Q1 2021 Danaher Corp Earnings Call
Ladies and gentlemen, this is the operator of today's conference is scheduled to begin momentarily until that time your lines.
Thank you for your patience.
[music].
My name is Lori and I'll be your conference facilitator of this morning at this time I would like to welcome everyone to Danaher Corporation's first quarter 2021 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 you would.
Like to ask the question. During this 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.
Now I'll turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.
Okay.
Thanks, Lori good 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.
The 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 will remain archived until our next quarterly call.
A replay of this call will also be available until May six 2021.
During the presentation, we will describe certain of the more significant factors that impacted year over year performance. The supplemental materials describe additional factors that impacted year over year performance.
Unless otherwise noted all references in these remarks and supplemental materials to company specific financial metrics refer to results from continuing operations and relate to the first quarter of 2021, 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 include.
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 may differ materially from any forward looking statements that we make today.
These forward looking statements speak only as of the date that 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 besides of the fact T. The acquisition and its impact on Danaher overall core revenue growth profile, we're presenting core revenue on the basis that includes say to you. The sales references to core revenue growth includes the team of sales in the calculation of period to period sales growth comparing the current period of sales to the historical periods city of the sales prior to acquisition.
Yeah.
With that I'd like to turn the call over to Rainer.
Well, thanks, Matt and good morning, everyone.
In the first quarter of 2021, we got off to a very strong start delivering better than expected core revenue growth across our portfolio.
Our broad based performance was driven by double digit core revenue growth in our base business.
Our ongoing contributions to the development and production of Covid, 19, vaccines and therapeutics and strong demand for Saturday at the point of care of molecular diagnostic tests.
Our record top line performance also contributed to outstanding earnings per share growth and free cash flow generation.
Our well rounded first quarter results are a testament to the unique positioning of our portfolio and our commitment to continuous improvement.
We have an exceptional collection of market leading franchises in technologies all powered by the Danaher business system that sort of attractive end market the terrible secular growth drivers.
We believe that this powerful combination differentiate danaher and reinforces our sustainable long term competitive advantage.
So with that let's turn to our first quarter results.
We generated $6 $9 billion of sales in the first quarter with 30% core revenue growth all three of our reporting segments delivered better than expected growth led by life Sciences and diagnostics.
We believe we continued to capture market share, particularly at some of our larger businesses, including Factiva Hall, Radiometer, Leica Biosystems Hawk and video jet.
Over the last several years, we've prioritized high impact growth investments and innovation sales and marketing to ensure that we're well positioned both near and long term.
Through new product introductions, and the impact of our Danaher business system growth tools, we've enhanced our competitive advantage and believe we've achieved notable market share gains.
Geographically revenue growth was broad based across both developed and high growth market.
We saw over 20% growth in the developed markets led by North America, and Western Europe High.
High growth markets were up more than 45%.
Largely driven by the recovery in China.
Our gross profit margin increased 580 basis points year over year to 62% in the first quarter largely due the higher sales volume and the positive impact of higher margin product mix.
Our operating profit margin of 29, 1% was up 1300 basis point year over year, including more than 900 basis points of core margin expansion as a result of higher gross margin and lower operating expenses as we continued to see limited.
<unk> and other related costs.
Adjusted diluted net earnings per common share of $2.52 were up 140% versus last year.
We generated $1 $6 billion of free cash flow in the quarter, an increase of 135%.
Year over year.
Now in the first quarter, we deployed more than $400 million of capital towards mergers and acquisitions across all three segments.
Most notably IDT and site the completed their first bolt on acquisition.
With the ITT, adding twist biosciences, which brings complementary capabilities and the broad portfolio of next Gen sequencing library preparation and enrichment solution for DNA.
RNA and methylated DNA samples.
And so even the acquired ban Rx pharma systems, which provides innovative automated a septic filling technologies used to fill the vials syringes and cartridges are critical final steps to complete the bioprocess workflow.
We also continued to make significant organic investments in high impact growth initiatives across all of Danaher.
Over the past six months, we've invested in a meaningful expansion of production capacity of SAP.
Yeah.
Eva.
Pall biotech and Beckman life Sciences.
Near term these investments will support COVID-19 related demand.
But they're equally important to support the long term growth of these businesses, where we see tremendous runway ahead, given the underlying growth drivers and the durability of the markets they serve.
Between these core businesses, we're investing more than $1 billion in 2021 to continue to meet our customers' needs today and well into the future.
So now let's take a look a more detailed look at our results across the portfolio.
Life Sciences reported revenue increased 115% as a result of the site acquisition and core revenue was up 41, 5%.
We saw strong double digit core revenue growth across all of our largest operating companies and the platform led by <unk> <unk>.
Paul Life Sciences.
Beckman life Sciences and IDT.
In our bio processing businesses accelerating demand for COVID-19 related vaccine and therapeutic development and production.
The combined core revenue growth rate of more than 60 per cent of say tivo and Pall biotech.
Excluding the impact of Covid related activity, our underlying biopharma business grew in the low twenties range.
We believe that our ability to continue meeting customers' need the cross their bio processing workflows enabled us to gain market share in the quarter, particularly within our cell culture media and single use product line.
Moving to diagnostics.
<unk> revenue was up 34% and core revenue grew 31%.
Each of our largest operating companies in the platform achieved high single digit or better core revenue growth led by Cepheid, which achieved more than 90% core revenue growth.
In response to the unprecedented demand for Cepheid rapid point of care of molecular tests the.
Team again, the increased production capacity and shipped over 10 million respiratory test cartridges and the first quarter rough.
Roughly half of the test chip to of Covid only test and the other half were foreign one combination test for COVID-19 flu.
Flu, a flu b and RSV.
We also saw increasing demand for non respiratory tests, the cross cepheid market, leading test menu, including sexual health hospital acquired infection and virology, demonstrating the broad applicability of Cepheid molecular diagnostic offering.
Moving to our environmental and applied solutions segment.
Reported revenue grew six 5% and core revenue was up three 5%.
Our water quality platform was up slightly and product identification was up high single digits.
Our water quality businesses support customers' day to day mission critical water operations, providing water testing treatment and analysis across a variety of applications around the world.
We saw good underlying demand for our analytical chemistry and consumables during the quarter and we're encouraged by the improvement in equipment sales, which returned to growth as customers got back up and running at more normalized level.
In product identification, we saw mid single digit core revenue growth in our marking and coding businesses and double digit growth in packaging and color management.
Go an extra rate benefitted from the underlying market recovery and saw good momentum from customers initiating new projects and investments in the first quarter.
So with that.
Contact from what we saw by segment during the quarter.
Take a look a walk through some of the trends, we're seeing across our end markets and geographies.
Customer activity around the world is approaching pre pandemic levels.
As we all collectively adapt to working in this new environment.
We're seeing this in the form of strong sales funnels and order book growth.
Service levels at or near pre pandemic level and an uptick in equipment revenues.
While some of this dynamic is the result of pent up demand in the wake of widespread lockdowns.
We're starting to see underlying recovery across most of our end markets were.
Who are impacted.
Now if we take a closer look at these dynamics by geography, China appears to be the furthest along in terms of reopening with the <unk>.
Activity levels largely back to normal.
The U S is not all the way back just yet but is moving in the right direction and an increase in vaccination rates across the country appear to be driving some of this progress.
Europe is improving broadly and while certain areas have recently experienced setbacks in the process of reopening we've not seen any material impact.
And the life sciences activity in the broader biopharma market remains robust.
Not been any slowdown in the double digit growth trend, we've seen over the last several quarters across non COVID-19 related biopharma activity.
Within Covid related Biopharma farm activity, the significant ramp up of vaccines and therapeutics is driving record bio processing demand.
We're involved in the majority of COVID-19 vaccine and therapeutic project underway around the world today, including all of those in the U S that are currently on the market. We're in later stage clinical trials.
Our operating companies are playing a significant role in the development and production of new therapies and vaccines across the Biopharma pipeline.
And given the breadth of our offering and the production capacity, we're adding in 2020. One we are uniquely positioned to support our customers in their mission today and well into the future, which is to make more life saving treatments available to more patients faster.
In clinical diagnostics, we continue to see heightened demand for rapid point of care of molecular testing.
As we look across the COVID-19 testing landscape and consider the durability of the demand.
We're seeing we believe the Cepheid positioning is the strongest amongst the various testing modalities and setting that up.
The leading presence at the point of care combined with the speed accuracy and workflow advantages of their molecular offering uniquely positions the business to support customers testing the not only for COVID-19, but beyond the pandemic as well.
Across hospitals and reference labs patient volumes are at or near pre pandemic levels in most major geographies as elective procedures and hospital visits have rebounded from last year.
Some of those growth is accelerating as a result, and we're encouraged by the momentum of instrument placements.
Finally in the applied markets consumables remained solid across the essential business operations like testing and treating water and safely packaging food and medicine and.
And growth is picking up on the equipment side as customers get back to more normal operations and initiate capital investment.
Now, let's briefly look ahead to our expectations for the second quarter and the full year.
We expect to deliver second quarter core revenue growth in the mid twenties range.
We anticipate low double digit core revenue growth in our base business.
And a low double digit core growth contribution from Covid related revenue tailwind.
Additionally, we expect to have operating profit pull through of approximately 40% in the second quarter and for the remainder of 2021.
For the full year 2021, we now expect to deliver high teens core revenue growth.
We anticipate that Covid related revenue tail winds will be a high single digit to low double digit contribution to the core revenue growth rate.
This would include an estimate of $2 billion of 2021 revenue at the site Chiba and Pall biotech associated with vaccines and therapeutics, which is higher than our previous expectation of $1 3 billion.
And at Cepheid will continue ramping capacity through the year and now expect the ship approximately 45 million tests in 2020, one compared to our prior estimate of 36 million tests.
And in our base business, we now expect that core revenue will be up high single digits for the full year.
So to wrap up.
We had a very strong start to the year and feel good about the momentum we're seeing across all of danaher or.
Our first quarter results are a testament to the commitment and capability of our team and the durable balanced the positioning of our portfolio.
We believe this combination differentiate danaher and sets us up well to outperform in 2020 one.
And beyond.
In our pursuit of continuous improvement.
We will strive to keep building, an even better stronger company and the positively impact of the world around us and meaningful way for all of our stakeholders we.
We see tremendous opportunity the had did you just that.
So with that I'll turn the call back over to Matt.
Thanks Ryder.
That concludes our formal comments.
Laurie we're now ready for questions.
Thank you at this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
If your question has been answered and you wish to remove yourself from the queue press the pound key.
Ask that you please limit yourself to one question and one follow up question only.
Our first question comes from the line of Tycho Peterson of J P. Morgan.
Hey, good morning.
Good morning.
I'll start with Bioprocess, obviously very strong numbers. There did you give the Paul Sankey. The order number I didn't hear that if you did and then as we kind of think about the durability of the trends there I appreciate you're kind of raising guidance here for both of the vaccine in the car.
The tier ones, but how do you think about kind of the durability and then also was there any stockpiling we heard from one of your peers about tech rebuild of inventory given the supply chain concerns.
Thanks Tycho.
So.
As it relates to orders growth for for our vaccine and therapeutics businesses, we're talking primarily here of Cepheid.
I'm, sorry S E T. The.
And Pall biotech first quarter orders growth was over 60%.
I'll give you a sense of of the strength of that.
And as we look towards of the rest of the year here.
Or just talk about the fact that we're confident now that our total business for the vaccine and therapeutics for 2021 will be $2 billion rather than the originally estimated $1 3 billion. So we continue to see that order build here as noted here in the first quarter.
<unk> and.
And that's really.
Continuing to drive strength here for the full year.
Now as it relates to stockpiling.
We occasionally hear about that on an <unk>.
Certain unlimited product, but in general and certainly as we run our business. We're in constant communication, both with our customers and our suppliers to ensure that we don't have pockets of inventory either of finished product.
Or raw materials sitting idly by holding up any manufacturing of.
Vaccine or therapeutics.
Okay. That's helpful. And then maybe a follow up on margins, obviously, good upside here as well and particularly on the life Science side, you had 24% last quarter 933 can you maybe just talk to how you think about the durability of that margin improvement.
Well certainly the volume ramp here has given us a great deal of the volume leverage and we also of course see.
Through the increased consumption.
<unk> of our our consumables.
A skew in the mix towards the positive so the margin of our very strong and as we look forward in the comps change and we continue to invest in our businesses as well as we.
We expect some cost to come back as we get to a more normalized the travel situation I would expect those margins to moderate a little bit.
Okay, and then before I hop off just one last one on capital deployment, you mentioned the bolt ons for IGT and say to you, though obviously, we're seeing M&A pick up from the space more broadly just curious share.
Your thoughts on the landscape the appetite for something more meaningful.
We continue to.
The excited about our our balance sheet and how quickly we've been able to rebuild that now having said that it's just the year ago that we actually close.
The city of acquisition and there's certainly plenty of work to do there, but having said that the.
Our funnels are very active across all four of our platforms and.
And we think that we have plenty of opportunity ahead of us.
Okay, Tycho Yeah, it's Matt.
Matt.
Just wanted to get kind of going back to your first question is just to give you some numbers around sort of the order growth you'd asked about sort of I think kind of the continuation of the maybe the way to think about it at least how I think about it is in for Paul and say T. The.
And the vaccines therapeutics, we did you know call it $500 million in Q1.
That's going to be pretty consistent here Q2, three and four so I think we'll probably do 2 billion for the full year in.
In the vaccines and therapeutics.
Which you'll be like I said pretty consistent and I think.
When you think about maybe sort of the rest of it the cepheid part that's going to ramp up as we go through the year given the fact that we've talked about we're going to be.
Doing a little bit more kind of volume here than we than we initially thought so that's probably another 2 billion revenue. So total revenue of 4 billion for kind of that Covid tailwind.
And one piece of the Cepheid piece of ramp up and the other piece of the vaccine therapeutics pretty steady through the year.
Okay. That's helpful should we assume some of that vaccine work off of spills over into 2022 I know, it's one of the first quarter of 'twenty, one, but that's the obvious question, we're all going to get us.
What's the kind of for 2022 looks like.
So I think the the way we're thinking about that is there.
That we.
Continue to build the and ramp on orders growth here and after the $2 billion again vaccine.
Therapeutics, we expect the to have $1 billion of backlog a vaccine in therapeutics.
Going into 2022, and that's assuming.
Right now with the approved.
<unk> seems that are in the various jurisdictions, which are eight currently that's the assumption there and that's not assuming any booster shots or or vaccinations of of of kids under 16.
We do expect to see.
Further vaccine and therapeutic production well into 2022.
The maintenance cycle.
The simple frame on the numbers of that to just to kind of give you a sense of it because I know Brian mentioned, it was $1 billion backlog, but.
The way the I think I'd frame. It is if you think about 2020 one.
We're probably going to see orders of call. It 3.3637 cumulatively.
I think we did $650 million of sales last year.
We think we're going to do 2 billion in sales. This year. So that three six last call. It two six in sales is why we ended up with the backlog at December of this year to take into 'twenty two.
And like Reiner said that really sort of doesn't kind.
Kind of.
That's just where we stand today.
You know the assumption as Ryan mentioned that we are not really assuming kind of of fall booster slashed third shot we're not assuming the.
Vaccines are going to get out there for kids at this point either so that's really just what's on the market now of the eight that are cleared.
The ramp that we're seeing here in the developed markets largely.
Okay. That's very helpful. Thanks, guys I'll, let other shopping.
Thanks, Matt.
Our next question comes from the line of Vijay Kumar of Evercore ISI.
Hey, guys Seth.
Congrats on a on a pretty solid print this morning.
Just to follow up on that last question. Appreciate all of the color. So you guys did $650 million of revenues.
Vaccine in therapeutics in 2020 of accumulative of from call. It 2627.
2020 of 21.
And that does not include children or boost firm.
Just the zoom and booster I think most people are leaning towards the third shocks.
Given that we've recognized about $2 seven.
You know a booster third shock would imply another 1.3 like half of the coupon of seven as potential incremental.
Perhaps in the 'twenty 'twenty two would the math makes sense I'm curious.
Yeah, Vijay the I think it's a little early to tell I mean, I think you know.
Youre right in the assumption that the most people I think are assuming theres, a third shot or a booster.
But again I think it's the.
The timing and the amount and what it looks like is just a little early to tell and that's so that's why we sort of wanted to kind of give you. What we're seeing now of the framework that doesn't really include it because that's still a bit of an unknown, but just so that you know sort of how we're thinking about where we stand here.
Early you know pretty still pretty early in 'twenty, one, but you know as.
As that plays out.
In the second half in 'twenty to kind of give you an update but that is not inclusive of.
Of the numbers that I just laid out for it.
Understood and then I did have one.
A follow up on on.
How does the.
Frame, what the future could look like and I'm not asking for guidance in fiscal 'twenty two of.
It's more perhaps the broad strokes and I think the debate.
It has been for some of your peers with the exposure to Covid tailwind.
The debate has been whether companies can grow earnings in 'twenty two.
I think you guys could end up being one of the few companies the <unk>.
Can grow earnings off of a fiscal 'twenty one levels I think Ryan of someone who you are.
The comments on that.
Gaining share in Biopharma and you know you alluded to the fact cepheid a really strong demand it looks like that increase installed base should flow through.
Two other tests in a post pandemic.
Am I right in.
Thinking about some of those broad strokes of about 22 earnings being about 21.
So Vijay let me, let me lay out and how we're thinking about.
22 on the on the back of of 'twenty one.
And as Matt was just saying, it's a little early to get into specifics.
Specifics as you can imagine that 2022 in this dynamic environment is the way the way, but having said that we feel confident around the durability of our COVID-19 revenues.
So let me try and lay this out a little bit.
As I mentioned, we think we entered 2022 with the $1 billion in vaccine and therapeutic backlog.
And the potential upside that we talked about based on the assumptions not including boosters not including.
Kids are.
Being vaccinated.
Nor including at this point other vaccine programs that might be a earlier stage in.
The pipeline if you think about that and are very very broad portfolio of both in terms of upstream and downstream solutions independent of the vaccine or therapeutic modality.
We really see debt, we're very well positioned there and that $1 billion backlog.
It is.
Sort of at the beginning of that story.
Now as we think about testing so diagnostic testing for Covid.
The COVID-19 is going to be or is already endemic.
And we'll be testing at the point of care for for a long time.
So while some folks are talking about 2021 being the peak year protesting for the market.
We think Cepheid is uniquely positioned you recall my example of the concentric circles with the highest durability.
Tests being in the center, representing really Cepheid point of care workflow and as you think about Cepheid expanded installed base are the very strong menu that we have.
We believe that well do roughly the same number of tests and in 2022 as we are doing in 2021 and you recall, we just raised that from 36.
The 45 million tests.
And then if you think about our base business.
We really are and continue to be exposed to a number of attractive secular growth drivers biologics more generally and life Science research along with molecular diagnostics and the decentralization of health care and then of course environmental sustainability as you think about our water quality group.
Packaging needs continue to proliferate.
So net net we feel we're uniquely positioned to outperform in 2021.
And beyond.
Well that is impressive thanks for the common stock guys. Congrats.
Your next question comes from the line of got Schenkel of Cowen.
Hi, Doug.
Hey, good morning, guys. Thank you for taking my questions.
Just wanted to go back to guidance and.
I think it's a math question I'm just wondering if you could help us bridge.
Essentially the delta between your prior core revenue growth guidance for low double digits.
The updated range of of high teens growth more specifically im wondering where youre seeing the most improvement from a business perspective relative to where we were at your last update and along those lines. What are you now assuming for the core operating environment, particularly as we look ahead to the second half of the year.
Sure Doug So let's come back to the full year guide going from you know the mid.
Mid to high teens.
And simple frame, if we start starting at the top there would be that we see the full year base business now at high single digit.
Core growth and full year of Covid tailwind to be in high single low double digits.
Now if we start with the base business.
We see that.
Staining certainly at the current level with customer activity around the world continuing to resume and the approaching pre pandemic levels.
And then of course customers are adapting to the new work environment and we see that in the form of strong sales funnels and our order book growth.
Even service levels are at or near normal and we have much better site access and then we have had.
Or more normal normalized operations and we're also seeing an uptick in instrument revenue as customers are starting to initiate new project.
Upgrading and doing some capital investment.
As I've mentioned here just a minute ago from of Covid testing perspective, we still see the point of care testing at Cepheid.
Easy workflow.
Right answer.
Being in the short turnaround being the solution be durable.
And we see Cepheid actually accelerating geared of 45 million test versus the 36 million tests that we've spoken about so we're seeing no fall off in demand for the Cepheid.
And the way to think about that as we did about $10 million here in Q1, and the sector increased by $1 million about each quarter. So 11 in Q2 12 in Q3.
13 in Q4.
And an important point to recognize here is.
Our mix in Q1, Covid only versus foreign one.
50 50.
Now as we go into the summer months here in the northern Northern Hemisphere, we see that mix going from.
The 50 50 in Q1 to 80 2080, Covid only 21 for Q2.
Q3, and then for Q4, we see that going back to as we enter flu season and so forth.
Two back to 50 50, so keep that in mind from the mix assumption perspective.
Now if we look at the this by segment.
See the life sciences growing over 20% here for the full year of course bio processing thats non COVID-19 related remains robust in the low double digits as we've talked about we're seeing our instruments improving so if you think of Leica Microsystems think about side effects.
Trends improved through 2021 as these projects are resuming as we speak and returned to work and then of course, the Covid related vaccines therapeutics revenues, we just talked about it.
Of about $2 billion.
And then as you think about diagnostics here, we see ourselves in the high teen.
<unk> of Kerr talked about the.
The expected 45 million tests.
That's it is debt capacity continues to build here through the year and in our core and reference lab businesses.
See the volumes continuing to recover.
It's really not having the material impacts of thinking about Beckman diagnostics Leica biosystems in the low double digits here for the full year.
And then from an <unk> perspective, we see that in the mid singles to high single digit.
Of the consumables demand remained solid as it has been but now we're starting to see equipment improve.
Equipment placements.
As well.
The positive growth territory.
And then lastly, if you build it out by geography, China.
Over 20% of the year with a very strong recovery in North America.
The <unk> with Western Europe.
The low double digits. So that's how we're thinking about the frame here.
By business as well as by geography, as well as base and Covid tailwind hopefully that's helpful.
Yes.
That is super helpful and that's a lot of great detail, maybe very quick follow up and I think.
You sort of alluded to the sort of referred to this at the brighter but.
In terms of just the high growth markets.
Growth was extremely strong in the first quarter some of that I think we're just fundamental improvement some of that was favorable comps.
Just kind of your last point it does sound like Youre expecting some sustained improvement in high growth market growth.
Over the balance of the year that kind of what we saw in Q1 of it is expected to be sustainable.
We do.
As you correctly point out of China in particular as Q1 last year, essentially what was shut down through the first quarter numbers.
We're very very high, but having said that non.
Not only in the market, but also in our businesses, we see sustained very strong.
Growth in the high growth markets, China being.
The Best example of that with growth over 20% for the full year.
Great. Okay. Thank you again.
Thanks, guys. Our next question comes from the line of Scott Davis of Melius Research.
Hi, Scott Good morning, Reiner, and snap and Matt Good morning.
Yeah.
Yes can you hear me gosh, yeah debt, where Gary you're good.
Okay.
I have of new headset.
I'm not sure if it works or not so hopefully it works, but anyways Rainer you talked a little bit about the capacity adds.
Can you give us a little sense of the kind of of the scope.
We're talking about adding new lines in existing facilities or are you talking about new facilities and are in process on this or is it done just a little bit of color around that would be helpful.
So we are talking about all of that Scott.
We are opening up new facilities.
For example, we're starting up of new plants in South Carolina.
That will be targeted initially of single use technologies will be coming online supporting both.
Pall biotech as well as the.
Eva.
We've recently completed.
Small deal in China.
Nine out of our joint venture partner and are expanding.
Our single use technology.
Capacity on the ground in China as well and then we have additional lines going in and several facilities throughout the developed market.
Once again for single use technologies, but also other <unk>.
<unk> pharma.
Related portfolio increases so all of the above and coming online here in the shorter term.
No.
To the 40% of Incrementals that you are guiding to which obviously seems conservative based on your history.
As the new capacity.
Probably comes in at a fairly low profit level of it first is that a.
Does that play into this guidance at all or is it not not really a big issue.
Scott.
It's not a huge issue for us in this year I mean, a lot of the stuff too when you think about what's coming online.
Think about capacity at Cepheid, that's pretty that's pretty good margin for us. So if anything it's probably on the margin helpful, but it won't be a big drag.
Okay, Alright, good luck guys congrats on a great quarter.
Got it.
Your next question comes from the line of Dan Brennan of UBS.
Great. Thanks, Thanks for taking the questions.
And congrats on the quarter, maybe maybe a two parter on COVID-19. So.
<unk> the outlook for 2022, the Cepheid will remain consistent with 'twenty. One can you just share some of your assumptions around that like what kind of implied share of your thinking and how are you thinking about the the overall testing market that kind of gets you to that number and then b.
On the vaccine therapeutics.
Kind of maybe Dovetailing on kind of Scott's question in terms of capacity.
What can.
Can you share with us kind of where you are today from a.
Total capacity in terms of being able to meet the demand that you see how tight things arent as the da Vinci code the close with the additional capacity you're building out kind of how does that filter into the the base by of production business.
So let's start.
With Covid testing and the durability of bad debt coming back really to what we're seeing today, we see no slowdown.
And the demand for Cepheid tests per.
Covid in the.
So while the market is.
As I'd mentioned earlier might might peak this year in terms of testing and we'll see if that's the case, but if we take that assumption, we continue to see that the value proposition.
Cepheid offers at the point of care and as those tests wander from more distant testing setting back to the point of care.
Cepheid value proposition there in terms of workflow speed and accuracy are really in the center of that concentric circle.
That's so important here too to keep in mind also we've increased the installed base of the.
Experts now since the beginning of last year by over 40%.
So a significant installed base increase and thats actually the largest installed base of <unk>.
Like other diagnostics point of care tests.
You know around around the globe at the same time, our broad menu 30 test approved outside of the U F. 'twenty inside of the U S is getting us into care setting.
That we expect to provide.
From the durability here for the future. So that's what allows US here as we continue to increase capacity quarter over quarter to continue to increase our shipments and as you think about 2022 going forward.
First of all of the vaccine.
We'll take.
Likely years to rollout to the entire world.
Secondly, the.
Their effectiveness is on a continuum some of them as high as 95% others are in.
In the mid Sixty's and so we're already seeing breakthrough infection.
And there's also a number of people around the world, who prefer not to get vaccinated. So testing will be continuing and very likely so at the point of care and that just gives us the confidence.
Based also in our conversations with our customers who are giving us outlooks here for the next 18 to 24 months.
That that we're going to be able to maintain in 2022 the level.
The test shipments.
Debt, we had here in 2021 of $45 million is what we're looking for for 2021.
Now as we think about.
To your question on total capacity of capacity tight.
I think certainly we are we are running very hard, but as Ed mentioned in another.
We have invested continuously here over the last 18 months in expanding our capacity. If we think about <unk> in particular, even prior to the close with GE. We have an arrangement, where we continued to increase capacity and we've continued to invest very.
<unk> and those capacity the increases so we're working together with our customers and our suppliers to make sure that we're able to supply the needs here in 2021 and going forward.
The other aspect of your question once you have the capacity online should.
Vaccination in Therapeutics peak.
How do we think about debt capacity going forward and here again, we're very bullish.
Based on the development pipeline of buy.
Logic drugs, which continues to grow significantly so even if you put COVID-19 related vaccines and therapeutics aside the capacity requirements going forward.
Continued to be significant and were very confident that the capacity investments that we make today and tomorrow are very much needed here to supply the future needs of our customers and Theres certainly in dialogue with the spin.
Typically on that point.
Kind of a terrific Brian.
Maybe just one quick follow up just on Cepheid I know, it's been asked in the past life.
The the survey that showed there was likely to be of continued high usage level for a lot of these boxes that are placed.
As we get beyond Covid because of any way to think about what cepheid was like the growth rate you were thinking about before COVID-19 and what that could be now given this dramatically larger installed base.
In the sense of how much of these boxes kind of can.
Continue to get used.
Beyond Covid. Thank you.
Well, you've heard us you've heard us speak about.
Our frame of pre pandemic and sort of post herd immunity or post vaccination.
We saw at Cepheid really growing in the low double digits pre pandemic based on the menu.
At that time, which we've kind of expanded and will continue to expand going forward.
And so the way we think about it is at the very minimum we should be able to drive continued low double digit.
Growth at Cepheid on the one hand on the other hand, we do have now an endemic.
Disease, COVID-19, and you really need to layer of that type of testing.
On top of.
Sort of the space testing rate that we have seen in the past. So that's how we're thinking about it and that's what gives us confidence in the durability here both of them in the near term and in the future.
Great. Thank you Rainer.
Your next question comes from the line of Dan Leonard of Wells Fargo.
Hi, Dan.
Hello, So two questions first off on the guidance I appreciate all of the line item detail, but at a high level how much conservatism do you think is still baked into that high single digit view on the base business outlook given all of your commentary in the low single digit comp.
Okay.
So as we look at our base business.
You really.
See this as an appropriate view.
What remains here of the year and there's good reasons for that we we continue to see labs opening up per.
<unk> volumes return and the base business, we see in our.
The applied and minimal environmental and applied solutions business.
<unk> levels continue to pick up with our consumables.
Running at.
Good strong rate and instruments.
Continuing to be placed here at the capital projects go forward and this is why we have increased that forecast on the base business.
From mid single to high single digits, and we think thats the appropriate.
As we look for the year, we still have.
A good part of the year ahead of us.
And think that's the appropriate way to think about it.
Okay I appreciate that and the and then my follow up how are you thinking about prospects for inflation and your ability to offset inflationary pressures, maybe even from incremental efficiencies you've learned from operating during a lockdown.
We've.
Ben in these kinds of environments before and the Danaher business system and the tool set that we apply.
Every day.
It really helps us to offset this on the one hand, we're working closely with our suppliers and ensuring that.
We are working our price performance variations in the tool sets that we have there of course, we value engineer.
Every day of the <unk>.
Weak and then going forward. We also work on the pricing side to ensure that we're able to protect our margins and ensure that we capture the value of our differentiated.
And oftentimes the IP protected solutions going forward.
Appreciate that thank you.
Thank you.
We have time for one more question. Our final question will come from the line of Patrick Donnelly of Citi.
Hi, Patrick great. Thanks.
Are you guys. Thanks Rainer.
You touched on of a little bit of a couple of questions ago, but I wanted to drill in on the bio processing piece outside of the vaccine obviously the vaccine demand gets a lot of of the headlines understandably, but can you just talk about what youre seeing in the market kind of the underlying demand in the bio processing bio production world. What do you think that market growth rate looks like over the next few years.
And then to your point, how confident you are in that demand being enough to kind of fill the capacity that you're building out in the post vaccine world, which again to your point it feels like it's multiple years away, but just wanted to talk about that market a little bit.
Sure Patrick.
There's a number of data points to consider here let.
Let me start with the fact that biologic drugs are highly efficacious.
The very great demand and that the penetration of these drugs throughout the world is still in the single digit percentages again speaking now outside of Covid.
Vaccine so the penetration of these highly efficacious drug is still relatively low.
On the other hand, when you look at the surge of capital investment that we see going into drug development, whether that be in traditional pharma or small biotech and throughout the world. We see that the drug pipeline and the associated number of drugs in the clinical.
In clinical trials continues to ramp very significantly and even if you apply sort of traditional success rates.
The number of projects and those pipelines.
You have to expect.
A very very solid and continued growth.
Here for the future and we certainly do and we expect that growth to be in the low double digits here on a sustained basis.
And if you have any sort of additional leverage here as it relates to the transition from for instance, stainless steel manufacturing solutions to single use technologies for greater flexibility and ease of use and lower risk of cross contamination that provides additional impulses and catalyst to the growth rate.
Which will require the capacity that you see coming online. So we're very confident that the capacity that we're putting in place for our customers and to support their future growth.
Is required here in the future.
That's really helpful. Appreciate it and then just wanted to follow up on one of the cap deployment of questions from earlier.
We've seen some peers kind of step into other industries like the CRO World I know you've talked a little bit about your interest or lack thereof in that type of space previously, but some thinking has evolved in other places. So I was wondering.
Is that of market that you'd be interested in getting into and just wanted to get your thoughts from that.
So.
We obviously don't want to comment on.
Specific things happening of here in the market, but what I can say.
Say is that we're really happy with the approach that we've taken with the acquisitions of <unk> Pall IDT and phenomenon X, where we're providing very specific practical and material solutions to our customers' pain points. These are all companies that are in the forefront of technologies with PREPA.
<unk> solutions with high number of touch points and high customer in the intimacy and very importantly, recurring revenue, which is exactly the kind of businesses that we want to be in and once again coming back to the nature of this industry and this industry more often than not.
Scientists are making.
We're at the very minimum heavily influencing the purchasing decision.
As opposed to.
Economic bundle really being.
Point of leverage and why is that because the value and getting a per instance, biologic drugs to market faster.
One of weak you hit the 1 billion dollar of drug of year is $20 million.
The value of increasing your yield by 2% to 5% is cash.
Several tens of millions of dollars. So that's how we think about.
The fact that debt our strategy and the way we're focused it is the way to be.
Very helpful. I appreciate the color.
Thank you I will now return the call to Matt Gugino for any closing comments.
Thanks, Laurie and thanks, everybody for joining us today, we're around all day for questions.
Thank you that does conclude the Danaher Corporation's first quarter 2021 earnings results Conference call you may now disconnect.
[music] journey.