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

All right. Good afternoon, everybody. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our next company this afternoon, Agilent. Just a quick reminder to everybody, if you have questions, you can submit them through the website. And with that, let me turn it over to Mike.

Hey, thanks, Tycho. It's a real pleasure to be here. Now I'm sure, like all of us, we had hoped to perhaps be doing this conversation face-to-face, but just delighted that you could join us today in this virtual event for me to share with you the updated Agilent story. And it's a really exciting story. We just finished off our 2021 with record performance and entered the 2022 environment with a lot of momentum. So I thought what we would do today is cover 3 topics. I would like to open up with just a reminder, on the Agilent shareholder value creation model, our results delivered to date against that model, then move to the future look, how are we going to sustain our growth, our momentum, our Build and Buy strategy execution. And then finally, I'll close with what you can expect from Agilent in 2022. Now I understand that you can advance your own slides. So with that, we're going to move to the second slide, which is -- before I get into my presentation, just a reminder, for your reading pleasure, our safe harbor statement. Okay. If I go to the -- our third slide here, so who is Agilent? This is a reminder. We are a leading lab partner with unsurpassed scale and capabilities. And why do I say that? We participate in the $65 billion life sciences and diagnostics market, and we touch the world's 275,000 labs globally. And we have built a business, and we'll go through some of the details later this morning, over a $6 billion business. And one of the call-outs that we -- I wanted to point you to on this slide is now almost 60%, 59% of our 2021 revenues come from what we believe the highly connected high-growth markets of pharma, biopharma, diagnostics and the research market. And by the way, that's been -- that's up 8 points from where we started in 2015. And then here later, that's been a deliberate -- that's been a result of our deliberate intent to build much more sizable businesses in that space. And I was thinking about our conversation last year, when we were in the throes of the pandemic and not that we've escaped those yet, but I told you that last year in the midst of the pandemic, Agilent would grow its market share, that we would improve our operating margin, expand our EPS. Well, how did it turn out in 2021? I think the Agilent team delivered. We added close to $1 billion of revenue in 2021. That's 15% core growth. Our operating margins are up 200% -- 200 basis points, I should say. And EPS was up 32%. And this is all about driving value creation. And the one thing I wanted to share with you today is while we're super pleased with the results we delivered in 2021, there is more to come. And we have a path to continue on this path and deliver value for our shareholders. So we move forward. Let's take a little bit deeper look into our Build and Buy growth strategy. And we've been focusing on these high-growth markets while executing this Build and Buy growth strategy. And what I wanted to show you was and why I wanted to show you this multiyear view was our performance in 2021 is not some 1-year wonder. This is part of a sustained effort to continue to drive up the growth rate of our company with a lot of success. In fact, I think you saw us raise the organic -- the growth rate of the company last year in our December 2000 (sic) [ 2020 ] Analyst Investor Day, where we put out the highest growth rates ever for Agilent. Back to my story on the Build and Buy growth strategy. We've added over $2.3 billion of new revenue to the company, starting on a $4 billion base back in 2015. And how does that happen? Well, 70% of that big move in terms of top line revenue has been by putting more focus on these high-growth areas, such as biopharma tools, cell analysis, our NASD business, delivering GMP-grade oligonucleotides, and we'll dig into those areas of the business a little bit later in more depth. And then I can't forget the big bet we have made and continue to make on our Agilent CrossLab business to drive lab-wide services and consumables results, $2.3 billion of incremental revenue, more to come. And I think this ties directly into our Agilent shareholder value creation model, which if you move ahead to this slide -- just a reminder, if you happen to talk to me back in 2015, I first presented the Agilent shareholder value creation model, which is all about driving above-market growth, expanding our operating margins and deploying our capital in a balanced manner. And I really believed in that model in 2015. I still believe it's the right model for Agilent and our shareholders. And what I'm going to share with you in a few seconds here is that this is not some theoretical model. This is what drives the Agilent team. And I think you'll see this reflected in the results we've been posting, which is ever-improving results. And let's just take a closer look at that track record of results. So if you pull out the slide here, which talks about Agilent's value creation model is delivering, look at the growth rate of the company. In the early days, we were probably 4% or 5%. I used to get a lot of questions whether we could get anything past 4% reported growth. We've now brought the reported growth rate up to 8% during this period of 2015, so almost a doubling of our reported growth rates. Can we ever improve our operating margin? I think we've answered that question, up 700 basis points since 2015. The end result, in terms of tying this into how we deploy our capital, which I'll describe in some more details here in a second, double-digit EPS, 16% compound annual growth rate during this period of time. We're creating shareholder value. And I believe there's more -- still more significant opportunities to come for us in the future, and there is more to come for sure. Let's take a closer look at the deployment of capital. First of all, I think it's important just to remind you that the -- our priority is to invest in growth. And we've deployed $2.9 billion in M&A over this period of time. And that -- those acquired companies are now delivering revenues, which reflect about 8% of Agilent's total FY '21 revenues. And by the way, those revenues are growing at 20%, so clearly, growth-accretive and margin-accretive acquisitions. We're also investing in our own internal operations. We've invested over $1.1 billion in capital to date since I became CEO. A big investment focus has been our NASD business. We'll talk about that in some detail here later on this morning. But in addition to that, we continue to invest in terms of additional manufacturing capacity expansion to support our growth. In fact, we announced an expansion of our facilities in Shanghai, China this -- just last week. But the story about enabling growth goes beyond that with our balanced capital deployment. We also want to make sure to return cash directly to our shareholders. And we're doing that through 2 mechanisms. One is a growing cash dividend. So we've deployed $1.3 billion in dividends since 2015. We think this provides a real dependable return to our shareholders and something that's fairly unique about the Agilent story. We've also repurchased $3.3 billion of shares during this period of time, $788 million in FY '21. And as we were talking earlier with Tycho, there's been some dislocation at the macro level in the marketplace, and we saw this as a buying opportunity and have been in the market in Q1 of '22, opportunistically buying $350 million of shares in the first quarter, in addition to our anti-dilutive repurchases. So again, this -- Agilent's balance sheet and cash generation capabilities are really just incredibly strong. I think this is an -- we intend to continue to leverage this for our shareholders as we move the company forward. So enough about history. Let's look forward. So as we start transitioning into the growth story side of Agilent in some detail, I would point you to this slide, the Agilent Build and Buy growth strategy. Just as a reminder, this is -- when I say Build and Buy growth, this means we're going to continue to invest heavily inside the company. It's been the core heritage of Agilent. But over the years, we've also built the capabilities to buy and buy growth-accretive assets with great teams and differentiated portfolios to win in the market. So we see this combination of Build and Buy as fueling our future growth. And it goes across 3 dimensions. One is the continued transformation of the lab. We continue to lead the transformation of the analytical lab. And this is all about providing our customers with not only great scientific outcomes, but also recognizing the productivity and economic challenges they have. We call this helping our customers with the economics of the lab. We're also going to continue to grow our share in our chosen segments of the cancer diagnostics market and genomics. And then we're going to spend a lot of time today talking about our moves into entering and expanding in the high-growth markets. We're really doubling down our efforts here to expand our biopharma market presence, for example, in additional biopharma services, biopharma tools. We'll talk more about our cell analysis play as well as oligo CDMO play. And we also will talk about sustaining our ability to grow in China, a geographic dimension to Agilent's plan as well. So -- and I can't -- so it's one thing to have these growth strategies, but I would also remind you the key strategic enablers we have as a company, our innovation, our digital and M&A prowess, as long as our ability to -- and also our ability to expand globally, all built on what I believe to be a unique culture, a differentiated culture. The One Agilent Culture really worked together as one company on behalf of our customers. And I think this really allows us to -- this combination of team and culture is a long-term differentiation for Agilent. So let's take a closer look at the details of what are we doing in the high-growth market space. But I'm also going to pause later on in the presentation to talk about our undisputed leadership position in the applied markets and how that really is an advantage to Agilent as well and what's happening in those markets in terms of some of the evolution of market drivers. So I talked earlier -- I'm going to go right to this slide, opportunities in key high-growth markets. And this has really sort of set the stage for our future growth strategies. And if you may recall, the earlier slide I talked to you, where almost 60% of Agilent's businesses are in pharma, diagnostics and clinical and the research markets, and why are we so pleased with that result? Because these are markets that have inherently high growth associated with them. And by the way, we didn't wake up yesterday and decide we're going to focus on these markets. We made -- we started making these bets a number of years ago, where we anticipated, for example, the growing demand in biopharma, the rapid growth of nucleic acids therapeutics, what was going to be incremental investments in cancer research and diagnostics, the move to cell and gene therapy, an increasing number of RNA therapeutic and CRISPR therapeutic programs. So there's a lot of very attractive end markets as this is where we want to point our efforts in terms of incremental investment. So what have we been doing in these spaces? If we talk more specifically about biopharma, and let me just kind of pause here for 1 second, which is there's been a lot of downside, obviously, to the challenges of the COVID-19 pandemic. But one of the things that we've seen, at least our view, is that there's going to be an increased level of funding that's going to be in pharma and biopharma. So our outlook for growth in these end markets is actually higher now than it was pre-pandemic. And this is a rapidly expanding segment of our business. And if you look at the biopharma portion of Agilent's pharma business, it grew -- it's 38%. So almost 38% of our reported pharma business is in the biopharma space. That's up 20 points from where it was in 2015. And by the way, keep in mind that we also have a very healthy overall pharma business. Our overall pharma business in '21 grew 24%, with the biopharma piece growing 38%. And this is becoming a much more meaningful part. It's already a meaningful part of our total revenues, north of $800 million, almost 300 -- 13% of our revenue is in the biopharma space. And our play here really is to leverage our existing positions to expand our presence across the entirety of the biopharma value chain, whether it be leading analytical solutions in another lab, what we're going to do in the biopharma services for therapy selection, market leader in RNAi-based APIs and also the integrated cell analysis solutions, just to name a few. So very much pointed in terms of more growth in biopharma and really pleased with the results to date. We think there's a lot more to come. Now speaking of pleased with the results to date and opportunities in front of us, let's talk about Agilent leadership position in live cell analysis. And again, this whole theme of building and buying, this is a Buy strategy, right? So through a series of acquisitions, we have now built a high-growth, highly profitable live cell analysis business. And those profit levels actually have increased since these businesses became part of Agilent. This business is now north of $375 million, growing double digit. I think we posted a 25% growth rate in '21. And why are we so excited about this business, not only is it fast-growing, but we're participating in the fast-growing markets. We see this as part of a $5 billion TAM, growing about 10%, being driven by things such as a lot of the research in immunocology, immunotherapy, new types of cancer treatments, infectious diseases. So a lot of energy -- a lot of investments, I should say, here in the research side of the live cell analysis business and the potential ultimately down the road to have more of a diagnostics play here as well. The last thing I would comment on -- relative to the biopharma story is what are we doing in oligonucleotides, specifically our GMP-grade oligonucleotides. So this is a business we're extremely pleased with. And it's also part of the story of the Build side. So to date, we have invested $350 million in capital. And just as a reminder to the audience, what we're doing here is we're providing GMP-grade oligonucleotides to our therapeutic pharma partners. $350 million of capital they had invested to upgrade our Boulder, Colorado site and expand the capability, but also build a brand-new Frederick, Colorado site. And that site ramped successfully and was a major contributor to the strong growth we saw in '21. We delivered $225 million of growth -- total revenues, I should say, from this business in '21. Almost 30% CAGR during the period of time in 2015. We're right in the midst of another capacity expansion, and we call this Train B. And that capacity is targeted to come online by the end of calendar year 2022. It won't be in our fiscal '22. And we think that will add another $150 million of revenue potential. We like to call that Train A on steroids. I think it's also -- just a reminder to -- a reminder to the audience about what's going on in this market. I can remember a few years ago, when we made these, what turned out to be hundreds of millions of dollars of bets, there was lots of questions about whether RNA-based therapeutics would ever go beyond orphan drugs and small populations -- patient populations. I think that question has now been answered. And there's no doubt there's going to be a large on-market commercial demand down the road. So we're very pleased with our broad-based book of business, but also the underlying market drivers that say, this is the market you want to be in, and we think we have a differentiated position. And that's where I close, which is what is our differentiated position? Yes, we've got these state-of-the-art facilities, second to none. That's part of the story. But it also is, the major part of the story, is also our team, the technical expertise we have, our white-glove services, how we work with our pharma partners from the very beginning. And you tie this all together, proprietary technology in terms of how we do the oligos, how we make -- ensure their quality, but also the superior customer interaction, and we're trusted by our customers, this whole form that comes together to say we've been successful and we can expect a lot more growth here in the coming years. A lot of talk about China these days. And I think it's worth mentioning that Agilent has a big important business in China. And I think that's a good thing. It's a good thing to have the possibility to continue to grow in what now is the world's second-largest economy and also where we can expect to see continued investments to improve the human condition. A couple of highlights here. Yes, China is about 20% of our revenue. You'll see we've got a number of proof points here in terms of how well our biopharma business is doing. I think we did 55% growth in the biopharma last year. We're also planting the seeds for continued growth in diagnostics and clinical. One of the -- the numbers here on this slide show you the percent revenues that are generated by the end market in China. So you can see, for example, the pharma market is 38% of all of China's -- Agilent's China revenues. And we can expect that strength in that end market to continue. The other thing I would call out is 6% of our business is in diagnostics and clinical, yet on an Agilent level, that's about 15%. So clearly, our ability to penetrate this marketplace on the diagnostic and clinical side is a great opportunity for us. We grew 41% last year in the space, and there's a lot of other things that are going on relative to being the first companion diagnostics to get NMPA approval. So a lot of foundational elements that will allow us to point to strong growth in these markets, but also across the entirety of the end markets. And we've got China-specific strategies, growth strategies. We've been there for a long time. We know the China market. We're investing in China-specific solutions, with digital capabilities, and continue to do more in-country manufacturing. We just announced, for example, last week, a $20 million expansion of our facility in Shanghai. So this allows us to better serve our customers across the continuum of the analytical lab. If we think about -- I kind of dropped a little hint on this, the key analytical markets, the applied markets. This is where Agilent has undisputed strength. We have an opportunity here to leverage core technology investments in our core technology platforms and leverage them into the applied markets. And what we see is the needs in our life sciences customer base. Even though those markets are growing faster, they have the same needs as our applied markets to the customers. And this is really an area of strength for us. And I would also just point to you, there are segments of growth in these marketplaces, whether it be in the food market, the cannabis testing, safety concerns, more interest in alternative proteins. We'll dig into C&E here in a second, but the whole move to more sustainable energies and materials is a big part of the story there. And then on the environmental side, we can expect continued investment in improving the quality of the world's water. Let's take a deeper look at the chemical and energy and what I'm now calling advanced materials option. Because this market continues to evolve. And we're showing you here a segmentation of that marketplace. It's got -- about 55% of the revenues come from chemical and energy, about 15% tied directly to the oil side of things, with oil production, refining and exploration, and then a growing segment of advanced materials. And the message here is not only is there growth coming as the world's growth has come back, PMIs are up, our C&E customers can invest with confidence, but we're also seeing demand for new things, whether it be supporting the explosive growth of lithium batteries, whether it be the search for new types of more sustainable and environmentally friendly materials. So -- and obviously, also the onshoring of critical supply chain elements, this all supports, I believe, a view of -- an evolving view of what is in C&E and the building for this marketplace to have overall growth. Again, not as high as, say, biopharma, but it will be a growth opportunity for Agilent. Okay. So I'm kind of bringing down the wire here to close all the presentation. We're -- and I'm often asked, "Hey, Mike. How can you guys continue to put up great numbers?" And I think it's not just about the strategies, but it's our capabilities, our strategic enablers, which I talked about, but also our One Agilent Culture and our real clear focus on making, number one, our customer satisfaction, having a delighted experience with Agilent. I'm going to dig into those things here in a little bit more as proof points. So I just announced in the Q4 '21 call the creation of the first-ever One Agilent Commercial organization bringing, if you will, from cradle to grave, our initial interaction with customers always, on the sales side, always through instrument acquisition and post-acquisition use. So all from, credibly, all into one organization, we think this allows us to be able to move faster, be even more focused and also, for some of our smaller businesses, add more scale. Listen, we think we do a very good job in this area. Wall Street Journal had us #2 in all of the U.S. -- 250 Top U.S. Best Managed Companies. But we think that we can do a better job. There's #1 still to be had. So pleased but not satisfied. And let me bring it home here, which is just a reminder of what I believe to be our secret sauce, this combination of the One Agilent Culture and team. And I see it in the results about how people think about their experience with Agilent. I'm often tempted to brag a bit here. We've got employee engagement scores well into the 90 percentiles, which, as you know, are great predictors of future performance; Glassdoor, well over 4. And in particular, in these days, in this war of talent, to have an attractive work environment where people want to become part of this team and that want to be part of a mission-driven company, we think this provides us a competitive advantage, not only for attracting talent, developing and growing our talent as well. I couldn't be prouder of the Agilent team. We have this winning culture, and I think this is part of our secret sauce. To wrap things up here. What can you expect from Agilent? Just a reminder, as I close off the presentation, this is the FY '22 guidance that Bob and I shared in our earnings call. And I'll just pull out a few comments here, which is the core growth of 5.5% to 7% for the year, with continued double-digit EPS. So I just want to say thank you so much for joining in today's session. I'm very much looking forward to the Q&A. Bob McMahon, our CFO, will join me. And I hope you heard that Agilent remains on a roll. Our momentum continues. We've got a great team. We're firing on all cylinders. We're very excited about the future in front of us. And for those in the Agilent team, I always like to share this with the Agilent team, and I'll share with this audience today. I believe the best is still yet to come for Agilent. So with that, Tycho, over to you.

Thanks, Mike. Great overview. Maybe we'll start with some of the operational changes you made. A lot of companies use the pandemic to reinvest, to do M&A. But on top of all that, you also decided you were going to reorganize a little bit. You talked about the One Agilent, cradle to grave. You obviously realigned some of the businesses, shifting to chemicals and supplies, from ACG to LSAG. Talk a little bit about why that was needed. Because it felt like you were already serving your customers pretty well. So what was kind of missing in your go-to-market approach?

Yes. So it's one of those things where the best time to make some change, I think, is when you're on top of your game. So -- and on the Commercial front, we had 2 sales forces. So you may recall my earlier story when I first became CEO, where we had a multitude of sales forces, which are more reflective of the organizational structure, not end markets. And we evolved that to have an analytical lab sales force and a diagnostic genomic sales force. So what's happened over time is as we've changed the portfolio, built the cell analysis business, for example, we're having a lot more shared accounts in academia, in pharma. And it just seemed like it was a nice time take the games at a higher level, I call it doubling down on our CrossLab structure, which is really thinking more entirely about the customer experience. So it's not about that we had problems, it's more about this is just one next opportunity. And then you also think about your ability to use -- as digital has become such a major part of the customer engagement, we can now, by having a centralized digital structure for the entirety of the company, that can much more easily scale for some of our businesses, such as the diagnostics and genomics business. So I think there's a real positive here in terms of really taking our customer experience to the next level. All end-to-end activities, all in the same staff, reporting directly to the CEO, allowed us to more quickly move and pivot on things. But also, I think it gives us scale advantages for certain of our smaller businesses as well. And then when we looked at the organizational responsibility, as talented as [ our executive pool is ], I thought, well, that's an awful lot to take that on as well as manage the CSD business. And I thought it was a great opportunity for Jacob to put his mark on that business. And then we also think, from a business perspective, by bringing the instruments and chemistry and consumables together, really even more help or facilitate our connect rates even more tightly. So again, it wasn't one of the situations where something was broken. It's more about, hey, there's opportunity to do something even better. And that's why I pulled out the one -- recognition by the Wall Street Journal. Yes, we're #2, but we can be #1.

It didn't get as much attention. You also announced a distribution deal with Avantor. I mean do you feel like your distribution channel isn't broad enough? Or what was the thought process behind that?

Yes. No, I'm glad you brought that up. Michael and I have -- Michael Stubblefield and I, the CEO of Avantor, we've developed a really good relationship over the years. We had a relationship a number of years ago with VWR. In my -- from my perspective, we had lost some of the channel reach. And the VWR -- Avantor has really got some nice capabilities. They reach into certain segments of the market that we don't reach into as well. So it was really a win-win to sit down and say, "Hey, the past is the past. How can we best move forward together?" And we work with -- now we're very pleased to be working with Avantor. We work very well with Marc Casper's team in Thermo Fisher in terms of our work from the cell analysis side. So what I think from my perspective, the root of your question, what I think, we can do a better job in expanding our coverage, particularly in places like academia and government segments, where their team did an excellent job, where we've done historically well on instruments not as well on the aftermarket business. So I'm simply super delighted. In fact, Bob and I just had an opportunity to do an executive review just the other day. It's early days, but there is great excitement on both sides of the house for this new arrangement.

Good. Let's talk about the recovery. You had a good recovery in the base business in the fiscal fourth quarter. Obviously, the guide for this year, 5.5% to 7% core implies the trends are pretty stable. Can you talk a little bit about whether the trends out of the fourth quarter have continued and how you're thinking about recovery on instruments versus consumables? Any other nuances you can kind of place on the setup for '22?

Sure, Tycho, great question. I'm going to tag team with Bob on this. So as I mentioned in my opening remarks, we had this 15% core for the year, but we closed a double-digit growth in the Q4 and we had a lot of momentum with the book of -- our book of business being very strong. And at the time of the Q4 announcement, we were just going into what was the calendar year-end close for our customers. And we're simply delighted with how that turned out for us in terms of our ability to meet their expectations on delivery. So the whole idea of momentum continuing into the first quarter for us, I think it has played out so far. It's been strong across the breadth of the portfolio, I would say both instruments as well as consumables and services. So it really has been a broad-based story. And Bob, what else would you add to that?

Yes. Tycho, thanks for the question. I think, as Mike was saying, it's really broad-based across all the end markets. And so we continue to see strong demand. We entered into Q1 with record backlog, and our order book continues to be very strong. And so we feel very good about the opportunities that are ahead of us here in FY '22.

A couple of questions on China, which you called out. It was up 13% last year. You guided to kind of high single-digit growth this year. Obviously, there are a number of gives and takes. I feel like the Chinese New Year comes up [ just more than it should ]. And then you've got the tender dynamic in the background. And then you had the whole pharma dynamic with 4+7, which it seems like we're out of the woods on that. But can you maybe just talk to each of those dynamics and how you think about the gives and takes?

Yes, sure, Tycho. So I wish that I didn't have to talk about Lunar New Year every year. But just the way our fiscal reporting, depending on how it changes, it has nuances in 1 quarter. So in this year, for example, we'll probably lose at least a week or so of revenue because Lunar New Year, in our Q1, it will show up in Q2 because of the start of Lunar Year. So that would be the one nuance I would just indicate to the audience about when you look at our Q1 results. And I think Bob has tried to articulate that fairly clearly in the elements of our Q1 guide. Let me start with the last one, which is 4+7. You remember when that was first announced, there was some big negative reaction. And we kept saying, "Hey, this is actually a good thing." And I think it has actually proven to be the case, which is that led to more pill count, which led to more needs to have a robust QA/QC system, which, for us, will play to our strength in informatics in liquid chromatography. And that's exactly how there's been a flight to quality. And the customers who won the tenders were our customers. So we've seen a really nice strength in small molecule. And Bob, I can't remember the exact number, but I believe it was double digit for us...

Yes.

In China in '21. And no indications that there's going to be any -- there's going to be continued strength in the small molecule side in China. Albeit, we believe that the biopharma segment will grow faster. So always a lot of nuances about China in the headlines. I think it's always really important to kind of sift through the headlines then say what's really happening on the ground. And what I can tell you is on the ground, the teams remain very positive about their ability to -- the funding environment, the ability to grow here. But it's also a very dynamic market. And you have to also make sure that you continue to evolve and invest in an appropriate way in China. And I went through it very quickly in my slide presentation, but I do believe very strongly that part of the story about winning in China is doing things in China for China. We have -- we built out a China-specific solutions center. We also need to make sure that we can be as responsive to our customers as possible. Last year, we started doing our target enrichment portfolio out of our factory -- one of our factories in China. Then I just announced -- we just announced last Friday the expansion -- $20 million expansion for us in our Shanghai facility, which Tycho, as you may recall, is sort of the center of gas chromatography for us, for us now. We're also, for China, we're going to be able to do liquid chromatography, spectroscopy, mass spec. So again, I think you need to continue to evolve your strategies to win in China. And the last thing that I would say here is I think there's a resilience of growth in our business in China, tied to not only the play we're going to see in the diagnostics, but services. Our attachment rates continue to go up in China. And this is a market where I think nobody can question that we've been the leader in terms of plays in instruments over the last decade in China. And Bob, I know this is a topic you and I have talked a lot about. Anything you would add to the China story?

Yes. Just 2 quick points. I mean if we looked at FY '21 numbers, the 2 fastest-growing markets that we had were, in fact, pharma, as Mike was just talking about, and diagnostics and clinical. You had mentioned about the China tenders. And as we think about FY '22, I would expect that to continue going forward, so both on the small molecule side, as Mike talked about, but also in biopharma on the pharma side, collectively, and then in diagnostics. And our diagnostics play is primarily through our DDG business in pathology and companion diagnostics. But also what we've been doing is investing in diagnostic or clinical LC/MS or LC and LC/MS. And so what we've seen is some nice growth there. So you asked about tenders, we don't see that as impacting negatively our business. And specifically, on Chinese New Year, we were talking about high single digits for the full year in China. I would expect that to be muted to probably flat to low single digits just because of this timing associated with the -- we talked about 1 point roughly of impact in Q1 that will come back in Q2, but just to kind of put some numbers or frame around the potential impact to China, but the demand continues to be very strong.

Actually, a follow-up on that, from an investor asking how do you think about protecting intellectual property in China, any long-term threat of China wanting to create their own national champions in this market?

Yes. So first of all, we have some level of R&D in China and have a whole number of safeguards in terms of how we protect that intellectual property. I would say though, we do protect -- we're quite aware of that possibility. So we're -- we keep a lot of our stuff in the U.S. and Europe. So we don't have a big, big, big push to push our technology into the country. We think there's a real advantage by developing country-specific solutions for the China market. So like I said, we've been in this space for -- we were one of the first companies going in the '80s. So we think we understand the situation on intellectual property. We think we're protected. We also think that the Chinese government seems to be more serious about ensuring that MNCs have that position protected. So I wouldn't place a high risk on that, but we're also very careful in terms of what goes into which parts of the world. We do see that, all things considered, like any government, you would like to see your own domestic companies be the company of choice, but they're also very pragmatic. And they also look at what are the most important priorities for all of China and things such as improving the quality of life, health care of their citizens, the environment, the security of their supply chain. They're higher-order priorities for the Chinese government. So this is why innovation, this is why meeting the China customer market needs are so important because if we can maintain that innovation edge, I think this will allow us to stay in a position of preference to be able to have our products and services procured. If we lose that innovation edge, we lose that differentiation edge relative to the Chinese companies, I think that you could find yourself in a situation where more of the business will move to them. I would like to say that's going to happen to my competitors, it's not going to happen to me. And that's why we continue to invest in China. I spent, as you know -- Tycho, I spent 6 years of my career working in Asia, having directly managed the China business for a number of years. So I think we've got a good pulse on what needs to be done to continue to win in China. And I think this idea of investing, being an integral part of higher-order priorities for the government really allows you to win. For example, we just signed our first -- we were the first-approved companion diagnostics, right, so with the KEYTRUDA going in. So they see that as a necessary treatment they want for their citizens, and we can benefit by that because we have differentiated technology on the test side. And Bob, I don't know what else you would -- you can tell I got a lot of passion for China. It's been a great success story for us. And I think if you continue to be really, really aware of the dynamics of the marketplace and adjust accordingly and kind of sort of anticipate what's going to happen, you can do your best to try to stay ahead of the game.

Another investor question, and don't shoot the messenger. I learned a while ago not to ask you about orders, but the question is how many weeks, months in typical backlog, and what was it at the end of October?

Yes. So I would never do that, Tycho. But as you know, we moved away from reporting on orders, but we thought it was important enough to start making some mention of it into the -- into our earnings call over late because you don't -- we didn't want to give the impression that we had run out of -- we exhausted all the gas in the tank in 2021. And I would say, Bob, it's probably fair to say that our backlog is probably at record highs...

Yes.

And which is -- what the really cool thing about that is it's a great revenue potential for us coming. And the customers are with us on this, right? So we've had no significant order cancellations. So we're not at risk of losing that revenue. It's just navigating the supply chain and logistics of the day. So I won't give you a specific number in terms of number of weeks, but I think it's higher than historic averages.

Yes. Much higher.

You highlighted it, obviously, biopharma, and that's been a great success story for you and your peers. Just looking across your portfolio, how do you think about incremental opportunities to kind of round it out organically or inorganically?

Yes, we want to do -- we're going to continue to do a lot more here. So we think we can do more on the cell analysis side. We think we can -- we're going to continue to expand our biopharmacist services business. We think there's a lot more to be done on the tools. And I don't want to tip my hand to my competitors in everything we're going to do, but this idea of our core in lab technologies being applied outside the portfolio -- excuse me, outside of the lab for online and at line type of analysis, I think you'll see us continue to move aggressively in that regard. We continue to build out our consumables portfolio, associated with the biopharma workflows. I think it's going to be a broad base of opportunities here. We'll see what we can do beyond our current play with NASD. So there's -- we just have a tremendous amount of interest here. I think we've got opportunities pretty much across all the portfolio to take a bigger piece of biopharma. And the reason why I was crowing so much about our success, I can remember when I first became CEO, [ I saw that the old Agilent never had ] a meaningful business in biopharma, and I think we actually have proven that out. And Bob, I may have missed something in terms of some of the opportunities...

The only thing I would add is -- yes, the only thing I would add, Mike, is, as you mentioned, it's now greater than 1/3 of our overall pharma business, which is the largest market that we play in, and it grew in excess of 30% last year. Even if you took out NASD, which was a big contributor to that, it still grew in excess of 25%, so very strong performance across the business. The other area around portfolio is application development. And so we launched some new technologies about a quarter ago, very well uptake and now building on additional applications on those products as well as others to help support the needs of our customers. So I think there's both an inorganic and organic play, not only just instrumentation, but also building out additional applications on the -- on any existing installed base.

Yes, yes.

Maybe one last one. I know we're out of time. I just want to acknowledge small molecule continues to do well for you as well, [ with ] acceleration there. Can you maybe just talk on what's driving that and how you think about the durability?

Yes. We've always felt that long-term small molecule, particularly as it relates to, say, liquid chromatography, is probably a mid-singles kind of grower. But at periods of time, you'll have accelerations of growth. And I think we're in that phase right now. And Bob can comment about how he sees the timing of that. I think it's really driven by 2 things. One is capacity expansion, particularly in China. Back to my China story, 4+7, more pills, more production, more need for instrumentation. So there's been an expansion there. And I also think you've got a refresh, an upgrade cycle going on of somewhat of an accelerated basis in the U.S. and Europe. And Bob, I think that you kind of look at our historical cycles and where do you think we are right now?

Yes, I would say -- yes, yes, I would say we're probably roughly right in the middle. These typically are 18- to 24-month kind of cycles. And I would say we're probably halfway in between that cycle of accelerated growth. So we're expecting FY '22 to be strong. And I would say, also as we think about this, Tycho, kind of longer term, there's also the benefit, I think, as we're looking at potential onshoring or regionalization of supply chains, that I think will also drive probably more 2, 3 -- 2 years-plus down the road, which will actually add capacity to the system as companies are looking to strengthen their supply chain and build resilience and redundancy. And so we think that that's very good opportunity for us down the road, which had been there pre-COVID, to be honest.

Yes.

That makes sense. Great. I think we're going to leave it at that. Thanks for taking the time today. Good to see you.

Hey, thanks for the invite, Tycho.

Thanks, Tycho. Take care.

Nice seeing you as well. Take care. Be safe.

Bye.