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

Good morning. I'm Rafael Tejada, Vice President of Investor Relations for Thermo Fisher Scientific, and I want to welcome you to our 2022 Investor Day. I'm so happy to be back here in my hometown of New York City and to finally be able to see so many of you in person and finally be able to get a good decent bagel. So we have an amazing program for you today. So let me start by covering our agenda, and you'll see that come up momentarily on the screens. We're going to start off with Marc Casper, our Chairman, President and Chief Executive Officer. He's going to start off with a strategic view of how we consistently create value for all of our stakeholders. We're then going to turn it over to Gianluca Pettiti, Executive Vice President, and he is going to discuss our approach to high-impact innovation. Michel Lagarde, our Executive Vice President and Chief Operating Officer, will then discuss our trusted partner status with pharma and biotech customers and provide an update on PPD. After a short break, Stephen Williamson, our CFO, will discuss our excellent financial results and our really bright financial future. After the formal presentations conclude, we will then open it up for Q&A, and we expect to wrap up a little bit after 11:00 a.m. today. So before we begin the presentations, let me cover our safe harbor statement. Various remarks that we may make in these presentations about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual and quarterly reports under the caption Risk Factors which are on file with the Securities and Exchange Commission and available in the Investors section of our website under the heading SEC filings. While we may like to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. And therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Also during the presentations today, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP, including adjusted EPS, adjusted operating income, adjusted operating margin, adjusted ROIC, free cash flow, organic revenue growth, core revenue and core organic revenue growth. The non-GAAP financial measures of our results of operations and cash flows included in today's presentations are not meant to be considered superior to or a substitute for Thermo Fisher's results of operations prepared in accordance with GAAP. Definitions of these non-GAAP financial measures and for historical purposes, a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the appendix to today's presentations. So with that, it's my pleasure to now turn the program over to Marc Casper.

Good morning. Raf, thank you. It is great to be back in New York City to see each of you here in person. I'd like to start by thanking the Thermo Fisher Scientific Board of Directors who are here with us today. And I would also like to thank our colleagues around the world for the extraordinary performance day in and day out that allows us to talk about the incredibly bright future because none of that would happen without the incredible team that Thermo Fisher Scientific has. So what I'm going to focus on today is really about how we consistently create value for all of our stakeholders. And my presentation is going to have 2 parts. I'm going to reorient to the company, spend maybe a few minutes on that. And then I'm going to talk about why we're so incredibly well positioned for a bright future. I think it's always helpful to have the key takeaways of the day. We are an incredibly well-positioned industry leader, and we serve very attractive end markets, we'll come away with that today. We have a proven growth strategy that's powered by our PPI business system. As a company, we operate with speed at scale. We enable our customer success, and we're able to navigate the dynamic macroeconomic environments that we face over time. And I think that's particularly important in times like today. We have an outstanding financial track record and more importantly, outlook with long-term high single-digit organic growth. Our PPD business, which we closed in December in terms of the acquisition is performing extremely well. The integration is going well. And today, you'll hear our views on raising our long-term outlook for that business. And then finally, our comprehensive ESG strategy creates sustainable value for all of our stakeholders. So everything at Thermo Fisher Scientific starts with our mission. It's our purpose as a company. And we enable our customers to make the world healthier, cleaner and safer. Taking a scientific idea all the way through an approved medicine and ultimately, commercially scaling it up from our customers is something that we do every day. Providing the enabling technologies to have a cleaner world and understand climate change or to assist our customers and regulators ensure that the water that we drink, the food that we eat, the air that we breathe is clean are all some of the very important roles that we play in enabling our customers to make society a better place. As a company in 1 page, if you will, a reminder. We're the world leader in serving science. At the top of the chart, you see our incredibly powerful brands that our customers know us so incredibly well for. We're a $40 billion company in terms of our size, 100,000 amazing colleagues, and in our product businesses, we invest $1.5 billion a year in research and development. Our customers know us for our industry-leading scale and our unmatched depth of capabilities. For all of our stakeholders, they understand our sustainable business model for value creation. The company is powered by a deeply ingrained business system called PPI, which makes all of this happen. When I think about the markets that we serve and the opportunities ahead for the company, it's incredibly exciting. We have a rich set of opportunities to enable our customer success. Our largest end market is pharmaceutical and biotech. It represents 58% of our revenue, and you'll hear more about how we're enabling our customers' important work. Our other 3 end markets are each roughly equivalent in size. Academic and government, where we are enabling breakthrough research, often that ultimately becomes the early stage for a pharmaceutical or biotech company. In diagnostics and health care, we enable more cost-effective and better patient care, and we power precision medicine. And industrial and applied, we facilitate research and development in important end markets, including material sciences and clean energy. All of these important areas spur long-term future growth for Thermo Fisher Scientific. We have 4 complementary business segments. First, in the words, and then I'll do it in pictures, right? Life Science Solutions, we have a leading portfolio serving the life science research, bioproduction and clinical markets. Specialty Diagnostics, we have leadership in the niche diagnostics to improve patient care. Analytical Instruments, leading technologies to solve a broad range of analytical challenges and laboratory products and biopharma services leading capabilities for laboratories as well as clinical research, development and manufacturing services for biopharma. When you look at it in pictures, it gives you a sense of the array of capabilities and the breadth and depth of those capabilities that Thermo Fisher Scientific has to enable our customer success. We work with our customers to advance their work every single day. When you look at the company, and that is the context of the company, the reason that we've had such a bright past and such an exciting future is that we're focused on consistently creating value for all of our stakeholders, and we've been doing this for years, right? And when you think about our stakeholders, from a shareholder perspective, I'll talk more about that in a moment about how we have consistently delivered exceptional financial performance as well as a bright outlook. From a customer perspective, we help our customers accelerate innovation and enhance their productivity. And ultimately, we make it rational for them to want to do more business with us, right? That's how we think about our success. From a colleague perspective, a great place to have a mission-driven career. And from a community perspective to enhance our local communities and improve the world for current and future generations. And this deeply ingrained set of focus on creating value for our stakeholders has allowed us to have such an incredible position as the leader in the life science tools, diagnostics and pharma services industry. From a shareholder perspective, our financial track record is unparallel. We've been able to deliver 13% growth in revenue, convert that into 20% growth in adjusted EPS and 17% growth in adjusted free cash flow from 2011 to 2021. So now I'm going to transition to the future, right? And with that as orientation and talk about how we're so exceptionally positioned for a terrific future, right? And there are 4 things that I want to cover this morning. The first of which is we're an industry leader, serving very attractive end markets. The second is that we have a proven growth strategy that drives share gain. Third, a proven capital deployment strategy. And then finally, how we create value for all of our stakeholders. So starting with the attractive end markets that we serve. A large market, about $225 billion in terms of the size. We have about 20% market share. The market that we serve is incredibly fragmented, and that creates wonderful opportunities for us to continue to differentiate ourselves. It's a strongly growing market with long-term growth of 4% to 6%. And that growth is strong and is durable. And when you look at some of the drivers of that growth, it really comes down to starting out with demographics. An aging population and a wealthier population that continues to evolve, drives demand for health care. The evolving health care needs also spurs demand. Whether it was the pandemic or new disease or breakthroughs from solving or trying to solve cancer or cure cancer, these all create huge demand in our industry that ensures a bright future in terms of growth. I believe that we are entering the golden age for biology. The incredible life science discoveries that are happening and advancements that are happening today bodes so well for the future. And we are the enabling company to make that a reality, and that's why we're so excited about not only the market growth but our growth going forward. Pharma and biotech, our largest end market, continues to want to outsource and partner more with capable partners, and that is an incredible driver of long-term growth. As we sit here at a later stage in the pandemic, one of the things that's become very clear is that there are many new investments happening in our industry by customers and governments to take the lessons learned of the pandemic and apply them to the future, whether that's where the research is going, supply chain resiliency, that all creates new opportunities for growth. And then finally, many of our technologies enable important advancements in more of the industrial world. The growth in semiconductors, the importance of advanced materials, the transition to clean energy are all enabled by some of our core technologies, a really attractive set of end markets. As we sit here today and we think about the dynamics that are going on in the global economy, in geopolitics, we're certainly living in a dynamic time. When we had our earnings call at the end of April, when we talked about that, we made it super clear that inside the company and what we serve, it's incredibly robust, right? So the things that we feel in our daily lives, the things that we read about, we're not seeing it within the company, incredibly strong growth and really a very high level of activity. But because of the broader world, I think it's worth stepping back and talking about how our company has navigated tougher times and dynamic times, right? One of the things is whether it was the financial crisis or whether it was the recession at the beginning of the pandemic were rapidly changing foreign exchange rates in the mid-2000 -- mid-2010s, the company was able to navigate all those periods and come out as a stronger company while successfully navigating dynamic times. The reason that, that is true is that the end markets that we serve are very fundamentally attractive. Second is that what we actually do in the trusted partner status that we've earned really has become essential to what our customers do. So if our customers are working, we are side-by-side with them. Our PPI Business System, it enables operational excellence within the company. And then finally, we have an experienced and deep management team that has navigated the company through turbulent times. It's allowed us to operate at speed at scale, to navigate those dynamic environments and become an even stronger industry leader while delivering outstanding financial results. I think it's important to go from sort of the theoretical background on this slide to a practical example of what was the most recent dynamic time that we navigated through and how did we come through it, which was the pandemic, right? If you think about how the company performed in the pandemic. We mobilized at speed -- with speed at scale, right? We enabled the societal response to the pandemic. We became the leader in diagnostic testing solutions with our PCR platform. We played a major role in the development and scale-up of the vaccines and therapies that have been used to fight COVID. We generated billions of dollars of economic activity. And while doing that, we were able to invest at a differential rate to accelerate our growth strategy to create a much brighter future. We strengthened our customer relationships, we accelerated investments in our commercial capabilities, R&D and capacity. We did our largest acquisition, adding PPD and invested heavily in our colleagues and our communities. And that culminated back in September with us raising our long-term growth outlook for the company to 7% to 9%. In the worst of times, if I think about what the world was like in March of 2020, through that period over the subsequent 2-plus years, we were able to fundamentally not only navigate the period but position the company so incredibly well for the future. And whatever the world throws at us, that's how we'll approach it going forward. The second aspect of why we're so excited for the future is our proven growth strategy. It's something that you're familiar with. It's based on 3 essential elements, right, our commitment to high-impact innovation. It is the benefits of the scale that we have in the high growth and emerging markets and the unique customer value proposition that we've developed over time, that's allowing us to deliver 7% to 9% long-term growth. We're going to delve into this in more detail, but I'm going to hit the high points on each of the elements of our growth strategy. So Gianluca will go through in detail the importance of high-impact innovation and update you on the progress. But at a high level, it's a significant element of our growth strategy. Our track record is unparalleled. We play a leading role in actually advancing science, part of the reasons I'm so excited about the age of biology that's in front of us is that we play a critical role in making that a reality. And we'll give an example of one of our leading businesses and how it applies innovation to its competitor strategy to win in the marketplace. You know of our track record. We enable life sciences. Examples include how we support drug development and manufacturing, our technology support advancements in cell therapies or moving bioprocessing forward. We also enable diagnostics, and we enable material science. And we'll go into this in a bit more detail in terms of why that's so important to our growth. The second aspect of our growth strategy is the benefits of scale in the high-growth and emerging markets. It represents about 20% of our revenue. The differentiators of our scale is that we create a superior experience for our customers. We have commercial access, e-commerce capabilities, superior supply chain and even able to tailor manufacturing and R&D to the larger local emerging markets that create real differentiation for the company and drives growth. When you look at our 2 largest of the high growth in emerging markets, China and Korea, we are incredibly well aligned with the governmental priorities and the country priorities in those 2 markets. In China, we're aligned with the 14th 5-year plan. We have local capacity and capabilities to support the market and are able to tailor our products and services to serve the needs of our Chinese customers. In Korea, we play an essential role in the semiconductor industry and in the bioproduction industry or the biotech industry that exists in Korea. And we support them from a supply chain perspective and also co-create new products in our innovation approaches in the Korean market. And this drives really significant growth for the company historically and going forward. The third element of our growth strategy is our unique customer value proposition. Michel will go into this in more detail in terms of the trusted partner status that we've earned. But at a high level, we accelerate our customers' innovation and enhance their productivity, and it's underpinned by quality. And what we do is we leverage our trusted partner status with our customers and our unique access to continue to build our business relationships with those customers. It allows us to gain market share and continue to increase the impact and enabling our customer success. When you look at our largest customer set, pharmaceutical and biotech, today it represents $22 billion of our revenue. Over the last 5 years, it's averaged 14% organic growth. And we have created a flywheel effect that we introduced back in September, and Michel will update you on the progress that we're making in terms of strengthening our offering and building momentum in serving the pharmaceutical and biotech industry. So we have a compelling growth strategy that has allowed us to gain share over time and positions us well for the future. The third element of why our future is so bright is around our proven approach to capital deployment. You're familiar with it. It's been consistent over many years. We start by funding our internal investment opportunities, right, to ensure that we're managing the company well and creating a bright future because we generate substantial cash flow. We have M&A as our primary use of our capital. And then ultimately, we return capital as well. You can see the splits that you can use as kind of good rules of thumb over time. It varies from year to year, but we have an incredible set of opportunities. One of the things I mentioned was we serve a fragmented market, right? And there's ample opportunities from an M&A perspective, and we look forward at the right time to continue to pursue those transactions. To remind you of our proven M&A approach and track record, the M&A strategy is very straightforward. It's easy on paper. It's very hard to execute day in and day out, but it's allowed us to differentiate our performance over time. It all starts with selection criteria, right, which is to really well characterize how a transaction fits within the company and are we ultimately the right owner. And we spent very substantial time in working our way through that to make sure that the transactions we do will add value to the company and that we add value to the businesses we acquire. We are incredibly disciplined. There's no transaction that we've ever had to do. We do the ones that we think are the right things to do. If the price works, we will move forward and if the price doesn't work, we won't. And that has allowed us, ultimately, to deliver incredible value creation over time. Our integration approach is proven and the result of that of having a very clear sense of the strategy of an acquisition, the discipline and an integration approach has allowed us over time to enhance the financial and operational performance of the businesses we've acquired to realize excellent revenue and cost synergies and ultimately position the businesses that we buy to be better run and have a brighter future. And when you look at the chart on the right, you can look at the larger deals that we've done since 2010 and they've all been outstanding successes in terms of creating value for our shareholders and strengthening the company overall. Our most recent transaction was PPD. And Michel Lagarde was going to go through that in more detail to give you an update. But at a high level, as a reminder, it establishes Thermo Fisher as a leader in the clinical research services industry. It's a natural extension of our capabilities. Customer reaction has been awesome, an incredibly positive feedback and the business is performing very well with a very bright outlook. So off to a great start, and we're looking forward to continuing to create value for our customers and all of our stakeholders through PPD. And then finally, how we think about value creation and our track record for all of our stakeholders, and that positions us for such a bright future. You're familiar with our focus and the importance of creating value for all of our stakeholders. The reason that our track record is so good here is think about what the company does. We deliver a positive societal impact every day. And this gives you some of the tidbits of how we do that. We enable healthier outcomes. And you think about the over 1 million people benefiting from our medicines that we produce every day. Or how we support a cleaner planet and how our technologies are enabling the monitoring and control of air pollution and ultimately enabling a safer world. When you think about the benefits to all of our stakeholders, it starts actually fundamentally with a mission-driven company that makes a hugely positive impact on society. How we run the company and our ESG strategy and practice creates real differentiation for Thermo Fisher Scientific. We really are a leader here, and it's been deeply ingrained in the company actually since our founding in the 1950s, where the company was founded to use technology to solve some of society's greatest challenges. From an environment perspective, focused on safeguarding the planet, enabling our customers' own sustainability goals through our own technologies and a greater focus on those technologies. From a social perspective, empowering our colleagues, we have a diverse and inclusive culture and team and that creates competitive advantage. We support our communities. We're involved in our communities. And we fundamentally practice good governance every day, a strong focus on it and outstanding Board of Directors, and we report with transparency. We hold ourselves accountable to a high standard. We disclose a significant amount of information to measure our progress, and we're proud of where we are and what we have ahead of us. And when you look at it beyond the strategy, but if you look at the actual practical aspects, of our ESG strategy in action, from an environmental perspective, you understand and know of our net 0 commitments, our progress in reducing our carbon footprint in the short term as well as developing greener solutions for our customers. From a social perspective, investing in our colleagues and communities, right, throughout the pandemic, we were able, because of our great financial performance to invest significantly in our colleagues through special recognition that really helped our team out in the toughest of times. We're active in our communities in STEM education as well as in health equity from a global perspective. And then driving impact on accountability. We believe in stakeholder engagement. We're active with our stakeholders and you, I think, really value our new CSR report, which is coming out later this month, I think it shows you really the -- both the progress but the disclosures against all of the key metrics that you would expect from the different reporting frameworks that are used out there. So more to come in the next couple of weeks on this as well. All of our success and why we're so excited for the future, why I'm so excited for the future is really enabled by our extraordinary team, our mission-driven culture and the power of our PPI business system. It ultimately is creating an even brighter future for Thermo Fisher Scientific. So with that, I'm going to hand it over to Gianluca, who's going to give you a key update on our high-impact innovation and our growth strategy.

Thank you, Marc, and good morning to you all. It is a great pleasure to be here today on behalf of our 130,000 colleagues at Thermo Fisher Scientific and give you an update on our progress in driving high-impact innovation to our customers every day. As you well know, innovation has been central enabling our customers to make the world healthier, cleaner and safer for decades. And if you think about it, it is natural for our customers to take Thermo Fisher Scientific as their innovation partners. As we start with them from the very first time they enter a lab, we support them throughout their careers with incredible products that are transforming the way they work every day, whether they are in an academic setting, doing research or whether perhaps they are scaling major scientific advances in a biopharma or industrial setting, we're there every day with them. And our proven innovation approach has yielded a very strong track record of success over the years as well high return on investment. Also, as Marc highlighted in his opening, innovation has been a key element of our proven growth strategy at Thermo Fisher Scientific and will continue to be in the years to come, as we think that the commitment that we have to innovation or better the commitment to high-impact innovation as one of the driver of our long-term core revenue growth outlook. So today, to enable you to get a little bit more insights on our journey in innovation, we're going to share with you how our proven innovation approach has yielded a strong track record of success as well as how it's going to continue to fuel innovation in the future. But then going into some very specific and very exciting examples on how our innovation is transforming the way that our customers work every day as we play a leading role in enabling development as well as scaling of major scientific advances in so many different fields. And finally, we're going to share how this translate into business leadership with a focus on our Biosciences business. So starting with our proven innovation approach and our track record of success, I have to admit that we would need a much larger slide and much larger screens to be comprehensive on the number of innovations that have transformed the way that our customer works and that we introduced over the last 2 decades. But on this page, you have a few selected examples on how we keep transforming the way that our customers work. Just think of the Orbitrap technology, the 1 introduced back in 2005, revolutionized the world of mass spectrometry, our single-use bioreactors that transformed the way that biologics are manufactured all the way to platforms like our cryo-electron microscope that fundamentally changed the way the structural biology is done. Or next-generation sequencing that is on its way to democratize access to NGS in precision medicine, but Thermo Fisher Scientific is not only known for its platform, it's known for his terrific portfolio of reagents and consumables. And that's where we allocate an amount of investment and energy in terms of innovation, and it makes it very logical for our customers to come to us for their needs as they think of innovation and needs of innovating across the workflow. So our innovation approach is underneath the proven track record of success and is grounded on 3 key pillars: first, world-class innovation leadership; second is centered on our customers insight and unique insights that we get from them every day. And finally, it's grounded on our ability to leverage the total company capability to innovate. From an innovation leadership standpoint, our scientists and engineers within our R&D departments, not only are incredibly prolific as you have seen on the prior slide, but they are also known thought leaders in their discipline. They're well respected from our customers. And actually, our customers are incredibly eager to connect with them and work with them on developing the next iteration of the innovation, not only from a transactional standpoint, with the byproduct. And you'll hear a little bit more about those collaboration in a second. Secondly, the frequency of interaction with our customers, the breadth, the depth of interaction, give us really unique insights on what they need, when they need it and how they need it. And our product development team has access to those unique set of information that then they use to create innovations that are transforming the way that our customers work. And they do that by leveraging first, our PPI business system, as Marc alluded to, we have done that for decades as well as leveraging the capability and the scale that we have across the company. So that gives us a strong confidence in continuing to deploy investment at scale. We invested $1.5 billion over the last 12 months. And we have been very prolific, not only in new product introduction, but also in our portfolio of patents and IP. That actually helps quite a bit if you are in the business of innovation. So this gives you a sense on how our proven innovation approach is really fueling innovation at Thermo Fisher Scientific, grounded on innovation leadership and unique customer access and insights. And here, you have an example of that access in collaborations that we established over the last 12 months. This was just a few of the many and they are targeting very relevant areas where technology and innovation is needed actually to drive advancement, like cell therapy and the collaboration we have with UCSF, or the work that our team is doing with Mayo Clinic, combining the clinical excellence of Mayo with the technical excellence of Thermo Fisher Scientific and focusing on advancing adoption of advanced diagnostic in precision medicine, so relevant for patients and doctors. And finally, the work that we are doing with Monash University in Australia focus on accelerating the development of advanced materials so relevant in areas like semiconductor and battery, as Marc alluded to. So we're very excited because our proven innovation approach has been a stable driver of innovation, and our customers actually get it and they're eager to engage and support us in that. But now let me bring a few examples that hopefully will give you a view on how we are materially transforming the way that our customers work every day. And we're going to focus on 3 key areas: first, advance materials, the focus on semiconductor and battery; second, precision medicine and third, the need of scaling development and manufacturing in areas like biopharma. Starting from advanced materials is a known fact that we're leaving an era of shortage in terms of semiconductor and increasing need of better batteries fueled by advanced material to be able to store more energy as clean energy and renewable are becoming mainstream. And our technologies are perfect for that purpose. Just think at the way that our electron microscope are now used in the semiconductor industry, right in the line -- in manufacturing lines to automate the way that our customers are testing the next generation of semiconductors actually allowing them to materially improve their yield. While our surface analysis instrumentation are now used to advance the development of batteries, very meaningful. So this gives you a view on advanced material. When you think of precision medicine, Marc alluded to the era or biology. And I can't wait to see the advancement that we'll see happening in the next decade. But the reality is that today, cancer patients and doctors actually need more access to advanced diagnostic tools like next-generation sequencing. Just things that cancer patients are normally diagnosed in health system and small community hospital, and those hospitals don't have access to large genome centers and facilities. With our Ion Torrent Genexus integrated sequencer, we're actually democratizing access to next-generation sequencing by bringing the sophistication of NGS with the simplicity of fully automated workflow to community hospital and allowing those doctors to make better decision in selecting therapies for patients. And then recently, we launched a very exciting technology, our digital PCR platform that can actually, in time, be used to monitor cancer patients with liquid biopsy applications. And so you have a nice combo from a therapy selection with NGS and then monitoring with digital PCR, creating a workflow solution for our customers in precision medicine. And finally, as you think at the biopharma, Michel will share with you later how we are trusted partner for pharma and biotech. And part of the reason is due to the innovations that we were bringing to them and the way that we're helping them transforming the way that they are standardizing the way they manufacture medicine. A good example in cell therapy with our modular workflow that allows them to automate cell isolation, engineering and then the fill and finish or whether is enabling them to scale manufacturing with the benefit of single-use bioreactors with our latest launch in that space with the HyPerforma DynaDrive that actually allows our biopharma customer to scale up manufacturing to more than 5,000 liters or bringing that very same Orbitrap technology that we launched many years back that has world-class sensitivity into the QA and QC process so that they can ensure that their medicine have the right quality for the patients that they are supporting. So really transforming over the years the way that our customers are working with the degree of customization and automation in the different workflows. So this gives you a sense of why we're so excited with the innovations that we're bringing to our customers every day in areas like advanced materials, precision medicine and the biopharma space. So in the next few minutes, we like to actually share with you and translate what does that mean for businesses? And we're going to use an example, our biosciences business is a clear leader in the life science, reagents, consumables and instrumentation is a business that had terrific performance over the years is north of $5 billion. Its leading portfolio of brand is worldwide recognized worldwide from our customers for the quality of the products that we have. They use those products day in and day out in their labs and for their innovation. That has resulted in a very strong leadership position with strong growth, strong share gain over the years. It also has a very desirable revenue mix. As you can see, close to 90% is reagents and consumables and so very strong recurring revenue profile. Our biosciences business is made of 4 business units: cell biology, protein and cell analysis. You can think about that as everything that you need to isolate cell, grow a cell population and then analyze those with analytical methods and our molecular biology and sample preparation business, everything you need in nucleic acids, whether you're testing them with PCR or next-generation sequencing. Those workflows are sitting typically in front of those analytical testing methodologies or whether you are scaling therapeutics with nucleic acids. So really a powerful portfolio with a strong set of gold standard reagents supported from great innovation and platforms that are allowing our customers actually to buy an end-to-end workflow from our Biosciences business. And no mystery long and lasting loyalty from our customers. They are repeating their purchase over and over again as they start to use these products from the first time they get into a lab and typically, they leverage those products as they scale in their careers. As an example, our Dynabeads, magnetic beads were included in the first CAR-T therapy. We continue to bring cutting-edge innovation like CRISPR and TALEN solutions in genome editing that then used to scale therapeutics as well as scale production in the biopharma industry. So really a ubiquitous portfolio in terms of application and a very broad range of solutions that our customers are using every day. And here, the next click down, as you think at some of the way that we were able -- that our R&D team were able to transform the way that our customers work. With -- as an example, our Dynabeads that actually are providing world-class solutions in cell separation using cell therapy. In the middle of the slide, we recently launched a fully automated system to do cell engineering in the cell therapy space. And then on the right, you have an example on how we're combining world-class hardware and software with spectral analysis software integrated in our Invitrogen Bigfoot Spectral Cell Sorter. Very exciting platform. They are really helping to transform the way that our customers, both in the academic research setting as well as in the pharma and biotech space work every day. So with that, let me wrap it up by sharing the excitement that we have as innovation has been and will continue to be a key element in our proven growth strategy, as Marc alluded to. Our proven innovation approach not only generated a strong track record of success, but also high return on investment. And the reason is that we continue to lead in the way that we enable our customer to develop science as well as scale major scientific advances. And that translate into clear business leadership as you have seen with our Biosciences business. With that, I close by saying that we are incredibly well positioned to continue to bring innovation to our customers and enabling them to make the world healthier, cleaner and safer. Thank you for your attention, and I'll hand it over to Michel to walk you through our status of Trusted Partner to Pharma and Biotech. Michel?

Thank you. He's also a great cook. As you know, all of us at Thermo Fisher are really passionate about enabling our customer success. And in this next section, I'll talk to you about our work for a really important set of customers, our pharma and biotech customers. It is really a critical end market for us as it represents, as you saw earlier, 58% of the company's revenues and has been an incredible contributor to the growth profile of the company. Let's start with the key takeaways. We have a proven track record of performance here, which really has enabled us to be in this unique position in the industry of trusted partner. That means the prospects for continued growth are incredibly bright. We constantly think about how do we strengthen our value proposition for this important set of customers. And we do that by organic investments as well as inorganic investments. And a great example of that is our acquisition of PPD. That acquisition is off to a great start. And today, we're raising materially our financial outlook for that business. So our proven track record. We're not new at this. We've been serving these customers for a long period of time and really developed a really unique position in this industry. We do it because all of our products and services, and you saw all the pictures of it before. It's the right portfolio of products and services, but they all have one thing in common and it is that they deliver this value proposition that you see here on the slide. Each of those products and services help our customers, accelerate their innovation and drive productivity. All of that underpinned by quality. And we do that at scale. And as a result, we have accumulated all of this experience that our customers are leveraging in the important work that they are doing. And over time, we continue to invest in that value proposition and come up with new products and services that are relevant to them. And having done that consistently over a long period of time, has built a really scaled business, as you can see here in the numbers, $22 billion with a very impressive set of growth characteristics. What is unique to us is that we serve these customers throughout the entire continuum of drug development. Most of our competitors show up once or twice in this continuum. We're there throughout the process with leading tools and services to help scientific breakthrough, then help our customers with clinical development, then ultimately with scale-up and commercial manufacturing and throughout always thinking about delivering that value proposition. Here's the same slide but with some examples. You heard Gianluca talk about our Biosciences business. That's a business that provides these essential building blocks for research workflows. Those ultimately are the foundation of future medicines. And so the fact that our products and services are used by the scientists early on allows us to be uniquely positioned to be there as they go and continue to develop their medicine. You see some references to quick to care, quick to clinic. These are unique offerings only offered by us because what we did is we took different products and services from across our portfolio and combine them in an integrated offering, creating pathways for our customers to go faster to the next milestone. Again, something that only uniquely we can offer. In the middle of the chart, you see the reference to clinical research services. That's obviously where our newly acquired PPD capabilities sit nicely in the center, I think, demonstrates the strategic rationale of that acquisition. Then on the right, you see our bioprocessing capabilities and our CDMO services that all enable productivity in manufacturing. And so we do that successfully because we always think about the customer needs. And this is a segment where we serve both the world's largest pharmaceutical companies as well as emerging biotech. So the customer needs might differ on each product or service or project we work with them on, but there's a couple of really important recurring themes. The most important one is speed. These scientists have a solution that they want to bring to their patients as quick as they can. And their economic model is built on progressing these ideas through the clinical pipeline to a commercial product. And so us as a partner to enable and accelerate their innovation makes us a really strategic collaborator. Quality is obviously paramount and productivity is required to continue to do this efficiently. So hopefully, those few slides give you some sense of the context of the business we've built, and I'm certainly quite proud of what the team has achieved in serving our pharma and biotech customers. But I'm more excited about what's coming next because of the position we have created for ourselves, the prospects of future growth are incredibly bright. And in the next few slides, I'll take you through why that is using these 3 elements. First, strong end market growth. As Marc alluded to, pharmaceutical consumption is driven by these incredible secular demographic trends and secular in the purest definition of it. These are long-term, unstoppable, not influenced by any short-term noise demographic trends, an aging population and middle class that gets established in emerging markets and starts to consume pharmaceuticals. More instance of chronic disease, people living longer. These are all demographic trends that ultimately contribute to the growth of pharmaceutical consumption. In addition to that, we're at a period in history where there is just incredible scientific breakthrough in life sciences. Lots of it, by the way, enabled by our products and services. But that has created insights into biology that never existed before. That means that scientists can focus on curing diseases that had no cure or more precise treatments for patients that so desperately need them. That has created a record level of preclinical and clinical pipeline projects. And those projects, whether they are large molecules, small molecules, cell therapies, gene therapies, mRNAs, you name it. All of those will need to be worked through clinical development over the next decade or so. [Audio Gap] these customers all the time with their CEOs, with their CFOs, with their Heads of R&D, with their Heads of manufacturing, with their bench scientists, we're actively engaged with all the venture capitalists and our investors in some of their funds. We hang out with the incubators, we hang out with the key opinion leaders in academics. And as a result, we get to collect, at scale, better insights than anybody in this industry. Those insights fuel our new product development process that Gianluca highlighted. And so we have created this flywheel of better insights, resulting in better products which means our customers are more satisfied with our set of products and services. And so what you now see is that it's completely logical for a pharma company or a biotech company to spend time with Thermo Fisher. And not just because we're lovely people, but because we have something to offer because we represent what the industry is needing. We have solutions for the challenges that they are working on. We have experience of doing this broadly that they can leverage. And so it's completely logical for these customers to develop a strategic relationship with Thermo Fisher. And then it's completely logical to over time expand that relationship into other areas of need. That is how we will continue to gain share in what already is an attractive end market. I will use these 2 examples to bring it to life, hopefully a little bit. Normally, we don't really talk about our specific engagements with customers. But here, there were 2 that decided to go public with their relationship with us and therefore, I can reference it today. We were there at Moderna at inception, well before it became a household name, and we help their scientists with their first experience -- experiments. And then when they needed this incredible moment of scale up, our teams in clinical research and pharma services and biosciences all stepped up and enabled their miracle vaccine. And so when they were reflecting on, okay, what's next for us, we now have a bunch of capital that will allow us to really accelerate our pipeline. Do we need to build our own factories to manufacture this? And they said, no, let's just go to our trusted partner and sign a long-term manufacturing agreement where we will provide sterile fill finished services to them across all the formats their pipeline needs. A great example of start here, stay here. It's how we refer to it internally. And today, the business with Moderna is many multiples of that first order of $37,000 10 years ago. The other example is with CSL, very different. I would have described our relationship with CSL as extremely tactical. They ran a model where they led all of their global sites on a decentralized basis, pick their suppliers. But that will change when they got a new senior executive join them. That senior executive, we had built a very strategic relationship with at his prior company. And so a couple of weeks into his tenure, he calls me up and he says, "Michel, we got to go run the playbook again." And we built out the key components of our strategic relationship with CSL because he needed the value creation associated with a relationship with us. That got significantly accelerated when we cut a deal to take over his newly built biologics site in Switzerland and became the manufacturer of their product there. And now you look at it as a broad relationship across R&D, lab supplies, clinical trials, manufacturing. So a great example on how these relationships scale over time. The third reason why we're so excited about our prospects is the way we acquire and integrate. And a great example of that is PPD. Here on the slide, you see the exact words that were used in April of last year when we announced this transaction. And now having owned it for 6 months, I can tell you we were spot on. Let me walk you through it. It really establish Thermo Fisher as a leader in a very attractive segment of clinical research. Really a natural extension of our capabilities. Remember my slide with the examples on how clinical research was right in the middle of it. So very logical addition of capabilities. And the customer response has been great because we demonstrated that we create value for them by bringing in that set of capabilities. And again, an opportunity to deliver our value proposition. It's again around accelerating innovation and driving productivity. So a perfect fit with the value proposition that we offer as a company. And that will drive then great synergies, which will make our customers happy, make our shareholders happy. So as I mentioned, an attractive segment at scale, right, $55 billion, growing mid- to high single digits. And this is where, when I referenced that record pipeline of molecules that people are working through, well, all of that needs to come to clinical research. So the prospects here are extremely bright for continued segment growth. These are complex trials to run. They need to run all over the world and therefore, increasingly pharma companies and certainly biotech companies are outsourcing all of this activity to the relevant CRO. So we'll benefit from great growth. This is our business. We have all the right services in all the right phases of development, in all the right countries across the world and all that at scale. That's what the numbers at the bottom of the slide represent. 2,500 clinical trials supported by this team over the last 5 years, 420 drug approvals enabled in the last 5 years, really incredible impact by this team. And PPD had been very successful on a stand-alone basis because they were able to combine industry-leading processes and tools with deep expertise. And now I have had the opportunity to meet with a lot of our new 32,000 colleagues, not all of them yet in person, but I'm on my way. And I leave every interaction with them impressed. It's an incredibly passionate team, whether I see them in front of customers, at bid defenses, in their offices, in their labs, incredibly passionate group of people that have created really intimate relationships with their customers because clinical research gets conducted over a 2-, 3-year period of time. And every day, you engage your customers. So it's a very close customer relationship. And they've done an awesome job in delivering faster clinical trial results at higher quality. So a successful business on a stand-alone basis will now get amplified by all of the awesomeness that is Thermo Fisher. And so in the short term, we're on track for great performance this year. On the midterm, today, we're raising significantly our outlook for the business with regards to the synergies. And on the long run, we clearly have a business here that will have sustained high single-digit growth. On top of that, we'll generate a bunch of revenue synergies. So as we said on our earnings call in April, the business is on track to grow 11% this year. And you'll be the judge of it. But as I observe the rest of the market participants, that means that the business continues to gain share. It does that by serving new customers as well as gaining share of wallet with existing customers. The integration is going very well, and that's why, as I mentioned, we're materially raising our synergy impact with $50 million to $175 million of adjusted operating income by year 3 by both stronger contributions from cost synergies as well as revenue synergies. Let me talk to you about the revenue synergies in a little bit more detail. This is a long sales cycle business. So you'll see us show up with revenue synergies over a long period of time. But what has been very clear is that our customers use the time between announcement and close very effectively, and did a bunch of thinking about, hey, now that PPD becomes part of Thermo Fisher, what does that mean for me? And so when we close on the transaction and when we first showed up in December as a combined company, we were off to the races. Because they had thought about how they would get leverage and value from this combination. And so immediately, we saw situations where PPD perhaps historically had an MSA in place with a certain pharma company, but wasn't really allocated meaningful work. Well, that changed on December 8 because of the relationship Thermo Fisher had with that pharma company. We have plenty of examples where PPD had done a great job developing a relationship with certain number of biotech customers that were now ready to choose their manufacturing partner. Obviously, all of those introductions were made to our pharma services business, and we've signed contracts now to provide manufacturing services. So these revenue synergies are showing up materially. And I saw that at Patheon. I came in to Thermo Fisher through the acquisition of Patheon and saw how becoming part of Thermo Fisher structurally raised the organic growth profile of that business. That's what's happening here in clinical research. It's showing up faster and it's showing up more meaningful, but the same trends. So let me end where I started. We have a proven track record of performance here, really super bright prospects of future growth because we find ourselves in this very unique position of trusted partner. The gap with the rest of the competitors is widening. And as a result, we see this flywheel showing up by means of accelerated organic growth. We're excited about constantly thinking about how do we strengthen our value proposition, and we do that through organic investments in R&D and capacity but also inorganically by deploying some of our M&A capital. And a great example of that is our most recent acquisition in this space of PPD, which is performing extremely well. The integration is on track, and as you just saw, we've raised significantly the financial contributions, we think that business will make as a result of synergies. Thank you for your attention. With that, you've earned a 15-minute break after which we'll come back and have Stephen summarize all of this in his financial model, and then Marc will take your questions. Thank you so much. [Break]

So good morning, everybody. It's great to be back in person and have these interactions much better than being in a studio, remote. My pleasure today to take you through the financial context behind the great strategy that you just heard from Marc, Gianluca and Michel. And the financial context is a really bright financial future. I'm going to start with the key themes you're going to hear in my presentation today, an incredible track record of executing under many different external conditions and delivering for all of our stakeholders. We do that because the growth strategy, the PPI Business System and disciplined capital deployment, they're all proven. They've proven we've executed on those to create substantial value in the past when that you just saw in the presentations, really well positioned to continue that value creation going forward. And then think about what's happened since the last September Investor Day last year, lot of changes in the macro environment and we're still able to raise the long-term outlook for adjusted EPS in 2025, shows you how well positioned we are as a company and how well we're executing on the opportunities that we have in front of us. Quickly [ hovering ] you to the flow of my presentation. I'll do a quick couple of slides on the great track record that sets the grounding of the credibility of then the very strong outlook for the future. I'll quickly recap the 2022 guidance that we gave at our recent Q1 earnings call. And then I'll update you on the '23 to '25 long-term model. So it's great to be back on the May cadence for the Investor Day. In our May meetings, we give a 3-year time horizon out from the year that we're in. So that's like period '23 to '25. That's the same time period that I gave you at the last meeting. As you had a good comparison point for how well we're advancing the company and we're able to raise the guidance even such a short span of time. And then I'll wrap up with some additional thoughts in terms of how well we're positioned to navigate through the dynamic times that we have in the world today. So the track record. And the numbers continue to speak for themselves. Incredible change in terms of growth in revenue, growth in profitability, growth in cash flow. That revenue growth is a combination of incredibly strong, I think, very differentiated organic growth. And then you couple that with very, very good strategic M&A, and that gives you the 13% increase in revenue. And then we're running the business really well and generating huge amounts of adjusted EPS and free cash flow. But at the same time, we're investing for the future as well, so we can keep the organic growth going for the future as well. So that -- this is all after the right level of investment organically to continue to drive organic revenue growth. And then from a revenue profile standpoint, it shows you why -- how we've executed in the past that leads to good future, have a very attractive revenue profile. Marc talked about the end markets that we serve and how good the growth is for those end markets for the long term. And we're very well positioned in pharma biotech with 58% of our revenue in pharma biotech, which is our fastest growth end market. But as Michel outlined, where we're really well positioned to be that trusted partner, we continue to drive success for our customers. And in return, we get more share of wallet, which turns into share gain, which turns into organic growth. And then from a recurring revenue mix, 82% of our revenue now is either services or consumables. It's a really good position to be in. And as you'll see later on in my slides, particularly in more concerning kind of macroeconomic backdrop, it's a very resilient revenue portfolio. So that's the past. Let's look at the future and the near future is 2022. And a quick reminder of the assumptions behind the guidance for this current year. So there's no change to the guidance is the guidance we gave back on April 28 on the earnings call, over $42 billion in revenue, 9% core organic growth. Operating really well to deal with the dynamic environment externally in terms of increases inflation. We're driving strong pricing and productivity to offset those impacts and driving 25.4% adjusted operating margin. As Michel mentioned, PPD is operating very well and 11% growth for the year, contributing just under $2 of adjusted EPS in 2022. And as I mentioned before, we're investing for the future. And even after that, we're still delivering $7 billion of free cash flow. And you bring all of that together in terms of the numbers, you see here on the page, $22.65, which will be another year added on to that great long track record of execution and excellent financial performance. So that's '22 and now look forward to '23 and '25 in terms of the financial model. And as I said before, we're in a position to raise the outlook for the 2025 adjusted EPS. It's a $0.50 raise in total. And we do that because we're operating with speed at scale to navigate dynamic times, delivering excellent core growth, getting great returns on investment from PPD and bring all that together and we're positioned incredibly well. But the $0.50 is -- that's the net number. There's a lot going on under the covers, and I've used this waterfall chart to show you quite how dynamic the times are. On the left-hand side, it's the 2025 adjusted EPS from our last Investor Day. On the right-hand side, you see the current outlook for 2025. So what's changed? So unfortunately, the tragic situation in Ukraine has happened since that time. And my assumption in this model is that the revenue in Ukraine, Russia and Belarus, it doesn't come back. So that's assumed to be lost revenue versus what we were projecting last time, the $0.25 additional headwind. More than offsetting that is the strength of PPD and the strength of the rest of the core business, which shows great performance in terms of how well positioned we are and how we're supporting our customers. And then additional FX headwind on the right-hand side. Are rates likely to be this low for this whole time period? If you look back on history, I don't think so. But I think it's appropriate to keep it in the model in terms of this is the -- using the rates based on our last earnings call, I've modeled those through for the rest of this time period. But that gives you the sense of the change that we're working through, how we're still delivering for all of our customers and how we're able to then deliver $0.50 more in terms of the outlook for 2025. In terms of the long-term model, when I think about modeling the company for the long, long term. I introduced this formula last time around. I think it's a really good way to frame the company. That combination of very strong market growth, coupled with our unique position to enable customer success in their productivity and their innovation needs, which drives share of wallet, creates very, very strong organic revenue growth. Operating the company really well and investing for the future but still expanding our margins and profitability and redeploying the substantial amount of cash in a really effective way, generates great long-term growth in adjusted EPS. So think about the specific 3-year time period, '23 to '25. So what assumptions are we using in the model? I'm going to split the model into 2 pieces like I've done in the past. First of all, talk about organically how to think about running the assets that we own today and then layering on top after that, the additional benefits that come from substantial capital deployment. So this slide is the assumptions around that organic viewpoint in terms of running the company. 7% to 9% organic revenue growth. It's a continuation of a trend of very strong revenue growth. Within that number, we're assuming that the COVID-19 vaccines and therapies capacity is repurposed to other core revenue over time. And we talked about that on several of our earnings calls in terms of our ability to do that. We invested in that capacity, not just for the short term for COVID, but long term for that whole biologics pipeline that Michel outlined in his presentation. The assumption in the long-term model around testing is that we're essentially at that endemic run rate phase that we are outlining for the second half of '22, roughly $100 million a quarter rate for testing is assumed to be throughout this whole period. Then translating that strong top line growth into strong profitability. So 40 to 50 basis points of core margin expansion plus the benefit of synergies that Michel outlined in terms of PPD, all of this drives great returns in terms of the organic investments we're putting in place. And then a very strong cash flow generation that comes with that. You bring a lot together in terms of numbers. Again, this is just the organic viewpoint in terms of the long-term model, over $50 billion in revenue, margins of over 26% showing you the strength of those returns on invested capital on an organic basis. So then you layer on top of that, the additional benefits of capital deployment. So Marc stole the thunder of most my points on the slide. I'll reiterate a few of those. The first point on the top of the page is super important, making sure that we're fully funding the right high return on investment organic opportunities and CapEx and OpEx first. That creates that continuous flywheel in terms of the strong organic revenue growth. We're not trading 1 versus the other. We're not trading internal organic investment with capital deployment. We're fully funding the right things to continue that top line momentum. And even after that, we've got substantial cash to then deploy. And that cash, coupled with the strength of our balance sheet that creates very significant capacity. And as Marc mentioned, the primary focus is M&A, but we'll also be driving substantial return of capital to shareholders through a growing dividend and share buybacks. So specifically, within this long-term model, I've assumed just under $50 billion of capital deployed, split 65-35 M&A return of capital. I've continued, as I've normally done in terms of modeling a series of bolt-on acquisitions to deploy that M&A, same sort of financial profile as the company. And then in terms of the -- using the balance sheet in terms of our debt portfolio, the assumption here is that we're maintaining investment grade. That's what we're focused on, the exact leverage ratio will really be dependent on the timing and scale of M&A that comes up. You can see I've used a fairly conservative modeling assumption of 2.75x leverage at the end of each year, but that enables us to generate -- deploy roughly $50 billion of capital. From a tax standpoint, the assumption is tax rates -- our tax rate goes up slightly over time. It's a combination of increase in earnings coming in at slightly higher marginal rate than the average for the company today, offset by really good continuation of really good tax planning strategies. So increasing about 25 basis points a year. So you bring that really strong organic running of the company with the operational side, along with great capital deployment. That gives you this really strong outlook in terms of adjusted EPS somewhere in the range of $31.54 and $32.34 in 2025. They'll be continuing a track record of exceptional financial performance. So before I wrap up, I wanted to say a few additional points in terms of navigating dynamic times. And this has been touched on a couple of times in the presentations today. I put this into my presentation. I'm getting a few questions from investors and recent interactions around potential recession and what would the impact be on our end markets, what would the impact be on Thermo Fisher. I want to share with you some -- a few thoughts. So -- if there was a recession, I'm not saying that Thermo Fisher would not see the impact of it. What I'm saying is we will act differentially for our customers and active rental for our shareholders to be able to navigate appropriately through that. It's exactly what we did in the tougher economic times. So there are financial crisis recession, pandemic recession are 2 great examples. So why am I confident about that? Well, we know what we're doing. We've got a great strategy. We've got a great experienced team with a really deep bench, and we've been through it before, and we know how to focus on our customers and focus on their success to make sure that we're appropriately navigating the company. And then taking a step back and looking at the end markets, when economic times are positive, our end markets do very well. When economic times are not so positive, we -- our end markets remain favorably positioned. So relative to other industries, I think our end markets actually positioned well through recessionary times. And then the unique value proposition that Michel was talking about, our ability to drive productivity and innovation for our customers, that's another really unique part of the company that really will help through tougher times in terms of an economy. So if a customer needs more productivity, we know what to do. We know the levers that we can bring the scale of our company to bear to help them drive more productivity so they can continue their innovation journey at the same time. And we've got a playbook to do that, and we'll be able to put that into play should it be needed, that operating speed at scale. So all of that comes together, and I think we're well positioned to help our customers, help our shareholders navigate through dynamic times. So I'm the finance guy, I can't do that without numbers. So here's a page talked about the same topic, but within some financial context in terms of revenue. I talked about the attractive revenue profile before the 2 charts of '22 on the slide earlier on, I've superimposed 2008 on this page. This is just before the financial crisis. And at that time, in 2009, we declined 3% on an organic basis through the financial crisis. We actually did that pretty well. And since then, this attractive revenue profile has gotten even more attractive. So think about it from an end market standpoint. Industrial and applied at that point was 31% of our revenue. That's probably most likely to be impacted short term by the impact of recession. Now it's only 13% of our revenue. And as you heard from Gianluca and Michel, a lot of that revenue is actually geared towards things that are actually very relevant right now. So material science in particular, where I think funding will continue going for some -- from a fair period of time. And then pharma and biotech, 58% of our revenue. So really well positioned in the end market, which is probably the least impacted from a recession standpoint. And then from a recurring nature of our revenue, back in 2008, we were 65% of our revenue was recurring in nature an1d now we're 82% recurring. So again, that resilient portfolio of revenue also helps out in terms of those potentially dynamic times. So let me finish where I started with the key themes: awesome track record of navigating appropriately the strategy for growth, the strategy for execution, the strategy for a really effective capital deployment is there and has proven and we're raising the long-term outlook. So super exciting times, as I said, the financial future is really bright. So with that, thank you for your time. I'm going to hand over now to Marc, who will finish with some few concluding comments, and then we'll get into Q&A. Look forward to interacting you in that session. Thank you.

So we'll go to the Q&A session. And if you raise your hands, Ralph and Eileen will bring the microphones around.

Jack Meehan with Nephron Research. Marc, and thanks everybody, for the effort into the Analyst Day today. I wanted to focus on navigating dynamic times. So the question we've been getting a lot is in pharma and biotech. If we have sort of an extended dry spell in terms of funding for the industry, can you talk about your exposure in research versus production? How you think both of those sides would fare if that environment kind of lasted for an extended period?

Yes, Jack, thanks for the question. So when you think about the pharmaceutical and biotech end market, right, we've had a large presence throughout the history of the company. So we manage through the patent cliffs of a decade or so ago. And we were able to help those customers in that period of time actually drive their productivity. So we actually drove really significant growth, even though I would say the end market was under pressure at that point in time. And we've gone through the cycles of when biotech funding is stronger or weaker. And generally, you've seen very consistent growth and very consistent share gain actually in serving that end market. So when I look at the business today and the $22 billion of our revenue, roughly half of that revenue is, I would say, related to production-related activities. And that is everything from the investors would typically call bioproduction, cell culture media and sera and single-use technologies, purification resins, and all of the pharma services capabilities for small molecule, large molecule and advanced therapies. And then the other half would be the -- everything from early research through clinical trials. So that gives you a sense of that. And we serve from the smallest companies to the largest companies in terms of our exposure. So when I think about our long-term growth prospects for the company, if you think about the 7% to 9% growth, you don't have to grow anywhere near the historical rate that we've enjoyed with pharma and biotech to deliver 7% to 9% growth. If you continue to grow at 14%, you're obviously going to grow well above the 7% to 9%. So not that we're bearish on the future, but we haven't modeled in continuation of the current robust funding environment forever to be able to sustain the long-term growth of the company.

Great. And just as 1 follow-up. You talked about supply chain resiliency, green energy transition. Can you contextualize the type of growth that you're seeing in those markets? What's in the outlook? And do you think that there's government support investments in these areas?

Yes. So in terms of supply chain resiliency, certainly, we've done some work with governments around the world to shore up supply chains and manufacturing capacity. Our customers are also interested in adding redundancy and geographic flexibility. So you've seen them leverage our own networks differentially. And I think that is a key driver. And then clean energy, you'll find our instruments as a key enabler of the clean energy transition, and we've seen strong growth there.

Just a question on that we get a lot is obviously pivoting from COVID to non-COVID world. You've made a ton of capacity investments over the last 18 months or so. Can you help sort of share some perhaps granularity around what are the capacity investments where you already see this happening? And what are the capacity investments where it might take a couple of years for the demand to be realized?

Yes. So in terms of our capacity expansions, all -- long before COVID, we had our growth road map, thinking about where are we going to expand our pharma services network, our bioproduction capabilities, our bioscience reagent capabilities. So the concepts, the expansion plans all existed. What COVID allowed for is to accelerate some of those investments, right? And when you think about examples our bioproduction capabilities, single-use technologies, demand has been extraordinarily high, right? We're operating at effectively 100% utilization. And as you project to the future, what we're looking forward to is actually bringing lead times down and actually, we've been bringing capacity online, and the demand has been super robust. And that's primarily actually not COVID-related demand. So it's just really been such a pipeline of activity within biotech and pharma. On the Pharma Services side of the equation, really, most of the expansion has been around our sterile fill finish capability, which is not dedicated to COVID, right? It's literally any biologic that's being administered in a sterile form would go through that, and you're seeing a very high level of pipeline of activity as we're bringing that capacity online.

Got it. And 1 quick follow-up on China, if I may. Obviously, China growing robustly over the medium term is less of a debate. The question that we get every once in a while now is the ability of American sort of multinationals to participate fully in that growth. And you've obviously been front-footed on this with your "In China, for China" strategy, but are there any tweaks that you're contemplating to that strategy here in the near term, given first the pandemic shock and then obviously, the conflict in Europe.

Yes. So when I think about our 40-year history in China, we've built strong relations an incredible track record and an incredibly strong local team, right, that has grown the business meaningfully over time. We've always complied with the various laws and the spirit of the laws in all of the countries, including where the West is on some policies. So the mix of what we do has evolved a little bit and will continue to evolve if tensions continue between China and the West. But the growth prospects for the vast majority of what we do is really unchanged. And in some of the enabling technologies is just something that if we're not able or not appropriate to supply, we won't, but for so much of what we do, we will. The way I think about it -- I still believe that China will be our fastest-growing end market. I just think the delta between the past and today, we'll be a little narrower in terms of its contribution to growth.

Derik De Bruin from Bank of America. So Marc, 2 questions. One is more of a philosophical question initially, and then I'll go to something specific. But the markets that you highlight is growing 4% to 6%, right? It's looking at Thermo's evolution over the last 20 years, it's clear why you're growing above that market. But all your competitors are growing mid-single digits plus, right? Or I think they're growing this, right? So everybody seems to be growing faster than the market. And so I'm wondering and particularly, just sort of seeing like how strong analytical instrument demand has been, just really crazy numbers that have come out. Who's losing, right? And is it sustainable, right? Because not -- because I think that's a lot of questions that we get from investors like these numbers look so good, right? What gives everybody the confidence. As I said, you've made the -- Thermo it's clear just given how the portfolio has changed, but can you talk about the broader market and the dynamics that are going on there?

Yes. So Derik, if you -- first, I appreciate the question. So the first thing I think is important to remember is what we've actually signed up for, right? And what we are committing to is more than others, right? So everyone can talk about what their growth is, but we're the company that actually has signed up for 7% to 9% long-term growth, right? And we're growing faster than that, right, ultimately, now and what we've done over the last few years, right? So our ability to deliver both historically and our confidence in the future is differential, right? There's clearly, the end markets are strong now, right? So there's quite a number of companies are doing well, and you're seeing the robust funding that I've talked about is benefiting the industry. So you have a number of players that are having a good run of it in the short term. And what we do, and when we say we're gaining share, we have the benefit of understanding the various smaller competitors in the end markets they serve and how our business units that are competing for customer dollars, we're performing quite favorably, right? So who's the ultimate losers in the different segments, probably varies, but I'm very confident in our position and how we're performing.

Great. And this is more of a question for Stephen. But Stephen, when you look at the guide. You've got a guide for an operating margin of greater than 26% excluding capital deployment. Can you sort of walk us through how we should sort of think about that margin with capital deployment and it's there and sort of like what's embedded in the -- when you sort of give that EPS number? And also just how the dynamics of the margin go, given all the puts and takes that you sort of highlighted in the bridge?

Yes. So Derik, thanks for the question. So when I think about the margin, think about it organically first, and I'll talk about capital deployment second. Organically, $40 million to $50 million is from core plus the benefit of synergies. And that's setting testing going down from $2.1 billion this year down to a run rate of $400 million next year, and that's coming down at an essentially a contribution level kind of average for the company. And that gives you that margin of over 26% by the end of the 3-year period from an organic basis. And then from an M&A standpoint, I've assumed and the way we've always done our model is to assume that we're essentially acquiring ourselves in terms of the margin profile of the company. The exact nature of the M&A that we do, you can't predict, and we don't want to be tied to doing something specific, and always being accretive to margins, then we would never have bought PPD. And PPD is a great contributor to the company. It's -- it's a lower-than-average margin profile versus the rest of the company, but its ability to drive strong, sustainable top line growth and slightly improved margins over time, that then generates great adjusted operating margin dollar increase and great EPS contribution. So we're not thinking about M&A profile as you have to be accretive to that number. So -- but how I'm modeling it is essentially the same as the company is today.

Vijay Kumar from Evercore. Marc, thanks for hosting this. One, maybe back to Derik's question on pharma. I guess another way of asking that question, Marc, is has there been any demand pull forward by the customer segment? And the thesis is along if we're looking at these headlines of supply chain disruption, did customers order. And I think related to that, right, I think Stephen mentioned how the mix has changed if we did have a recession. Just given how the mix has changed, can Thermo grow organically? I mean, it feels like it should be in the plus side versus the minus side.

Yes. So when I take the long-term perspective in this industry and even thinking back on my many years of working with pharmaceutical and biotech, there's actually not a lot of pull-forward activity in that segment. And then if you get to the super short term, we haven't been seeing it, right? We have such large relationships with our customers, they actually tell us what their inventory levels, what are they doing? What are they using stuff for. So we have not seen a discernible change in patterns to think about the short term. In terms of what our outlook is under different economic environments. When I think -- we tried to talk more today about sort of dynamic environments. None of us in this room know how exactly the world is going to play out, right? We've enjoyed a period of incredibly strong growth. We had a pandemic along the way that shut down the world's economy and how government stepped in. So this is it's impossible to predict. What I can say from experience is that the customer base and the end market is incredibly resilient. And that the consumables and services businesses are very stable from the growth perspective. So we feel incredibly well positioned as an industry in more difficult economic times should they transpire. And we are differentially positioned. So if the way I think about it, this is a good neighborhood in the good times in a really good neighborhood if you're worried, and this is the best house in the neighborhood it's Thermo Fisher Scientific if you're concerned. So actually, if you're bullish, too. So we love the position that we have, and we'll do a good job delivering value for our shareholders and creating value, whether the world is smooth sailing or rough seas, and that's how we think about it.

That's fantastic. And maybe 1 for us, Stephen. Stephen, when you said 40 to 50 basis points of margin expansion, was it off of the fiscal '25 base of 25.4% which would get us perhaps closer to 27%. So just maybe if you could clarify that. And I think the LRP assumes $400 million of endemic testing. Is there any anemic vaccine revenues baked into that LRP.

So Vijay, thanks for the question. So a couple of things on the vaccines and therapies, the assumption is that, that's repurposed to other core revenues, so no impact in terms of margin profile. And then the piece I mentioned the direct, the drop in testing is coming through a contribution margin, not the adjusted operating income margin. So that pulls down that margin to start with, and then you grow from that is the assumption in the model, but what exact level of testing is required, we're going to be there to help our customers should the need be higher than that. So that's the assumption in the model.

Marc, Dan Arias from Stifel. Good to see everybody in person again. Just wanted to ask a question about CDMO capacity in the industry. You're in a pretty good position there to speak to that as a supplier and an owner. So as you think about what's taking place globally in terms of a scale up and then the way in which pipelines have evolved, COVID and non-COVID? How do you -- what do you think about when you think about just future use and the potential for overcapacity or undercapacity going forward? Do you see something like an air pocket or a transition? Or do you really just believe that we're still in the stage of building out what we're eventually going to need.

Yes. So Dan, it's a great question. So if I think about the investments that we're making in our pharma services network, it's really supporting our industry leadership position in sterile fill finish, right, which is it sounds easy, very hard to do that well. We have a leading capability in doing that for the industry, and the demand has been robust, right? So from that perspective, different companies are investing in different capabilities. And we haven't seen a lot of competition, if you will, for -- in that sector. So I feel good about the outlook there. And the other area that we're scaling up is really our laying now drug substance for biologics. And that is because today, all of our biologic drug substance capability is in single-use. When a molecule is more successful than an innovator thought it was going to be, to be able to keep it in-house and transition it to large-scale stainless steel was a capability gap that we had, and therefore, we've added it. So that's really where we're investing. And the demand profile has been extremely strong.

Okay. Maybe just a follow-on to that, including single-use. The capacity expansion plans of your own are 2x increase for single-use, 3x for resins, I believe, and then another 2x on cell culture. So by 2023, are you able to sort of put incremental revenue capacity to that production capacity? Is it as simple of just sort of saying that it's proportional to the production capacity? Or is there some other consideration there?

With the way the network has been operating, right, we've been operating at effectively 100% utilization so that capacity has been coming online and will continue to come online. We want to get back to 80% utilization because you want to be able to, first of all, not have so much over time. It's not good for our colleagues. It's not good for all the maintenance, all of these things. So you'll see the first part of capacity is taking some of the pressure off the system. And then ultimately, we will grow into it, right, in terms of it. We obviously have a very strong backlog. So we will be able to fill a meaningful chunk of it. But then over time, it allows us to grow. So that's how we thought about it.

This is Rachel Vatnsdal from JPMorgan. So Marc, you've historically talked about how pricing contributes 50 to 100 basis points on the longer term. So how should we think about pricing heading into 2025, given you guys have taken up price 2x this year just due to the inflationary environment? Should we expect any pricing declines in the coming years? Or how should that play out through 2025?

Yes. So it's a great question. So -- this is a wonderful industry in terms of having stable and increasing prices over time, not dramatic, but we've never been in a period where we've seen deflationary pressures in this industry on pricing. So -- what we're assuming is that in this year that we live today, as you said, we'll have about double our normal rate and then through the rest of the period back to a normal increase. Obviously, if we're in a more inflationary time, then you'll see pricing to be higher than that. We're not expecting the increases that we've passed through today to somehow come back down based on our experience. We view them as to be permanent, if you will, on the revenue base.

Perfect. And then on M&A strategy, you guys have done a nice job of building out your services offering, first with Patheon and the CDMO. Obviously, PPD is continuing to outperform all expectations. So can you just talk about your interest in getting into the more of the preclinical segment on the CRO side of things?

Yes. When I think about our offering, I like where we are in our offering within our clinical research services sector, today in terms of what we do and what we don't do. So I'm comfortable with the offering that we have. We may have some technologies to that service line over time, but probably less focused on earlier stage in terms of expansion.

Patrick Donnelly from Citi. Maybe just a follow-up on that M&A question. Can you just talk about what the target set looks like broadly? Obviously, as you touched on, you've done some more service deals with Patheon and PPD. Should we expect you to get back to maybe more of the core life science looking to spend about $10 billion a year, it looks like on M&A. So maybe just talk about the target set. I know maybe the sellers aren't quite as willing in kind of the pullback. Everyone remembers their stock price for a little while ago. But what do those conversations look like right now? And again, where are your focus levels in terms of the portfolio?

Yes. So Patrick, the pipeline is busy. We obviously did a meaningful bolt-on last year in our core Life Sciences business and our Biosciences business adding PeproTech. And that's actually going very well also. So I think you'll continue to see us across life sciences, specialty diagnostics continuing to add capabilities there. And what I would say is that as valuations have come under pressure, that's a really positive for a company like us, right, with a great track record. So you're right, which people don't change -- they don't forget their highs like instantaneously, but if we're in a period of a dynamic time that extends a little bit, and that bodes really well in terms of what that opens up from an M&A perspective. So we'll be ready to take advantage of that at the right point in time.

Okay. That's helpful. And then maybe 1 for Stephen, just on the margins. Can you just talk about the leverage capabilities you have going forward, if there is kind of this recessionary environment that you talked a little bit about. I mean it feels like you guys maybe overspent a little bit during COVID times, given the strength of the top line, the onetime bonuses, maybe some R&D projects that you kind of greenlighted that maybe you wouldn't in worst time. So -- can you just talk about, I guess, relative to historical levels, the amount of leverage you have to pull back if the top line does soften a bit.

Yes. I think the PPI Business System is basically designed to make sure that we're appropriately spending money across the organization and leaning out and driving productivity constantly. When I think about most recent times, we've been very focused on growth and enabling growth and slightly less on kind of core cost out, grinded out productivity and when there's less volume, then you can change your focus. So we have different levers that we can use and drive appropriate cost out. It's less the -- when you think about the ROI on the investments that we're putting in across the company, we're not spending on things that we shouldn't be spending on. It's just making sure you got the right lens constantly of, are we actually getting the returns and killing things that aren't working out is quite as well as you wanted too fast, and that's all part and parcel of how we operate. But it's less that we're spending on things that we shouldn't more just that how do you actually expand the organizational effort to take even more cost out on a kind of a near-term basis. But we feel comfortable in terms of those levers we can pull.

Dan Brennan from Cowen & Company. Maybe the first 1 would be on the long-term guide. Last year in September, you took it from 5% to 7% to 7% to 9%. So that was certainly impressive, and you discussed today how pharma growing 14% is not baked into that long-term guide. So can you give us a sense of what is kind of assumed for the pharma business? And in particular, if you could try to help us think through the parts of the business serving drug production versus the more R&D clinical services part of the business.

Yes. So when you think about the 7% to 9%, our expectation is that pharma biotech is going to be the fastest of the 4 end markets growing above that. And that the other 3 end markets, roughly similar in terms growth. So it may vary a little bit from year to year. And within the mix, the production portion of pharma and biotech is going to grow a little faster than the R&D portion, although the clinical trials piece goes very quickly, so it balances out in some fashion. So we're well positioned to deliver the 7% to 9% growth. And we'll be very focused on making sure we do that consistently.

Great. And then maybe back to China, if you would, just maybe a 2-part question. First part would be, you've baked in the headwind in Q2, I think, $175 million. And I think you've talked about Q3 growing stronger than Q4 back to normal. So maybe could you just kind of speak to maybe the level of conservatism kind of what's baked in this year. Just give us a sense of what the full year China growth rate looks like. And if we don't get China recovering to the pace expected like how much of that's assumed? And then b, just on the biologic drug production business in China, certainly, they made a pretty big shift from more Chinese medicine and generics towards trying to be a real biologics global player presuming that business is a lot smaller for you in China than it is like rest of world, like how much could that contribute over the next, call it, 5 years within this plan if that business really blossoms?

Yes. So when I think about the dynamic biotech environment in China, it's been a nice growth driver for our business over the last few years, and the outlook should be very strong, right? There's a huge unmet need for medicines within the country. And there's obviously aspirations from China. It'll also be a global exporter of medicines, and it's unclear whether -- how significant that ultimately will be or not. But I think there's going to be quite a dynamic environment within China that will definitely continue to sustain good growth, which is why we feel good about the long-term outlook. And I think we characterize sort of the China situation on our earnings call for the short term, pretty clearly in the respect that with lockdowns in Shanghai, we expect Q2 to have some level of disruption. We're still going to have quite a bit of activity because most of the country is not shutdown. And that the team believes that Q3, Q4 returning to normal, if you will, in terms of activity.

Marc, we have time for 1 more questions.

Luke Sergott of Barclays. So can we just talk a little bit about Patheon seems to be and the PPD deals seem to be coming in a lot better than what's expected, right? So why is it that your infrastructure and everything that you have within Thermo enabling that versus another CDMO just linking up with another CRO?

Sure. So look, thanks for the questions, right? So when you think about the company, I'm going to start with 1 step above the question, and I'll get to it. If you think about what's unique about Thermo Fisher Scientific, right, which is we're an industry leader, we have scale, but we run an integrated business model. Nobody else does this in our industry, right? And what the integrated business model does is it links the capabilities of our business to add value to our customers in ways that nobody else can. And therefore, when, as Michel said, when we got into the CDMO expansion, we had always been involved in clinical trials, packaging, logistics, production, right? So we've been in that segment for many, many years. But when we expanded the capabilities to be a full-service partner on development and manufacturing, our customers trusted us from all of the relationships we had built in helping them equip their labs, run their labs efficiently, service their campuses and all the clinical trials work. So what they did is they said, we'll give you a shot, meaning you've done a good job, you spent a lot of money to buy Patheon. We trust that you're smart and you've been thoughtful to give you a chance, right? And the team nailed it. It was what they did with those opportunities. We did an exceptional job supporting our customers and solidify those relationships and have grown our Pharma Services business in a huge way. When you think about how others and some of even the other scale players, they don't operate their way. They're great companies. They do their thing. They run independent businesses, but the linkages weren't found. And now when you add the clinical trials capabilities and clinical research services capabilities, to that view, nobody else can do that. You can't do that through a commercial collaboration because you have to talk every day, right, between what's going on at the customer in terms of where are they in the clinical trial? Where are they in the development process? Where is their scale up? What does the data look like? And as we do that, especially for some of the advanced therapies, we believe we're going to be able to take time and cost out for our customers. And when we do that, it becomes more and more logical to drive more and more business to us. So we're going to run our independent businesses really well, but the linkages and the value addition is a differentiator, which is why we've been able to sign up for the most aggressive growth and why we've been able to consistently deliver it better than anybody else in this industry. And that is a super core position to be in.

And just a follow-up and the follow on that vein. So when you guys think about innovation, we all focus on going into biopharma and the new acquisitions. But can you talk about how that linkage and the integrated business model really drives your innovation strategy. And so when we're thinking like when you did FEI, I don't think anybody really saw the ability to take cryo-EM with AI and the drug discovery. So talk about the runway you see on your legacy portfolio and an ability to accelerate that?

Yes. So innovation is 1 of our 4 values as a company, right, which is just a passion to bring out new solutions in how we operate. And the momentum that we've been able to deliver in our product business is extraordinarily high, right? To think about the growth in our bioscience reagents that Gianluca was highlighting that, that business a decade ago was a low single-digit growth business, right? That business is a double-digit growth business, right? And there's an incredible transformation by bringing out innovation and fueling an ecosystem. And the same thing is true in our issuer business, right? I remember some of the questions that when we acquired FEI, which was actually good business, well respected. But what could you do with it, right? And effectively, we've taken a good business. We made it more efficient. We took the efficiency, not only to the bottom line, but fueled R&D in a huge way, and you're seeing breakthrough after breakthrough in a cycle where our technology is incredibly important to the semiconductor revolution, to advanced battery production and to opening up life sciences discovery and those analogies that Gianluca talked about cut across the whole company in terms of how we do that in our customer base. And ultimately, we're so excited to be able to enable the golden age of biology that's ahead of us. So let me close with just a thank you for joining us today, and I think you got a sense from the members of the management team about why we're so excited for what the future holds that our end markets are strong, that we're well positioned that we have a proven growth strategy powered by our PPI Business System, an unparalleled track record from a capital deployment and value creation viewpoint. And ultimately, we will create value for all of our stakeholders as we have in the past and what we'll do in the future. Thank you for your support of Thermo Fisher Scientific, and we look forward to updating you on our progress in the coming weeks and months. Thanks, everyone.