2023 Healthcare Conference coming to you live from The Encore in Las Vegas. Kicking off our session today is Thermo Fisher Scientific, and with us is Marc Casper, Chairman, President, and CEO. I'm Derik De Bruin, the Senior Life Sciences and Diagnostics Tools Analyst, for you who don't know me. It's always a pleasure to have you here. Thank you, Marc, for making the trip out to Las Vegas. Great to be here, Derik. Thanks for the invitation. It's nice to see so many familiar faces and friends in the audience today. Marc, you reported your quarter in April. Was it in April? I don't remember anymore. It's been such a long time. Do you wanna make any opening remarks on things before we start from the Q&A? Yeah. When I reflect on the first few months of the year, we're off to a good start, right? It's been a noisy quarter for the economy, a noisy quarter for the industry, but a good start to the year. Core growth was good, the P&L was strong, and we're navigating the environment effectively. It's where I think it's a good place to start. I'm sure we'll get into all of that in the, in the dialogue today. Marc, you know, you first joined Thermo Electron back in 2001, which means you've been at the same company a lot longer than most of the other CEOs in the life sciences tool sector. You know, how are you sort of thinking about this business and operating through different cycles when you think about the, you know, the great financial crisis, the patent expiries, interest rates? You know, there's the 2011 sort of like changes that went on there. Can you sort of talk us about what your experience and sort of looking at this business and being there so long and thinking about the current market versus that, versus what you've seen in the past? Yeah. So Derik, what a privilege to be able to serve the colleagues and the stakeholders of Thermo Fisher Scientific for the last 20-plus years. I'm so privileged and so grateful for the team for the great results, and I'm so excited for the future, right? If I think back, right, you know, I've had the good fortune of navigating many different types of environments, and we have a very clear set of principles no matter what the environment is, right? The first principle is we're gonna deliver differentiated short-term performance and differentiated in the positive light, that we're gonna do a great job in the short term. Second, that we are going to do a great job for our customers. Then third, we're gonna strengthen the company's long-term position, right? Those principles allow you to prioritize how do you navigate whatever the environment is. I'll think about the challenging environments, the financial crisis, the early days of the pre-pandemic, those periods, you just had clarity about what to do, and if you think about how the company is coming out of those periods, remarkably different and remarkably stronger. I think about this environment and how well-positioned we are, you know, we've evolved the company's portfolio, we've evolved our end markets, so we're incredibly well-positioned as a company, right? With more than 80% of our revenue is recurring in nature, and pharmaceutical and biotech represents more than half of our revenue. We have a very attractive, you know, set of capabilities to serve the markets, and the market's still good, right? The market is actually growing reasonably well, not to the same extent that it was. I think there's great opportunities in an environment like this where you're seeing others stumble, and our job is to do a great job short term and nav`igate it and come out, a much better industry leader long term. Following up on that, I think some of the conversations we've had with investors, coming out of your Q1 earnings, I think you made a couple of comments on the call that probably need a little bit more clarification. Sure. The first is on what you meant by stating that the macro environment has become slightly more challenging. I think people took that as, you know, are you talking about the life sciences tools market? Right or are you talking about macro? I think the second one is describing your full year 2023 guidance as ambitious. Yeah. I think can you sort of like clarify those points? Yeah. Derik, when I think about the environment and, you know, we try to have incredible transparency and there's always opportunities. to be more effective, right? In terms of getting the messaging out. I was talking about like the environment. I wasn't talking about life science tools. You know, just the fact of higher interest rates, you know, the likely effect on credit through the banking crisis, clearly a very heightened set of geopolitical tensions even since February 1st when we gave our guidance. The world is more challenging, right? It's, you know, It has an effect on every industry to differing extent, you know, differing effects. In, in our industry, I think a lot less than most, but you definitely see some caution, right? With, with spend in certain customer sets. You know, when I think about ambition in using that view, you know, we, we do look at everybody else in terms of what's their guidance and all of those things to understand how investors are gonna see the world. You've heard me say, and many have heard me say, it's our job. We're paid to create difficult comparisons for ourselves. That's actually what we're paid to do, right? We're not paid to set low targets. We're not paid to do, you know, a less than excellent job. We want to remind folks that when we said 7% core growth, that's a worthy goal. A lot of the others, not all, set goals that really weren't that exciting, especially when you look at comparisons. We set a high bar for the industry. We're focused on delivering against it, and we'll see how others do. Got it. You mentioned that pharma and biotech are now about 20% or 50% of your total sales. Mm-hmm. Can you just talk a little bit about that customer group right now Sort of what you're thinking is, particularly as that group comes out of the pandemic? There was a lot of debate about emerging biotech customers, the funding environment. Right. Can you sort of talk about those sort of categories, and how do you define that group? There's different definitions. Sure. just, yeah, big, big take since it's now, you know, going back to think about when I first covered the company in 2003. I mean, you were hardly in pharma and biotech back then. Now it's, you know, you're the big kahuna in this. Right. Yeah. I think, you know, the first aspect of pharmaceutical and biotech, it is a awesome end market to serve, right? The long-term prospects here are fantastic, right? When you think about where the science is. Where the pipelines are, where there are new medicines, whether it's, you know, GLP-1 or the many different cures for cancer and treatments, like, the tailwinds here for the long term are outstanding. That one is, you know, is always a good backdrop, right? When I think about for us, right, you know, we've gained share consistently now for more than a decade in serving that market in terms of growing organically faster than the served market. That's allowed us to build out the position, and we've supplemented with M&A. You know, our expectation for this year is that growth is gonna be good, but would moderate from last year. In our guidance, we grew 14% core growth last year for the total company, all end markets. Pharma and biotech was around that in the mid-teens. This year, we're expecting 7% core growth and pharma and biotech likely, you know, around that as well in terms of the outlook. We're expecting, you know, just a moderation largely because you have less pandemic-related vaccine and therapies and just where we thought we were in the funding cycle and so forth. From my perspective, at the end of the first quarter, the end markets actually played out largely as we expected. We'll talk a little bit about bioproduction. Yeah. A little bit of a nuance there. Yeah. I say actually in the whole end market, actually, the industry played out largely as I would expect it, with, you know, we had mid-single digit growth in the quarter. On the small emerging biotech, you know, obviously there are some companies that are challenged and, but we didn't see a huge pattern. Like, it wasn't dramatically different. There are companies that closed. They always do. There's some of that. There are companies that, you know, manage their funding tightly, but the dynamic, you know, seemed pretty similar to what we have seen over the last few quarters. That's, that's how we saw the market at the end of Q1. Turning to bioproduction, I mean, obviously there's been a lot of different. Right comments on that end market. you know, your position just a bit differently than the others in your terms of portfolio. Can you sort of talk about what makes you different? Why haven't you seen some of the inventory issues? Just specifically, I think we've had a lot of questions about, you know, the bioproduction headwinds in the LSS segment and just sort of like, what's the, you know, how is that business growing? Those numbers are difficult to sort of like back into. Yeah As you sort of look at it. Just some bigger take on why have you not seen some of the inventory destocking issues that some of your peers have? Sure. Maybe best to start with the framing, right? Yeah. Bioproduction, a little less than 10% of our revenue. It sits within the Life Sciences Solutions segment. We are the market leader in single-use technologies and the market leader in cell culture media. We have a rapidly growing purification business, so that's actually what the business is. We get the benefit of seeing most of the other companies' reported results, just given how others report. When I look at 2022, we were the fastest of the growing businesses in the field. We had an incredibly strong year, last year, and that's been pretty consistent now for a few years. When I thought about guidance for this year, we expected growth would moderate significantly relative to that, based on, you know, primarily COVID, demand Which wasn't huge for us, but we'd expect that to effectively wane down to 0 in terms of the usage there. That's what we expected on February first. What we said at, you know, at the end of April when we reported our results was actually a little bit softer than our expectations. Primarily, our best take on what happened is we brought our lead times down, right? Across the industry, they got hugely extended during the pandemic with all of the demand that was out there. What we wound up doing was, you know, bringing on new capacity. As an example, we used to say you had to quote 30 weeks in advance to get a product. Now we're back to normal, you say 15 weeks. There's a period of time where customers don't have to order as quickly to be able to, you know, effectively, you know, get to the situation that their inventory is at the right level to the new normal lead times. We expect that the growth will be better in the second half, just based on our dialogue with our customers in bioproduction. From a company perspective, we've been able to offset it because analytical instruments, especially diagnostics, actually started the year stronger. We felt good about the total package of what we're doing, but that's what's going on there. Got it. What about, you know, there's been, I think some of the customers are focusing a little bit more on managing working capital from the pharma customers and such. Going back and, you know, we saw this sort of during the financial crisis. Yeah where we saw a lot of suddenly everybody was sort of worrying about cash flows. Sure and sort of managing this. Destocking in the LPS business, in the catalog business, channel business, anything there? When, you know, our Fisher Scientific business, which is a leading customer channel, which basically manages the complexity of all of the suppliers for R&D labs and QAQC labs for manufacturing. We often, if not most times, actually have on-site personnel working at our customers, usually with customer badges. We have no incentive to add inventory to take it from our central warehouses and then move it to the customer site. There's not an incentive. When I think about customer stocking and those things that, you know, we manage that well for our customers. Probably the only area that there's probably a little bit is in like pipette tips just because of COVID. You know, it's not about COVID, but there was such a shortage across the world that effectively there's probably too many pipette tips out there, but that is pretty small in the scheme of. Yeah. what goes on in lab supplies. staying on your pharm and biotech exposure, I think we've had a lot of questions about, you know, the fact that over the years, you've gone beyond research and you've added CDMO and CRO capabilities via Patheon and PPD. you know, When we had you on the road in the UK recently, when Stephen was on the road. Mm-hmm. I mean, I think 75% of conversations were tied to- that chunk of the market that you're talking about. Can you talk about your strategic rationale for any of these capabilities? How these businesses are performing now they're part of Thermo, opportunities, risks, and, you know, what are you doing? You know, how are you having conversations with your customers that you didn't have before? Yeah. We've been in the contract development and manufacturing segment since 2006 when we combined with Fisher Scientific. We expanded it meaningfully in 2017 through the acquisition of Patheon, then expanded our service line further in 2021 with the acquisition of PPD. When I think about the rationale, first of all, if you look at the company, all of our businesses are leading businesses, right? We are typically one or two in every segment in our product businesses, our service businesses. We wanted to build leading capability with the hypothesis that under our ownership, a great business would be even better, right? We bought Patheon, which was an excellent business doing well. You've seen, you know, over the previous, you know, five years or so, the business has accelerated its growth meaningfully. It's still a very strong financial performance, well ahead of the deal model, and customers are relying on us more and more to develop and manufacture their medicines. They trust us. They trust that Thermo Fisher is gonna do a good job. They saw us having the right to be in that industry. With the momentum that we delivered, we had the right to expand into the clinical research business, which allowed us to acquire PPD. While we've only owned it for, you know, five quarters or so, a little more than that, the business is off to an awesome start, right? I mean, the team did a great job of, you know, coming into the acquisitions. The business had momentum. There was no disruption. That's on a high bar, but none of that happened. If you look at the acceleration of the growth to be able to deliver mid-teens growth in that segment, it's been fantastic. We're winning new business that when you ask our legacy PPD colleagues, they never would have won it without being part of the company. It's just been a great thing. What's really exciting is not what's happened, but actually what's ahead, which is we have some exciting pilots going on with our customers that are focused on bringing those capabilities together to take time and cost out of the drug development process. It'll be bespoke to each of the customers, but we're excited about that because that means further growth and even bigger differentiation for Thermo Fisher in serving our customers. What are you doing in the cell and gene therapy world? I mean, you bought Brammer Bio. You've done this, you know, their, you know, Sarepta called you out on their earnings call the other day. Okay. Saying they were doing stuff back with you and- doing it. Can you sort of talk about that? I think we all understand monoclonal antibody markets, but I think cell and gene therapy is sort of a- Yeah. who the hell knows. Oh, you know a lot about it. What I would say is we basically participate in two different ways for both cell and gene therapy. We provide all the key life science research tools that you would use in bringing forth a new, you know, cell therapy or gene therapy to market. If I think about where we have a huge presence, it's all of our Invitrogen reagents, it's all of the instrumentation, the cell therapy systems from Gibco, all of those things that every company that's pursuing the field is using us to do. That's business that's like any other modality. -where we play a huge role. Because there's been a lot of funding in cell and gene therapy, that's been a big driver. We've also built out the service capabilities, both on the clinical trials, but more, more significantly on the development and manufacturing. We have scale viral vector production, which is the key enabler within the gene therapy and many cell therapies as well. We also have a, you know, a development and commercialization facility for cell therapies in collaboration with UCSF in the Bay Area. you know, we're very active. The really cool thing is because really what the challenge is not about the efficacy of the medicines, but what is the cost of those medicines, and can you get it to a point where you can go after larger indications. We're taking all of our expertise and trying to drive the cost down so that our clients can then target bigger patient populations. That'll be a long journey, but actually the work that our team is doing, the investments we're making, I think it's gonna make a real difference. Great. Let's turn our focus now to the analytical instrumentation segment. Unprecedented demand over the last couple of years. I believe you just put up a 17% growth number. in your analytical instruments. Compare that with a company reported yesterday morning, it was negative three- in their instrument business. You know, another company that, you know, sort of like in the low single digits in that range. What the heck's going on there? Can you talk about backlog trends and how much of this is tied to the FEI business? Yeah. When I think about the instruments business, first for the industry, right? It's been in a good part of the cycle, right? Which is, you know, investments are strong. Pricing has been good. There clearly was some disruption back in 2020 with demand, so I don't think that's a huge multi-year effect on catch-up. But all of those things play into a good environment in 2022, 2023, right? You got that environment, which is positive. When I look at our business, you know, we have had very broad-based strength, right? Our largest of the three businesses in our instrument business is Chromatography Mass Spectrometry, is the fastest of the ones growing in the quarter. You know, electron microscopy, which is the second largest, also extraordinarily strong growth and chemical analysis, really good growth as well, the smallest of the three. Strength has been broad-based. In fact, you know, what we said back in February during our guidance is that we have pretty good visibility to the first half of the year was going be very strong. We assumed in our guidance that the growth would moderate pretty meaningfully in the second half of the year because you just don't have much visibility. Yeah. We have better visibility into Q3, so we expect Q3 actually to be a little better than what we expected back in February. It's based on the order pattern. I feel good about our competitive position. I think we're benefiting from innovation. We've invested significantly over the last few years. We have great products, and we have a very unique position in electron microscopy in terms of supporting the next generation of semiconductors. You need to use our tools if you want to get to the next node. If you want to push battery research to the next- the next generation, you're using our tools. Demand there has also been very strong, as it has been for the life sciences applications and EEM. Right now, that's not differential versus our Chrome Mass Spec business. They're both growing at extraordinarily high rates. In the your LC-MS business, when you look at that, I mean, you know, are do you have more better visibility on that? I think that was some of the questions, just given going back to, you know, some of the comments that some of your peers have made. You have the most visibility to electron microscopy. Yeah the lead times are. chrome mass spec would be next, and then chemical analysis is the shorter-. Got it. usually is the shorter cycle. you know, we have pretty good visibility, you know, certainly into Q2, into part of Q3 in chroma mass spec. Can we talk a little about China? How did you do in Q1? Are you worried about some of the geopolitical tensions there? What happened as we've gone to Zero-COVID? China, again, from a framing perspective, you know, it's, you know, a market, you know, probably around $4 billion or so of revenue for us. Historically, it's been, you know, very rapid growth. My expectation for the future is it'll still be a rapidly growing market. Probably the gap between China and the next fastest market narrows a bit in terms of what its future growth is, but still strong. In the first quarter, actually played out pretty much exactly as we expected. We declined, low single digits, which was really driven by the COVID comparison and the first month of the quarter disruption of Zero-COVID. If you look at the core growth, which kind of reflects the day-to-day activity, it was high single digit growth. The quarter actually played out as we expected, as we guided. Our expectation is that China strengthens during the course of the year and should have a very solid year. Geopolitical tensions are real, not likely to ease meaningfully in the short term, and therefore we factor that into our outlook that, you know, that every multinational will have to navigate the challenges. We've been in the market for more than 40 years, and we have an experienced team that will know how to navigate that appropriately. Let's turn to a little bit to capital deployment. For years, one of the complaints we've heard about Thermo is that you're getting too big to buy anything. that can meaningfully move the needle, your regulatory concerns. You know, do you need to continue to do deals to sort of like deliver on that 7%-9% growth. No target? Yeah. They're totally unrelated activities, right? The 7%-9% long-term core growth is the portfolio that we have today, right? Derik, you've covered the company for 20 years, right? You've seen us raise our outlook multiple times. You've seen us lower our outlook after M&A, right? When we bought Life Technologies, we actually took the business from 4%-6% to 3%-5% because we bought a large business that was growing slower. The 7%-9% is what we have today, and we feel great about it and our ability to deliver it. On an M&A perspective, we always assume that we're not gonna do anything. History has shown that the market is incredibly fragmented and that there are always up significant opportunities. You know, we put in our long-term model that we would expect to do, you know, $40 billion-$50 billion of capital deployed on M&A in the upcoming years. So we think there'll be plenty of opportunities to do that. We'll be very disciplined, right? We are, you know, M&A is a lot of work. So you got to get paid for that work, right? In terms of generating returns for the shareholders. You'll see us be very active in looking. You'll see us be very selective of what we actually do, and then we will do a phenomenal job with what we buy. That's been our track record, and that's earned us the right to do more M&A when we think it's the right M&A over time. Any questions from the audience? Nope. Going back to that 7%-9% outlook, it's like, what are the swing factors? What's 7%? What's 9%? Yeah, yeah. I think maybe the first thing to discuss is what 7% to 9% means is that market growth is assumed to be 4% to 6%, right? We always say that 7% to 9% is a long-term view because I think 4% to 6% is a very good, reasonable assumption of what the end market growth is gonna be in the long term. That doesn't mean in a given year that it'll be 4% to 6% or that we'll be 7% to 9%, right? If you think about last year, the market growth was clearly well above 4% to 6%. We grew 14%. We didn't constrain ourselves. I mean if the world gets much harder and it's not 4% to 6%, we'll grow differentially on the slower side. I don't get anxious about that. What drives our ability in normal market conditions to deliver seven to nine is really the proven growth strategy, right? We have an incredible track record of innovation. You think about the pioneering work that we've done across our portfolio, it's remarkable. How we, you know, enabled single-use technologies in bioproduction, the Orbitrap mass spectrometer, the first sequencer. All these things come out of the company. Our track record here is unparalleled. You know, the second thing is really around the trusted partner status that we have been able to generate for our customers. That's been incredible in terms of ability to gain share and serving pharma and biotech in particular, and it's a great end market, so we feel good about that. We just have unparalleled commercial reach and a commercial engine that's incredible, and that gives you the opportunity to just go out and know where the money is and make an impact for your customers and drive great growth. We've consistently delivered share gain, and we're well positioned to continue to do that. Got it. You've got an investor day coming up, I think, on the twenty-fourth. Yeah. Wanna give us a sneak preview? Yeah. First, it's the best day of the year, right? Well, actually, other than my wedding anniversary. I thought it was Mother's Day. If my wife sure is listening, it's my wedding anniversary, the best day of the year. Other than that, May 24th, New York City, it's live. It'll be webcast as well virtual. We'll give you a deeper dive into our business segments. They're awesome. We'll give you some feel because the company's grown a lot over the last few years. We'll give you an example of what does trusted partner mean, and just as an example for a customer that just kind of brings it to life about how you can solve a customer challenge and make a difference. You know, we'll talk about our financial outlook and give you an update on strategy and those things as well. Got it. Last call for questions before I do my final one. Mark, you've been doing this enough with me over the years. You know what my final question is. Like, what's underappreciated about Thermo? What don't we understand about the company? What don't we get? Yeah. You know, first of all, I think investors have a good feel for the company. I think that, what I would highlight in a noisy period of time, which we certainly are right now, this is the place to be, right? We have a track record of gaining share, delivering great results, differentiated performance. We manage the complexity, meaning that there's always ups and downs within the business, and it's our job to manage it. We'll do a good job managing it. I think when you read so many nuanced explanations of what's going on in the industry, I think you can get lost on who is the industry leader, why are they the industry leader, and why have they created so much shareholder value consistently over the last 20 years. Sometimes that gets lost in the noise a period of time. I'm super excited about what we are and what our future holds. Great. With that, thank you. Thank you everyone. I'd be amiss not to remind you that IRA season's coming up. Vote early, vote often. We appreciate it. Thanks, everybody. Thank you. thanks, Marc. Thanks for.