Thermo Fisher Scientific Inc. (TMO) Earnings Call Transcript & Summary

Good morning, everyone, and good afternoon. I'm Matt Sykes, the senior life science tools and diagnostics analyst at Goldman Sachs. And we have the pleasure today of hosting Marc Casper, the Chairman, President and CEO of Thermo Fisher. Marc, Happy New Year, and thanks for joining.

Matt, happy New Year, and thanks for having me. It's great to be with you today, albeit virtually.

Great. Well, I thought I'd let set the stage for us for the first few minutes. You hosted your Investor Day in September where you upgraded your long-term growth guidance and then reported strong numbers in Q3. Perhaps you can share a bit on the -- a bit of the trends that you've been seeing within your end markets, and what has changed, if anything, over the past few quarters.

Yes. So Matt, it is phenomenal times in life science tools and diagnostic industry and even better at Thermo Fisher Scientific as the leader in the industry. End markets are really strong, right? You see it in the pharma and biotech end markets. You see it in the diagnostic end market recovering back on the sort of normal testing as well as meaningful amount of COVID demand. And you see the benefits of an improving industrial economy and good academic and government end markets. So the end markets are strong. When we had our Analyst Day in September, we were able to give our longer-term outlook and increase that to 7% to 9% organic growth, which is terrific, and a continued evolution of the company as we continue to put ourselves in a position to grow faster than the industry. And so things are very strong, and we enter 2022 very excited for what this year will hold and really how strongly positioned we are.

Great. It's good to hear. And maybe we can discuss the impact of COVID on Thermo at a high level. I think we can probably dispense with the discussion of the magnitude of testing revenues. You've derisked your forecast. And frankly, it's probably going to remain an uncertainty that will likely carry throughout this year and maybe beyond. But for the purposes of this discussion, maybe can we talk about what you believe the longer-term impact that COVID will have on Thermo? Specifically, how it may contribute to strengthening longer-term growth drivers like funding and maybe digital engagement and investment that you make in those areas.

Yes, Matt. So thanks for the question. So COVID has really had -- from our positioning the company, it really has strengthened the company meaningfully, right? And if you think about how we have managed the company over the last couple of years is enable a societal response, right, and keep our colleagues safe, right? And so we've been super-focused on that. And we have had this guiding principle that we would exit the pandemic phase a much stronger industry leader. So what we have done is invested very significantly the cash flows and profitability that we were able to generate in terms of COVID response to increase research and development, increase our capabilities and capacity across serving primarily the biotech and pharmaceutical industry. We've been very acquisitive, right? We closed our acquisition of PPD. All of these things fundamentally strengthened the company so that the role we played in COVID response not only improved our reputation as a company, which was already good to start with, but really highlighted us that it allowed us to strengthen the fundamentals. Now the industry has also benefited, right? Our end markets look good, right? And if you think about the drivers, there's been really great advances in the pharma and biotech industry, which has increased the rate of investments in R&D and new startups and things of that sort because of the pipelines that bodes well for funding from the biotech and pharmaceutical customers. And academic and government, which is typically a modest growth end market for the industry, has seen really good funding, right? Governments around the world [ have seen ] the importance of the basic scientific research, particularly around infectious disease, that short amount of money to make a big impact relative to having to deal with all of the cost of COVID and pandemic. So I actually think the end markets are better than they've ever been, and our competitive position is as strong as we've ever been. So COVID has really allowed us to enter this phase of the pandemic as a much stronger industry leader.

Great. That's very helpful. And as you mentioned, you upgraded your long-term growth guidance to 7% to 9%. You have a history of upgrading your guidance every few years. And now you're looking at a pretty substantial revenue base where maybe the law of large numbers may begin to be a factor. How are you managing the business differently, given its size? And do you think there's a theoretical ceiling to growth for the overall business?

Matt, when I think about the enabling role that we play, right, and we enable the pharmaceutical and biotech industry with such core capabilities, right? Our growth prospects are incredible for the long term, right? And while the company has scaled to roughly a $40 billion revenue company today, our ability to grow at a higher rate, we have incredible confidence in, right? If you think about it, there are many other large companies in other fields that -- the Amazons of the world, the Apples of the world, they grow very strongly. And we're such an enabling technology that we're able to do similar things. We've evolved over time how we manage the company as we've scaled, right? The discipline of our PPI Business System allows us to be very efficient in scaling up our business and really operating with speed at scale. And we give examples along the way about how we're able to move with incredible agility. And also, we use our scale to partner with our suppliers in a way that gives us a competitive position also and a competitive advantage, right? So there are benefits of scale. And then the most important benefit of scale obviously is those customer relationships, the access that we have, the ability to influence, be a thought leader, a partner with governments, with pharma companies, with biotech companies, with the diagnostic clouds. We have such a unique position because of the importance of the role that we play that, that also allows us to be very well positioned to be a strong, growing industry leader well into the future.

Got it. And when you think about this long-term growth guidance as you're setting it, how are you thinking about market share gains? How does that factor into your forecasting, in your -- and how you look at it?

When we talked about the 7% to 9% growth for our outlook, embedded under that is 4% to 6% market growth, right? So that's what's sort of the underlying assumption. If I said historically, kind of 2015 to 2019, say, you would say 3% to 5% market growth would be the -- would be a good assumption. And I think, just based on the underlying factors in our end markets, 4% to 6% for the industry seems to be a better assumption, and we should be able to grow faster than that. And we obviously have a very strong position in pharma and biotech with -- about 55% of our core revenue is in that market, and that's a fast-growing end market, and that contributes obviously as well.

Got it. Yes. And talking about the biopharma end market. It's been obviously a very significant growth driver for you and the industry. And you've grown this segment where it now represents a pretty significant portion of your overall group. How are you thinking about the long-term growth drivers for biopharma as it relates to customer R&D budgets, funding from private and public markets, in a, hopefully, post-pandemic environment?

Yes. So when you think about the end market, you have a few drivers. One is the regulatory environment has improved over time over the last few years, right? And you're seeing more medicines get approved in the market. You've seen substantial investments in new modalities, which opens up new opportunities, whether it's cell therapies, gene therapies, mRNA, these create new investment vehicles, if you will. And the funding environment has been strong, right? And what you're seeing is that, because of a favorable regulatory environment, good progress on the science, and that's led to strong funding. And we see the benefits of that in the role that we play as a key enabler of the industry. And when I think about -- looking back over the last 5 years, we've been able to grow double digits serving the pharmaceutical and biotech industry. And when I think about, with more than half of our revenue serving it, that bodes very well, right? And I actually think we're in a very favorable part of the funding cycle as well. So I'm very optimistic. And we've been able to grow, right? If I think back over the last couple of decades, even in periods where there's been more muted growth in the pharma and biotech industry, we've done well, right, because we're so ingrained in helping our customers be more productive, more innovative, taking time out of the process to bring a medicine to market. Those things put us in a position to be able to gain share and serve our customers well.

Got it. A key part of this growth within this end market is the bioproduction, and you've been very active in the area of COVID vaccine development. It's obviously been a big growth driver. There's still in the market that remains concerns of the capacity transition that will -- at some point, need to occur from COVID to non-COVID will be challenging. But as I just kind of think about the growth in the cell and gene therapy pipeline, specifically in the supply/demand imbalance that exists there, is that pipeline mature enough to take on the capacity that's been built up during COVID? Or will there be, you think, a transition period of COVID-related revenues slow faster than expected? And how are you thinking about this dynamic?

So Matt, maybe what I'll do is frame some of the facts around our company and then get directly to the question because I think sometimes that helps. So about $20 billion of our revenue, including PPD, if you pro forma PPD in, right, about $20 billion of our revenue serves pharmaceutical and biotech, right, for simple math. About half of that revenue, about $10 billion, serves production, right? So -- and that's actually the largest by far in our industry in terms of our position. And that ranges in 3 different things from the production role that we play, right, which is what we classically would say bioproduction. That's our cell culture media and single-use technologies. We have industry leadership there. We have a rapidly growing purification business. So that's one set of activities within that $10 billion. In our bioscience reagents business, we are a key enabler of mRNA through our nucleotides and enzymes, so a core technology used in the production of those vaccines and therapies. And then obviously, our pharma services business, where we have both drug substance for large and small molecule and drug product for large and small molecules. So a very strong position in serving that end market. We've invested substantially in building out our capabilities across the production side of our offering. We've invested about $4 billion of CapEx over the last couple of years to strengthen our capabilities, capacity. We've added new things like plasmids. We've expanded our production capabilities for sterile fill/finish, for the production of cell culture media. So a very thoughtful program and we're well positioned to drive strong growth going forward. When you look at the investments across the industry and the question about transition, questions about overcapacity, the devil's in the details, right? There's been much investment, but it's often in very different things, right? When you actually look at what the different companies have done, they're really investing in their core aspects of their business. So some companies are investing a lot in purification, where we're smaller. We're investing very heavily in sterile fill/finish, where we're an industry leader. So you're making choices, right? So while the aggregate investment level is high, I think when you actually get down to how much new capacity really is coming online, it's relatively appropriate for the incredible growth you've seen in the industry. For us, as you think about the transition, when there is no more need for vaccines -- who knows when that will be? Maybe a while for COVID. But whenever that happens, if it happens, the capacity that we brought online, especially things like sterile fill/finish, is not specific to the vaccines, right? It basically will get transitioned to other therapies and vaccines. And we have signed up contracts with our customers that will take on a large amount of capacity going forward. And that doesn't mean, in 1 quarter, you won't see some period of movement. There'll be -- it will take a few quarters, but it's not years, if you will, to transition from one to the other. And I think that helps frame it. And the same is true on the bioproduction side as well, where the cell culture media capacity, the single-use technology capacity, is fungible and it can be used for other therapies as well. The growth in cell and gene therapies, into that aspect of your question, is very strong, right? So that will absorb capacity. Now obviously, there's never been anything like COVID vaccines with billions and billions of doses, right? That's -- so it will take a while for that totally to get absorbed across the industry. But the growth is so strong, I would envision a very positive environment. And also, we've been running at 100% utilization. It will be nice to get our factories back to the normal, right, running at 80%, 85%. It's healthier long term. So all of those things factor into our thinking, and we're very bullish about what our outlook is in serving the bioproduction end market.

Great. That's a really helpful answer. Thank you for framing it that way. We've seen some significant growth over the past few years from new biotech companies that have benefited from robust funding market and tend to outsource a large amount of their development manufacturing. As you grow your business, how does Thermo Fisher properly balance the needs of smaller customers with that of the largest pharma customers that you also serve? And how do you make sure that you're closely serving each of their unique needs in developing these smaller, maybe early, relationships, so you can grow with them over time?

There's so much innovation and so much cutting-edge thinking in the small biotech companies. We are so focused on serving them well. If you use a public example, right, we can talk a little bit about Moderna because they've done press releases about some of the support that we've given them. They've been a customer when they were 2 or 3 people, right, literally. And I, me personally, calling on that customer in the startup phase and as other members of our team, right? It's not just about one or it's not that we got lucky with Moderna, it's sort of the DNA of our own company, right? Which is you help enable that innovation, right? We're involved in the earliest phases, in equipping labs and providing the research tools. Today, obviously, with PPD, we also will help in the clinical trial design, right, and enabling that. And ultimately, when you go from a scientific idea ultimately to a molecule, our development teams in our pharma services business will be engaged there. So we have dedicated people that help bring Thermo Fisher to life for our smaller customers, and we grow and scale with those companies. And that's a key thing. We have great relationships with the industry associations that support the biotech industry so that we make it easy for the startups to engage with us, and then we grow with them over time. And obviously, often, they're acquired and those relationships get them transitioned to the larger companies. And obviously, we have great strength there as small.

Got it. Got it. Just shifting to maybe academic and government. Can you talk about what your expectations are for funding, not just in the U.S., but globally? And do you think that could result in a higher, more durable long-term growth rate for this end market?

Yes. What I would say is right now, for the next few years, I would think academic and government funding is going to be strong, right? There's been so much learning about the importance of the basic research on the health care side, that I think governments will have strategies around that. You clearly see in things like ARPA-H in the U.S. is sort of like a defense view of the world, which is you have to think about investments for things you hope you never need, which is how the defense industry works. But in life sciences, you don't do so much of that, right? You don't do as much theoretical work, but there's much more interest. The U.K. is doing a similar thing, which is thinking about how do you prepare for low-likelihood events from a basic research perspective. And that's spurring really interesting funding. And my guess there's actually some interesting breakthroughs that will come out of that as well. So I'm quite optimistic about academic and government markets actually being stronger for the next few years than they would have been kind of trend line. Trend line market growth probably 2%, 3%, 4% in those markets, and I think it's going to be above that. And clearly, if you look at the NIH budget proposals, things like that, it's very, very strong, right? 15%-, 20%-type funding increases. So short term, it looks very robust.

Got it. Got it. Supply chain has been a very key focus for investors in the sector over the past 6 months. And you mentioned on the third quarter call that you see it as a potentially competitive advantage for Thermo given your scale. I think that's a really interesting point that people are maybe not focusing on as much as they should. Could you elaborate on your thoughts there? And sort of the second part of the question, how much of the mitigation of rising inflation can you accomplish with price increases versus maybe other areas like improving logistic capabilities?

Yes. So if you think about inflation and you think about supply chain. And my first part of my comments had nothing to do with life science tools and diagnostics, we're just kind of CEO of a large company in the business community. It's real, right? There are real challenges with supply chain. We see them in our personal lives, all sorts of you can't get x or y. And it's actually getting a little bit better. But then you see prices going up. So the issues are real. When you then turn to our industry and we turn to Thermo Fisher, there is actually a huge scale advantage. The relationships we have with our suppliers. The importance we have with our suppliers. The network that we have. We get preferential treatment, right? And that puts us in a better position. Our PPI Business System is a key differentiator for us, right, in terms of how we operate our facilities, how we operate our supply chain, huge advantage. And those things, it's not that they sound good, but it's practically we've been able to pivot very, very rapidly to address issues as they come up, right? And you see them sometimes in electronic components. You see them in freight. You see it in those things. And we've been able to navigate that effective. On the pricing side of the equation, we'll get into that in more detail, Matt, in our earnings call at the beginning of February. But if you say historically, we would get 50 to 75 basis points of price in a given year. And in the environment, it should be well over 100 basis points of pricing contribution. We'll get into kind of all the specifics on how we think about it, but it's going to be meaningfully better than it was to help offset some of the inflationary pressures that we see.

Got it. And maybe just as a quick follow-up to this, how much of it is just constant communication with the customers to set expectations to help mitigate some of these issues? And how are you dealing with that across your -- such a vast customer base?

Yes. I mean, one of the things -- so you have customers that think -- where products and supplies that we're providing are very time-sensitive, right? And then you have sort of the normal routine. We have really stepped up our communication so that our customers can tell us how critical is something in terms of the timing, where we have very large and trusting relationships. And customers will say, "Hey, this is super important. We need it by X." And -- which prevents things like hoarding or those kinds of things that create the funky dynamics you don't want to have. And we've done a good job with our customers. And we can always do better, by the way, right? We want to communicate clearly. We want to navigate and make these -- any challenges or pressures invisible to our customers. But we've enhanced our communication to help us navigate the environment, and it's serving us well.

Great. Shifting to PPD, closed in mid-December. Congratulations on that.

Thank you.

You've talked about kind of increasing the margins in this business from mid-teens to upper teens. Maybe could you just talk about how you're looking to accomplish this? And any time frame that you've set for yourselves?

Yes. So Matt, first of all, it's super-exciting, right? It's just great to welcome the colleagues, expand and enhance our customer value proposition for our pharma and biotech customers. It's just really -- it's awesome. And what we're assuming from a financial perspective is that PPD comes in at the mid-teens margins, as you said. And over the longer term, that's going to increase to the high teens. What's going to drive it? First of all, strong top line growth in this business, right? It's growing rapidly. So you get some fixed cost leverage, right? That helps drive that. We're also going to have synergies, right, and then ultimately, productivity initiatives. So on the synergy side, as a reminder, it's about $125 million of synergies by year 3 and that's $75 million of cost synergies and about $50 million of adjusted operating income from the revenue synergies. And the cost synergies are straightforward. You have the public company cost. You have the benefits of our PPI Business System. We're going to leverage our shared service infrastructure. And there's some pretty meaningful sourcing savings. All those things contribute. So when you take those cost drivers and add the revenue synergies, which accelerate the growth and further drives fixed cost leverage, that puts us in a position to be able to get to the high teens in the next few years. So that's the goal that we have and a plan to get there. So it's quite exciting.

Got it. And maybe staying on PPD just for a minute. So at times -- a lot of the questions that I fielded from investors, at times they feel the decision for choosing a CDMO and a CRO for some of the large biopharma customers may have been a different decision point within that customer. But given your deep relationships with biopharma customers, what do you think Thermo can do to bring these decisions closer together and help the customers realize the greater value from the overall relationship, whereas these might have been 2 separate decisions for your customer previously?

When you think about how customers work with us, we want our customers to be making good decisions for them, right, meaning that when they're thinking about a CDMO set of capabilities or a CRO set of capabilities, that what we do, that we're really good at, right? Before you think about the value proposition or the synergies or any of those things, do -- are we really good at what we do? And the answer is yes. And PPD, super high-performing industry leader, right? Great capabilities, right? And like everything, we have relationships that are typically complementary to what PPD would have, right, which is we typically would have relationships with the heads of R&D, the heads of -- the CEOs of the smaller and larger companies that are meaningful and long-lasting, right? And really, what it says is, all right, Thermo Fisher could have moved about anybody, right? So Thermo Fisher has gone through an evaluation of who's a great partner, a great capability to have in the CRO space. And that in and of itself brings credibility, which is, right from day 1 when we announced it, we had incredibly positive customer feedback. And we're already getting commercial momentum beyond what the individual businesses would have done on their own because of those trusted relationships. Over time, we think it's a really interesting opportunity. It's not one that we're guaranteeing. It's not one that we're going to overpromise kind of thing. But actually, when you think about things like cell and gene therapy and you think about those modalities, there's actually time to be taken out of the process by tightening the linkages between the clinical trials phase and the development and manufacturing ramp-up phase, right? And we will work with our customers and co-create processes to actually make it more efficient to bring an idea ultimately to improve medicine. So we're really excited about what the capabilities are and feel that the combination is really, really compelling and should add a lot of value to our customers.

Got it. Maybe I'll slip in a question from the audience here. You announced yesterday the closing of PeproTech on December 30. Could you talk about -- a little bit about the rationale there and what you think it will add to that, you talked a little bit about the bioproduction business, what that adds to that franchise and what you're looking to accomplish with that company?

Yes. So thanks for the question. Really excited. The right way to -- we announced it yesterday and closed it right around the holidays. Our M&A team is incredibly disciplined, working right up to the year-end, which is great, and I'm grateful for that. PeproTech is a really nice addition to our bioscience reagents business. Its recombinant proteins, very complementary to the cell culture media leadership that we have, where it's used in that workflow for cell and gene therapies and on the research side as well as on the production side. So it will scale over time. Very rapidly growing business, a really nice complement to our offering and should be a really a great fit. We're excited to welcome 150 new colleagues to Thermo Fisher Scientific that -- they come with PeproTech, it's great to have them as part of the team.

Great. And then maybe a question on ESG. It's an increasing focus for investors, particularly with this sector. There's a lot of this qualities the sector has that lends itself to ESG investors. And maybe could you discuss your specific goals for Thermo Fisher in terms of your net zero by 2050 target, diversity and inclusion initiatives? And maybe your thought process as you measure your progress and how you're going to communicate that to the market?

Yes. So Matt, one of the things is we do business the right way. But we're also a company that has been quite quiet, right? We're not a company that likes a lot of fanfare. We just like to do our jobs. And actually, I think in ESG, you actually have to communicate more, and you have to actually explain externally exactly what we're doing and why. So you probably have seen over the last 9 months a much more enhanced set of communication around sharing data, explaining our goals, having a super-robust corporate social responsibility report that we just issued that really gives us a tremendous amount of information and transparency. So what are we trying to do? I'll break it into really 3 areas, right. From an environmental standpoint, net zero by 2050, 30% reduction of emissions in this decade off of our baseline and reporting the progress on that through a number of the frameworks that are used, right? So we signed up for a number of the frameworks so that if investors prefer one or another, that will be in it in a way so that investors can use whatever methodology of measuring progress that they can. And our operating plan has -- this year has specific reductions, right, in carbon emissions. Just like we have growth goals and cash flow goals, we have emission reduction goals. And it's cool. It's like very tangible in the company. When you think about diversity and inclusion, we enhanced our reporting of our census data for our colleague base and a real commitment for our colleagues to be able to have a mission-driven career, an incredible opportunity for the purpose of the company. And we've done a great job of enhancing the diversity of our senior leadership and throughout the company, right? And it's really quite apparent about the progress we're making. And then finally, we also want to be good stewards in our communities and we've been very active philanthropically as well with our Foundation for Science, the funding that we put there, making a difference in STEM education. We've also mobilized with global health equity and the pandemic response. We're working with the Indian government, with a number of African governments, to be able to make a difference there. So from an ESG investors' perspective, all of this starts with our mission, right? We enable our customers to make the world healthy, cleaner and safer. Our products benefit society. And how we run our company is we are truly committed to being world-class from the ESG perspective. So I think it's super-exciting from how we run the company and what it means for our investors.

Got it. Maybe moving on to capital allocation. You have one of the healthiest balance sheets you've had in some time. And so I just want to get your thoughts on how you're thinking about capital allocation currently. And how has PPD maybe changed your appetite for inorganic investments at all? I mean, obviously you announced PeproTech yesterday, so maybe it hasn't. But you've invested substantially in R&D over the course of 2021 as well. How do you -- how are you looking at sort of balancing that R&D versus inorganic investment as you move through '22 given the balance sheet you have and the opportunities that are out there? And maybe also the valuations that exist in some of the inorganic opportunities.

Yes. So the general strategy, Matt, is unchanged, right, which is we will from a capital deployment primarily on M&A, but also meaningful return of capital through share buybacks and growing dividend. And obviously, we fuel the company's growth strategy, right, with strong R&D investments, appropriate capital investments in the business to be able to support the 7% to 9% growth. We have -- from the internal investments, we stepped up our R&D significantly over the last couple of years. And I think you'd expect it to grow now more in line with the revenue growth of the company, and that's exciting in terms of fueling the new products. We'll have a suite of really good new products again in 2022. So that's very positive. From an M&A perspective, as you said, obviously, PPD is a large transaction. We closed it in December. But 3 weeks later, we announced another transaction with PeproTech. And we have an active pipeline, right? So you'll see us continue to look at transactions that make sense and continue to invest to strengthen the company's strategic position. And -- but most importantly, we're going to execute well on PPD. That's our primary focus right now. We'll get that done right.

And just on the valuation side, you've been very disciplined in the past with your inorganic investments. And valuations move all over the place, of course. But I'm just wondering, sticking with your original discipline has clearly helped you a lot, and I assume nothing is going to change there. But could you maybe talk about any kind of change of thought or strategy in terms of how you're thinking about that discipline in this current environment?

Yes. So one of the things that we have always used and will not change is when we make a decision on an acquisition, we run scenarios, right? We run our base case. We run our upside case and we run our downside cases, right? And then we probability-weight those things, right? Because some transactions, you have very high certainty, and some transactions, you might have less certainty, right? So we do the theoretical math on things. And we want to make sure that we can generate a return if things don't go as smoothly as what's in the base case, right? So when valuations are more elevated, riskier transactions, you're a lot less likely to do them, right, because the downside case then looks super ugly. And once that happens, you can't -- you just can't ever make up for it, right? So what happens is you wind up with transactions that you have a very high certainty of generating really strong returns on, right? And that's okay, right? It means you're going to screen some things out, and that's all right. We've obviously had no problem deploying significant capital on transactions that we feel really good about. And we've also looked at things and said, "We don't like the risk/reward on those, and we're going to pass and let others do them." So that's how we'll manage. And that actually isn't really any different than the past. But the discipline remains as true today as it has over the last 15 years.

Got it. Maybe shifting over to China. I've gotten number of questions from investors. Clearly on people's mind, particularly with Omicron and sort of the 0 COVID policy and concerns around growth. Maybe talk a little bit about how you're seeing China today, any impact and how you're thinking about it.

Yes. When you pro forma -- I'm not a big pro forma guy, but just from a -- just it's worth doing for a second. China represents about 8% of our revenue if you pro forma PPD in. So it gives you at least a sense. It's an important market, but it's -- on a relative basis, it's actually a little bit smaller than it was historically. It's been a good market for us for a very long time, right? We've been in there for decades. And today, the investments in the pharma and biotech industry are the primary driver of our growth for us in serving the Chinese market. And we look ahead to seeing China continue to be a good market, right? In terms of growing above the company average, we have a really good competitive position there. Our customers understand our value proposition. We're able to produce a number of products for the local market in China to support the customer base. So we have a good position. And there are real trade challenges. There are real geopolitical tensions. We've lived through different eras of that, and we'll do our best to navigate it. So I feel good about the Chinese market, but I don't think it's going to drive the oversized growth that maybe it drove in the last decade. I think it's going to grow faster than the company average. I think we're well positioned to serve that market, and we'll navigate it successfully.

Right. Maybe another question from the audience. Just maybe your views, to the extent you have them, on just overall life sciences spending growth in China. There's obviously been a lot of back and forth about buying domestic. And I think from a competitive standpoint, particularly the instrument side, they're just not quite there yet. And so that hasn't really been an issue -- been able to separate the 2. But maybe your views on sort of overall life sciences spending growth in China.

Yes. I mean, it's still growing faster than pretty much anywhere else in the world and driven heavily by the pharma and biotech industry. There's definitely a push for some more buy local, and so many of our products are proprietary without a lot of local competition that it's is not a big factor. And in those products where there are local competitors, we typically are able to produce locally, right, and able to compete there and meet those requirements. So that's how we thought about it. But it's growing, the market is actually growing quite strongly.

Got it. Good. Maybe last question from the audience. Just shifting a little bit to the industrial market, which is not something we've talked about yet. You addressed it a little bit in your initial comments that you felt that it would remain strong. But just any particular color or commentary you can provide on what you're seeing in the industrial end markets and maybe chemical and analysis, things like that, that you guys operate in?

The end market in aggregate is good, but it's mixed by subcomponent, right? So it's a small proportion of our total, right, when you think about it. So it's probably roughly 15% of our revenue comes out of that market, maybe a little less. And you see great strength in semiconductor, material science, battery, all that's super robust. And what I'd say some of the more heavy industry, a little bit choppier. So it's a good end market. It's growing for us, but not as -- not at the -- fully recovered across every segment.

Got it. And maybe as we close here, what do you feel is still kind of misunderstood about Thermo Fisher today? I'd love to get your view kind of on what the market might be missing. When we had put you on the conviction list back in September, we felt that probably some of it was just PPD and people thinking about what that combination would look like. The stock has performed quite well, however. So I'm just wondering, as you kind of think about it and you think about things that you'd like to market to better understand -- or the sell side to better understand about Thermo Fisher, what comes to your mind? And what would you say?

Yes. It's a great question, right? So I think that the Analyst Day did a good job of framing that we're a strong, growing company for the next number of years, right? We've taken real actions that give us a high level of conviction of our growth. I still think investors, really in a couple of categories, probably don't have their heads around it, and it's hard to have to communicate. It's not an investor challenge, it's our job. Just with meetings like this, with upcoming meetings, we'll do a good job of articulating. And I would say, one is around the benefits of PPD. It's an excellent business, and we will add real strategic value for our customers there. We'll deliver the synergies, we will accelerate its growth, and that's going to create a lot of value, right? And I'm super excited about that. And we'll prove it, right? We got to go out and we've got to execute, we've got to win the business. But I have an incredible level of conviction based on our colleagues and based on what our customers are telling us. So that's clearly one. And I still think we somehow where we get the COVID, like what's Omicron and what does that mean? And is that a good day for Thermo Fisher? What's vaccine demand going to be? I still think we get a little bit of the COVID trade one way or another going up or down, some volatility. The reality is our revenue is super durable, right? And when we get through this phase, every extra dollar of COVID-related revenue, we're taking the cash flow, we're fueling the long-term growth of the business, right? You can think of the strong demand for COVID in the second half of last year, that pays for PeproTech, right, and -- is a way to think about it, right? And we're going to support our customers super well, right? And we've derisked the outlook so it's less about consensus. And just we're going to do a great job for our customers, we're going to be good stewards of being responsible, how we manage that. And we're going to invest that to create a bright future for the company. So that's probably the 2 areas that I still think are understood -- are misunderstood, and we'll keep articulating how we're managing through COVID and all the excitement around PPD. And we'll deliver that strong organic growth and we'll do a good job at creating value for our shareholders.

Great. That's very helpful, Marc. And maybe I hope at this time next year, we won't have any more COVID questions and we won't have to talk about it. I think everyone would be very thankful for that. But I do think that -- I think the market has been doing the exercise of taking those out anyway, and companies like yourselves and others have been kind of derisking that. So just really trying to get a look at the base business, which I think at the Investor Day, you showed how strong. And I think the key question, which you mentioned, is will you be a faster-growing, more profitable company post-COVID than you were pre-COVID? And I think some of that is being answered, and we'll see. But I really appreciate your time today, it's been a great discussion, and thank you very much for joining.

Matt, thanks for having me. Happy New Year, and thanks to all of our investors for listening in today. And we're excited to make 2022 our best year yet. Thanks, everyone.

Great. Take care.