Q4 2021 Danaher Corp Earnings Call
We appreciate your patience. Please continue to stand by your program will begin in two minutes.
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Hello, My name is Ashley and I will be your conference facilitator. This morning at this time I would like to welcome everyone to the Danaher Corporation fourth 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 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.
Thank you Ashley good morning, everyone and thanks for joining us on the call.
With us today are Rainer Blair, our president and Chief Executive Officer, Matt Mcgrew, Our executive Vice President and Chief Financial Officer, and John Bedford, Our director of Investor Relations.
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 will remain archived until our next quarterly call.
A replay of this call will also be available until February 10th 2022.
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 fourth 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, 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 date. They are made and we do not assume any obligation to update any forward looking statements, except as required by law.
With that I'd like to turn the call over to Ryder.
Well, thanks, Matt and good morning, everyone. We appreciate I appreciate you joining us on the call today.
2021, with a tremendous year for danaher capped off by a very strong finish to the fourth quarter.
Our well rounded performance throughout the year was highlighted by outstanding core revenue and earnings growth as well as strong free cash flow generation.
We're particularly pleased with the strength of our base business across the portfolio, which was up low double digits for the year.
And we believe our accelerated innovation and capacity expansion initiatives have helped us capture market share at a number of our businesses.
Now these results are a testament to our team of 80030th and their outstanding execution and what isn't.
Been a challenging operating environment.
Despite the uncertainty that has come to characterize life for all of us throughout the pandemic. Our associates are showing up every day working longer ship launching breakthrough product in record time, and going above and beyond to support our customers and they remain committed as ever to executing with the danaher business system.
Really their dedication to serving our customers and the global community is as humbling as it is inspiring and we're grateful for their invaluable contribution.
The circumstances over the last several years have also shined a light on the high quality market, leading franchises in technologies that now comprise danaher.
We're seeing the results of our purpose driven portfolio transformation in action today through higher growth and margin stronger cash flow and a higher percentage of recurring revenue.
We're exceptionally well positioned to continue this trajectory going forward and we see a very bright future ahead and be.
So with that let's take a closer look at our full year 2021 financial results.
We delivered 25% core revenue growth of 560 basis points of core operating margin expansion nearly 60% adjusted earnings per share growth and over $7 billion of free cash flow.
We deployed $11 billion of capital towards acquisitions closing 14 deals across all four of our platform.
The largest acquisition all that Ron joined our life Sciences segment in August providing a fantastic beachhead for us in the important frontier of genomic medicine.
It's just a great example of how we're using strategic M&A to enhance our capabilities and bring greater value to our customers.
Now throughout the year, we also made significant organic investments to accelerate innovation across our businesses.
Our R&D spend was up approximately 30% year over year and is now more than $1 $7 billion annually.
New product, which is the Si Zeno top 7600, and the Triple Quad 7500.
Unlike a biosystems a periodic GT 450 digital pathology slide scanner.
Driving share gains in their respective markets through proprietary.
While further enhancing our growth trajectory.
Our total capital expenditures were $1 $3 billion for the year, which reflects substantial investment to expand production capacity across our businesses.
Particularly at Cepheid, Paul and site either.
And bio processing.
Really happy to report that our new single use technology plants in South Carolina in Beijing.
And our cell culture media expansion in Utah, all came online in the fourth quarter.
And at Cepheid, we more than doubled our production capacity for respiratory tests in 2021.
So near term we believe these investments has been critical to support customer demand and have helped us achieve meaningful market share gains.
And there are equally important in the long term to support the significant growth opportunities we see ahead.
Very attractive end market.
So now let's spend some time on the fourth quarter results.
Our sales were $8 $1 billion, and we delivered $19, 5% core revenue growth.
With strong contributions from all three segments we.
We saw broad based strength across our base business, which was up approximately 10% in the quarter.
Geographically, both developed and high growth markets were up approximately 20% led by nearly 25% growth in North America and high teens growth in China.
Gross profit margin was 67%.
And our operating profit and profit margin of 26, 4% was up 270 basis points, including 240 basis points of core margin expansion.
Adjusted diluted net earnings per share of $2 69 were up approximately.
And at least 30%.
And now for the full year, we generated more than $7 billion of free cash flow up 30% year over year in fact, our free cash flow to net income conversion was 112% for the full year and it marks the 30th consecutive year. This figure has exceeded 100 per.
<unk> for Danaher.
So now let's go into more detail on our quarterly results across the segment.
Life Sciences reported revenue increased 25% with core revenue up 17%.
These strong results were broad based with most major operating companies, achieving low double digit or better core growth.
In fact, our Dev Ron delivered over 30% revenue growth in the quarter and finished the year with approximately $400 million in total revenue.
That business is off to a great start as part of Danaher and we couldnt be more pleased with the team's performance out of the gate.
Now core revenue growth in our bio processing businesses continued to outpace segment level results with Eva and Pall biotech both up more than 25%.
Non COVID-19 related bioprospecting trend remains strong with our business is growing low double digits again this quarter.
We continue to support significant customer activity across the development and production of Covid vaccines, and therapeutics, which troll, which drove $2 billion of revenue in 2021.
Moving to diagnostics reported revenue was up 29, 5%.
Core revenue grew 29% led by greater than 75% core growth at Cepheid.
Non COVID-19 clinical diagnostic activity across all our operating companies, including Beckman Coulter diagnostics radiometer, and Leica Biosystems collectively drove high single digit core growth patient in testing volumes largely remained at or near pre pandemic level.
And we also saw an acceleration in demand across Cepheid non respiratory test menu led by sexual health hospital acquired infections and virology testing.
Okay.
It produced and shipped approximately $19 million net of respiratory test cartridges during the quarter.
This drop the total number of respiratory tests shipped in 2021 to approximately 60 million cartridges more than 10 times. The number of tests produced and shipped in 2019 prior to the start of the pandemic.
In fact, our 401 combination test for COVID-19 flu, a flu b and RSV represented approximately 50% of Q4, our respiratory test shipments, while our COVID-19 only test accounted for the remainder.
Now, let's move on to our environmental and applied solutions segment.
Reported revenue was up 4% with seven 5% core revenue growth.
Our water quality and product identification platform, both delivered high single digit core growth for.
For the quarter.
Now across our water quality businesses strength was broad based globally across industrial and municipal end markets.
Customer activity accelerated with the support of strong a strong funding environment and many projects that were put on hold during the pandemic have now resumed.
Country delivered low double digit core revenue growth in the quarter to close out at 53rd consecutive year of growth. This is a tremendous accomplishment and a testament to the team's best in class commercial execution.
<unk> to continuous improvement it is truly a differentiating combination which has driven consistent market outperformance.
In product identification, our packaging and color management businesses were up mid single digits, and marking and coding was up approximately 10%.
Video jet had its third consecutive quarter of double digit core growth led by strong demand in industrial and food and beverage end market.
So with that as backdrop for what we saw in the quarter.
Let me highlight the trends, we're seeing both geographically and in our end markets.
So a return to pre pandemic levels of activity is driving healthy customer demand across most major geography.
This is reflected in the strong results we've seen throughout both the developed and high growth markets.
And our strong order book growth, which continues to trend above revenue growth.
While certain regions have implemented targeted lockdowns to address the recent COVID-19 outbreak.
Not seeing any widespread declines and our customer activity.
Now given the size and scope of our business.
We're certainly not immune to ongoing supply chain constraints in an inflationary pressures.
But we're proactively addressing these challenges across danaher, leveraging the danaher business system and tools, such as daily management, and working closely with our customers and suppliers to mitigate the impact.
We're also using DBS to accelerate price action and manage cost pressures.
In fact, we've achieved nearly 150 basis points of price each of the last three quarters, which is approximately double our historical price realizations.
Non life Sciences, we're seeing robust demand across all major end markets.
Lab and customer site access is holding at pre pandemic levels evidenced by more normalized customer productivity equipment installations and project initiations supported by a strong funding environment.
Biopharma continues to be our strongest performing end market.
The life Sciences, the structural shift in treatment towards biologics as the standard of care and the accelerating focus on genomic therapies are driving significant investment in research development and production capacity across the sector and we believe we are well positioned to support this work across.
Our $7 $5 billion Bioprocess, Inc franchise.
Now in addition, we continue to see significant demand related to development and production of COVID-19 vaccines and therapeutics.
And we expect this activity to persist longer term our customers are planning for ongoing production with the assumption that there will be an enduring need for effective treatment and prevention.
As the world transitions to approaching COVID-19, as an endemic buyers.
And more broadly our customers increasingly viewing the potential applications of new mrna modalities, including vaccines and other therapeutics as an important area for future investments.
And the clinical diagnostics market patient volumes remain at or near pre pandemic levels are.
Our customers have largely adapted their protocols and procedures to manage through recurring outbreaks, allowing them to continue wellness checks routine screening and other diagnostic procedures.
While selective lockdowns are causing modest disruption in certain regions like pockets of China and Europe , we're not experiencing any material widespread negative impact from these measures.
Okay.
Molecular diagnostics global demand persists for Cepheid point of care PCR respiratory test.
Further heightened as a result of the recent global surge of the Omicron variant.
Additionally, we're seeing a more active respiratory season in the northern hemisphere, driving customers' preference for our 401 combination test.
We expect both of these trends to continue into the first quarter.
Now in light of these dynamics and conversations we're having with our customers about their expectations for the upcoming year.
Anticipate shipping the same number of respiratory tests in the first quarter as we did in the fourth quarter and approximately $50 million test for all of 2022.
In 2021, Cepheid placed a record 10000, new gene expert systems, bringing the total installed base to more than 40000 systems worldwide.
The team's thoughtful approach to placing systems throughout the pandemic is focused on both the near and long term value with technology can bring to our customers.
More recently, we've seen several existing healthcare system and integrated delivery network customers, adding new instruments at site further out in their networks and closer to their patients facilitating faster diagnostic and treatment decisions.
The scalability and unique architecture of the gene expert.
We're the same test cartridges are used on higher and lower throughput instrument with the broadest test menu and the market provides our customers with the confidence that they will achieve consistent reference lab quality results, whether they're testing in an urgent care clinic or a central hospital lab.
So now looking ahead with the assumption that COVID-19 will be an endemic disease. We believe that the point of care molecular respiratory testing market will expand significantly from where it was prior to the pandemic.
Even cepheid, leading test menu and installed base.
Combined with an advantaged positioning around speed accuracy and workflow. We believe it will continue to gain share in an endemic environment.
So moving onto the applied market customer activity is largely back to pre pandemic levels, which we see in robust order rates for both consumables and equipment. In fact project oriented activity is accelerating with an improving funding environment.
And more normalized site access has prompted the resumption of many projects and installations that were put on hold in the throes of the pandemic.
So now let's look ahead to our expectations.
For the first.
Quarter and full year.
Beginning with the first quarter of 2022, we will now include the impact of Covid vaccine and therapeutic related revenue as part of our base business core revenue growth.
This change is driven by our greater confidence in the durability of our COVID-19 related vaccine and therapeutic revenue as the virus churn and.
Mick.
So now for the first quarter and full year 2022, we expect our base business core revenue growth to be in the high single digit percent range.
Additionally, we expect to generate operating profit fall through of 35% to 40% in the first quarter and for the full year 2022.
Up from historical and pre pandemic rates between 30 and 35%.
So now to wrap up.
2021 was another terrific year for Danaher, our team successfully executed through a challenging environment to deliver outstanding financial performance, all while supporting our customers and directly contributing to the global fight against COVID-19.
We're seeing the results of our purpose driven portfolio transformation in action to faster growth expanded margins stronger cash flow and higher recurring revenue.
We are a better stronger company today and there is tremendous runway ahead for us to continue building upon this foundation.
With the Danaher business system as our driving force our talented team and resilient portfolio of businesses. We believe danaher will continue generating sustainable long term shareholder value for years to come.
And with that I'll turn the call back over to Matt. Thank you.
Thanks, Brian that concludes our formal comments Ashley we're now ready to take questions.
Certainly and at this time, if you would like to ask a question. Please press star one on your Touchtone phone you may withdraw your question at any time that question. The palanquin once again Thats Star one and we will take our first question from Tycho Peterson with Jpmorgan. Please go ahead.
Hey, Good morning, Ryan are you on track for the base business to grow high single digits can you, maybe just give us latest thoughts on vaccine and therapies I know you've previously talked about this $2 billion backlog heading into the year. So if any of the assumptions around vaccines and therapies changed.
So just to confirm that's right for 2022, we're guiding the base business to high single digits and know our assumptions as it relates to.
The vaccine and therapeutics business have not changed.
We saw.
Continued strength in our orders in fact orders exceeded.
Our sales here in Q4, and we continued to build backlog at.
At the same time, we have to say that from a roughly 75% 70% comp.
We were down about mid teens in terms of.
<unk> growth Nonetheless.
Orders still outpaced sales, we built backlog.
And we're looking forward to roughly flat.
Sales for the bio processing business.
Vaccine and therapeutic revenues in 2022.
Now the core business. So in other words, the non vaccine and therapeutic related.
<unk> for Covid.
We expect that to continue to grow of course in the low double digit area has been the case here for many quarters.
And have any of the Aldebaran assumption change I know you previously talked about $500 million this year growing greater than 20%.
They're right on the Mark of $500 million is a good number.
The kind of growth and slightly better than we expected here.
During the year off right around $400 million well that Ron is right, where we think we should be and performing at.
At our expectations.
Okay, maybe last one from a grew.
Environmental and applied operating margins were down.
A bit I think 410 basis points can you maybe just touch on what drove that decline.
Yes sure like you said there was it was down for 10 here in the quarter.
It's probably probably three things I would say first that's probably the area that we accelerated the investment spend the most in the fourth quarter, given obviously, a pretty strong print here across.
The entire portfolio I think we took an opportunity.
In the fourth quarter to kind of overcharge, a little bit of investment there.
So I think that's probably the first thing I think the second thing is the supply chain. The challenges I would say there are probably modestly more pronounced at eas.
They are elsewhere Tycho.
There is a kind of a high number of legacy products here.
That probably I would say have more specialized components and really what's happening is kind of the specialty components are a little bit harder to procure especially in this environment.
We're seeing so largely offsetting that with daily management doing some spot buys and some other product redesigns et cetera, but I think a little bit more kind of supply chain issues. There and then lastly, I think if you think about there was a bit of mix issue here too with with Trojan, which are a bit lower margin business being.
I think it was even north of 20% in the quarter. So.
And so I think despite that though the good news is like.
Like I said I think the team's done a pretty good job.
DBS to drive it from.
What we think and what we've seen here it looks like.
Because of all that I think we took some share here in Q4 and definitely in Q1.
Really a result of being able to get through those challenges and still meet customer demand.
Great very helpful I'll leave it at that.
<unk>.
And we will take our next question from Derik de Bruin with Bank of America. Please go ahead.
Thanks, Thanks for taking my question. This is Mike there Derek.
Thanks.
First of all ill focus on Cepheid bolstered in 'twenty, two and post pandemic, given youre, saying 19 million test again in <unk> seems like you're assuming a pretty sharp drop off into Q3 Q.
You sounded pretty confident duration COVID-19 being endemic now.
POC market expanding so definitely going forward you indicated market share so could you give us.
Could you give us some more color on that.
Continued market share gains the 10000 boxes you place this year sort of what are your expectations going forward and just is that $50 million testing.
That does that sort of assumed that that's going to be the run rate beyond that or do you expect continued sort of deterioration in COVID-19 revenues offset by other MTX.
Paul I'll start with as you know the situation around Covid is incredibly dynamic right. It started.
With the assumptions that we made around <unk>.
Delta and Delta.
And we thought that might become the dominant variant and then <unk> came 60 days ago. So the environment is incredibly dynamic but in the discussion.
That we have.
With public health officials, but also with our customers I think there's a couple of takeaways.
First one is that we.
We do think that Covid is going to turn endemic in light of public health officials will talk about the end of 2023.
Perhaps the beginning of 'twenty four.
Being that timeframe when we call it endemic.
With greater confidence as we look at our.
Customer feedback and what they see happening here, that's where we're triangulating for 2022 into the $50 million test area and as we've talked about.
We see our base business in 2022 growing at high single digits.
Essentially having as a result of the step down from $6 6 billion to <unk> 2020 to that two to 300 basis point hedge.
Headwind there now as we think about that going forward beyond 2022.
And once again in the discussions with our customers that there is still a likelihood that there will be a large respiratory testing business much larger than pre pandemic in 'twenty three and beyond.
Once again in the early days and this could change it's so dynamic, but we're thinking that that probably steps down again in 2023 and are working number there for now is right around <unk>.
30 million test so as we think about.
The year 2023, and Covid testing.
See that going from 50% in 2022 to perhaps.
2023.
<unk> 30 million, but thats, a number that of course.
There's a lot of dynamic there is a lot to happen between now and then.
But thats sort of the planning number that were working with at the same time as you think about 2023.
We see our base business.
Of course, the primary aspect of our total business continuing to grow off the strength of our portfolio. We re rated our.
Our growth rate and discussed at several occasions. So.
So we feel really good about how we're moving forward and like setup.
Okay.
Really appreciate the color there and maybe one for Matt you have some color on the pricing power going forward I mean, you called out I'll, just 30 basis points price in the fourth quarter and throughout the second half over the last three quarters could.
Could you comment on how much further runway do you see in 'twenty two if we continue to be an interim noninflationary environment.
On price to your customers any pushback youre seeing that in any of the end markets and just in general the comment from the higher fall through in the business.
Labor pressure logistics, obviously in the news a lot of how you're navigating that this year.
The implications for margins for the year.
Yeah sure I mean, I think I think as far as price goes like you said, we saw kind of a 150 basis points here in Q4.
Think that we've seen that for the last couple of quarters, I think thats, a pretty good placeholder to put it into 'twenty two.
Teams are obviously over the last six months, we've been working hard.
Are there to get that price and I think you're seeing it show up I mean, it's basically two extra price we used to get kind of call. It five six quarters ago. So I think it's a good place to start for 'twenty two.
Far as margins go just kind of maybe overall I know, we sort of put out a guide for 'twenty two call it 35% to 40%.
Fall through and that's down a little bit from where we've been kind of more in that 40%.
45%.
But I think that 35 to 40 kind of incorporates a little bit of what you are talking about I think it is.
Kind of in line with what we thought frankly are longer term.
<unk> was going to be.
But if I think about year over year from 'twenty, one to 'twenty, two I think youre right I think a component of sort of the step down is going to be a little bit of the return to work and maybe some of the inflationary pressures that we see offset by price.
The other piece really is going to be largely on the volume step down that we see.
So we're going to be up.
Kind of.
Our mix type type issue so.
Throw in some FX headwinds and share count.
And thinking about the 40% to 45% in 'twenty, one going down to 35% to 40, but I think the good news is is that.
Our long term framework right, where we thought.
I think it's also probably important.
To think about it that even though we're seeing headwinds.
On the testing front this year call. It two to 300 basis points. Our Covid testing revenue is pretty much at the fleet average right, which is why it's not a big step down for us it's pretty much fleet average from a margin perspective, so that.
That helps kind of as.
As we.
Navigate the headwinds.
But thanks, so much appreciate it.
Yeah.
And we will take our next question from Vijay Kumar with Evercore. Please go ahead. Your line is open.
Hi, Vijay Hey, guys, Hi, Pinar.
Congrats on a solid print here.
I guess one on.
Just the guidance for fiscal 'twenty to some clarification.
Your definition of core now includes vaccines.
That's comparable to how your largest peer.
And it looks at core organic.
But actually means if I understood you correctly, it's flattish year on year, which means.
Base Danaher ex <unk>, that's really growing at the very high end of high single figures that.
Likely to think about the guidance here on the base business and what's driving this trend it looks like <unk>, perhaps bioprocess and growing double digits, that's well above your RFP. So I'm sure some comments on buyer processing.
Sure. So once again just to level set the base business include.
<unk> processing.
For Covid vaccines, and therapeutics and important to note that.
And in fact, we see the entire base business.
Growing both for the quarter and the full year at the at high single digits, and that's driven by a number of factors one ads.
You just suggested of course, the non Covid bio processing business is still growing at low double digits.
We have seen here and that continues to be strong.
We also see.
Our.
Non bio processing business goes do you think about.
Our diagnostic businesses as you think about our life science instruments, and so forth, we see them growing very strongly on.
On the back of the investments that we've made around innovation.
Feet on the street and really driving the growth here.
And that portfolio transformation that we've talked about has re rated.
Our base business growth and we continue to see that we saw that here in the two year stack in 2021, and Youre seeing that here in the guide for 2022.
Sure.
Now we have clarity on what the mid single digit plus what the plus meaning so that's helpful. Brian .
Maybe one for <unk>.
Matt.
The 35% to 40% incremental margins here Matt.
Is that sustainable going forward should we I guess my question is most of your peers, who will benefit from co tailwind there is a cliff here or perhaps a transition year. It seems like Danaher does not have a cliff here, maybe talk about the sustainability of Incrementals.
And why perhaps.
Paul dropdown in Cotelle, then shouldnt be a headwind for danaher.
Yes, I think.
I think Thats I think thats right Vijay I think like I, just kind of said I mean, our COVID-19 .
Uh huh.
Revenue, both vaccine and therapeutic in.
And the testing its more or less at fleet average.
And so what I think youre seeing here part of the reason we talked about the re rating of the portfolio from a growth perspective as you just mentioned.
We've also talked about the fact that the portfolio is re rated from a margin perspective too right. We used to be more 30%, 35% now were $35 40%.
And I think what Youre, what you see here as we go forward and think about kind of what our margin profile looks like I think I feel very comfortable with the 35% to 40% and the fact that like.
Like you said, we will have some revenue headwinds we're going to have some volume headwinds testing like we sort of laid out we can talk about 23, maybe if youre interested.
But.
I think as we get to those headwinds it will be above the fleet average headwind. If you will from a decremental perspective, so while it'll be a headwind and I think you could obviously, you'll see that a little bit here in 'twenty two from a margin perspective, it's not going to be overly burdensome.
That's fantastic helping that thank you guys.
And we'll take our next question from Scott Davis with Melius Research. Please go ahead. Your line is open.
Hey, good morning, everybody.
Congrats on a great year.
Overall.
Anyways right Roger I was hoping you could talk a little bit about.
M&A given that growth asset seemingly are out of favor.
In public markets fairly meaningfully as that kind of gone down into private markets at all.
On the valuation side much.
If you could talk about that in the pipeline. Please.
Sure.
I mean first of all first of all to the environment that we see out. There. This is this is an environment that.
Over over our history, we have thrived in whether you want to call that.
Anxiety or uncertainty or even in times of dislocation.
We've always viewed this as an as an off time of opportunity for ourselves and there's examples of that if you think back to the financial crisis now going back some years.
We acquired <unk> at that period of time.
And it turned out to be a fantastic asset the team has done a wonderful job.
Also if you think about some of the anxiety around cepheid or Paul deals there that has been.
We couldnt be more proud of how the team to perform there and turn those businesses into.
Really real powerhouses and so we sit here in this environment with a rock solid portfolio and outstanding team.
And a strong balance sheet, great deal of Optionality in and we like that setup and so as we think about our funnels into your question. They continue to be as active as ever they cover the gamut, whether thats public or private.
And we will continue driving our M&A strategy and our bias towards.
Allocating capital towards M&A as we have.
In the past.
And that will happen when that attractive end market that first class asset with <unk>.
Competitive advantage meets our financial hurdles.
As has always been the case, so we like where we sit and we'd like to set up.
That's helpful Reiner and Brian you talked about new product launches like Beckman.
How has COVID-19 impacted those launches.
Is there a.
These things, perhaps that were pushed back a little bit because of COVID-19 or are they on schedule with the customer response, and the ability to get out and see the customer with that with that product has that all been altered or changed in just a little bit of color. There would be helpful. And then I'll pass it on thanks.
Sure in our case Covid has actually accelerated innovation for us of course, and the obvious and that we were able to pull forward the.
Our gene expert Covid only tests subsequently and very quickly thereafter, the foreign one those are sort of the obvious examples but at the same time you have noted that we increased our R&D expenditures by 30% up to $1 $7 billion, which has manifested in the pulling forward innovation accelerating.
And getting those into the market and examples were mentioned.
The triple.
Quad 7500, most sensitive triple quad in the market Casino top.
Outstanding and then of course, the GT $4 50.
Pathology slide imaging fantastic.
Launches here all of which was accelerated by the pandemic and we were able to turn.
That into real opportunity for us.
Great. Okay. Good luck in 2002 guys. Thank you.
Thank you.
And we will take our next question from Dan Brennan with Cowen. Please go ahead. Your line is open.
Hi, Thank you Hey, good morning, and congrats on the corner.
I guess the first question just on the vaccine therapeutics outlook now that you are including it in the base.
We were assuming in our model a pretty steep drop off in 'twenty three 'twenty four just as we go from initial two dose regimen down the boosters.
While booster uptake looks good we would probably not going to be nearly as good as the initial vaccine. So I guess first first question is I mean does that is that reasonable to think theres going to be a help.
A healthy step down number one and number two the fact that you're including it in the base.
Just wondering I know previously you've discussed kind of high single digits.
Is that is that is that still fair to think about the high single digits now that you've got vaccines and therapeutics in the base.
Sure.
Let's start off with the why is vaccine.
And.
<unk> therapeutics in the base and that just comes from our belief of two things one.
That.
COVID-19 will be endemic in that.
There will be a continuing continuous requirement for vaccination.
That is going to be a call a global requirement. We also think that new age groups.
We'll receive vaccination more broadly in the world Kids in particular.
And as such that there is a strong recurring demand there and that was discussed in terms of the previous questions, but if we back up a minute here and we think about this longer term.
Talk about our 'twenty two guide here with a high single digit.
Growth in our base business and.
And we talked about.
Two to 300 basis points of headwind coming from testing as you think forward now how does all of that play out let's say in 2023.
And once again, it's important to start with the base, which is at the center of your question, which is.
Well, we have this rock solid portfolio thats transformed over the years, that's going to be mid single digit plus growth and is going to have a different earnings profile as well as Matt just talked about.
And then inside of that of course, you do have vaccine and therapeutic revenue from Covid and that will continue.
There are new therapeutic being developed.
There are also a lot of.
Additional vaccines that are still in our plan and the pipe and then as you think about Covid.
Testing as I talked about we see that stepping down to what we'll call. It a more endemic look from 50 million tests in 2020 to 30 million tests in 2023 now when you wrap all of that up and of course, there's a lot of things.
Things that are still up in the air in terms of the number of bikes you might have in between.
2023, really looks a lot like 2022.
In terms of how we think of the base growth.
Going forward.
As well as our fall through.
Excellent.
And then maybe as a follow up just one more on bio production. If you don't mind, certainly the low double digits.
Preston will particularly on the size of your business.
Some of the Capex that we've seen in the industry. It was really accelerating.
<unk> talked about I think in their guidance, 40% plus type of Capex growth.
In 2002 on top of 40% in 'twenty, one so I'm just wondering could you could you could you give a little color on maybe the order book there like on the base business kind of what Youre seeing and.
I'll be in like a period of like hyper investment, where maybe that low double digit all could have some upside here over the next couple of years. Thank you.
Sure. So we do continue to talk about the low double digit growth rate for the non COVID-19 bio processing business. That's what we've seen for many quarters, but we also talked about the fact that our backlog continues to build there.
And these announcements that youre seeing here out in the market.
Those are important.
Indications.
The strength of the industry in the market.
And in of itself and of course, you can imagine with the breadth of our portfolio our global reach that we play.
If not on all the great majority of those kind of investments and so could there be upside sure there could be but of course, we're looking at the order book.
That's in hand, and thinking about how that developed.
And we will continue to update but for now low double digits in the non COVID-19 bio processing business is a good planning number.
Great Thanks, Brian and thanks, Matt.
And we will take our next question from Jack Meehan with Nephron Research. Please go ahead.
Thank you Jack good morning.
Hello, So one of the big questions. We've been getting is the fed's looking to start raising rates.
Be great to get your thoughts around durability of demand from Biopharma customers and how much of a factor do you think higher rates could have on demand.
And then finally, maybe any color on mix between development and commercial an interplay on those two sides of the market.
Okay.
Could you I'm sorry could you repeat the second question. Please it came through a little garbled.
Sure sorry.
Just thoughts on how higher rates might influence demand from customers on the development side versus those with commercial product.
Understood.
Well, let's start with the rates.
Well, it's early days of course, we will see where those go.
As we as we look at the markets that we play and more broadly the impact of those rates.
It could be different but generally speaking.
We see our end markets.
To be able to perform and drive growth even in a market, where we see incremental incrementally higher fed rates and examples of that would be if you look at biotech in aggregate.
You'll see that the cash positions in these companies is extraordinarily high and we continue to see.
Since going in there strongly.
And so we don't anticipate any near term impact due to fed rates in that particular area.
And that would of course overlap with the development part of your question and as it relates to those that are already in commercial production. They are out there driving growth and ensuring the penetration of these incredibly efficacious biologic drugs not just in the developed markets, but increasingly also.
Some of the higher growth markets. So we see really the demand drivers here going beyond any one country's monetary policy and continue to see that in a very positive light so far.
Fed policy is one thing the specific markets that we play in we would see less impacted by any of the incremental.
Rate increases that are being discussed.
Great and then yeah.
Yes, Dan just asked about Capex going in on the <unk> side wanted to ask a similar question, but focused on all the capex going in from the bio processing players back at the Analyst day, you talked about $1 billion and half of your own Capex. Some of your peers are talking about a lot of more investment going into the.
Single use.
Just bioprocess and broadly speaking so as you look across everything going on just talk about supply versus demand and how you feel.
That.
Just your views on that broadly speaking.
Sure well, let me characterize that a little bit so.
Large <unk> investment that you see there are really a derivative of what we talked about in your question before which is the strength of the biotech market. These are typically smaller companies.
Don't want to invest their precious cash in the manufacturing facilities and will outsource that to <unk>.
Talk about if you think about the fact that just didnt monoclonal antibodies over the last five years.
We've seen it.
Huge increase in the number of projects in the funnel do you think about nucleic acid therapies. There we've seen a <unk> increase in the development funnel.
And now Youre seeing those work their way through the clinical trial process and that requires capacity. So that's what the CMO investments are about and of course.
The customer our customers are also CDN mode, and we're helping them build.
Those capacity so that they can take care.
Those development going.
Going forward and then we also continue to see drugs going commercial and as these drugs go commercial.
That's a $10 100 X increase in production capacity requirement and all of this then if you aggregate that is what's pulling on our our demand.
And is why we are so confident in the investments that we've made and I mentioned this not just for the short term which of course is important to ensure that they are on the supply bottlenecks as we work our way through the pandemic here and also for the long term. So that we continue to be that partner of choice.
Has the broadest portfolio can integrate that portfolio horizontally and can deliver it to the point of that impact around the globe with the necessary experts to help our customers get their drugs in the market more quickly and at a lower cost.
Thank you Reiner.
Thank you.
And we'll take our next question from Patrick Donnelly with Citi. Please go ahead.
Hi, Patrick.
Hey, Ron Thanks for taking the questions I just wanted to follow up on the bioprocess and piece I know you touched a little bit about what the cadence could look like going forward, but that's certainly the question I think we get the most from investors I just wanted to circle back on it I mean, it sounds like you feel really good about that underlying base business growing in the low double digits and then the vaccine piece maybe.
Little bit more of a variable, but can you just talk I guess about the trajectory. It sounded like 'twenty two is a decent proxy where maybe COVID-19 comes down and you shake out somewhere in the mid high single digits as a whole for that kind of $7 $5 billion business, but I was just hoping you could talk a little bit about the puts and takes as we go through kind of the next few years and again that vaccine piece comes.
Down, but the base business seems like it's good enough to offset that and then some but just wanted to get a better handle there.
No I think thats right as we look at 2022, I mentioned, the COVID-19 related vaccine and therapeutic bio processing business will probably be roughly flat here in 2022 again, the assumption being that we're starting to see.
And the and the <unk>.
And then going and Dennis on the one hand on the other hand. Once you start you start seeing happen is if you will we're going from one point O compounds to point that out so some vaccines and therapeutics or <unk>.
It is less efficacious in the current environment with the current.
Variance and so those.
Become less of a factor on the other hand, you have new monoclonal antibodies.
Therapeutics, starting to be proposed that show much higher efficacy here with the variance that you have and then for those that are already in market and quite effective we're starting to see the recurring revenue.
Those companies are starting to recognize the recurring need for booster shots not just here.
But around the globe. So we think that Thats, a good baseline to move forward with and how to think about it.
And we continue to view as we've said in our long term guide around the bio processing business, that's a <unk>.
High single digit grower and I think thats the way to think about it.
<unk> two and as we said we think 'twenty three will look a lot like 'twenty two as well.
Okay, Great no that's helpful and I know the order book typically you're taking orders for within a year is any of that building into 'twenty three yet or should we think about that as mostly a 12 month order book and then maybe conversations beyond that.
It's a 12 month order book and conversations beyond that.
Okay and last one just the same topics for Matt.
Margin profile COVID-19 versus not for the bio processing, it's pretty similar right I just want to double check on that.
Yes in bio processing margin difference between COVID-19 or not is that what youre asking.
Yes, exactly yeah, Yeah, no no no real difference I mean, we're I.
I would say that it's all.
Again, just depending on mix of what goes in there product wise, but no margin profile wasn't it.
Great. Thanks, guys.
And this will conclude today's Q&A portion for the call I'll turn the call back over to Matt Gugino with any additional remarks.
Thanks, Ashley and thanks, everyone for joining us on the call today, we're around all day for questions.
Thank you everybody.
This does conclude today's program. Thank you for your participation you may disconnect at anytime.
Okay.
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