Agilent Technologies, Inc. (A) Earnings Call Transcript & Summary

Okay. Good afternoon. We're going to go ahead and get started. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our next company this afternoon, Agilent. Breakout's going to be right after in the Georgian Room across the hall. And with that, let me turn it over to Mike.

Thank you, Tycho, and thank you all for joining us this afternoon. I think it was 5 years ago I was the incoming CEO for Agilent Technologies. And I'm not sure if it was in this room or not, but at that time, I had talked about we really needed to go down a path of transforming the company. We had to get the growth rate of our company up. We had to get the profitability up. We had to get the earnings per share up, all to generate more value for our shareholders. So what I thought I'd do today is touch on 3 things. First of all, so how did that story develop, how would you describe today's Agilent, the company we've built, the growth company we've built, what have we delivered. Then we're going to point to the future, how we're going to continue this growth and earnings expansion story. And then we'll close with just a reminder of our FY '20 guide. But we have to pause here for your reading pleasure, our safe harbor statement. So Ankur, I think there may be a typo in line...

Yes.

Okay. Anyways, let's move on, which is who is Agilent Technologies. We are a $5 billion-plus revenue company with a global scale, a life sciences growth company, a leader in our space. As I mentioned, we have global scale. We touch the -- almost all of the world's 265,000 labs. All those labs have some type of presence or offering from Agilent. Our largest market is pharma and biotech, and we're a company that has the prowess to not only drive growth but operational excellence, which leads to earnings expansion. So for example in 2019, we finished off the year growing our earnings per share 11% on a 5% core basis. And our operating margin was up 80 basis points even with the trade tariff challenges we experienced in 2019. So a global leader in life sciences, a life sciences growth company. And we are in great markets. We compete in very large, attractive markets. Within these markets, we have a leadership position in key technologies and service capabilities. In this $52 billion market, we compete against and we have technologies in chromatography, mass spectrometry, spectrometry, cell analysis, enterprise services, genomics, diagnostics and oligo therapeutics -- or oligonucleotides for therapeutic applications, so a really very attractive marketplace we compete in with strong positions in a number of product and service categories. During this journey we've been on for the past 5 years, we have built a growth company. We have increased our exposure to higher growth markets. So if you look at our walk of revenue, if you will, we finished up FY '15, $4 billion of revenue. Since then, we've added $1.5 billion of revenue -- an incremental $1.5 billion revenue with 2/3 coming in what we describe as higher growth end market segments. How did we do this? Well, first of all, we expanded our core business through new product innovations, new product introductions and a real heavy emphasis on bio, biopharma. We've also built a brand-new business. We call this ACG, which is really to scale a business and build value beyond a product box. From scratch, we built a cell analysis business. We now have a greater than $250 million cell analysis business growing double digit. We've expanded our offerings in the NGS workflow spaces -- space, and we've been gaining share in this oligo CDMO space, which I mentioned earlier. So we've added -- 2/3 of this $1.5 billion of revenue is coming from our growing presence in higher growth markets. And you can see the expected growth rates in the space is all in high single digits or double-digit category. The other thing that you can see along the way is that we have -- not only have we increased the growth of this company, it's a much more resilient business model, so higher growth, much more resilient business model. What am I talking about here is almost -- or 58% of our business now comes from what we call non-instrument revenue, so we now have higher growth, less cyclical revenue as the way to characterize the revenue profile of Agilent. Along that way, we will put our balance sheet to work. During this period of time, we deployed over $6.1 billion of capital with high priority to investing for growth. About $3.2 billion of that over $6 billion has been either in M&A, $2.5 billion and/or CapEx to expand our capabilities to drive growth, another $700 million deployed there. And we also are very conscious of our responsibility to also return cash directly to our shareholders, deploying over $2.9 billion in the form of other share repurchases or a growing capital dividend. And if you can follow the trajectory of my little chart here, you can see that 2019 was the year that we actually had deployed the most capital since -- during my tenure as CEO. So what's all the result of this, this growth focus, this operational excellence and the deployment of capital? It's these types of returns that you're seeing here. So we've got the growth rate of the company up. We've been averaging 6% on a core base for -- during this period of time. Operating margins are up 480 basis points from the end of 2015, and this leads to a very strong trajectory of earnings per share growth, 16% CAGR, during this period. I think the results speak for themselves in terms of our ability to drive not only growth but earnings expansion and superior earnings for our shareholders. Okay. Enough about history. Let's talk about the future. So where are we going as a company? How are we going to sustain this ability to grow, to expand our earnings, to drive this earnings per share growth that you saw that we've -- or in terms of our track record over the past several years. It first starts with making sure you understand your end markets. And title here on my slide is secular mega trends driving core markets, what's it all about? In the area of drug quality and access through our mega trends driving regulation is driving the need for improved quality and access to pharmaceuticals. The whole area of biopharma, we're looking for more insights whether it be genetic, molecular, cellular insights in terms of new ways to treat cancer in immunotherapy and personalized medicine. You know the story about driving for cleaner air and water. And one thing we're going to talk a bit about today is also the drive towards more productivity out of labs, what we call the lab economics. So it first of all starts in making sure you understand these mega drivers driving your core markets, and then what you want to do is position your company to capitalize on those opportunities. So when we think about our ability to grow in this $52 billion marketplace, which is being driven by investments to improve the human condition, improve the quality of life, we, as a company, are really embarking on 3 enterprise-level growth strategies: transform the analytical lab, which is helping our customers not only do great science but also the economics of the lab; as we -- I showed you earlier, enter new growth markets but not growth markets that are completely adjacent to what we do but where we can leverage the core capabilities of the company; and then we want to gain share in the growing cancer diagnostics, genomics business. We'll take a deeper dive into all 3 of these growth strategies, but underlying these 3 company-level growth strategies are what we call key strategic enablers, and it starts with innovation. If you know anything about the history of Agilent, this is in our DNA. This is what we do. We invest for innovation, and we deliver an innovative new offering to the marketplace. Geographic penetration, every one of our country leaders has a specific plan tailored for their country to grow share in that country. So for example, if we talk about China, we have very specific China growth plan where we say, listen, we've got this large installed base of instrumentation. Wow, we can drive a lot more growth here in terms of the aftermarket service and consumables. Hey, we have a cancer diagnostic, genomics business but it really is underrepresented in China. We have a great opportunity to grow share. And let's also make sure we point our investments towards the growing areas of biopharma, in environmental investments that we see in China, for example, and the whole push in that country for improved health care. M&A has become a bigger part of our story. It augments our core growth. By the way, it's not just about having a strong balance sheet. It's about having the organizational capabilities to actually identify very attractive targets for the company and actually consummate a deal and actually deliver on the synergies. And as you can see, we have increasingly -- confident in our ability to do that and have been deploying more capital in this area. And then finally, digital. I think we all know from our personal lives just how digital is driving -- digital technology is driving changes in your own personal life. We also see that with our business. We're investing heavily to drive improvements in the customer experience around digital, create new offerings such as the digital lab and to use digital to drive operational efficiency in internal operations. But let's move in to talking more specifically about these growth strategies. So Mike, what do you mean about Agilent's leading the transformation of the analytical lab? So this is a $40 billion market for us, and what we're seeing is our customers are in the midst of a major transformation. Historically, it was all about the science. That is still very important, but they want more than that. We have to help our customers with -- who are seeking about innovative scientific outcomes from efficiency labs. So the way I've set up this slide is it's a from-to, which is we're moving from the customer doing it themselves, what we call self-engineered workflows, to integrated, scalable, supportable workflows. The buyers historically were technology buyers, self-maintainers. Now it's moving to economic buyers, lab enterprise services. Before, the operations in the lab were very fragmented, product-centric software. Now you have a digitally connected lab. So that's the transformation that's underway in the marketplace. So how do you win here? How do you win here? This is Agilent's unique winning formula. And really, it's make -- ensuring you to have this large and broadening portfolio breadth. So we have this instrumentation portfolio, second to none, coupled with a very existing large software and installed instrument base. And then you add to that the services scale and the solutions capabilities that we have in our ACG business. That winning formula leads to accelerated growth, market share gains via these new differentiated instrument platforms as well as we are seeing increasing levels of attachment rates of our services and consumables. So this has been a big growth driver, this view of the marketplace and how the market itself is transforming and how you need to capitalize on this unique opportunity. Growth strategy #2 is all of about -- and by the way, these are in no particular order of priority -- expanding our leadership in biopharma. We're really building scale in these high-growth markets through both organic and inorganic investments. This has been a very thoughtful process with Agilent. It's been underway for a number of years. It starts with building from our core strength as a company, which is our analytical tools and services business really to extend our reach into the biopharma research area through supportable workflows and industry partnerships. We're also building brand-new businesses. If I was here -- if you happened to be here 5 years ago, I would not have been talking about cell analysis. Now we have a $250 million business that we've built and -- from scratch and really is targeted towards live cell imaging for immunotherapies, a big application area here. And then we'll talk about this a little bit more detail as well. We've been investing very heavily in supporting the development of a new class of drugs. This is where we're providing GMP-grade oligonucleotides to customers who are developing a number of new therapeutics, including RNAi therapeutics. So these are all building blocks to expand our exposure into this biopharma space. And numbers are becoming meaningful for Agilent. So next year, looking at FY '20, we expect over $600 million of revenue for the company to be coming from this space. This would represent over 12% of our company's revenues, growing at double-digit rate is our expectations. So what's the fundamental strategy all about? Rather than having a lot of disparate kind of pieces, what we're saying is we want to become a supplier and a partner across the entire biopharma value chain. And what we've been doing is building presence from disease research all the way through the bioprocessing development, through clinical trials and bioprocessing QA/QC. And you can see our plays here right now. I talked earlier about the cell analysis business, for example, which is primarily a research play right now. But when I sit in front of you in 2 -- stand in front of you in 2 or 3 years from now, I think you'll see that arrow going much farther across the entire spectrum. So you can see we already have a significant business in this space, and our plan is to continue to build our presence out along those vectors. I mentioned cell analysis. Let's take a little closer, deeper dive, if you will, into cell analysis, which is one element of this biopharma growth strategy that I'm talking about. So I talked about our core analytical instrumentation play in biopharma. I just talked to you about what we're doing in terms of the broadening our value -- presence across the value chain. And now I want to take a little deeper dive into cell analysis. Why is this so important? We're seeing a rapidly growing interest in live cell analysis, and this requires investment in imaging capabilities in new areas of technology for Agilent. And our strategy, and you can see the companies here through a series of acquisitions, we've been building a broad portfolio of live cell analysis businesses. But the story doesn't stop there. It's not just about collecting a bunch of different companies. It's actually integrating them and doing something different with the capabilities. And our strategy here is really to take these different technologies that are being used in live cell analysis, integrate those through a workflow, through a lot of integrated software, and it seems to be really well received by the marketplace. Next year, about 5% of our total company revenues will come from this new business, and we expect this to have really great legs in terms of future growth for the company, again, this double-digit expected growth rate. The last thing I want to talk about relative to our biopharma play is our oligo CDMO business. And Sam Raha, our GM for this business, described this as our 3-plus-1 strategy, which I'll go through in a minute. But what's going on here, which is Agilent has a long history of being in the oligo business. We know oligos. But what we're doing here is actually, through development of GMP-grade oligonucleotides, we're able to supply our customers the APIs necessary to -- for their -- for the drugs being developed. And this market, we believe, is under rapid expansion, and my 1 proof point here is if we just look at the therapeutic oligo clinical programs that are out there right now, 2015, when I was standing in front of you then, 275. Now it's more than doubled to 548, or close to doubling, I should say. So we've got this great market growth that's underway. So how do we win in this space? How does Agilent win? So again, back to this 3 plus 1, which was our expertise and knowledge. We know oligos. We know how to work with the FDA. We know how to work closely with pharma partners. We have a technical depth to do that. We produced the highest quality nucleic acids out there, and we have added production capacity. And the plus 1 is to bring all these together in terms of programmatic management's kind of support with our customers. The last part of our growth strategy is all about gaining share in the growing cancer diagnostic, genomics space. I don't need to tell you that personalized medicine is driving a lot of growth in this end market. And our strategy here is a multipronged approach of enabling routine cancer diagnostic and therapy selections, partnering in novel diagnostics and therapeutics, and providing best-in-class NGS workflows. So -- and you can see on the right-hand side of the slide, a number of attributes of Agilent's strengths that allow us to participate very strongly in this market. So again, we have been building a growth company. 2/3 of our growth has been coming from new areas of growth, higher growth for the company, and we have 3 focused enterprise strategies growing -- that are going to drive future growth for Agilent. So people often ask me, "Mike, what can we expect from Agilent?" What you can expect from Agilent is our ongoing shareholder value creation model. We are going to drive above-market growth through this innovation leadership I talked about, truly having a differentiated value proposition versus the competition and our global scale. We can play on a global scale. We will continue to drive operating margin expansion. We have an Agile Agilent business system, which gives us structure. It gives us focus, allows us to continue to make our operations more efficient. We drive productivity and have robust quality inside of Agilent, what we offer to customers. And then we talked earlier about our deployment of capital. We call this our balanced capital deployment approach, where we're going to prioritize investing in the business with M&A being a big part of that investment thesis. We also will continue to deploy capital in terms of share repurchase and in growing cash dividend. And what is the result? You can expect a continuing delivery of superior earnings growth from Agilent as we move the company forward in the coming years. So if you're following my narrative, the third part of my talk was just a reminder of what we said in November when we established the guidance for the company for the full year. As Bob and I have described the strong revenue and earnings growth outlook for the company, we expect our revenues to be $5.5 billion to $5.55 billion in 2020. Our reported growth will be 6.5% to 7.5% in terms of our guide with resulting core growth of 4% to 5%. And then you can see our earnings growth, EPS between 9% and 10% expected in FY '20. So again, I really appreciate the opportunity today to share you -- share with you the story of Agilent, the transformation we've been under, how we've built this growth company, how we've -- and how, as we look forward, we have all the intent and all the capability to continue this growth story, this earnings expansion story. So again, thank you for joining today, and I look forward to seeing perhaps many of you in our breakout Q&A.

Okay. Are we good?

I think we're great.

Good. All right. One I've been getting a fair amount lately, you're doing a lot of self-help stuff as you kind of highlighted with margins and ever since you kind of launched Agile Agilent. You do have an activist [ in the crowd ]. Can you just say whether there's been any dialogue there or anything that they might want?

Yes. So thanks for the question. So what we can comment on is we really welcome the investment. We saw there's real vote of confidence in the thesis of Agilent, the Agilent story, and we've had some very productive discussions to date. And we typically don't talk about individual investors and why they're investing in the company but again, we welcome the investment.

Is it more -- do you continue to do the same, focus on margins and capital deployment? Is that the message?

Can you repeat the question please?

The question related to an activist investor that we have -- or that's the label that you put on it, Tycho, but we have a new investor in the company, and I would just leave it with we have a new investor. We welcome the investment. We're very pleased in terms of this -- we see this as a real sign of confidence in the Agilent story. And to date, like with all other investors, we've had some very productive conversations.

No, go ahead.

In the presentation, biopharma plus cell analysis is about 17% of your company, growing double digit. If you kind of back out the guidance, that means 83% of the company is growing 2%. Can you help me understand like why...

Yes. So the question really is really trying to parse some of the numbers. So I think there's one thing perhaps I didn't communicate clearly. The cell analysis is a portion of the 12%. So we count that cell analysis -- it's not additive to the biopharma, it's inclusive. So what I was trying to show today in my presentation was we have a biopharma slug, about 12%, and there's different components of that. There's the analytical laboratory business. And then I had 2 separate slides, which showed the cell analysis business, which is really 5% of total company's revenue, but that's inclusive of the biopharma.

Okay. So even backing that up, that means the base business, 83% -- 90% is growing about 3%. Is that a fair statement?

Yes. I mean if you looked at roughly, call it, 10% -- 12%, 10%, growing double digits, that's a point of growth.

Do you think that, that's the growth rate of the market, this 3%? [indiscernible]

Well, the market -- so the question was about what do we think the overall growth market. So we look across that $52 billion TAM. We think the long-term growth rate is somewhere in the 3 to 5. Now what we have assumed in our outlook for '20 is a continued subdued chemical and energy market, which will basically -- I think it's flattish.

Flattish.

Flattish now. We don't think it's always going to be flattish, but that's really part of the composition of our overall guide for the year.

And a part of the cell analysis business not in the core growth right now.

Yes. That's why for the -- so the question -- the thing that Jacob pointed out -- by the way, for the audience, joining me here on stage, in addition to Bob McMahon, our CFO, we have our 3 group presidents, Jacob Thaysen, Mark Doak and Sam Raha. And what Jacob just pointed out is you noticed in our guide slide at the very end, I showed reported growth because now reported growth is actually starting to be more meaningful to us in terms of differentiated number from core because of the M&A we've been doing. So all the growth that we're going to get the next year, for example, the top one on our cell analysis acquisition of [ biotech ] won't be in our core growth rate. But I would assure you that we think that in the businesses we're competing in, we're actually gaining market share. And I know you hear that from all CEOs, but we have some pretty good data that kind of back that up.

How do you move that business downstream? Is it kind of process development QA/QC, cell analysis in particular? Do you have the right pieces today? Or is that more on [ you may need to do there ]?

I think we've got some initial piece, but we think we need to do more than that. So Jacob, why don't you...

Yes. First of all, we are quite excited about the cell analysis business, and today, it sits more at the upstream. Clearly, there's a lot going on in the research and the applied research, and we see that our portfolio fits very well into where we look at live cell analysis right now, both in immunotherapy but, generally speaking, to better understand the immune system. It will eventually move downstream, but it's not there yet. So we do believe that some of our products fits very well into the QA/QC environment eventually, but we're also very interested to continue to build out our cell analysis business, both organically and inorganically.

A question for Mark, just for CrossLab. Just can you talk about priorities? I mean it's been a good success story for you guys. What are kind of the operational priorities [ for you guys ]?

Sure. Well, thanks, Tycho. And obviously...

You mind repeating the question, Mark?

So the question is what are the priorities for the Agilent CrossLab group and how does that play out with our recent successes and looking forward. So I'd first say our excitement is really still about our growth potential in the business, and there's a lot of underlying factors in the lab that are going on today that I think drives this kind of demand that we have for our product. And as roughly a 40-year veteran of this industry, it's unprecedented how much our customers are really looking for expertise from other companies to help them advance their productivity in the laboratory. And it's not just in the -- any niche space in any one industry or any one geography. It's really happening across the globe. So this demand for higher level of knowledge, we can help them to address their services needs to get their application online and running to optimize it, to think about across the lab operations. I think it's unprecedented in my experience. So our priorities, really, I'll start with the growth side but I can talk a lot about how we're going to drive the margins. The first one is still aggressive portfolio expansion play. And you've seen that largely in our consumables business where the number of SKUs have doubled over the course of the last 18 months, some organic, some inorganic. But we'll continue to do the inorganic and organic investments around that consumables business to make that go. And then on the services side, a portfolio that continues to work down 2 dimensions. One, on the enterprise side, you'll see new introductions this year that we think are going to help advance our enterprise offering quite a bit. We're excited about that; and at the same time, some really value-added services not only in the scientific side of the lab but on the operation side that'll be introduced. So this investment in our portfolio expansion just continues. The other 1 that bridges the 2 is digital. Digital, Mike talked about it briefly. We see it in 3 specific areas in the company. The first one is the commercial side, how can you sell market and ultimately, bringing that to different models, how customers want to purchase from the company, whether it's subscriptions, et cetera, a lot of advancement there. And to date, we only -- I'd say we only have about 50% of our consumables business bottom line and maybe 10%, and I think those numbers can go up 100 basis points a year easily -- excuse me, probably far more than that. I think they can go up 10% a year.

I think you signed up for more than that. Didn't you?

Yes, we did. But those -- you could see going from 50 to 70, and you could see 20 percentage points advancement in the online business, which not only gives you reach and growth but also takes the cost to serve down quite a bit. It tends to hit the operating expense line. And also on the gross margins and services, we can automate a lot of that. And then last but not least, we participate in a lot of the Agile Agilent initiatives that really help drive that. Underlying all of that, though, we have scale in our business now, and that scale is really driving our overall efficiencies. We can invest that back. And you've seen a lot of that this year in the operating margin expansion of the business.

Yes. If I can just make an advertisement for the overall transformation of the company, we've -- historically a very product-box-centric company. We created this ACG group. It delivered 10% growth last year, big number. And we also -- that defies the urban legends inside the company, which is you can't scale and you can't make margin expansion in service. And I think Mark and the team, through this multifaceted approach to a transforming marketplace, are not only delivering growth but delivering margin expansion and...

So I probably gave you more details than you wanted, but growing the business...

I think you got 40 years down to 2 or 3 minutes though.

Taking our business increasingly online and then using our scale, leverage and competencies to drive operating margin improvements.

Maybe for Michael or Bob. Can you just clarify the messaging around M&A? You have an appetite for bigger deals. I think you've subsequently said maybe $2 billion to $4 billion is the sweet spot. Can you just maybe...

Yes. So the question was centered around M&A and our appetite for larger deals. And if you had a chance to look quickly at the slide I shared earlier, you can see that during my tenure as CEO we've been going down a path of deploying more capital towards M&A. And that was really a purposeful approach. My first couple of years as CEO, I felt like, listen, we got to get our core business in good shape, get our margins up, get our growth rates up, so we shouldn't be doing M&A right now. But also, we didn't have the capabilities. So we really have also worked to develop the capabilities to not only identify good targets for the company but actually make them work. We build up a lot of muscle, if you will, starting with some smaller deals and learning from those. And now I feel a lot more confident about ability to deploy more capital in a good way, in a very prudent way for our shareholders. We got the question after -- with the biotech deal, which is our largest deal today, which is, is that the ceiling. And we said, no, we could do more. But the way, Bob and I have described it is multiples of that, not magnitude. So you can see a couple $3 billion or $4 billion. That's how we've been kind of thinking about it. And really to augment our core organic growth is how we view the M&A. We like assets that are growing faster than the overall markets. We're not interested in just adding bulk for bulk's sake. And Bob, I don't know if you'd add anything else to that.

I think the only other thing that I would add is twofold. One is our commitment remains to stay investment grade, so that is in the -- that multi-billion-dollar range. And then also, we feel confident in the growth prospects across our 3 groups. So we don't necessarily need a fourth group or a fourth leg of the stool to be able to kind of continue to drive growth. It's really augmenting the strengths that we have whether it be channel or portfolio, things like the cell analysis business where we identify the ability to kind of leverage the work that is in Jacob's business today and then see the future down the road of going down that downstream that you asked about earlier. And so those are the types of areas that we would be focused on, areas that are faster growing than the overall core, profitable and have the ability for us to be able to leverage our scalability, whether that be geographic scale or channel scale.

You talked about gaining share in diagnostics and genomics. No mention of Lasergen in there. Anything you can kind of say on how that program is going?

Yes, sure. So you may recall in May of 2018, we acquired Lasergen, and the idea is to build a clinical sequencer to enable our workflow aspirations in the NGS-based cancer diagnostic space. So at that time, we thought we would aggressively develop an RUO unit probably by the end of 2020. We won't be on that time line, but I think we're really happy with the development progress we're making. So Sam, maybe some additional comments on that.

Yes, sure. In terms of the specifications we had set out when we made the acquisition, be it about read length, quality, total capacity, we're actually making really good technical progress. But building on what Mike said, let me remind you, our intention has never been to bring to market a general-purpose sequencer, right? Our play at Agilent is to use our, what we believe, is relatively unique positions in the NGS space and where we already have more than a $0.25 billion business, particularly with leadership in certain areas, for example, library prep for target enrichment, which is the primary methodology used for cancer diagnostics. You combine that with our access to more than 2,000 labs in anatomical and molecular pathology along with the leading companion diagnostics business we have. So in part, we are still very interested, and we believe we already are, through our partners that are using our core probes and NGS reagents, serving a clinical NGS-based diagnostics. The opportunity to serve that integrated workflow where it's a turnkey solution is still something that we're interested in doing, but as we run the business, we're constantly looking at what is the best way to Agilent to serve that purpose. And Lasergen absolutely could be, and we're looking at options constantly as part of running the business, how we could best do that.

Yes.

Oh, sure.

Perhaps this is meant to be. Thanks for doing it. I have a question about your team and everything, what you do with the digitalization, what you said. How much do you see the combination of gene segments and everything with the imaging piece side? I didn't hear a word about imaging and the new problems with these big images you are creating, especially with the labs. So perhaps you can share a word on that one.

Are you thinking in the diagnostic labs or in...

In both. In the research and diagnostics, the combination it's more and more when you say -- talk about precision medicine and so on, it's more getting gene on the one hand. But on the imaging, when you talk about live cell imaging and so on, I think the combination, but nobody talks about it. So I'm wondering why.

Yes. So let me start and talk on the cell and then maybe you want to continue, Sam. But -- so the question is about nobody right now is talking about the combination of imaging, both cells and I think morphology towards also -- and combine that with genomics. And I think that's actually a part of Sam's strategy. But let me just -- from my perspective, a part of the biotech acquisition we also -- they have done quite an investment into imaging, live cell imaging. So we have actually right now a very strong position in live cell imaging, which we intend to increase. And Sam, do you want to...

Yes. I mean one of the ways we tell the story between Jacob and I is, as you said, Jacob, we have a unique position in live cell imaging. And we, on the diagnostics and genomics side, have been imaging cells and engaging cells that are already dead, if you will, for a long time. So quick mnemonic, see if I can get a smile. So I'm a child that grew up in the '80s, so dead or alive, doesn't matter where the cells come from. We have a play into it. Got it? Okay, good. We got a smile there. So specifically, I think to answer your question, we also have a relatively early-phase business in gene editing with CRISPR. And we have the opportunity, we believe, and by the way, both on the earlier stage for discovery for biopharma as well as we have a number of oligos that we're working on, which are CRISPR-based in our CDMO business. But we see the possibility down the line of how you can really edit a gene. And then once you get it into the cell, using that part of our business, it's all Agilent, where you can see the actual action that it's enacting in a live cell. So that would be a unique position, more work to be done. We're laying the groundwork to have a truly differentiated gene editing and all the way to cell analysis portfolio.

Yes?

Do you have interest in expanding liquid biopsy?

Yes, the question was do we have any interest in expanding liquid biopsy. So I think our play is to provide -- be a provider of tools and components to those that are invested in liquid biopsies. Yes.

Maybe I could build on that. So when we look at the analyses, look at our customers and we do a lot of work to understand how the -- particularly in cancer, how samples and diagnoses of cancer and diseases will happen, still a vast majority today of diseases, unless you're talking about a blood cancer, is done from tissue. And we don't see that as something that is going to go away anytime in the next decade. However, it's without doubt that there is an increased, as you know, interest and relevance of liquid biopsies. What I can tell you already is when you -- though I can't name the names, when you look at the leading cancer diagnostic companies that are using next-generation sequencing in liquid biopsy, going from liquid, a significant portion of those are already powered by Agilent, our [ shear selector ] NGS port. So we're very actively there. And in fact, we spend a lot of time working on developing either ourselves or through partnerships methodologies which will better improve the fidelity because when you're going from liquid, you have to have even more resolution. So those are things in R&D that we continue to work on.

So we want to help our customers to enable their work. We're not planning to have -- build our own liquid biopsy assay.

That's right. We're not looking to be a liquid biopsy company that way.

Mike, I'm sure you're particularly talking about the China headwind but...

We've been 20 minutes into our conversation. We haven't talked about China yet.

I mean food testing, we just assume it's going to be status quo until -- do you think that [indiscernible]...

Yes. So Tycho's question, for the audience, was about our outlook in China and particularly what...

4+7, too.

And 4+7, what's going on there. So it's probably a good place to start, is just a quick reminder of what we saw in 2019, low single-digit growth overall for Agilent in China, below our expectations coming into growth last year mainly because of the food market. So there are 2 things that -- and a lot of people point to the trade tensions between the 2 countries, had nothing to do with this. I mean there are really 2 significant policies changes in China in 2019. Actually, the food one actually started in 2018, which is a reorganization of the food ministries and who's responsible of what relative to the food testing. And what we saw was a lot of migration to contract testing labs, so they pushed more responsibility onto the private sector. We clocked that business. The -- there's also a role that the Chinese government plays at the national level. That's where we saw a lot of pressure in our business because we saw really no really reinvestments. So we went -- we saw our business decline by about 20% in '19 in food in China, about $40 million of business. That's now been kind of -- moved along at a kind of flattish level. So as we look forward into 2020, we're seeing -- we're expecting a continuation of that. And then when the reinvestment occurs, we'll pick up upside to our guide assumptions. By the way, that impact about 4 points of growth for us in China last year. Now relative to the 4+7, we think the 4+7 issue, along with this -- even though this food ministry organization caused some near-term churn, all these policies are leading towards more and higher testing volumes, which are good for the industry. And you can see that reflected in Mark's business. Even when capital wasn't being deployed in the food, they were still buying consumables and chemistries, and we saw mid-teens growth, for example, in the aftermarket, in the food market. Now relative to 4+7, you may be familiar with this already, but this is about expanding the availability of pharmaceuticals to a broader section of the Chinese population by driving down the price through a tendering process. The first tenders went out probably early 2019. It went through the industry a lot more quickly than most people thought. It throws the whole industry for probably a good quarter or so. Now at the time, we kept talking about, hey, listen, this is actually a good thing for us in the long term because, a, we think the winners are going to be with the customers that we already have relationships with, and we think this will lead to investment, actually what occurred in 2019. And we saw our pharma business up 10% for the year in 2019. Right now the second round is underway, 4+7, and we'd expect a similar flow. So we expect the overall pharma market, both small molecule and the large molecule biopharma pieces, to remain pretty strong in China. And we position the outlook for 2020 relative to food as has upside if -- when the national labs start procuring instrument again. Anything else you'd add to that, Bob, or...

No. I'd just say, just overall, China, we're expecting kind of mid-single-digit growth. That's inherent in our guide. Couple of things that you just talked about could be potential upsides to it. The other area is chemical and energy. We're expecting a relatively subdued chemical and energy output and -- but when you look at that, long term, the growth drivers there are still intact. We have a very under -- a big opportunity certainly in the services and consumables side. Today, historically, it's been a instrument business. That has served us incredibly well. Now we have a really large installed base that we can form from services and consumables side and then also the diagnostics and genomics space, which represents only about 5% of our China business today, a lot of exciting things and investments going in there. And we expect that, that over time will be a much more meaningful component in the Chinese market.

We think health care investments and environmental focus investments, building a indigenous biopharma and overall pharmaceutical marketplace are going to be core growth drivers in China to come for years.

[indiscernible]

You have more on your list looks like, Tycho.

You assumed $50 million or so from the CDMO facility. Can you just talk on just the funnel there? And you talked about gaining share in that market. [indiscernible]

Yes. So just as a reminder, we have been investing in expansion of our capacity in the GMP oligonucleotide space. It was roughly $100 million-ish kind of business for us last year, primarily out of 1 site. We're in the process of ramping up volume in our new facility. We haven't put out a specific number, but you're...

You're in the ballpark.

You're in the ballpark. And it'll continue to -- because we've added about -- roughly about $100 million of capacity. That doesn't mean we're going to fill it all up and do that from day 1, but we'll build it up through the year. The demand for -- you saw on my slide the number of clinical programs is way up. We've got a really robust pipeline of customer relationships and opportunities. We're really excited about this, probably over 20 pharma relationships, and some are very well publicized, where we can talk about it in a public domain. But we have greater than 20 relationships. I mean perhaps, Bob...

Yes. The only thing I would add in the last 30 seconds is the volume that we've had and the revenue that we've generated to date is all largely on clinical trials. And when you look at the opportunity before us, is actually taking these products to commercial and so that's all upside for us going forward. So we're really excited about this. We want to bring it up in the right way, but there's more opportunity ahead of us for sure.

Conclude with that. Thanks, guys.

Absolutely. Thanks, Tycho.

Thank you.