morning, everyone.
Before we go through our fourth quarter and 2020 financial results I wanted to take a moment and reflect back on the past year.
As we all know 2020 was the year that brought many unforeseen challenges as a result of the COVID-19 pandemic.
While our contributions in testing treatment and vaccination have helped with the global effort to combat COVID-19.
Still much more progress to be made to overcome the pandemic.
It's also not lost on us that part of our financial performance in 2020 was driven by the work we're doing the tackle the health crisis, which has had such a devastating impact on so many around the world.
That being said, we're also very proud of our contribution to fight the pandemic and we will continue to work tirelessly to support the global efforts in 2021 and beyond.
Necessary.
So as I look back on 2020, I'm, most struck by our associates teamwork dedication and invaluable contributions during these difficult times.
They are truly making a difference in the world and since the onset of the pandemic. Our team has met the challenges.
Presented and turn them into impactful opportunities to help our customers patients and the global community. Their efforts has been both humbling and inspiring.
I'd also like to recognize and thank our customers suppliers and business partners, many of whom we called upon for additional support to continue meeting demand throughout this pandemic.
We're incredibly grateful and won't forget their collective efforts over the past year.
One of our five core values of Danaher is the best team wins and I believe we truly saw that in action in 2020.
So with that let's turn to our 2020 financial results.
For the full year, we delivered nearly 10% core revenue growth 170 basis points of core operating margin expansion, 43% earnings per share growth and over $5 billion of free cash flow.
We also closed the largest acquisition in our history welcoming sativa team to Danaher in March of last year.
But even as the global leader in bio processing and has played a major role in supporting the development and production of COVID-19 vaccines and therapeutics.
In 2020 of the business generated more than 25% core revenue growth and over $4 billion of revenue.
We couldnt be more pleased with the achievements early results all driven by a highly talented engaged and innovative team that has embraced the danaher business system.
So now let's take a closer look at the fourth quarter results.
We generated $6 $8 billion of sales was 15, 5% core revenue growth.
And believe we continued to capture market share across many of our businesses through accelerated investment in new product innovation enhanced commercial execution and by deploying new engagement techniques, new customer engagement techniques during the pandemic.
Covid related revenue tailwind contributed approximately 200 basis points of core revenue growth, while our underlying base business was up approximately three 5%.
Geographically, we saw broad based on consistent revenue growth during the quarter.
The markets were up mid teens with similar growth in both the U S and Western Europe.
High growth markets were up low double digits, driven by another excellent quarter in China.
Our gross profit margin was 58, 5% and our operating profit margin of 23, 7% was that the 390 basis points, including 360 basis points of core margin expansion.
Our outstanding margin performance was driven by a combination of higher core revenue growth and the impact of the danaher business system on productivity and operations across all of our platforms.
Adjusted diluted net earnings per common share of $2 eight.
Was up 63% versus last year.
We generated $1 $9 billion of free cash flow in the quarter and $5 $4 billion for the full year up 134% and 79% respectively.
Our free cash flow to net income conversion was 149% for the full year and marks the 29th consecutive year. This figure has exceeded 100% for danaher.
The combination of our cash flow generation and strong balance sheet gives us more degrees of freedom earlier than anticipated after the site of clothing and positions us well to actively pursue strategic M&A opportunities.
Given our strong margin and cash flow performance, we took the opportunity to accelerate investments in high impact growth initiatives across danaher.
Including innovation and collaboration project.
We're also expanding production capacity of Cepheid.
And Pall biotech to support increasing demand for COVID-19 related testing and treatments, while positioning the businesses for continued long term growth.
So now let's take a more detailed look at our results across the portfolio.
Life Sciences reported revenue increased as a result of the city of acquisition with core revenue up 18, 5% led by core growth rates of 30% or more at T. The Pall biotech Beckman life Sciences and IDT.
We continued to see strong demand from our biopharma customers during the quarter.
And our non Covid related Biopharma business was up double digits and we also saw an acceleration in activity focused on COVID-19 vaccines and therapeutics.
We also saw customers building out their genomics and automation capabilities to support the development and production of Covid related testing and treatments.
And our more instrument oriented life science businesses order trends and installations improved his academic and research labs continued to reopen.
<unk> benefited from this uptick in activity and delivered mid single digit core revenue growth in the quarter fueled by demand for new products, such as the 7500 Triple Quad and the Echo M S.
Moving over to diagnostics reported revenue was up 23, 5% with core revenue up 21, 5% led by more than 100% core growth at Cepheid driven by elevated COVID-19 testing demand and gene expert systems placements.
Cepheid achieved a significant milestone in December the passing of $2 billion in annual revenue just one year after hitting the $1 billion Mark it it's a tremendous accomplishment by a fantastic team.
Radiometer, and Leica biosystems, our acute care and pathology businesses, both delivered high single digit core revenue growth.
Declines at Beckman, Coulter diagnostics moderated as elective procedures and wellness checks steadily resumed through the quarter.
Moving to our environmental and applied solutions segment reported revenue was up 2% and core revenue was up 1% our water quality platform delivered low single digit core revenue growth and product identification was down slightly.
Across our water quality businesses, we saw solid demand for our consumables and Chemistries as we continued to support customers' day to day mission critical water operations equipment.
Equipment declines moderated as more customer facilities got back up and running.
And by the end market municipal activity and project continued to resume and industrial declines moderated.
Kevin treat delivered its 15th second consecutive year of core revenue growth in 2020, an impressive accomplishment in any year, but even more so given the unprecedented challenges presented by the pandemic.
Across our water quality platform, the team's focused execution combined with our innovative offering and the positioning of our portfolio enabled the water quality platform to achieve positive core revenue growth for the full year.
At our product identification platform the positive results in our marking and coding businesses were offset by moderating declines in packaging and color management can.
On Super Bowls, and services held up well globally as we continued to help customers keep their essential businesses operating <unk>.
Through the pandemic.
So with that as context for what we saw by segment during the quarter. Let me give you some color on the trends, we're seeing across our end markets and geographies.
Customer activity around the world remains broadly consistent with what we saw back in October and through the fourth quarter and we expect this relative stability to persist near term.
Despite rising COVID-19 infection rates and new targeted lockdowns in certain regions customers are adapting to working in this new pandemic environment, and we have not yet seen a material impact on demand.
Within life Sciences, Covid, 19 vaccine and therapeutic activity continues to drive record bio processing demand side.
And Pall biotech comprise most of our bio processing exposure and their combined order growth in the quarter was up more than 50%.
As a market leader across the bio processing workflow. Our teams are playing a significant role in the development and production of COVID-19, vaccines and treatments, while working to ramp up manufacturing capabilities on a massive and very compressed timeline.
We are involved in the majority of more than 400 vaccine and therapeutic project underway globally, including all of the vaccines in the U S that have recently received FDA emergency use authorization or are in late stage clinical trials.
We're very proud of our team's tireless efforts, which will directly impact the lives of so many people around the world.
From where we stand today, we estimate that 2021 revenue the 2021 revenue opportunity associated with Covid related vaccine and therapeutics at <unk> and Pall biotech will be approximately $1 $3 billion roughly twice the amount we recognized in 2020.
Non COVID-19 related bio processing activity remains strong and in line with what we saw over the last several quarters.
Turning to our other life science end market and as I mentioned earlier academic and research labs are continuing to reopen albeit at reduced.
The reduced capacity as social distancing measures limit the number of people in the lab at any one time.
In clinical diagnostics heightened demand continues for molecular testing in both hospital lab and point of care settings.
Launching the first rapid molecular test for COVID-19 in March Cepheid has meaningfully increased production capacity and shipped approximately 9 million test cartridges and the fourth quarter as.
As anticipated approximately 60% of the respiratory tests ship in the fourth quarter, where Covid only test.
And 40% were for in one combination of tests for COVID-19.
Flu, a flu b and RSV.
The team also placed a record number of new systems in 2020, increasing cepheid installed base by more than 35% year over year to over 30000 instruments globally and reinforcing its market leading position in molecular diagnostics.
Second of differentiated offering and leading presence at the point of care position the business to help meet customers' testing needs in 2021 and beyond.
As a result of this strong positioning and the elevated COVID-19 infection and hospitalization rates. We are still seeing today, we expect the ship at least 9 million tests per quarter for the duration of 2021.
Across the hospital in reference labs patient volumes remained steady as elective procedures and wellness checks continue at a similar pace as we saw through Q4.
We're closely monitoring patient activity in areas that have recently implemented new lockdowns, but we've not seen any material impact at this point.
During the quarter Beckman Coulter diagnostics expanded it's COVID-19 related test menu with the addition of of high volume antigen test. This automated test is designed to run on Beckman assay analyzers and can help address the challenges associated with scaling up antigen testing to make higher volume.
Mass testing possible.
Beckmann the automated antigen test is another important addition to our Covid diagnostics offering and a testament to the Beckman team strong cadence of innovation, having launched six new COVID-19 related test in as many months.
Finally in the applied market consumables remained solid as customers sustain essential businesses business operations like testing and treating water and safely packaging food and medicine.
And we're encouraged to see sequential improvements on the equipment side as customers initiate new projects and capital investments.
Looking ahead now to the first quarter and full year 2021.
We expect to deliver mid to high teens core revenue growth in the first quarter.
At the pace that Covid related revenue tailwind will contribute approximately 1300 basis points to the core revenue growth with mid single digit core revenue growth in our non COVID-19 related businesses.
For the full year 2021, we expect to deliver low double digit core revenue growth with growth moderating sequentially in the second half of the year as a result of tougher prior year comparisons, we anticipate that COVID-19 related revenue tailwind will contribute approximately 500 basis point.
The core revenue growth for the full year.
With mid to high single digit core revenue growth in our non COVID-19 related businesses.
So to wrap up 2020 was an exceptional year for Danaher. Our team took the challenges presented by the pandemic and turn them into opportunities to support customers across all of our businesses and also directly contribute to the fight against COVID-19.
We're all humbled by our associates' efforts and believe that Danaher <unk> future is bright thanks to their dedication.
2020 was also transformative year for Danaher with the addition of Citibank.
This was one of several strategic portfolio moves we have made over the last few years to build the better stronger company and established Danaher as the global Science and technology leader.
Looking ahead, we believe the combination of our talented team excellent portfolio of businesses and strong balance sheet. All powered by the Danaher business system positions Danaher to outperform in 2021 and beyond.
So with that I'll turn the call back over to Matt.
Thanks Ryder that concludes our formal comments Maria we're now ready to take questions.
As a reminder, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad. If at any point of your question's been answered you may remove yourself from the queue by pressing the pound key.
Our first question comes from the line of Tycho Peterson of J P. Morgan.
Hey, good morning, nice quarter rider I'm curious if you could talk about the sustainability of the pulse of the order book as you lap tougher comps I know you talked about the $1 3 billion net revenues tied to kill the vaccines, but the question is more on kind of the order book and then timelines for the manufacturing capacity extension you alluded to.
Sure. Good morning, Tycho So in terms of the sustainability of the order book the way, we're thinking about this and we've mentioned this.
J P Morgan as well as about what.
We're looking at a backlog here of about $1 billion coming into the.
The first quarter and we expect the total year to have the COVID-19 related sales of about $1 $3 billion and that's really based on.
The approved.
Vaccines that we see out there in the marketplace as well as the volume that we see related to clinical trials as it relates to other vaccines. So.
We think that we have good sustainability and strong backlog here to be able to make sure that we cover that.
That $1 3 billion, Additionally, and coming back to your capacity point, we have been expanding capacity continuously even prior to the close of the transaction. We had agreed with GE to continued capacity expansion. We had then after the close continue to invest whether that's the <unk> Paul.
Biotech.
Or elsewhere in order to make sure that we're able to meet our customers' demand and that will continue to occur here through the year 2021 and beyond.
Okay, and then for Mcgrew one on just the margin dynamic share as we think about Cepheid tests, a quarter and then keep.
The poll kitchenaid to kind of.
Trend trend at these levels you know what.
The margin implications between these two tailwind in your view for.
For the year.
Yeah, I mean, Tycho I think may.
Maybe the way to think about it is that it helps to kind of sustain.
A similar margin profile to what we've seen before so maybe if you think about kind of.
For the fall through perspective on the core growth here for.
For 2021, and frankly for for Q1 as well, we're sort of assuming we're going to see about a 40% or so fall through for like I said for both Q1 and 22021.
Now that's down slightly from what we've been seeing the last couple of quarters.
But I think we want to kind of stay aggressive in what we've been doing on the growth of investment side, one and two we are starting to see a little bit of inflationary pressure, particularly around kind of frame a little bit on the supply chain as well.
China also is we've got some targeted lockdowns as you know now.
But in the fourth quarter, we really saw schein of sort of having in a country. If you will travel.
Pretty significant there, they're moving their move around quite a bit and getting back at it so.
I think we're sort of thinking instead of maybe the levels of fall through we've seen it might be more like 40.
But again I think we'll be able to hopefully sustain something like that given what you talked about which is a pretty good margin profile of both of those businesses, but that will continue to be pretty strong here next year.
Okay, and if I could ask one more before I hop off just on M&A Reiner of it seems like you're telegraphing the desire to do something more meaningful in any incremental color you could provide on willingness to do a larger transaction in any framework you can talk about.
It's great to be able to talk about M&A here in January of 2021, having just closed.
On the type of deal.
And no question between the the better for.
<unk> that we've seen out of Cepheid.
I am sorry on <unk> as well as the.
The equity raise that we've done in the free cash flow that we've seen we.
We definitely see more degrees of freedom here earlier than we've had but we still have work to do here with <unk> Eva standing them up as an operating company and we will.
We'll always be in the game, but likely more focused on smaller to midsize deals here.
For now.
Okay. Thank you.
Our next question comes from the line of Derek the Brown.
Of Bank of America.
Hi, good morning.
Good morning, Derek how are you.
Good.
Just.
Just following up on on Tyco's question on the margin and just sort of thinking about the.
The <unk> the.
The bottom of I mean, you didn't give on EPS guidance for 2021, but I mean is there any reason to think that.
Something of that dollar 90 to $2 range on a quarterly basis isn't sustainable for the rest of the year.
Well I mean, I think I'd probably.
Derek.
I think I kind of go back to take your 40% Bcf in the fall through and whatever revenue assumptions sort of put in I think the math would you know.
The map on kind of take care of itself on it.
Okay.
And.
Just sort of looking at some of the just.
I guess looking at some of the.
The one big question, that's coming up in the in the the.
The from investors is thinking about instrument placements in the diagnostics area. I mean, obviously there has been not only has cepheid placed the tide of instruments, but a lot of your one of your competitors all the other companies. So in the molecular diagnostics tools have placed enormous numbers of instruments.
Are you worried that there is going to be a glut.
Of the machines out there that don't get use or are you being very selective and sort of like where you are placing on the question of like what's the what's going to be the follow on demand once we're sort of past COVID-19 for your installed base.
So our our instrument placements as we think about Cepheid.
We have.
Place now and have an installed base.
Over 30000 instruments right growing that over 35% here.
In the year 2020.
And we've been very thoughtful about the placement of those instruments.
First of all in helping here during the pandemic and making sure we have those at the point of care, where diagnostic decisions are being made and the answer has to be fast and it has to be right.
And the.
The Cepheid gene expert is just the perfect solutions for that at the same time, we've been thinking about those placements for the long term you may be aware that cepheid has the largest.
The molecular diagnostic menu.
In the U S with over 20 tests and outside of the U S with over 30 tests and so we've placed those instruments, primarily there where we see that even in a post COVID-19 world. They would find great utilization based on the full testing menu.
Great and then just one cleanup question I just one follow up question, how should we think about the Eas segment.
In 2021.
So the Es segment has been improving sequentially here throughout 2020.
And we're really pleased with the fact that our water quality in particular has had positive growth, but also PID.
Essentially.
Flat here in 2020, as well and so we see that recovery.
And we will continue to see that recovery here as we go through 2021 and expect them to be in the mid single digit range not only has the consumables remained solid as they have been but at the instrument placements, which have been in moderate decline had moderating decline start picking up.
Got it.
As we see these customer projects.
And our finals.
Thanks.
Thanks Dara.
Our next question comes from the line of Vijay Kumar of Evercore ISI.
Hi, Vijay.
Hi, guys. Good morning, Congrats on a solid print share of about Rainer, maybe I'll start with the.
You know some of the base business of CR rate the assumptions here for the guide.
On the base business up mid singles in the obviously the comps were pretty easy.
And in the 'twenty, given given the disruptions and I look at the Q1 guide here.
You know mid to high teens, you guys should just didn't mid teens inclusive of five days impact.
And correct me, if I'm wrong it feels like the base business is accelerating here.
Life science, particularly it seems to be the drill.
On double digits in the back half of 'twenty I'm curious what's driving.
That acceleration in base life Sciences.
In the back half of 'twenty and why is the guide assuming mid singles.
For 'twenty one.
Yeah.
So Vijay that's right I mean, we have seen the sequential acceleration of our <unk>.
For instrument related our life science businesses as labs have continued to open day.
Been able to work out there are social distancing protocols. They are not up to full capacity, yet, but they certainly have been improving and that's given us more lab access the continue installation and of course brings the service business back on line. So that's been continuously improving and we would expect that trend.
To continue here in 2021.
Now as we think about.
The the guide here.
The mid to high teens look we have our our base business there at mid single digits, which switches.
100, 150 basis points acceleration as well as the Covid tailwind accelerating here.
2500 basis points. So we think we're well placed there and just as a reminder, we've got a couple of working days less also in the first quarter of 2021.
And then lastly, as it relates to the Covid tailwind keep in mind that Cepheid already last year in the first quarter had a very strong quarter as as the.
Physicians were trying to rule out flu, if you will with with more flu testing in the absence of an actual COVID-19 tests.
That's extremely helpful Rainer.
One for Matt.
Matt the.
I know you said, the 40% incremental as we can do the math.
Clarify of policies.
I'm getting to.
The north of 28% operating margins.
For fiscal 'twenty, one does the team.
Ballpark.
In the right ZIP code for you guys.
Yeah, I mean again.
Theres not much.
If you think about the fall through of kind of 40%. There are some moving pieces here below the line, but the largely offset each other.
So I mean, I think it is pretty it's pretty straightforward, but you know what.
Whatever your revenue assumptions are going to be that that should be of pretty good good way to think about.
Wherever you land on that I think will dictate where you come out on the on the bottom for sales.
Gotcha, and then Rainer.
One last quick one for you. Please on the of high volume magazine tests is that I know you sort of mentioned in your press release about screening opportunity.
Is that an upside in the model here for the guide or how should we think about golf high volume on agent tests.
So the high volume manage and test the you're right. We just launched that here in December and in fact.
That will be available on our installed base of about 16000 instrument. So it is the broadly applicable.
On a test for us here on our installed base at Beckman, having said that we've been very moderate in our planning assumptions here as it relates to including.
Higher volumes of antigen test until it becomes much clear how those will be applied here.
Not just under the Biden and the administration in the U S, but throughout the world and as people start setting standards as to what the test results for antigens mean from a diagnostic perspective, but also in terms of.
How you might think of large volume serial testing for schools opening up another institution.
Gotcha, Congrats again guys on on an impressive upfront here. Thanks, Thanks P J.
Yeah.
Our next question comes from the line of Scott Davis of Melius Research.
Hi, Scott good morning.
A couple of nitpicky questions and.
On Ian.
Is there a meaningful difference between the incremental leverage on that.
The recovery in water versus product I D.
Not really not really Scott most of those.
Those businesses.
Pretty similar or dissimilar hormone.
The.
35% to 40%.
I think that's the thing.
Yes, I think that's a good place to be okay, and then when.
When you guys were thinking in terms of like the for on one.
First of all the foreigners.
One on take rates of 40% number is that kind of uniform around.
Geographies or is there a particular.
Higher take rates in different geographies around the world.
Scott So is that kind of a joint actually does.
The deferred by.
Geography by geography.
On these two facts feedback and do something about this.
Echo here kind of can you hear me, Okay now I can hear you fine.
Okay.
Jim provided for by geography.
Particularly particularly in the U S.
Looking at 70% of it one, albeit only 40% of 40% of.
The.
Foreign one.
And in Asia and of that there's a real pressure on the core of the Covid only test.
The slew of flow.
There is just not as prevalent there.
It's seasonal.
As you go to your on go to Europe.
The increase of the increasing adoption of the four on one but thats a little but that's the little staggered as the improvements on <unk>.
The country roll in.
Okay, Alright, I'll pass it on.
Stick the two questions. Thank you guys and good luck. Thank you Scott. Thank you Scott.
Our next.
Question comes from the line of Doug Doug Schenkel of Cowen.
Hi, Good morning, guys and thank you for taking my questions.
Maybe just a quick follow up on on earlier guidance question. It looks like you're assuming a two year stack base business growth of around 5% that doesn't seem to inquire of full recover as we think about the steady state for your portfolio. So just to be clear.
I think we got the answer to this but I just want to confirm it it seems like the philosophy for the Europe that.
Some of assumption for continued recovery in line with recent trend debt based on backlog, but not a full reopening over the course of the year.
Doug that's exactly how we're thinking about it.
We are still in the middle of the pandemic as we all know and while we are hopeful.
Things get better as the vaccine rollout and the adoption there improves.
We are not expecting 2021 to be a year that is if you will a post COVID-19 herd immunity year. This is going to continue to be a transition year and probably not quite back to the pre COVID-19.
Right.
Okay Super helpful.
Pivoting quickly back over the Cepheid on.
Yeah, I I believe.
Ryan or that you said the guidance assumes cepheid should continue to sell around 9 billion asset per quarter in 2021.
It doesn't seem like that's reflecting any potential capacity increases.
Want to make sure that's the case and if so why and then on.
Kind of building off of that is the expectation that the mix of kind of COVID-19 only in for in one test for overbearing on kind of in that 60 40 ratio.
Okay.
Let's start with the first one.
As you May know, we in Q2 of last year ship 6 million 7 million in Q3, we were planning the ship 8 million cartridges here in Q4 and were able to exceed that.
By shipping 9 million.
So as we think about our capacity improvements, which we continue to work on.
We do not yet have those in place and in view of the <unk>.
Pretty dynamic situation also as it relates to the actual pandemic.
It's a good planning number to take the the $9 million.
Cartridges here per quarter for the full year and of course as we continue to work on and we are working on and investing in capacity increases will provide further updates.
Now in terms of the mix.
I think that is of good planning assumption on the way you're thinking about that with 60%.
Covid only test and about 40% of the foreign one test.
That's how we're thinking about it as well.
Okay.
Just one last one.
I just wanted to dig in on your commentary regarding capacity.
The capacity expansion within bio processing for.
Presumably at some point youre going to be well positioned to transition out of the building the building COVID-19 capacity over the other large molecules.
We're building that out even in advance of the pandemic as you mentioned in your prepared remarks.
So you.
Do you think that bio processing revenue.
Can be sustained for 2021 levels, even when we look forward for the day, where vaccine and therapeutic tailwind related to COVID-19.
Update.
Do you think there is an air pocket or of sustainable demand the trends enough to support revenue of at least of 2021 levels.
Well, we look at it we look at that pipeline of drugs.
Our debt.
And in vaccines therapeutics and vaccines.
Better not COVID-19 related as well and it is chock full of it continues to grow and that business has been very very solid. So theres a couple of things here, Doug one we expect that pipeline to be very relevant to the capacity that's being created today in fact, many of our investments are really pulling forward things.
We had plan for several years down the road.
Kind of one point, but the second point is that it also looks as though the vaccine manufacturing will be with us for some time not only as it relates to Covid and as you think about the.
The bolus of investment that is now gone into a buyer.
Biotech companies that are looking at new vaccine technologies to get at diseases, where we've yet to develop vaccines, we do see increasing number of projects there as well so as it relates to this incremental capacity, we feel really good about.
Where we're positioned got the right portfolio and we think our utilization is going to be very strong.
Okay. Thanks very much.
Okay.
Yeah, just to give you a little bit of color around kind of the capacity side and maybe tying that back to to how we're thinking about the sustainability of what we're seeing today I mean I think.
As Ryan said as everything he just kind of laid out when you think about what we've seen in the core base Biopharma business. We've seen the last three or four quarters here, where we've got a low double digit.
The core growth and you know, that's that's even probably a little bit above where it was a couple of years ago, given everything right or just said the when you put on top of that what we've seen here on the vaccines and therapeutics still of lot of unknowns, obviously going forward, but youre looking at as we talked.
In Q2, and Q3, I mean, the order growth of it.
It's a tivo was well north of 50 and it was north of 50 again in Q4, So I mean, I really think we've got.
The good sustainability as we head into 'twenty, one given the backlog given what we saw on the order growth on site, even in Q4 and given the base business sort of go on.
Low double digits.
That's great. Okay. Thanks again guys.
Our next question comes from the line of Steve of Chow of Wolfe Research.
Hi, Steve.
Hi, good morning, and thanks for the time here.
I actually wanted to rewind almost all the way back to the beginning of your prepared remarks, Rainer and a point that you made about accelerating investments in innovation and collaboration it's one of the sort of high quality problems debt that has emerged for companies that are part of the solution around COVID-19.
I Wonder if you could talk us through how you've gone about identifying areas to to make those investments and if you could flag for us any particular areas of emphasis I really appreciate it and I do have one follow up.
Thanks, Steve So the way we've been thinking about these growth investments.
Very broad across our portfolio, we've always looked at.
This is an opportunity.
To strengthen our capabilities and exit.
The pandemic stronger than we entered whether that in businesses that have been that are benefiting from COVID-19 tailwind for businesses.
That are not in that particular application and so.
What we do is we work together with our teams to identify where the most attractive.
The projects are not just on a return perspective here in the near term, but also strategically positioning us for competitive advantage and then we will invest aggressively in those and that's been the case here.
For several quarters now so we'll continue to do that.
Okay. Much appreciate it and then.
Look a lot of good questions have been asked about.
Margins earnings in the businesses I'll try to round it out a little bit and just ask about core Beck Dx I Wonder if you could give us a perspective on where you are with the the DSA of rollout on the replacement cycle.
To what extent.
The Covid has impacted that I can see I can see of having some puts and takes so any perspective on how that's going on what youre thinking about core Beckman for Quebec, Dx I should say for 'twenty, one we'd really appreciate it thanks Kevin.
Yes, maybe all of them sorry go ahead.
Yes, I was just going to say I mean, we.
Just launched the DSA.
And we couldnt be more pleased with the initial interest in that but if we back up to the Beckman diagnostics business for a second and see how that's been performing we've continued to see sequential improvements here quarter over quarter on practically every region.
And I couldnt be more pleased with the way in fact that that business is positioned you were speaking earlier about these kinds of growth investments that we're making well.
We've just launched the hematology analyzers, along with the Dx day for the <unk> 9005 thousand as well as just launched six new Covid related tests. So that's just an example of your first question also at the.
Great relates directly to Beckman Dx.
So we've been.
Tracking exactly where we wanted to hear with the the DSA.
And.
And that's been really going well for US Matt did you want to add anything there.
No yeah, I, just wanted to sort of address.
The address the question of what we thought they would do from a from a growth perspective here in 'twenty one of them I think we're sort of thinking the as the the rebound continues a little bit with the patient volumes, we expect them to be up sort of high single digits here for the year.
Great. Thanks, so much.
Steve.
Our next question comes from the line of Jack Meehan of Nephron research.
Hi, Jack.
Hi, Good morning. Thank you I was wondering if you could give a little bit more color on expectations around capital equipment. So you. Obviously ended the year on a strong note, but just given some of the recent flare ups do you think that sustains as you go into the first half of the year.
So Jack you're right, we have seen the capital equipment purchases picking up here as labs open up.
That's increased and then we close very strong here, we saw that in many of those instrument type businesses.
In the end of Q4 with us on high single digit performance there so.
In fact, we continue to see that we've poll.
Our businesses and customers.
And they are learning to work.
Around the pandemic with the necessary social distancing measures and we continue to see that accelerating here.
Going into.
2021, and we see that also reflected in our guide here for both Q1 as well as at the low dose the low double digits for 2021.
Great.
And then I know you've given a lot of color already on bioprocess thing, but one follow up just on the expectations built into the guidance. So you havent roughly doubling the $1 3 billion from Covid tailwind in 2021, but that cash.
And it looks like you're Annualizing. The benefit you saw on the second half. So is there anything maybe just talk about how you see the demand playing out throughout the year and is there anything tailing off maybe on the therapeutic side what are you assuming there.
So as we think about the bioprocess order book recall that we had orders growth at <unk> and Pall biotech of over 50% here.
Q4, net debt was a further acceleration from what we had seen and we expect that acceleration here to continue so our backlog position is really strong we entered the year, but the $1 billion.
And our.
<unk> debt that $1 $3 billion of revenue.
On a really.
Really solid.
But that also has some assumptions behind it which as you know here we are supplying the approved.
<unk> as well as those that are in clinical trials and you know we're well positioned.
Not just on the.
On the vaccines and project work speed, but the over 400 projects that you have both vaccines and therapeutics.
So as you think about 2021.
While we do expect the moderation in the second half of the year, that's entirely related to more difficult.
The difficult comps as opposed to of trailing off of the actual absolute demand. So we continue we believe that that will continue.
Yes.
So it gives you some sort of Jack on on what on how that how the order book is going to flow through I mean, we saw inside of <unk>.
Pall biotech.
On the second half of the year, we grew call it north of 35%, we've got that backlog position now of some of the some of what you said on some of that came in during the year on booked and shipped in the year to give us the 35%, but we're gonna get off to a pretty good start here.
<unk> Q1 core growth inside of <unk> is going to be probably north of 50%.
So I think we'll have a good strong start let's see how that order book sort of develops through the year as you know.
More of vaccines and therapeutics sort of make their way through the systems to the approvals, but that's sort of on how we've framed it as we stand now with kind of the $1 three opportunity.
And ladies and gentlemen, we have time for one more question. Our final question comes from the line of Patrick Donnelly of Citi.
Hi, Patrick.
Hey, Ron how are you. Thanks for squeezing me in here maybe.
Maybe just a quick one more high level on the geographic basis, China I think it was low double digits in the quarter on a core growth basis can you just talk about the pace of the recovery there which markets are growing strongly and then also just the expectations kind of baked in for 'twenty, one on that front.
Sure. So as you say, we did see a very nice recovery in China here both in Q4.
As well as what we're planning here going forward, so low double digits in China in 2020, and that's really across the businesses. So we saw that both.
And our our life science and diagnostics businesses as well as an EAA assets China.
Has really ramped here not just in the healthcare sort of related businesses, but also in the.
The applied markets now as we look forward to 2021, starting with Q1.
Yeah.
We expect our businesses to be over 50% in China.
Terms of the growth in Q1.
So really getting out of the gates, there very strongly and of course, they had a lower comparison there in Q1 of 2020 and as we think about the full year, we really see China in the mid teens. So very solid performance very strong recovery after a full year, which really came in.
At the low single digits, So 2020, China low single digit 2021 mid teens speaks to a strong recovery there.
Okay. That's helpful. And then maybe just one more on Cepheid I know, it's been touched on on a few times, but I guess as you think about kind of the sustainability of that $9 million of quarter. How are you thinking about the overall I guess COVID-19 testing market on the back half of your assuming that shrinks in Cepheid gets a bigger piece and then on the back.
Of that do you see point of care are becoming more and more important as we go here and maybe this ends up being a positive inflection point for this is the piece of the market on the go forward. Thank you.
Sure so looking too.
The point of care here in Covid testing in general for the second half.
It's very hard to forecast right now how.
How COVID-19 testing will play out in the second half just because as we think about vaccines rolling out we're already now talking about a variance who knows how many more of those will occur and of course on Austin the dialogue tends to be about what's happening in the U S. But in fact other places around the world are.
Vaccinating, yet at that rate or even don't don't have vaccines, yet. So we think that that planning assumption of $9 million per quarter. It's a very solid planning assumption and then as it relates to the Cepheid in particular at the point of care you may have heard this concentric circle metaphor.
But point of care is really at the center of the.
In terms of the durability of that testing for the long term, because that's where the doctors and the fast turnaround time, that's where they need an accurate result, because theyre going to make the therapeutic decision, they're going to make a decision as to what happens next.
And the.
The outer portions of those concentric circles are the ones that have increasingly less durability as the general public becomes vaccinated.
And over time, although it's going to be.
Interesting to see whether that is achieved in the second half of the year, where the herd immunity is even relevant.
Keep in mind herd.
Immunity is not something that happens in a country the.
The whole world is the Petri dish here.
And if we continue the travel interact with each other.
A high likelihood of debt.
Hi testing volumes will continue for some time.
Great. Thank you.
Thank you.
And that was our final question I'd like to turn the floor back over to management for any additional or closing remarks.
So thanks to everyone for joining us.
Go ahead go ahead, Matt.
Thanks, Ron Thanks, Matt Thanks, everyone for joining us here today, and we're around all day for questions.
Thanks to everybody. Thanks for you.
And thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
Okay.
Okay.
Yes.
And the.
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