Kenneth J. Apicerno
Good morning. I'm Ken Apicerno and I’m vice President of Investor Relations for Thermo Fisher Scientific. I'd like to welcome everyone to our 2012 Analyst Meeting. As always, we're excited to be here to have an opportunity to update you on our progress, and just as importantly, our prospects for the future. So hopefully, you will get both of that today as you go through the program.
Before we get into the program, I just want to cover a few basic administrative items. So first of all, let's just quickly go over the agenda. So we're going to have presentations from our CEO, Marc Casper; our CFO, Pete Wilver; and our 5 primary business leaders, with a focus on the individual segments, as well as emerging markets. After the presentations, Marc will come back up and we'll open it up for Q&A. And in about the middle of the program after Tom Loewald speaks, we'll have a very short break, and then we expect to conclude right around noon.
One thing, if you could please mute cellphones, things of that nature. We would appreciate it as this being webcast live, so we appreciate not having the extra noise. And when we get to the Q&A portion, please raise your hand. We have people with microphones, raise your hand, a microphone will be brought over to you. Please state your name and your organization and then go ahead and ask your question.
Last item will be the Safe Harbor. So various remarks that we may make in this presentation 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 quarterly report on Form 10-Q under the caption Risk Factors, which is 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 elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change. 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 and free cash flow. 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 introduce our CEO, Marc Casper.
Marc N. Casper
Ken, thank you. Good morning, everyone. Welcome to our Analyst Day. We're really pleased to have you here, and I expect you'll find it to be a very exciting agenda, and we'll have time for a good discussion at the end. From, as you look at the day, what you're going to hear a lot from myself and my colleagues will be a quick reminder of what we’ve accomplished, a focus on highlighting some of the developments that we have going on at the company today, but very importantly, what our aspirations are for the future, and how we're going to turn those aspirations into real growth opportunities for Thermo Fisher Scientific.
For me, this is my 11th year at the company, and I'm very proud to have participated in the evolution of the company and the growth over those years. But I also recognize the fact that we've just scratched the surface on the opportunities that we have to create value for our customers and value for our shareholders, and my enthusiasm for the future couldn't be brighter than it is today.
As I get into my remarks, I'm going to spend a few moments looking back, a few slides just looking at our past and then spend the bulk of my talk going forward. So you know the statistics, we didn’t even put them on the slide. We're a $12 billion company. We have 39,000 employees. We operate directly in 40 countries around the world. We have 3 outstanding brands, but what this slide represents is what we think is our claim to fame. We have the longest track record of innovation in our industry, truly a legacy of technology leadership. We have unparalleled commercial reach. Through our Fisher Scientific channel, we reach customers all over the globe efficiently and help them with their endeavors. And we have the largest footprint in emerging markets. Our mission is to enable our customers to make the world healthier, cleaner and safer. And the depth of relationships that we have with our customers really just does highlight our tagline, which is, we are the world leader in serving science.
We have 3 segments that we operate in, they're all related. Our Lab Products and Services segment represents just under half the company, and what you'll hear today is from Ed Pesicka and Tom Loewald, and they'll talk about why having the leading channel and the leading laboratory products manufacturing organization together creates significant value for our customers in driving productivity for our customers as they meet the challenges that they are facing.
Our Analytical Technologies business. Alan Malus will highlight the great opportunities and capabilities that we have in our analytical instruments and biosciences capabilities. He'll talk about how we are taking those capabilities and creating new applications for our customers to really help them with things that they were imagining possible has become a reality today.
And Specialty Diagnostics, just over 20% of our revenue, Andy Thomson will highlight the great progress we're making in integrating Phadia, now called Immunodiagnostics and the benefits of having our Immunodiagnostics together with our clinical assays and biomarker businesses. Ultimately, we use our scale and depth of capabilities to create value and grow.
When you look at the same chart by profitability, you actually see a slightly different picture, and I wanted just to highlight that for a moment. What you see here is we generate about 1/3 of our profitability from each of the 3 segments. Each contributing strongly to our bright future and our ability to invest in strengthening our industry leadership position. No Thermo Fisher presentation would exist, if you will, without the 3 pie charts. It's the hallmark of what we talk about, and we do that because it's important. It's a way of getting grounded in what we do and the markets we serve.
Looking at the business from our end markets, very balanced. 4 end markets, roughly 1/4 each, industrial and applied, health care and diagnostics, pharma and biotech, and academic and government. From a product mix, 2/3 of our revenue is recurring and 1/3 of our revenue is -- are instruments equipment and software. That recurring revenue base creates a set of interactions with our customers every day that puts us in a position to have a unique mind share in this industry, and I think you'll get a great sense of that from Ed a little later this morning.
From a geographic perspective, 19% of our revenue today is in Asia-Pacific and emerging markets and I'll highlight a little bit later how that's evolved over time, but we really do have an incredibly strong presence in those regions of the world.
And my final slide looking back, our financial track record. Each of you know it. We've been growing our top line on average about 6% since the creation of the company, including managing through a significant recession in 2009, and we've just about tripled the growth in the adjusted EPS line at a 17% CAGR since the creation of the company. That is a good sense of our history, our track record, and now I want to look to the future and what we're focused on.
So last year, we spent a lot of time talking about the financial metrics and those things, and today I want to talk a lot more about strategy. So I think the best way to start is around end markets. And we get lots of questions, certainly on the earnings calls about our end markets and the things that are going on. And I think sometimes we get so focused on the newspaper headlines that we miss the bigger picture of what's happening. And I think it's important to step back and reframe it.
So from an end-market perspective, even at a $12 billion company, we serve end markets that are about $80 billion to $85 billion in size. When you look at the growth aspects of those end markets and you take a 5-year perspective looking forward, we expect growth to be between 3% and 5% on average over that period of time. You look at that from the -- what's behind it and what we're excited about. We serve an incredibly broad array of customers, hospitals and academic institutions. The fact that you have that very fragmented customer base is a great opportunity for Thermo Fisher because we use our scale to reach those customers in a very cost-effective way, and we use the fact that no particular customer is large to allow to have the right balance of supplier customer power that really ensures attractive economics going forward. And I think it's very important to remember those dynamics as you think about our industry, where you have an incredibly fragmented customer base and scale makes a difference in really having great economics.
When you look at what our customers are focused on and the major drivers, I wanted to highlight how we're positioning our value proposition against those drivers. The 5 major trends that our customers are focused on, let me start with health care. Whether you're in China, whether you're in India or any of the emerging markets or actually here in the U.S., while the specific words are different, the issue is actually -- is exactly the same. There is a tremendous increase in demand on the health care system globally. Access to health care and quality health care at a reasonable cost is a mega trend that really positions Thermo Fisher for a very bright future. We benefit directly through our Specialty Diagnostics business, very focused on high value-added diagnostics that reduce the total cost of health care. But we also benefit indirectly through the importance of therapeutics, and we support our biopharmaceutical customers through their R&D and manufacturing efforts around the world as they benefit from the growth in demand for pharmaceuticals.
The second big trend is obviously growth in emerging markets. There is tremendous activity going on in emerging markets in our industry and scale and our ability to use that scale to localize creates a real competitive advantage for us to have great growth rates and a unique position to capitalize on the growth in those emerging markets.
Third is around regulation. The world is becoming a much more regulated place. And regulation often requires measurement, detection, the ability to monitor. Whether it's the environment, food safety, consumer product safety, there's an instrument and usually a Thermo Fisher applications engineer somewhere involved in ensuring those regulations are actually being able to be applied and enforced, and it creates a great opportunity for us from a growth perspective.
Customers need productivity. It's a world where whether it's a biopharmaceutical company, whether it's an industrial company or even today, an academic lab, customers have a quest for doing things better and more efficiently, and that creates a unique opportunity for Thermo Fisher. It's something that we literally have been talking about for a decade in terms of our ability to drive productivity for our customers like no other company, and we're delivering that value proposition every day, and you'll get a good sense of that from our presentation this morning.
And then finally, there's a convergence of life science tools and diagnostics. And you'll get a nice sense of how -- from Andy Thomson on how we're playing in that space in building out our sets of capabilities by migrating what was traditionally life science tools into the diagnostic realm.
So our vision. We used it last year. It's an internal slide, if you will, but it's what all 39,000 of us are working towards. This is really what we focus on every day. Advance our position as the industry leader; strengthening our premier brands; a huge focus on innovation, making sure that our technologies have a profound impact on life sciences, health care and the environment; building our presence in Asia-Pacific and emerging markets; being recognized as one of the world's most admired companies and, of course, delivering consistent and strong earnings growth. The pictures are pictures of my colleagues around the world. We're excited, we come to work every day trying to make the company better and advancing our progress against the vision. We made a lot of progress in the last couple of years, and we're very focused on achieving these goals.
What we haven't talked as much about is what is our strategy to achieve that vision, and I want to spend the rest of my remarks focused on the company growth strategy. It's a bit of a simplified version, but I think it gives you the themes that we're pursuing to grow the company and meet our goals. We're incredibly focused on leveraging our scale and unique depth of capabilities to drive growth. We have 6 drivers of our strategic initiatives: leveraging our unique value proposition for our customers, having high-impact innovation, using our unmatched commercial reach, scale and localization in emerging markets, our proven operational excellence, and well-executed M&A. Let me go into each of them in a bit more detail. The strategy works and it drives growth for us.
So let me start with the first one around our value proposition. I don't get it asked that often, but it's a good question, which is why do customers work with us? And before I get into the slide, there's a few things that I want to highlight about ultimately why we have our industry leadership position. First, it starts with the fact that we have 13,000 people working every single day with customers. They're personal relationships of helping our customers be successful creates a very strong foundation upon which to work with. We also have hundreds of thousands of instruments and pieces of equipment in our installed base that our customers are working with every day. That they come to work and they see Thermo Scientific, and they can't do their work without those technologies. And finally, their standard operating procedures are often written around our consumables and our technologies, such that we are enabling their workflows, if you will.
When you get beyond that though, this slide actually looks at what's the bigger picture. What is the value proposition for the company as a whole? It's our technology leadership. It's bringing out great technologies to enable their work. It's about the laboratory channel that we have in terms of bringing premier brands in a very convenient and efficient way to our customers. It's about outsourcing activities, whether it's clinical trials or how they manage their fleet of thousands of pieces of equipment and instruments. And ultimately, our customers see us as an enabling their productivity and their innovation. And if you take it to a level of more detail, and you have that deep dialogue with your customers, really, the dialogue goes like this. From a technology leadership, they use our application's expertise to get a high return on investment for their analytical technologies. They use our channel to improve their efficiency, reduce their procurement costs and manage complexity, so that they can focus on high value-added activity. The biopharmaceutical customers outsource what used to be a core activity to Thermo Fisher because we are higher quality, lower cost, and we have huge scale advantages in terms of clinical trial supplies and logistics. And then finally, our newest capability is Unity Lab Services, where we help them manage their large fleets of instruments and equipment.
This model has worked brilliantly with our biopharmaceutical customers over the last 5 years. We've gained substantial share with those customer base. And in fact, I think we have huge opportunities for growth there with those customers going forward. We have great momentum. But a year ago, I talked about the fact that we're going beyond that customer base, and we're using this value proposition with a much broader set of customers. And in the last 12 months, we've seen great success in med device companies, in clinical reference labs, in environmental labs, contract testing labs, to name a few. The value preposition around productivity makes a difference. It is allowing us to gain share, and even today, we’re applying it to the academic and government customers that are, for the first time, really focused on productivity. It gives us a great share gain opportunity. So that's the first of our strategic drivers.
The second is around innovation. Many of you have heard me this year already talk about the great product launches that we've had, and what I want to spend a minute on is the foundation around innovation. We continue to invest substantially in our innovation capabilities. We spend about 5% of our manufacturing revenue on R&D. We have 1,700 scientists developing our products. We are increasingly becoming global in recruiting talent. We have large centers in China now and large centers in Lithuania focused on tapping into the best talent base around the world, very strong IP position, and we continue to scout the world for the best technologies that we can in-license as well. We complement that with a world-class Scientific Advisory Board that gives us access to some of the best scientific thinking around the world.
When you look at some of the focus areas for innovation, you'll hear more about them today. Here are 5 of the big themes that we're investing in. We're taking our breakthrough Orbitrap technology and focused on capturing market share in mass spectrometry, particularly in the Q-TOF market segment. We're using handheld instrumentation to create new markets. We're taking our extensive capabilities in life sciences and Specialty Diagnostics to build out a leading companion diagnostic program, and we are applying mass spectrometry to new clinical applications.
And then finally, there's such incredibly strong growth in the biopharmaceutical production and vaccine production that we're using our strength in BioProcess Production to really streamline those workflows and help our customers in the manufacturing environment.
The third of our growth initiatives and strategic initiatives is around access to the customer. Our 13,000 customer-facing employees bring a industry knowledge and applications knowledge that's unparalleled in our industry. Our $2 billion in revenue through e-commerce and our global supply chain network allows us to reach those customers efficiently and effectively. And because of the scale and depth of the capabilities, not only do we have strong relationships with procurement and the end users, but we're really the only company that has strong relationships at the C-suite as well because our customers see us as a strategic partner. Those relationships allow us to align our value per position not only with our customer needs of today, but the emerging needs that they have. Personally, I spend a huge amount of time with customers. I find those relationships to help inform our strategy, but at the same point, allow us to position the company to help our customers in the best possible light and allow us to gain share over time.
The fourth of our growth drivers is around emerging markets. I think the pie charts here are self explanatory. At the time of the merger, 10% of our revenue came from Asia-Pacific and emerging markets. Today, 19%; in 5 years, at least 25%. We have a proven strategy on how it works. We've had tremendous success in China and India. We're replicating that in additional countries, a few of them are on this slide, there are many more that we're focused on. We're using manufacturing strategically in countries where manufacturing presence makes a difference, as well as capitalizing on the huge demand for Specialty Diagnostic products in these markets.
Turning to our fifth lever and shifting from the growth to the profitability side of the equation to round our proven operational excellence process. We have a business system that we've talked about, and we talk about it every year, our PPI business system. It drives profitability in the company. It makes the company better every day. What you're seeing here is our employees and our colleagues come to work every day. They go up to the stand up boards, they look at our in-process metrics. They look at our value streams, and they look at how we can do a better job. And that engagement of our 39,000 employees creates huge value. We directly are able to measure $75 million in productivity just through this process, and we know we can't capture all of the benefits. We’re not asking our people to measure every penny, but actually just do good work in making the company better. It's a big driver of margins for us.
We have many levers to drive our margin expansion and an impressive track record. If you look back, we've averaged 70 basis points of margin expansion over the last 5 years. We’re targeting a goal of 70 to 90 basis points this year. Whether it comes from PPI and PPI Lean, whether it comes from volume leverage, SG&A redeployment, which Pete will talk about after I talk, or our sourcing activities, our manufacturing opportunities, as well as pricing, lots of levers to drive substantial margin expansion into the future.
And then finally, the sixth of our strategic initiatives is around well-executed M&A. Our criteria is straightforward, any deal that we consummate is based on strengthening our strategic position, enhancing our offering from a customer perspective and clearly creating shareholder value. We're at our 1-year anniversary of Dionex, so I thought I would spend a minute giving you a highlight on how is it going. As a reminder, the strategic rationale for acquiring Dionex was to create a leading position in chromatography, to strengthening our position as a leader in life sciences mass spec and combining the 2 businesses to have an even better presence in environmental and emerging markets.
From a synergy perspective in the first year, we targeted $15 million of earnings. We accomplished $25 million. Both the cost and revenue were ahead of plan. From a cash generation perspective, we have substantial tax efficiencies that we've gained. We've improved the working capital management of the acquired business, and our ROIC is well ahead of our first year plan.
In the context of the M&A that we've done over the last couple of years, this is the picture of how we've transformed our competitive position through well-executed M&A. There's a lot on this slide, I don't expect to go through every one of the details, but at the big themes in our Analytical Technologies segment. We've strengthened our position in handhelds, we really opened up the molecular biology workflow to Thermo Fisher Scientific.
From a Specialty Diagnostics perspective, we've added high-value tests and built scale so that we really become a leading Specialty Diagnostics company. And even in Lab Products and Services, a very targeted acquisition with Doe & Ingalls to build out our channel capabilities, to move from historically the laboratory environment to the production environment for our biopharmaceutical customers. All of these things collectively have strengthened our strategic position and allow us to grow well into the future.
When you look at it as a whole, our M&A activities complement the internal developments we have at the company. They do that from a technology perspective, a market perspective and certainly, from a commercial perspective. Our M&A strategy is clearly creating shareholder value.
So that gives you a quick sense of our strategy and the initiatives that we're pursuing. I think you'll hear a lot more depth on these strategic initiatives as you go through the day. Before I turn it over to Pete, I wanted to talk about how we're going to measure success, and I think it's important that you understand our financial view of that, and then Pete's going to get into the details.
So from a financial perspective, you know that we're committed to consistently driving strong adjusted EPS growth. And you also know that we look at the environment and we decide which levers in a particular year we should put more emphasis on to drive that growth. Some years, the market conditions are such that it's totally focused on revenue growth. Other years, it's a balance between productivity and revenue growth, and we optimize that to make sure we have a great track record of driving earnings growth.
But when you get into the details and you think about our long-term outlook, Thermo Fisher Scientific is a mid-single-digit organic growth company. We set our internal goal to outpace market growth in the markets that we serve. We have our annual goal of expanding margins by 50 to 100 basis points a year. We are very focused on effectively deploying your capital. We believe we’re very good stewards of that, whether it's through M&A, share buybacks, or our dividend policies, we want to be good stewards of your capital.
And then finally, a very intense focus on continually increasing our returns on invested capital, and you'll see that clearly from Pete in a few minutes. So I think that's a good segue from our strategy and our financial goals to really the things we're going to be delivering on in the short and long term.
So with that, I'd like to turn it over to our Chief Financial Officer, Pete Wilver.
Peter M. Wilver
Thanks, Marc. Good morning. It's great to be here today to talk to you about how we're creating shareholder value through financial and operational performance.
Let us start with a quick snapshot of the past, move on to our expectations for 2012, and then end on why I believe we're positioned for such a great future. So I'd like to start with this slide, which gives you a snapshot of our financial performance since the merger that created Thermo Fisher Scientific in 2006. Since then, our revenue has grown at a compound annual growth rate of 6%. Our adjusted operating income has grown at almost twice that rate at 11%. And our adjusted earnings per share has grown at almost 3x revenue at a very strong 17%. And as you can see with the bullets below, our performance resulted from multiple drivers, which gives you a sense of the breadth of leverage that we have within the company.
I think you'll agree that we've delivered excellent financial performance over the past 5 years and today, I'm going to walk you through why I believe we're confident we will continue to deliver excellent financial performance in 2012 and beyond.
So this is a summary of our current 2012 guidance, which is unchanged from our earnings call in Q1. I'll give you more detail on the upcoming slides, but here's the high-level view. So we're expecting revenue growth of 5% to 6%, of which about 3% is organic. We're expecting to expand adjusted operating margins, as Marc said, 70 to 90 basis points to about 19%, and we expect free cash flow to be in the range of $1.5 billion to $1.55 billion, for growth of about 6% to 9%. All this leads to mid-teens adjusted EPS growth in the range of 13% to 16%, right in line with our historical performance, so we're continuing our excellent trend.
Let me quickly remind you of the key assumptions used in our 2012 guidance. They're unchanged from our Q1 earnings call, so they're really here just for your reference. But one thing I want to point out, since we last issued guidance, we closed on the acquisition of Doe & Ingalls. They're a premium provider of specialty production chemicals, and they'll be part of our Laboratory Products and Services segment. Our financial guidance and outlook has not be updated for their results, but I can tell you that in Q2, they have no impact on our adjusted EPS, and for the full year, it's a very minimal impact.
So now, I'll get into a bit more detail on the key contributors to our 2012 guidance. And I think you'll see why we're confident that we're going to deliver another outstanding year. So as you've heard us say in the past and as Marc reiterated, we're committed to driving revenue growth. As I mentioned, we have a 6% CAGR since the merger, and we're expecting 5% to 6% growth this year. We're focused on 5 key levers, and this information won’t be new to most of you, but it's important to cover because these are the key components of our top line performance.
First, new products. We're committed to investing in R&D to bring to market successful, high-impact products across our portfolio, and you'll hear more about this from Alan and others. Share gains, we have an unparalleled depth of capabilities which continues to provide exclusive opportunities for us to grow with both existing and new customers. And you'll hear more about this during the segment updates. Emerging markets, as Marc explained, we're continuing our emerging market growth investments with a focus on commercial strength and localization. We expect strong double-digit growth in China, India, Brazil, and Russia, and you'll hear more about this from Syed. Price, this is really a good industry in terms of pricing. We've consistently realized positive price in the past and we're expecting to realize about 50 to 100 basis points this year, similar to our results in 2011. And finally, acquisition revenue synergies. This is an area I believe we are uniquely positioned, with integration being one of our core strengths. We're able to realize acquisition revenue synergies by leveraging our commercial scale and unique customer value proposition, as you heard from Marc in his recap of the Dionex acquisition.
So turning to operating margin, as you know, we have a great track record of expanding margins, averaging 70 basis points of margin expansion per year since the merger. At the same time, we were investing for growth into the future. The key drivers are volume leverage, pricing and our productivity initiatives. In 2012, we're targeting margin expansion of 70 to 90 basis points, and we have still plenty of runway into the future, which I'll talk about a little bit more later.
So let me explain why I'm so confident in our ability to continue to extend our track record of margin expansion. Our cost basis -- our cost base, which is shown on the left is primarily variable, including a good portion of our SG&A, specifically in the channel business. R&D is 3% for the total company, and that's about 5% when you exclude the channel business and services which, of course, don't require research and development. Operational excellence is a core competency for us across the company, and we have a strong productivity culture as Marc described.
So now let me give you a few examples of how we benefit from all these productivity levers. We have a proven track record of driving manufacturing productivity. On the left, every day, as Marc described, our employees use PPI and PPI Lean to make the company better. They pull together in teams, complete about 5,000 projects per year and drive world-class business processes and manufacturing and operations, and deliver top-notch quality and customer service. At the same time, we're reducing waste and increasing efficiencies across our entire value chain from R&D to production, to sales, to delivery of the product.
One good example is our San Jose site, where we produce our premier mass spec products. They launched a product -- a project to outsource some top level assembly components for one of their key product lines. In the process, they achieved several positive results. They took their manufacturing cycle time from 25 to 7 days. They took their direct labor requirements from 7 associates to 1. They freed up 2,700 square feet of manufacturing space, and they reduced their supplier base from 68 suppliers to 6. It's truly amazing what our teams can do around the world with these tools. In 2012, we're expecting to achieve over $80 million in savings from PPI and our PPI Lean efforts.
If you move to the right, we're also very focused on reducing our global manufacturing footprint, and we've taken out 60 facilities since 2006. And in the process, we've increased our manufacturing revenue per site by 42%. Because of adding sites through acquisitions, we still have 130 manufacturing facilities. So we see further cost reductions far into the future. In 2012, we're expecting $20 million of savings from this area in terms of optimizing our footprint, and this is part of the $50 million in savings from restructuring actions that I talked about when we gave guidance at the beginning of the year.
So continuing the productivity discussion, we've also been aggressively expanding our manufacturing footprint in low-cost regions. You'll hear more about this from Tom and Syed, but our goals are to reduce our total cost base, produce more localized products and be more responsive to local customers. One great example of localization is that until 2009, we imported all the biosafety cabinets that we sold into China. Today, 80% of the biosafety cabinets that we sell into China are made in China in one of our Shanghai facilities. As a result, we've cut our delivery times by 50%, increased our market share in the middle markets and improved our costs significantly by sourcing and manufacturing locally. As you can see on the map, our major LCR facilities are in Mexico, Eastern Europe and China. And we have an annual goal to move $100 million of production to low-cost regions each year, and that results in about 20% savings on that $100 million. Since 2007, we've more than doubled our presence in low-cost regions, taking the number from 5% to 11% of our manufacturing revenue, and we've got plenty of room to move this number into the low 20s.
So in addition to optimizing production, we're also shifting our SG&A resources to higher growth regions, specifically APAC and emerging markets. We're very focused on funding our greatest growth opportunities and matching resources with demand. And this is one of the ways that we do this. Since 2006, we've been reducing our excess footprint in North America and Europe and redeploying selling, marketing and service resources to faster-growing regions. Over that period, we've more than doubled our resources to further capitalize on high-growth markets. And while becoming more efficient with our spend, and we expect this process to continue well into the future.
So to close out the discussion on productivity, we're experts at global sourcing, another fantastic benefit of scale. We have a great track record of delivering significant savings in this area. Our goal is to offset the full impact of inflation on our direct and indirect material purchases, and generally, we exceed this goal and drive significant additional savings. To achieve sourcing savings, we use 4 main levers: aggregating our spend to leverage suppliers and purchases, reducing our supply base for key materials, expanding low-cost region sourcing to localize our supply base and lower costs, and leveraging online tools to more efficiently identify savings opportunities. We're expecting to deliver $80 million of savings this year, double what we delivered in 2006 as a combined company. And it's important to note that these are not cumulative savings, but incremental savings year-over-year.
So I've covered the drivers of revenue growth and margin expansion. Now I’ll shift gears and talk about how we expect all of that to translate to strong double-digit growth in adjusted earnings per share. I'll start with our 2011 adjusted earnings per share of $4.16. We have a headwind from inflation on our direct material and wage costs as we do every year, and FX is negative this year based on current rates. We're getting a nice benefit from below the line items driven by our share repurchases and acquisition tax synergies, and that's partially offset by the interest cost on the debt to fund those acquisitions. Price, volume and mix are significant drivers and Phadia and Dionex contribute nicely to this. And just as a data point, if you sum up all the puts and takes across the buckets on this chart, Dionex and Phadia contribute about $0.35 to our EPS growth this year.
Next, our productivity actions that I just discussed are another significant contributor, and we're investing some of that to fund strategic growth investments in R&D, emerging market commercial resources and e-commerce, for example. This all adds up to our current guidance of 13% to 16% year-over-year growth in adjusted EPS, with balanced contribution for both growth and productivity, while still funding investments for the long term.
In addition to our adjusted EPS growth, another indicator of our solid financial performance is free cash flow. This business has consistently generated strong free cash flow in the range of 90% of adjusted net income, which approximates our cash earnings. This is possible because the business is not very capital-intensive, and we use PPI and PPI Lean tools to minimize our incremental working capital investment. Going forward, we still have more opportunity to improve our working capital metrics, and we don't expect the recent growth trajectory in capital expenditures to continue.
So what do we do with all that cash? Our strategy is to effectively deploy capital to create shareholder value in both the short and long term. We've been very good stewards of your capital, and that's something that Marc and I spend a lot of time on. So let me recap the past few years. Since 2009, we generated $10 billion in capital from our free cash flow, leveraging our balance sheet and last year's divestitures. And we deployed that $10 billion to $7 billion in acquisitions and $3 billion in share buybacks.
If you moved to the right hand of the slide, Marc talked about our acquisition strategy, but I just want to highlight again that we have an excellent track record when it comes to integrating acquisitions. It's really a core competency for us.
In terms of return on capital, most of you know that our board authorized the first dividend in our company's history earlier this year, about $200 million on an annual basis. And that was made possible by our strong financial performance, consistent cash flow generation and excellent growth opportunities. We also continue to repurchase our shares and ended Q1 with $350 million left on our current share buyback authorization, and we expect to use that through its expiration in November 2012.
Finally, we've been paying down some of our short-term debt. Since August of 2011, we paid down $450 million of our $1 billion of commercial paper borrowings and reduced our leverage ratio from a high point in Q3, following the Phadia close. We closed Q1 at 2.6x, and then a steady-state, we're targeting leverage of 2 to 2.5x. So it's clear, we have a number of options to deploy capital to create shareholder value.
Return metrics are often an important part of discussions with our investors, and it's something that also gets a lot of focus within Thermo Fisher Scientific. I shared the data with you last year, so let me give you a quick update. On the left is our return on investment capital performance. Since the merger, we've increased our return on invested capital on average of 40 basis points per year, and that takes into account all the investments and acquisitions that we've made over that period. We closed 2011 at 9.2%, and we're expecting to increase our return another 10 to 30 basis points this year despite the initial dilution from adding the invested capital base of Dionex and Phadia for the full year in 2012.
On the right, there's a similar chart showing our return on equity performance. In this case, our returns increased by an average of 60 basis points per year, which is higher than our ROIC improvement as a result of leveraging our balance sheet. We closed 2011 above 11%, and we're expecting to exceed 12.5% in 2012. This is a nice return, and we expect the good performance to continue into the future. As I mentioned before, we're very focused on increasing our return metrics. Every investment decision we make, whether it's capital expenditures, R&D or acquisitions are based on the return.
So before I take a longer-term view, I started with a similar slide showing our historical performance, and this is the same chart with a summary of our expectations for 2012. Continue our trend of strong performance, with good leverage, as you go down the P&L from revenue to operating income to adjusted earnings per share. All of which leads to a 13% -- 13% to 16% adjusted earnings per share growth in 2012.
So looking ahead into the future, I know many of you probably expect this slide to be an early view of our expectations for 2013. We considered that and partially based on input from our investors, we're choosing to take a longer-term view in this meeting and talk about how we see the company performing over the next 5 years, which is a better reflection of how we measure success. First, as Marc said, we continue to believe our company can deliver mid-single-digit organic growth annually. And this is based on the strength of our markets, as well as the growth drivers that I discussed earlier.
Next, I spend a lot of time talking about productivity. It's in our DNA, and given the multiple levers that I described, we're very confident that we can deliver 50 to 100 basis points of margin expansion each year for the foreseeable future. This will lead to annual adjusted earnings per share growth in the low to mid teens, including reasonable assumptions for return on capital and excluding future acquisitions or divestitures. And as I discussed, our business generates great cash flows, and we'll continue to deploy our capital on acquisitions as long as they meet our criteria, as well as on buybacks and dividends.
And finally, we expect to increase our core ROIC on average 70 to 100 basis points per year. Of course, in any given year, we may be towards the higher or lower end of these goals, but over the long term, we believe they are entirely achievable.
So what could Thermo Fisher look like in 2016? If you use the base case assumptions on the previous slide that I just showed, and assuming stable foreign exchange rates and no future acquisitions and divestitures, our revenue would grow to about $15 billion. Our margins would expand 250 to 450 basis points above 2011 through volume leverage and productivity, moving us comfortably into the low 20s. And this results in adjusted EPS growing to between $7.50 and $8.75, a range of 12% to 16% compound annual growth rate. Free cash flow would be approaching $2.5 billion, and finally, our adjusted return on invested capital would be in a range of 12% to 13%, continuing our historical upward trend. So all this results in what I believe is a very compelling financial outlook.
So to wrap it up, you've gotten a good sense of our strategy from Marc, a good sense of the financial outlook from me, and you're going to get some great insight into how we're going to get there from the upcoming presentations.
So I'd like to close on why I believe Thermo Fisher Scientific is such a great investment. I'm the CFO, and the CFO's job is to state the facts. So here are the facts. In 2007, the first full year following the merger, we had revenues of $9.6 billion, adjusted operating margin of 16.7%, adjusted earnings per share of $2.57, a leverage ratio of about 1x -- 1.3x, and our adjusted ROIC was 8%. We had a bright future and Wall Street rewarded us with a PE multiple of about 20x and an average stock price in the low $50s. And now 5 years later, we're guiding to significantly improved financial performance in 2012, with total revenues up over 25%, our adjusted operating margin up over 200 basis points, adjusted earnings per share almost doubled, our balance sheet more appropriately levered at 2 to 2.5x and our adjusted ROIC up about 150 basis points. We're the strongest we've ever been. We're more exposed to emerging markets, we have leaner factories, and we're investing significantly more in R&D. We have an even brighter future as Marc and I have described. And Wall Street is rewarding us with a PE multiple of 11x and an average stock price so far this year barely into the mid-$50s, essentially unchanged from 5 years ago.
So obviously, the world is not the same place as it was in 2007. But you have to ask yourself the question, does this valuation make sense? Many of you know me, and you know that I'm not one for commercials, but I have to say that I don't think this valuation makes sense. And if you agree, you'll agree that there's never been a better time to invest in Thermo Fisher Scientific. Thank you.
So now I'd like to introduce Ed Pesicka, our President of Customers Channels, who's going to talk to you about our leading position as a global partner in laboratory productivity. Thank you.
Edward A. Pesicka
Thank you, Pete, and good morning, everyone. I'm Ed Pesicka, the President of Customer Channels. Along with my colleague, Tom Loewald, the President of Laboratory Products, we'll be presenting the Laboratory Products and Services segment this morning. Let me first start out and explain the way the presentation will work. First, I'll start with an overview of the segment as a whole and then both Tom and I will talk about the 3 businesses that make up the segments. These 3 business get me really excited if I think about them for 3 main reasons. The first one is that these 3 businesses have unmatched market leadership; second of all, the other unique aspect about these businesses, these businesses provide tremendous mind share with our customers that frankly no one else in the industry has; and then third, it's our deep-rooted customer relationships. You'll hear about that a lot during the presentation. So let me move on with some key facts about the segment. So the segment is roughly $6 billion in revenue. It's made up of the research and safety market channel, which is roughly 60% of the revenue in this segment. It is made up of the Biopharma Services which is roughly 11% in the segment and then finally it's made up of the Laboratory Products which is 29% of the segment.
While the scale in this segment is important, it's really important to think that the market leadership that individually these businesses and collectively can provide tremendous value to Thermo Fisher Scientific as a whole and, of course, our customer base.
Let me move on and talk a little bit about these segments, and this segment in a little more detail. So I started out talking about mind share. Let me explain what I mean by the mind share. Here's the way it works. Every day, tens of thousands of customers are using the Fisher Scientific channel to order products, buy products or work with us. That translates into a very unique customer access that's provided to Thermo Fisher Scientific through the channel. In addition to that, the leading e-commerce platform makes business simple with our customers.
Next, every day, tens of thousands of customers are using our products in their laboratory, again, creating tremendous mind share for the Thermo Scientific products and for Thermo Fisher Scientific as a whole. That's due to our world-class manufacturing and the breadth of portfolio we have. In addition to that, you compile that with the fact that we have a very comprehensive service offering. Those strengths put together create our ability to drive tremendous level of productivity for our customers, and you can see from the slide here, we can do that globally with the mix of our customer base from a geographic standpoint.
Let me now talk about those strengths and our ability to drive productivity and how that translates into the current market dynamics. So if you think about the market that this segment serves, this segment serves a market of roughly $29 billion, growing in the 2% to 4% range. There are several key market drivers. Let me first start at a macro level. There are 2 underlying themes within the market drivers. One is productivity, and the second is global. Let me take each one of these individually that make up this segment, starting with the research and safety market channel.
So from a research and safety market channel, there is a tremendous need for efficiency and productivity. Now that's been pretty apparent over the recent times in pharmaceutical space. Some of the recent dynamics and changes we've seen in academic and government, it's enabled us to take the model we have, and we've been ready to serve that segment, and I'll talk about some specific examples on that later.
Next, another key growth driver is the fact of global customer expansion, and that's twofold, that's multinational companies moving over to emerging markets, and it's frankly the growth within emerging markets.
Next, the Laboratory Products. There are 2 key drivers in the market. One is the need for efficient workflow, again, going back to productivity and Tom's going to talk about that a little later, how we put together our portfolio of products into efficient workflow that drive tremendous productivity for our customers.
Next, Asia-Pacific growth, both the ability to service the customer there, as well as the ability to produce products there. And then the last business in this segment, the Biopharma Services segment, there are really 2 key drivers here. One is the need for flawless quality. When doing a clinical trial, flawless quality is a requirement. And the second really centers around the biopharma service industry and the fact that biopharmaceutical companies are looking to drive productivity. They're looking to drive productivity by increasing asset utilization, as well as increasing their return on invested capital, and that ranges from complete outsourcing of their clinical trials to partial outsourcing, and I'll give some examples later about that.
So let me move now from the Laboratory Products and Services segment to start talking about the individual businesses within the segments. So you saw on Marc's presentation, this is the value proposition that drives customer productivity across all of Thermo Fisher Scientific. What I'm going to focus on is the center 2 columns here, and let me first start with the Fisher Scientific laboratory supplies channel. So the Fisher Scientific is a strong brand. Obviously, it has clear market leadership. Clear market leadership because of the footprint, as well as the world-class global supply chain solutions that we're providing.
The next thing it does, it has the ability to tailor solutions based on the various industry that are served and then lastly, experience. It has significant experience that creates deep-rooted customer relationships and tremendous mind share.
Let me show you how we continue to deepen those customer relationships. So if we think about our customer base, customers do research and development, we have the ability to service that, the ability when that product's being moved into clinical trials through the Fisher Scientific clinical trials business. And now with the recent acquisitions, continue on this continuum to be able to service the customer also in the production space. As you can see below each one of these segments there are some of the services that are offered that can drive productivity for our customers.
Let me, instead of talking about these here, let me take into some practical examples. So what I plan on covering here is really 3 different examples or case studies in 2011, where we were able to leverage the strength of the Fisher Scientific channel business combined with the tremendous mind share to help our customers. So this is a specific customer that in 2011, we went to them and they came to us collectively with a solution. The solution was as follows. We would manage their entire laboratory spend. So everything that goes in and out of the lab, we manage on their behalf. In addition to that, we put together many of those services you saw on the previous slide to help drive efficiency. So the scientist could spend more time at the bench doing research. What was the result? Incredible value to the customer. The customer saw a significant increase of their scientists doing research and the end result from a financial standpoint was savings and productivity of more than 10% for the customer. Great for that aspect, what was the value for Thermo Fisher Scientific? At this individual customer last year, we grew revenue by over $40 million. That $40 million across all of Thermo Fisher Scientific. In addition to that, we were able to take that and identify 10 new initiatives that we're going to implement and are in the process of implementing already in 2012.
So while the biopharma market probably makes sense, and it's logical, let me talk about another industry that may not necessarily think -- you would think about, and this is going to show how we have the ability to translate directly in the other industries what we've done in the biopharma space for quite a while and drive productivity for other customers. So this is another customer example specifically, in the industrial space. This customer was consolidating down their research centers from multiples down to one. We helped them with the process of actually helping design the lab, as well as the end-to-end product project management for the laboratory. The unique value to the customer was obviously the facility opened on time and on budget, but they saw significant increase in throughput of their testing of the raw material because of our ability to help them lay out the lab properly and provide other services.
What was the benefit to us? Nearly $5 million of incremental revenue. While that may not seem like a lot relative to the $40 million I just talked about in biopharma, here's the key on this. They are now taking that model to other parts of the world in their other facilities to do that. Not only that, this exact model is now scalable to others within the same industry and space.
The last example I have here is actually a video and it's around academic. So if you think about academic, there's a lot of questions that have been raised regarding the academic space as of recently. If I think about the academic a little further, the market has changed, Marc talked about that a little earlier, the environment has changed. And academic is looking for ways to help drive more productivity. We're able to take the model, what we've seen in biopharma as well as in the industrial customer, transfer that into the academic space also. So with that, let me roll the video where the customer is actually going to give a testimony of what we've been able to do.
So that's a great example of how the mind share has created opportunities for us, as well as our ability to drive productivity in the academic space. So it's clear that the Fisher Scientific channel model has the ability to transfer to multiple industries, but before I conclude on the Fisher Scientific channel, let me move on and give you a glimpse in the future of some of the things we're doing to maintain this momentum. Let me first start around the global standpoint and one of the other key drivers. We continue to invest to service our customer globally. In Europe, we've got Project Fusion going on, which is actually establishing an integrated global network within Europe for us to service our customers. It's going to improve customer efficiency, and it's going to drive tremendous efficiency within our own organization. Next, we continue to support our customers as they expand globally. When they expand globally, we are in those emerging markets for them. And then last but not least, we continue to strengthen our leadership in those markets we serve. Let me talk about the investments that we have to do that. So second we have up here is our global e-business. So on the video, Jack talked about our e-commerce. We currently have a leading e-business platform. We're continuing to invest in that to drive more efficiencies for our customer.
Next, in the markets we serve, we're investing in supply chain optimization, the photo in the center here is of a new distribution center we built in Eastern Pennsylvania. It's roughly 400,000 square feet. It was the consolidation of 5 smaller distribution centers in the Northeast down to this one. The value to the customer is improved efficiency for the customer in delivery time. The value to us is improved efficiency and operating cost from our standpoint. And then last but not least, the Doe & Ingalls acquisition further moving us down that continuum into the production space. Obviously, the results of these, I think the key takeaway is the last one here, it's our ability to increase revenue growth because of these investments and continue to drive margin expansion related to that.
Let me now move from the channel business on to the clinical trials and service business. So the Fisher Scientific clinical trials and service business, this one's somewhat simple. This is the gold standard in the industry. We have the broadest scope of offering, we have -- we do this, frankly better than anybody from a quality standpoint, from a cost standpoint and from an intellectual capital and property standpoint. We do this better than anyone in this space. Instead of trying to explain that, let me show you what we do specifically. So here's what we do. Large pharmaceutical or small pharmaceutical or biotech company has a new therapy or drug that they want to get to the market. They will send that product to us, we will do the manufacturing for them. We will then put it together with a comparator, which could be a competitive product or a placebo. We will do the packaging of those products. It could be anything from a small batch with an individual product to a cocktail of products to a large envelope or even to a bottle for multiple sizes of packaging. With proprietary software and systems and processes, we also do the labeling. So whatever's required for the labeling. We will then, through our ability to store that product, and then last but not least, we have the ability to transport that product to the physician and the patient, tracking the product that's going out there. So we can basically take the entire clinical trial process from the pharmaceutical company all the way to the patient.
And why is that important? Let me talk about a couple of examples here, a specific example. There is need that we are capitalizing on which is the outsourcing need. I talked earlier about one of the key market drivers. That is the need for return on investment capital improvement in the pharma space, as well as asset utilization. This is our core competency. This is what we do well. And you can see in the lower right-hand corner, 6 examples of customers that have either completely outsourced their entire clinical trials to us, including selling their facilities to ones that have outsourced 90-plus percent of their clinical trials to us. What do their customers need, and what do we provide? First, it's flawless quality. We have to make sure that, that product is handled and delivered flawlessly. Next, we create a tremendous flexible cost structure for the customer base.
And then lastly, we have access to the world between Asia, Eastern Europe, Latin America and obviously Europe and North America. So we are uniquely positioned in this, and the real takeaway on this is, it comes back to the last bullet point on here. It's our successful track record of doing this that has created the trust, created that deep-rooted customer relationship that has enabled those customers that you see on that list to outsource significant portions of their clinical trials to us.
So with that, before I turn it over to Tom, let me -- just a quick reminder on where we see the Laboratory Products and Services segment. One is, significant mind share. Everyday customers are coming to us. That create a deep-rooted customer relationships, and we have the strengths based on what we talked about to really capitalize on the chain -- that market dynamics, which is really focused around productivity and the ability to service global.
So with that, let me turn it over to Tom to talk about some of our great products in our Laboratory Products.
Thomas W. Loewald
Thank you, Ed. So as Ed presented, earlier on his slides, within Laboratory Products and Services, Laboratory Products represents $1.8 billion in sales and is comprised of an industry-leading line of consumables and equipment. What I will do is give you a very brief overview of the product line, talk about what we feel are our unique competitive strengths and then walk through 3 elements of our strategy for delivering customer value. The first being our attention to total customer workflows and the productivity we bring to them; the second, new product introductions and innovation; and the third, our global manufacturing strategy centered on centers of operational excellence.
So first, our product line, we have the most comprehensive set of equipment and consumables in the industry. If you look on the left side of the page and look at our equipment, these products are ubiquitous in the lab. When a scientist walks in, in the morning and gets to work, they are using our biosafety cabinets, our CO2 incubators, our centrifuges and our cold storage products. Similarly for consumables on the right-hand side of the page, you can see that we cover the breadth of applications, including liquid handling, bio production, cell culture work, as well as many other applications. And we feel that we've got a unique set of advantages due to the -- our capabilities with this product line. We're 2x the size of our closest competitor. We've got a great reputation for quality and for innovation. We have the most extensive set of relationships in the industry, as you heard from Ed and a huge installed base. And lastly, we have a global customer reach and a global operating footprint, which I'll talk more about later.
So there are many application areas where our breadth of capabilities applies across the entire customer workflow driving productivity. Biobanking is one of those areas. You also here referred to as biorepositories. It's a very fast-growing field, and as you can see on our spiral chart, our consumables and equipment are used through the sample preparation and sample storage aspects, while our analytic instrumentation, which you'll hear later about from Alan Malus, is used in the analysis in tracking of the samples.
Just 2 weeks ago, we were recognized by Frost & Sullivan as the 2011 global Company of the Year for our work in bringing integrated solutions to biobanking, which is a great result of all the work of our teams in this space. What I'd like to do now is show a short video. One of the great areas of growth for us in biobanking is in China, and I'm going to show a video from one of our customers. This is East Shanghai Hospital in China where Dr. Dong Meng is using our cold storage equipment, our consumables and our label tracking devices in their work studying arrhythmia.
It's so good we want to play it twice. So you can see that for this customer, our total solutions, and in particular, our cold storage products are essential to the work of a biobank. I'll now share with you another voice of customer. This is a quote from a researcher in the United States studying Alzheimer's. And this is a quote that we share with our employees. We think it's a great way to connect what our employees do every day with the value, the tremendous value that our customers put into our products. And without reading all the words on the slide, you can see the reference to the need for rock solid reliability, you see the reference to 7 years' worth of research being stored in our units and hundreds of thousands of dollars worth of samples that are placed there. This is why our customers come to us. They’re looking for our quality. They're looking for our service. They absolutely rely on us for the success of their research.
It's also why we continue to innovate and bring new capabilities to the market. And I'll stay with cold storage as the example. Last year, we brought out a new line of ultra-low temperature freezers, building off of our industry-leading position. To basically raise the bar in terms of the capabilities of these freezers for our customers. And there are 3 things that our customers are looking for. The first is productivity. Lab space is generally something that is scarce. They need more samples to be put in each freezer. We've increased our storage capacity by 20%, allowing them to use their space for other parts of their research.
Energy efficiency is critical. A ULT will use as much electricity in a year as a small residential house. So increasing energy efficiency is a huge benefit to the facility managers in a lab. And our new line has increased energy efficiency by 15%. And then lastly, and most importantly, there's sample protection. Our new line of freezers adds a level of diagnostics and capability to the unit that has not been seen in the industry before. So their customer knows the temperature profile of their sample at all times.
Now this is great results for our customers, and it's also a great result for us. We see a tremendous opportunity to refresh our industry-leading installed base by bringing new product like this to market. There's significant consumable streams that come with the freezer and then lastly, we get a very quick return on our R&D investment because we're able to take an innovation like this and scale it globally immediately.
So the last area I'd like to talk about is our operations strategy, and as Pete Wilver mentioned earlier, we have a multipronged approach to driving productivity, margin expansion and ensuring global cost competitiveness. Within Laboratory Products, we have spent the last few years, and we'll continue to do so going forward focused on one particular area, and that is consolidating our manufacturing footprint into centers of excellence.
What this chart basically shows is the volume increases that we've put into some key centers of excellence in North America, in Europe and perhaps most importantly into our low-cost region. So Mexico, we have a very large set of facilities, 3, that we're increasing our capacity rapidly. We also are doing the same building off the base that we had already established in China.
Our most exciting effort in this regard is our new plant in Suzhou, about 1.5 hours outside of Shanghai. This will produce lab equipment and consumables and will dramatically increase our capacity to produce for the local China market. And the benefits of this are fairly obvious. We get tremendous cost benefits by not importing all of these products into the country, as Pete mentioned, biosafety cabinets was one of those examples where we used to import pretty much all of them. Now 80% are produced locally. That will be true for these products as well. And we are simply closer to the fastest-growing market in the world and able to be much more responsive to the local growth opportunities.
So let me wrap up for Ed and I on Laboratory Products and Services. We think we've got a fantastic set of competitive advantages. As you heard from Ed, we have a unique set of customer access that's unmatched in the world, and we combine with that a leading e-commerce capability. We have world-class manufacturing in each of the regions to support our growth. We have a comprehensive set of service offerings, and the depth of product portfolio that no one else can match. And we think that all combines to create a compelling value proposition for our customers. Thank you.
Kenneth J. Apicerno
Break. We'll be back at 10:30. Thank you.
Kenneth J. Apicerno
Okay. If you could please take your seats, we're going to start up again. So we’re going to continue the program. At this point, my pleasure to introduce the President of our Analytical Technologies business, Alan Malus.
Alan J. Malus
Thanks. All right, well, good morning. I'm Alan Malus, and I'm President of our Analytical Technologies business. And this is the part of our company that's all about innovation and specifically, how we help our customers meet increasingly complex analytical challenges.
Now I can say that this, our Analytical Technologies business, is a wonderful business. We service large and growing end markets, and we have a wonderful track record of delivering high-impact innovation that's driving growth for this part of the business, as well as our total company.
So for today's discussion, what I was planning on doing was discussing our track record of innovation, as well as discussing our strategy for leveraging technology and innovation to drive growth well into the future.
So first, a little background on the Analytical Technologies segment. We provide unique and differentiated technologies that's better enabling our customers to do their work. We're providing a broad offering of instruments, reagents, consumables, software and services. They're used in a wide array of applications in the lab, on the production line and in the field.
The segment consists of 4 highly complementary businesses: Chromatography and mass spec, Chemical analysis instruments, Environmental and Process instruments and Biosciences.
Now when you look at the segments from a very high level, it's largely centered around our industry-leading advanced instrumentation, which makes up a little over half of our revenue. Through our comprehensive offering, we're servicing multiple end markets with cutting-edge technology that's improving performance and productivity.
Now you can see here from a geographic perspective, we're well-positioned in established markets, and we're growing aggressively in emerging markets with a little over 30% of our revenue coming from Asia Pac and emerging markets. And then with the strong leadership position in instrumentation, we're pulling through a complete portfolio of consumables and services and really selling them into a wide array of customer applications and workflows.
So now turning to our end markets. We have some very strong and attractive growing fundamentals in our end markets, and the opportunities are sizable. You can see here the total opportunity is over $30 billion. And we're really positioned well to take share. We're uniquely positioned with a portfolio that's well aligned to the market trends and customer needs.
And so let me just take you through a few of these. First, the world population, it's growing, it's aging, and this is creating a need for more effective drugs and to develop them faster and for them to be more personalized.
It's also, in turn, driving the need for more powerful instrumentation and research tools with greater levels of accuracy, specificity and also the ability to analyze larger volumes of samples at a faster rate. The advanced technology in our Chromatography and mass spec business is directly addressing these needs.
Now turning to emerging economies. In numerous emerging economies, there’s significant investments going in to build infrastructure -- to build new buildings, roads, bridges and rail systems. Our Chemical Analysis business provides the in-line process measurement instrumentation that's used by our customers to create greater productivity, process control and production flexibility to support these markets.
So turning to the environmental protection and concerns. There's a growing concern in many geographies around the world relative to environmental protection. I know, myself, I traveled to China about 4x or 5x a year, and every time I land, whether it's in Beijing or in Shanghai, I'm immediately reminded why we have an environmental business that's headquartered in China. The pollution is staggering. This is leading to increased more stringent regulations and, in turn, it's providing great opportunity for our air quality monitoring systems that are measuring this issue. This is a topic that will be covered in more detail from my colleague, Syed Jafry, who's going to present this in the emerging markets section.
Now finally, we're also well-positioned to capture growth in a growing biosimilars market with our Biosciences business, and I'll be covering this in a few minutes as well. So overall, when you look at this, we have a lot of attractive, large markets, and we're well positioned to capture growth going into the future.
So now turning to technology. There's a lot of information on this slide and, quite frankly, I don't intend to take you through it so you can review it on your own, but I really wanted to use it to make an important point. So first, if you look down the left hand of the slide, you see it's a tremendous array of platforms and technologies that we have. And the important point here is that if you look over the past year, we have had key significant launches in every one of our key instrument platforms. And with each of these launches, we've launched new differentiated and unique technology that's targeted very specific customer needs in improving their performance and productivity.
So now let me transition to our innovation strategy and really what we're doing to grow our business through it. So this slide here, this is our innovation strategy, and I'll really use it to set up the rest of the discussion that we have today. So there are 3 distinct elements to it. The first is that we continue to enhance all of our core instrument platforms and really build on our innovation leadership and further differentiate our Thermo Scientific brand in the marketplace.
Second, we're leveraging our depth of capabilities in combining technologies and products to provide customers with unique solutions and improve their productivity and their analytical results. And then third, we're leveraging our technology. We're reformatting it to meet new applications, and we're creating entirely new market opportunities with these investments.
So now let me share some specifics on each of these and how we're executing them. First, innovation of our core mass spec platforms. You know of our excellent track record in mass spec. We are the industry leader in mass spec technology and in growing share in the marketplace.
In 2005, we launched the breakthrough hybrid Orbitrap technology, and this replaced almost the $100 million FT mass spec market at that time. In 2008, we introduced the Exactive benchtop instrument. And with this, this enabled us to make a meaningful dent in the $700 million triple quad market.
And now within this last year, we've also -- we launched our next generation system, which is the Q Exactive and it's primarily targeted at the $250 million Q-TOF market. The Q Exactive is the major step forward in terms of adopting higher performance technology and really applying it to a wide range of applications.
I can tell you at this point, we're really thrilled with the progress the we're making in the market with it, and I'd really -- I'll take you through now some more specifics in terms of how that's happening with our customers.
So first, in terms of the Q Exactive, I could tell you it's making a significant impact on customers' productivities. What took hours to perform with Q-TOF technology is happening in minutes with the Q Exactive. And what's even more important is the results with the Q Exactive are phenomenally more precise in terms of resolution and accuracy.
So now let me just take you through a couple of examples and how this translates to meaningful improvements for our customers. So the first one here is in terms of what you read about in the news and in many very often, is about the proliferation of performance-enhancing drugs that are used in humans or race horses, that are impacting leading sporting events around the world. Now when testing is done in this area right now using Q-TOF technology, what happens is that a sample will be tested for a targeted drug. There'll be the need to take that sample and run it through 3 analytical runs: to screen, to quantitate and ultimately confirm the target drug in a compound -- drug compound in a sample.
Then what happens, as time goes on, more drugs are discovered in the marketplace. And there's the need then to go back and re-analyze that same sample. So a technician or a scientist who's working on it needs to go back into their inventory. They're going to have to find that sample. They're going to have to pull it from inventory. Then they have to run it again through the same 3 analytical runs.
Now let me contrast this with the Q Exactive technology, which is far more powerful. Here, the drug can be tested for that target in one analytical run versus the 3 for Q-TOF technology. In addition, the Q Exactive records and archives all the information in such high-resolution that when the scientist needs to go back and re-analyze that sample, they don't need to go back to the sample. They can simply refer to the data, which includes all the information about additional compounds. So when you think about this, this is offering a tremendous productivity improvement for the customers that are working in these laboratories.
Now I can tell you, the Q Exactive is having a tremendous impact on the market. You can see here from the slide, we anticipate that the revenues are well on pace to exceed $100 million in 2012. And I can tell you, we're reaching numerous end markets with the product.
Let me share here with you some direct feedback from 2 of our customers. This is Drs. Conrad and Maxwell, and they work at the Innova Lab in Washington, DC. And both doctors here are very passionate about the work that they're doing to treat women's cancer, and they're also passionate about the Q Exactive and how it's helping them achieve this very important goal.
So now let's hear from Drs. Conrad and Maxwell.
So it's really great to see some of the meaningful work our customers are performing with our analytical instrumentation.
So now let's turn to ASMS. I know many of you may have flown in last night from Vancouver after seeing the show. We had some significant launches there from an instrument perspective, as well as a suite of software platforms.
There are 2 important instrument launches the we had. We had the TSQ 8000 gas chromatography triple quad. And this is really targeted for users that are really working with very tough, dirty samples. Typical examples maybe food or environmental contaminants. The second product we launched was another Exactive product, and the Exactive plus, and this is designed to address more high-throughput screening needs of compounds in a wide range of applications, could be in metabolomics, forensic toxicology, environmental analysis or food safety to name a few.
And what we're really most excited about, I think, of what we announced at the show is really the software platforms, and we launched 8 new platforms and they're really directed at applied markets. So food safety, environmental, proteomics and metabolomics and numerous others and allow us to really expand our presence in many of those markets.
Now you know of the story of how we built our mass spec business over the past decade. We started with very small share position and grew that into a leadership position in the market. Now let's turn our discussion to what we're doing in chromatography.
In here, with the addition of a highly complementary business from Dionex, we now have a $750 million chromatography powerhouse. We have the most comprehensive chromatography offering, including world-class instrumentation in ion chromatography, liquid chromatography and gas chromatography technologies. And along with that, we have a complete portfolio of consumables, and we have the gold standard, industry-leading Chromeleon software. And this software is the most powerful, flexible and functional software in the market.
So we're not stopping here with what we have, and so let me just share with you what we're doing to build on these capabilities as we move forward. So here are a few different areas. First, let's talk about ion chromatography. This is an area in which we have a leadership position. Earlier this year, we introduced the PITTCON, our new ICS-5000 platform. And what this does is this is a system that provides our customers with an always on and always ready capability. And essentially, what this means is that an operator can simply operate a unit without a warm-up time relative to starting runs or from switching from one method to another. This is a unique technology that we have, and it's providing tremendous productivity for all those that are using ion chromatography technology in a wide range of applications.
Now turning to gas chromatography. We're really excited about the new technology that we're introducing here. And this is the marketplace that really has had virtually no innovation over the last several years. With our new TRACE 1300 gas chromatography instrument, we have a patent-pending snap-in, injector and detector technology that really gives the user the ability to switch from one method to another with virtually no downtime. So this is another big productivity play that we believe is going to give us great opportunity to gain some share in the gas chromatography space.
Now lastly, looking at the transition that's happening in the HPLC to UHPLC that's occurring in the marketplace. Now we've designed our entire platform to allow customers for an easy transition from HPLC to UHPLC methods by providing upgradable systems across our entire product range. This is, well, we think, will really be another great growth opportunity for us in chromatography.
So now I'd like to turn to our second innovation strategy, and this is really about leveraging our depth of capabilities and how do we combine technologies to offer greater value to our customers.
First example I'm going to take you through is in microbiology. Quite frankly, this is an area you probably don't think of Thermo Fisher first. And specifically, I'm going to talk about PCR market. Here, we've built a complete set of capabilities by combining 2 small acquisitions that we made with numerous internal developments.
In the PCR market right now, there's a growing trend to use more compact personalized instruments. In addition, customers are looking for greater productivity, and they're focusing on improving the productivity of sample preparation and processing.
Now what we've done is we've built a comprehensive portfolio of reagents, assays and other consumables. And most recently, what we've done is we've launched our PikoReal, and what this is, is a personalized realtime qPCR instrument. And the combination of these technologies here that you see are really providing the customer complete workflow and they're improving their accuracy and performance and really enabling us to further expand our share expansion in the PCR market.
So now turning to our second example that I have of combining our technology. This is in the BioProcess Production market. And here, you may know of us in our strong position. In this market, there's a significant growth happening right now due to the introduction of new biosimilars, as well as the expanding vaccine market. In addition, there's a trend towards more -- the trend towards more flexible manufacturing method continues to expand in the marketplace.
Now we're positioned here well. We have a leadership position in our flexible container technology, and what we're doing is we're leveraging that access to the customer and that position in the marketplace to build an entire capability and market it to these customers.
And that process, that upstream process in BioProcess includes media buffers, serum, the containers, mixers, bioreactors, as well as services. In addition, what we're offering, you see this in the lower left-hand side of the slide, is a turnkey bioreactor system. And this really enables us to offer a complete engineered solution for our customers as well.
So what's happening here is we're combining technologies, and what we're doing is really taking advantage of some real share growth in the BioProcess Production market as a result of it.
So now let me turn to our third and final innovation strategy. Here, this is all about leveraging our technology that we have in our lab and creating entirely new markets in the field. And we have an excellent track record of doing this.
So if I go back to 2005, we took X-ray fluorescence technology or XRF Technology. We took it from the lab, and we introduced a handheld XRF instrument in the field. We've now grown this into over $100 million business.
Now in 2009, we adapted our particular measurement technology from the lab, and we developed a personal portable monitor that's used to help coal miners inform them about cumulative dust exposure, which can lead to black lung disease. Now we're ramping this into over a $20 million market.
Now we're looking at our Raman spectroscopy technology. And here, what we're doing is we're leveraging this technology from the lab, and we've re-engineered this into a handheld field instrument. The product is called the TruNarc, and it's being used by law enforcement officers to test for illegal narcotics. We just launched the product, and we expect this to grow into over a $50 million business for us.
So now let me turn to and I'll share with you a recent news broadcast from a Fox affiliate in Boston. And this features some local law enforcement officers that are sharing their view about the TruNarc and how it's helping them to do their work.
Great. So in closing, what I'd like to say is innovation is tremendously important to our company. We have a great track record here, and we really continue to build on our legacy of delivering high impact innovation. We have a great pipeline of technology. We're committed to developing new technologies and workflows to improve performance and productivity for our customers, and you'll see us continue to adapt our technology to address new applications and create entirely new markets.
So thank you. And now what I'd like to do is introduce my colleague, Andy Thomson. And Andy is going to talk to you about some of the great work that we're doing in our Specialty Diagnostics business. Andy?
Andrew J. Thomson
Good morning. My name is Andy Thomson, and I'm the President of the Specialty Diagnostics business. And I'm particularly pleased this morning to be talking about how we are innovating diagnostics to answer some of the trickiest questions and challenges in the health care market.
As a reminder, our Specialty Diagnostics segment consists of 5 businesses. Our clinical assays business accounts for 21% of our makeup. Our Immunodiagnostics business, this is the legacy Phadia, it's at 19%; microbiology, at 17%; anatomical pathology at 13%; and our health care market division rounds out at 30%, summing to a total of $3.8 billion.
All of these businesses are focused on helping our customers enable improved patient outcome through efficient use of in vitro diagnostic tools and life science applications. As you look at the pie chart to the left, you'll see that the bulk of our business is made up of consumables and reagents, accounting for close to 90% of our revenue. But we've got a sizable base of instruments, clinical chemistry and immunoassay platforms that provide consistent and recurring revenues.
Our ability to expand to drive these markets is supported by our focus on niche markets that have high barriers to entry. These high barriers to entries are either protected through intellectual property, through know-how or scientific expertise. We are leaders in novel biomarker development, and we have large and growing partnerships and relationships with all large in vitro diagnostic companies. And lastly, we're uniquely positioned to lead in the application of mass spectrometry into routine clinical use.
As the geographical split of our revenue depicts, we are underrepresented in the Asia Pacific, and this represents a significant opportunity for us that I'll come on to in just a few moments.
And now I'd like to speak to a few of the important growth drivers that are helping the end markets in our 5 key segments. The first thing I wanted to highlight is that each of our businesses compete in large markets with strong prospects for growth. I'd like to call out a couple of these growth drivers. In our clinical assay business, our largest end market, we will continue to grow through focusing on unmet diagnostic needs and the demand from the market for ever-increasing accurate and more sensitive tests.
In our Immunodiagnostics business, we will drive the market demand through our own demand generation efforts and working in partnership with some active and powerful advocacy groups, most notably in the allergy segment.
And lastly, while not called specifically on this slide, Asia Pacific represents a terrific opportunity for growth in all of these markets, and we'll come onto that as I mentioned earlier.
As I mentioned in the title slide, our employees are focused on providing answers to some of the trickiest health care challenges. Both doctors and patients demand and deserve timely, accurate and cost-efficient information that will help them answer these difficult questions. Whether it be accurate in early diagnosis of sepsis or definitive diagnosis of cancer, our diagnostic tests have the ability to improve and often save lives.
I'd like now to shift gears and take you through just a couple of examples of where we are having a significant impact. Our novel biomarkers provide hugely important information to physicians. The example that's provided here of sepsis, we are, having a profound impact.
Sepsis is a deadly disease. It strikes 750,000 people annually. You'll see in a video clip shortly 215,000 of those will go on to die from the disease. To put that number in perspective, that's greater than the combined prostate and breast cancer new diagnosis each year. There's greater than 17 -- there's greater than $17 billion that goes to fighting this disease.
Even with all that, this is a wildly underdiagnosed and undertreated disease, specifically in the U.S, And to highlight that, I wanted to quote from Dr. Ron Daniels, he's the executive director of the Global Health Alliance, and he puts it this way: "A patient with sepsis is around 5x more likely to die than a patient who has suffered a heart attack or stroke, yet the recognition of sepsis and interventions delivered are haphazard with fewer than 1 in 5 patients receiving the care according to international guidelines."
So as I mentioned, Thermo Fisher is having a profound impact in the care and treatment -- the diagnosis care and treatment of sepsis. Our Procalcitonin or PCT assay is the gold standard in this space and it has -- it is available in every major hospital in Europe.
In the U.S., where adoption has been slow, we are finally getting significant momentum, and there remains a huge upside potential.
To reinforce the devastating impact that sepsis can have, I wanted to share a brief news clip from the ABC affiliate in Boston.
So as I mentioned, we're building momentum in the United States and through the efforts of our demand-generation teams, we're hopeful that within a couple of years, all major U.S. hospitals will have access to this life-saving test.
I want to take you now to another key health care challenge, and that is the often problematic diagnosis of allergy. Our goal with our Immunodiagnostic solutions is to prevent a lifetime of ineffective treatment. Over 800 million people globally suffer from allergies, and they receive inadequate or no treatment. And incredibly, 65% of the patients that regularly take antihistamines are not allergic. So when and if these patients do get treated, they are subject to an often painful and time-consuming skin prick tests. The process -- prospects of which for yourself or your child are often enough to forgo treatment.
The results of the skin prick tests are not reproducible. They're not scalable. And you cannot attach them to a patient's electronic medical record. So Thermo Fisher's contributions in this area are significant. With the acquisition of Phadia, we're now in possession of the first and only fully automated allergy panel test that can be done with a single poke of the skin rather than countless.
Literally hundreds of allergens can be tested through one blood draw with rapid and accurate response. Our demand generation sales teams have been extremely effective at getting our messages out to pediatricians and primary care physicians, and the result has been rapid worldwide adoption of this test. And due to the team's efforts and the test accuracy and ease of use, it's also rapidly expanding the market for the test.
It's been approximately 8 months since the close of the Phadia transaction, and I'm very pleased to say, the integration is going exceptionally well. We're on track to deliver the $10 million of revenue synergies, first year revenue synergies, and we'll overachieve the targeted $8 million in cost synergies.
So staying with allergy for just a moment, getting a little bit more specific, I wanted to focus on the very high-profile allergy peanut testing. This is, as the graphic on the upper left indicate, this is a wildly misdiagnosed allergy, with up to 80% of children being diagnosed from standard tests, being misdiagnosed. And for anybody in the room who has a child that suffers from peanut allergy or knows children that suffers from peanut allergy, this has a tremendous impact on the family as families will go to great lengths to protect their children from exposure.
Our response on this has been nothing short of breakthrough. In June 2011, we received FDA clearance for the first and only molecular allergy test. This is our uKnow Peanut allergy test. It's actually not one test but 7 allergens that have been specifically selected for their sensitization for the IGE peanut allergy.
The results of which can differentiate between no peanut allergy, mild or severe and life-threatening. And as you can imagine, this information is -- can be life transforming for children and families that have -- that believe their children are suffering from allergy.
So while peanut perhaps is the most high-profile, we also have the most comprehensive menu of food allergens on our highly automated platforms, and I thought it would be a good opportunity to hear from our customers, Dr. Andrew Lieber. He's a pediatrician, he's a Chief Medical Officer, and he's the founder of the Rose Clinic in Denver, Colorado, and he speaks to some of the opportunities in diagnosing food allergy.
So unfortunately, not all disease states are as easy to diagnose as allergy, and that is the case with unexplained fatigue.
It's estimated that up to 24 million Americans have in autoimmune disease. And for those not familiar, autoimmune diseases are essentially when the body's immunity turns against itself. Of those 24 million Americans that have an autoimmune disease, up to 45% of them were initially labeled as hypochondriacs. The reason is it can take up to 10 years for additional symptoms to develop beyond the fatigue, the chronic fatigue.
Our response in this area has been significant. We have built out the most comprehensive autoimmune menu in the industry. These tests are run on a highly automated routine platform that can provide fast and accurate results and that can enable or provide a tool for the physicians to diagnose some of the most common autoimmune diseases that you see highlighted in the bottom left.
We're leveraging our demand generation sales teams. We're getting the message out to the primary care physicians, so they are made aware of this valuable tool that they can have to present one of the most challenging diagnosis that they face in their office. I think this is a great example of how we are leveraging our knowledge and expertise in allergy into the adjacent space of autoimmunity. And I'd like to highlight another area within Thermo Fisher where we're bringing together 2 different technologies and yielding some very promising results.
Convergence of life science tools and diagnostics is a natural area for us to focus on. There is an increasingly strong demand for elegant applications of mass spectrometry into routine clinical use. They're looking for elegant solutions. The reason they're looking for elegant solutions is that the complicated, highly technology -- highly technical mass spec solutions like you see the one highlighted on the left-hand side of the slide are often run by PhD scientists.
The goal is to migrate that technology into the factory-like setting that is the hospital lab. And in those hospital labs, in the clinical chemistry segment, the microbiology segment, the instrumentation is so easy to use, it's not uncommon that these are run by high school graduates.
So the challenges are significant, but the rewards will be great for the company that can be successful here. And we believe that there is no better company positioned for success than us.
With our proven R&D innovation and our commercial success in both of these areas, we think we're uniquely positioned to lead in the application of mass spec to routine diagnostics.
Yet another emerging area that we're highly focused on is the area of personalized medicine. The goal of personalized medicine is being driven by the need to provide more targeted therapies either through patient stratification or through closely monitoring patient groups, that more cost effectively deliver improved outcomes with fewer adverse drug reactions.
As the slide indicates, adverse drug reactions lead to 750,000 injuries and/or death each year in the U.S. alone. This clearly has been the driver for the FDA to increase the scrutiny on new drug applications. And the result has been a decline year-over-year for the past decade of new drug approvals.
As a result, all major pharmaceutical companies have implemented a companion diagnostics program as part of their formal R&D process. This has created an unprecedented opportunity to partner with pharma, and we think we're uniquely positioned to take advantage of that. We've got the largest technology-base in life science tools. We've got a market-leading array of development -- assay development technologies at our disposal. And we've got outstanding relationships in part developed through our Biopharma Services business.
In short, we believe we're the natural partner for pharma in companion diagnostics. Before I leave the slide, I wanted to highlight this one example, one tangible example, of where we're partnering with pharma to great effect.
Several years ago, Novartis came to us and asked us for a companion diagnostic for a late-stage product that they had in developed -- that they had in development. The drug was an immunosuppressant. The brand name is Certican in the U.S. (sic) [Europe], Zortress in the United States. 18 months from the time of that conversation, we launched in concert, they launched their Certican drug in Europe, and we launched our everolimus assay. And we worked hospital by hospital to convert or to introduce the drug and introduce the monitoring -- the diagnostic in the lab. A year later, we're both on the market at the same time in the U.S., and it's these types of partnerships that prove the worth of diagnostics and help the pharma companies sell their products as safe and effective into the marketplaces, into the treating physicians and into the regulatory bodies.
So with that, I would like to come to China. I mentioned earlier, this is a significant opportunity for growth for us. In the most recent 12th Five-Year Plan, the Chinese government has outlined that health care access is a huge priority for them. To that effect, they've dedicated funds that will allow for 20% annual growth in health care expenditures through the life of the plan. And this is on the heels of 18% growth over the last 10 years. We believe that with our investments and focus in these rapidly expanding diagnostic areas, we will be able to deliver growth well in excess of that government forecast.
We'll leverage our extensive manufacturing footprint and our infrastructure that's this already in place and you'll hear more about some of these plans from Syed in just a moment.
I think we've covered a lot of ground in the last 15 minutes, so I want to close and reinforce on just a couple of areas. We have a terrific group of businesses that participates in some very attractive end markets with strong prospects for growth.
We are the proven leader in biomarker development and commercialization. We are uniquely positioned to lead in the clinical use of mass spec. We are well positioned to take advantage of emerging markets. And lastly, we will continue to invest and focus on niche markets with high barriers to entry.
So with that, I'd like to thank you for your attention and turn it over to Syed Jafry as he'll discuss some of the opportunities in our developing markets.
Good morning, everyone, and thanks, Andy. My name is Syed Jafry, and I am responsible for our businesses in Asia Pacific and the emerging markets.
Today, I will focus most of my time on talking to you about our strategy in China and India, and I will also discuss with you how we are gaining momentum in some of the high-growth emerging markets such as South Korea, Russia and Brazil.
To keep my presentation focused on our highest growth countries, I will not touch on Australia, New Zealand or Japan, which also fall under my area of responsibilities.
So the emerging markets are becoming a much larger part of our global business. The growth in these markets is coming from multiple industries with the life sciences sector offering the greatest opportunities for our business.
We continue to build our scale and depth of capabilities in these regions, and as a result, as you heard earlier, 15% of our revenues are now generated in these emerging markets.
We continue to aggressively scale up our commercial presence all across these regions. And now we have over 5,600 employees in these countries.
We are focusing on improving the customer experience. And to do that, we are fully resourcing and optimizing our supply chain capabilities and our service capabilities.
And very importantly, we are developing more products locally so we can pursue effectively some of the opportunities in the mid-level markets where we have a significant advantage over the local competition.
We have the largest footprint in emerging markets in our industry. And we have a long history of conducting business in these regions. Let me share with you a few milestones that we have been able to accomplish as we have expanded our presence in these regions.
We have been selling our air emissions monitoring instruments in China since the early 70s. During the 80s and 90s, we focused on building commercial capabilities in -- all across China. And then since 2000, we have built extensive manufacturing operations, demo centers and a technology center in Shanghai in China.
Last year was a very active year of expansion for us, and that trend continues for us in 2012 as well. And over the next few minutes, I'll talk to you a little more about some of the most recent investments that we have made in expanding our presence in these countries. The key takeaway here is that with the significant footprint that we have in this region, we are absolutely positioned to successfully implement our growth strategies.
So let me talk a little bit about how we are accelerating the growth of our business above and beyond the market growth rate. Our estimate of the addressable market size for analytical instruments, consumables and services is about $14 billion in these markets. And we believe that over the next 5 years, these markets will be growing at rates somewhere between 7% to 9%.
If you look at the last 5 years, we have doubled our revenues in emerging markets. And looking ahead, our goal is to reach about $3 billion in revenues by the year 2016. And that will have major contributions from countries such as China and India.
A few comments on the economies of these countries. We believe that China, economy remains strong, and the markets in China over the next 5 years will continue to grow between 8% to 10%. India, economy is robust for sure in our space, and we believe that Indian economy will continue to grow, and the markets that we are addressing there will grow between 6% to 8%.
And then looking at the other countries, South Korea, Brazil and Russia. These countries are still at the early stages of development. And in a few minutes, I'll talk to you more about our view of the markets and our growth plans in these countries.
So let me focus a little bit on China. I believe you know that we have a very strong track record of growth in China. Over the last 5 years, we have grown our business in China at a CAGR of about 27%, now reaching about $600 million in revenues. Our strategy from here on in China is to continue to expand our commercial presence beyond the Tier 1 cities such as Shanghai and Beijing. We want to be growing more in Tier 2 cities such as Chengdu, Wuhan and Shenyang. These are the cities where we are building solid commercial infrastructure, so we are able to provide our customers the local technical support and service and ensure that we are taking care of their needs locally.
To accelerate our growth in these regions, we are also accelerating our investment in marketing and specific market segments such as health care, environment, food safety and the life sciences.
These are the markets where we believe that the investments are very large and the needs for our products are great. And within these large markets, we have identified key focus accounts, and we define these focus accounts as customers where there is big potential for products that we can supply and ensure that these customers are benefiting from the scale and depth of our capabilities and we are serving their broader needs in these markets.
Our expansion plans and our resources deployment in China has been absolutely in line with our growth strategy. Today, about 20% of our China revenues are coming from products that we are manufacturing in China.
You heard from Tom Loewald earlier that we are in the process of building a new factory for our lab products business in Suzhou that will open in Q3 this year. And we are expanding further our manufacturing presence in China because by the year 2016, we want 50% of our China revenues coming from our manufacturing operations in China.
We're taking a similar approach to technology development in China as well. You might recall that about 2 years ago, we opened our China technology center in Shanghai. In the beginning, this team was focusing mostly on value engineering and product modification. But over the 2 years, as we gained more experience, we expanded the size of our organization, now this team is going to focus more on pure innovation and developing new products so we can serve some of the local market needs locally by the products that we are developing and manufacturing in China.
Let me also share with you another aspect of our strategy to accelerate growth in China, and that is about basing the leadership teams of some of our high-growth product businesses in China.
Back in 2009, when I was in China, I took the lead in moving the headquarters of our Environmental Instruments business to China. We did that because we believed that China is going through rapid industrialization, and that will continue to impact the environmental needs in that country. And no one will debate the benefit of having your businesses leadership team close to your customers where you can understand and react to your customers' needs faster than your competition.
Our strategy there did work. If you look at our business growth for the environmental business in China over the last 3 years, we have grown at a CAGR of about 22%. And today, 55% of all the ambient air emissions monitoring instruments in China are supplied by Thermo Fisher Scientific.
So we believe that this is worth replicating with other businesses. And recently, we moved the headquarters of another business to China, and we are expecting very similar levels of growth as we experienced with our Environmental Instruments business.
Now let me shift gears a little bit and talk to you about another very exciting emerging market, and that is India. India is about a $2.2 billion addressable market for us. And we are very excited about of some of the opportunities in India in areas such as pharmaceuticals, health care, food safety and environment.
India is one of the leading countries in the world in the area of pharmaceutical and biotechnology development and manufacturing. There are companies such as Biocon, Dr Reddy, Shantha, who are introducing world-class vaccines and drugs, not just for the Indian market, but also focusing on some of the South Asian and Southeast Asian countries as well. So health care and pharma certainly are very, very exciting growth prospects for us in India.
We also see that the Indian government is showing more commitment to investing more in innovation, science and technology. And there are some significant investments coming up in the buildup of infrastructure for food safety.
We understand that over the next 5 years, about $1 billion will be invested in India to build about 120 Food Safety labs all across the country. So our strategy in India is that we want to leverage the incredible infrastructure and presence we have that we have built through direct investments and also through the 4 acquisitions that we made in India and using that, we want to pursue these opportunities and help our customers grow their businesses while we grow ours.
Let me spend a few minutes on 3 other emerging markets. Earlier this morning, Mark commented that the next phase of our emerging marketing strategy is to replicate the successes we have experienced in India and in China to some of the new economies, economies such as South Korea, Brazil and Russia. So let me talk a bit about each of these very briefly.
South Korea is about $1 billion addressable market for us. And here, there are several industries that we are excited about. And there are many investments being made in bioprocessing and biosimilars areas that we are very capable of serving with our products and services.
With the incredible focus that exists in South Korea on education, we are seeing the government making some major investments in academic research and innovation. And our strategy in South Korea has been that we have appointed a country leader in South Korea last year, and this leader is focusing on building more direct presence in commercial infrastructure in the country so we can pursue these opportunities.
Turning to Brazil, that is about $500 million market for us. The market growth in Brazil is coming from both the local and the foreign investments. Local investments are being made mostly in the infrastructure development as the country prepares for the 2014 Soccer World Cup and the 2016 Olympics. And also, some of the local investments are going into the mining sector. As you know, that the natural resources are abundant in Brazil.
The foreign investments are mostly going into pharmaceutical labs, production and sectors such as energy. Looking at all these industries, we have great capability to serve them and grow the business in Brazil in the future. We have taken a similar approach as we did in Korea. We now have a country leader who is leading our efforts to build more direct presence and commercial infrastructure in Brazil.
And lastly, Russia. Russia is about a $700 million market. And in Russia, we are seeing government making some big investments in health care area, and there is a significant focus on innovation. And what we are also observing is that some of the major pharmaceutical companies in the world are moving to Russia, establishing their production facilities in the country. We have a very good-sized organization in Russia already, and we have a well-established manufacturing operation in St. Petersburg. And basically, our next steps are to further strengthen our organization in Russia by adding more resources to help drive market development in some of the new markets that are growing there in areas such as pharma, health care and energy.
In all these 3 markets, one key element of our strategy is to continue to translate best practices from the established markets into these economies so we can shorten our learning curve and accelerate our growth in these economies.
Let me just recap and leave you with a few takeaways. The first one is that emerging markets are a very important part of our company's growth strategy. And I do believe that we are best positioned in these markets to sell our customers because we have the right products, services and infrastructure. We have a long-term commitment to this region. We have been investing here for many, many years, and we have built a local presence so that our customers can benefit from our value proposition. And lastly, we are absolutely committed to continue to invest in these emerging markets.
So with that, let me thank you. And now I invite Marc back to the podium to share his closing comments and now lead the Q&A discussion. Thank you.
Marc N. Casper
Syed, thank you. Thanks for the attention and interest this morning. If you take away one thing from the day, it's about how excited we are in terms of our future and the bright opportunities we have ahead for us.
So we'll take questions and happy to engage in the discussion.
Marc N. Casper
So I know there are microphones going around, and maybe we’ll start here at -- just please state your name and affiliation.
Amit Bhalla - Citigroup Inc, Research Division
It's Amit Bhalla from Citi. So for 2013, I can understand that given end market volatility, you’d want more time before laying out the revenue guidance. But on earnings, can you make any comments about expectations? Or where the Street currently stands given you do have a number of operational levers that you've already laid out today that should continue throughout next year?
Marc N. Casper
Sure. So Amit, thank you for the question. In terms of the outlook, we have laid out pretty clearly today how we see '12 and what do we see as the long-term prospects. When you look at '13, you really have 2 basic scenarios: A world where sequestration happens and a world where sequestration doesn't happen. And we can all put our odds on which way that is, but we're not going to know that until November or December. We're planning for it because that's the prudent thing to do. And what we see under the 2 scenarios is the following: We see either way our ability to grow our earnings per share 10% plus next year. So when we look at that, we're confident in that. We have the productivity levers that we can pull to achieve it, if it's the world with a more difficult revenue outlook. And then obviously, if it's not a world with a more difficult revenue outlook, then I think Pete's guidelines give you a good framework. That 10% plus EPS number is actually very inline with the sell side consensus for 2013. So there's an alignment between what the management team thinks and our analyst community for next year.
Amit Bhalla - Citigroup Inc, Research Division
Just a quick follow-up on emerging markets. With your goal of expanding from 19% of revenue to 25% of revenue in the coming years, can you talk about how the margins in the region compare today to the corporate average? And how you think they can improve given your focus on local manufacturing?
Marc N. Casper
Yes, so the margins today are generally similar to what we have on the corporate average. And I think the fact that we're continuing to put more of the activity locally will allow us to be competitive with other entrants, local competition. So I don't see dramatic margin shifts because of the mix in emerging markets increasing in total. Maybe in terms of the next, we can -- Tony over here or Peter?
Peter M. Wilver
Peter Lawson, Mizuho Securities. Just on 2012, you didn't boost guidance on the acquisition. What held you back? What is it just macro?
Marc N. Casper
In terms of Doe & Ingalls or...
Peter M. Wilver
Marc N. Casper
Yes. Yes, Doe & Ingalls is small enough, Peter, that it's immaterial into Q2 and tiny for the full year. So our thought was we just do it in the normal guidance that we do in July. So we'll go through and do all the puts and takes when we do our earnings call in terms of the outlook and include Doe & Ingalls, but it has no effect on the numbers for Q2.
Peter Lawson - Mizuho Securities USA Inc., Research Division
Just a follow-up on academia. You mentioned the concerns for 2013. What are you doing to work with clients or customers to ease their concerns as we head towards the election and potential sequestration?
Marc N. Casper
Yes. So there's a number of things. One is with our academic customers and I think you've got a good sense from you're [indiscernible] University, we're helping them drive productivity in getting the most for their money in making the right choices on products so that they get their budgets stretch. We're helping a number of customers plan for that. We're doing our part in working in Washington as well to really articulate the benefits of the NIH funding and the importance to the U.S. economy and competitiveness. So whether it's myself or members of the team, we're constantly working the hill and we'll do our part to try to get the right answer for the U.S. economy on NIH funding. So we're taking it from both perspectives. Maybe Tony, who's next, Peter we can do next.
Charles Anthony Butler - Barclays Capital, Research Division
Tony Butler, Barclays. Mark, as you look back through several years, you actually used pro forma 2006 as a base. And I'm curious if we actually think back to the Fisher Scientific, if in fact Fisher Scientific has been -- has really created value for the instrument business for the collaboration as a whole, and I'd like you to perhaps speak about that from a strategic standpoint, especially given the fact that it may be somewhat slower growth and it's margins a little bit less, and may not be as opportunistic in emerging markets as at least your instrument business? And then finally, while Pete had some aspirational numbers for 5 years and part of that was ROIC, that ROIC didn't include acquisitions. But I'm wondering, and therefore, I wonder if that's the right way to look at it. But I'm also wondering whether Fisher will continue to be a drag on that ROIC?
Marc N. Casper
Sure. So Tony, good questions. One, I think let's talk about chromatography because it can bring into life and it's happening right now. We have a huge sales force with our channel. They've all been trained on our chromatography instruments, right? We go up against 2 other players that might be perceived as having a bigger share. But all of a sudden, we have people in those labs every single day that know enough about chromatography to know when the opportunity is qualified and brings in the expert. We've used our scale to create a competitive advantage against the others that really does create a lot of value. Lead generation, we've been closing business and we're enjoying our competitors trying figure out how to respond to that. So I think we have lots of examples about how we leverage our channel to create growth on all parts of our business, whether it's in diagnostics, whether it's instruments or whether it's within the lab products. And lab products’ is extraordinarily intuitive. From in terms of ROIC, our channel business is incredibly positive from a return on invested capital because effectively, it has very low inventory levels that's great on managing turns and managing receivables. So from that perspective, we see that as positive. So it's aligned with what we do. It helps drive growth and it gives us that deep customer relationships that allows us to play this industry on our terms. When we talk to the head of R&D -- that really manages the largest R&D budget in the world as a pharmaceutical company, we might start the dialogue and say, "We're doing x millions of dollars a business with you and do a review a on the channel.” But in every one of those conversations, we're talking about the 3 technologies we’re most excited about and why that makes a difference to them, and we're always asking for, "So who's the champ in your organization we should be working with to drive that value?" I mean, it's a unique energy across the company that we're doing the best we can to maximize. Sure, maybe here, Derik?
Derik De Bruin - BofA Merrill Lynch, Research Division
Derik De Bruin from Bank of America Merrill Lynch. So when you look at the Phadia acquisition and you look at working to expand that, I mean, how quickly can you get that into the U.S. market just because it has been a little bit more resistant there? And likewise, with the sepsis market, the Procalcitonin, I mean that's done quite well in Europe as well but they both have been -- it’s been slow uptake I think there's still some controversy in the U.S. markets about how accurate a marker that is [indiscernible]. So can you just talk about how you see that expanding from out of this market?
Marc N. Casper
Sure. Maybe Andy Thomson who is living this every moment of the day can talk about it and give you a sense on it, too.
Andrew J. Thomson
Oh, I think this is on. So addressing Phadia first. So Phadia is in the U.S. today and they've got a very large business. But even with that large business, they believe that they are only 15% to 20% of the total addressable market. So they've got all sorts of headroom to grow. They've been growing at double digits for the past 5 years and we don't see any end to double-digit growth in the U.S. for the foreseeable future. As it pertains to Procalcitonin and the PCT market in the U.S., I'm very encouraged by what the demand-generation teams have been able to get going. So we are seeing very significant momentum. You saw on the news clip there, there are 300 hospitals. We're adding new ones daily and I think it's only a matter of time till we get to that tipping point and achieve the penetration that we have in Europe. I think just to put that in perspective, PCT was a business that grew out of Germany. So the scientists that developed assays worked very close with key opinion leaders in Germany and then a little bit more broadly within Europe. So I think this is just a natural evolution of migration of the assay in clinical utility in the U.S.
Derik De Bruin - BofA Merrill Lynch, Research Division
And just also on the diagnostics front. I mean, there's obviously been a lot of consolidation in this area going on right now. I mean does Thermo Fisher need a piece in that platform? Do you need a molecular testing platform? Do you need something to kind of compete that -- complete that business there?
Marc N. Casper
We like our portfolio. We think we have incredibly strong set of capabilities. Occasionally, we do M&A to really build it out and capture new opportunities. But there's not something that we don't have that we have to have. So that allows us to stay pure to our discipline of does it strengthen the company strategically, does it add value to the customers and of course, does it clearly create shareholder value? And if things fit those criteria, then we may pursue them. And if they don't, we don't have needs that would ever have us violate that criteria. Maybe Tycho here?
Jonathan P. Groberg - Macquarie Research
Jon Groberg with Macquarie. Appreciate very much the long-term outlook. So if I can, just kind of 2 questions, one, more current, and then one of kind of a clarification on the long term. So can you maybe, just currently, there's a lot of focus in the investor community on geographic differences, right? And you hear from some companies for example, China has really slowed, you have what's going on in Europe. But could you maybe just give a little bit of flavor currently what you're seeing from maybe a geographic and end market because maybe life sciences in China is actually doing well, but people are concerned about other aspects there. And then can you also just kind of currently given the euro at $1.26, does that kind of impact your view of your guidance for the year?
Marc N. Casper
Sure. So I'll do the end markets and Pete, you can cover the foreign exchange. So from the end market's perspective geographically, we continue to see a strong growth in China. We read the headlines, we’re there are a lot, when you think about what we're serving, we don't serve a lot of infrastructure and housing, right? So things that you get the most discussion about what’s slowing. We're serving health care. We're serving life science research is really where the big parts of the business, and that's growing extraordinarily fast. And Q1 was another 20% plus growth quarter for us in China. And we saw -- the Indian economy is a little bit weaker but we were able to grow in India and I think the prospects are good for India as well. So from that perspective, not much has changed in the emerging markets. I think U.S. and Europe has been pretty consistent now, actually, for a number quarters in terms of the end markets. So we haven't seen big changes one way or the other. And Pete, maybe you want to comment on foreign exchange?
Peter M. Wilver
Sure. In terms of FX, obviously, the rates have been pretty variable. But when I look at the average of Q2, we're pretty close to what we had in our guidance for the full year. Obviously, we're not giving quarterly guidance but it's about that range. And then whatever the rates are, when we get to our -- the end of Q2 and give our guidance for the rest of the year, we'll update it, as Mark said, with the addition of Doe & Ingalls and whatever that says for FX rates at that time.
Jonathan P. Groberg - Macquarie Research
And then long term, given -- I mean, you basically alluded to your strategy over the last 5 years, right? Looking at the past, looking in the future, and lot of it is very similar, because you've been so successful in the past. But can you maybe just clarify in this ROIC, it looks like you averaged kind of a 40 basis point improvement from 2006 to 2011? And you're saying from now, from 2012 on, you're expecting 70 to 90 basis points improvement. So I think that's a pretty important statement for many investors, can you maybe clarify, assuming you're going to do the same thing in terms of how you use capital and other things, why does that improve so dramatically versus what is done?
Marc N. Casper
Pete, you want to...
Peter M. Wilver
Yes, sure. So the 40 basis points since the merger is including bringing the merger into our invested capital base and accelerating from there. It also includes 2 relatively large recent acquisitions, which is Phadia and Dionex. So that's weighted into that 40 basis point average. Going forward, it's our core business. So if you take what we have today, we're going to add 70 to 100 basis points a year to our return on invested capital. If we did significant more acquisitions, obviously, you would see a short-term dilution and that would build back up again. But that 70 to 100 basis points is incorporating into it building the capital base up with Dionex and Phadia.
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
Tycho Peterson, JPMorgan. First question, I guess, just on M&A and you've touched on some of this before. But in light of where you stand with the ratings agencies, can talk a little bit about your appetite for larger deals, in terms of how much leverage you would be willing to take on or should we think about more deals like Doe & Ingalls on a go-forward basis?
Marc N. Casper
Yes, from a balance sheet perspective, we see long-term between 2x and 2.5x leverage is the area we're going to operate in. As we’ve said forever, that for the right opportunity, we'd be comfortable going at 3.5x leverage for short periods of time and then focus quickly on repaying debt and bringing it back. So we're at 2.6x today, so we're kind of -- we're pretty close to our target leverage ratio. So if there's good opportunities, we'll pursue them and if they're opportunities that don't meet our criteria, we clearly won't. And like always, we look at lots of things but we're extraordinarily selective on actually what we pursue.
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
And then on the manufacturing, it seems like that target for 8 to 10 facilities hasn't changed year in and year out. And why isn't that the case given the fact that you did larger deals last year and you continue to add facility. So why not go through a broader restructuring as you did years ago under that kind of 3-act restructuring that [indiscernible] spearheaded?
Marc N. Casper
Yes, from the viewpoint, we've shut down about 60 facilities over the last 5 years. And with the acquisitions we've done, we've had the opportunity to take on more capacity. I think 8 to 10 is about the right level from a workload perspective. We can do more, but I think we got a higher return by spending more time on global sourcing and some other activities. So we're trying to optimize where the best returns are on our time. And at that level, that seems to be about the right pace. If the world changed dramatically, definitely, we could accelerate it, but I think that's a reasonable target. Okay.
Isaac Ro - Goldman Sachs Group Inc., Research Division
Isaac Ro from Goldman Sachs. I just want to walk through the assumptions on the long-term organic growth guidance for that mid-single digit. And specifically, would it be possible to maybe tease out a little bit about what you think the contribution will be, specifically from Phadia and Dionex to that growth rate over that window of time?
Marc N. Casper
Yes. So when you look at the mid-single digit growth rate, Phadia and Dionex are both going to grow a little higher than that. But in terms of materially changing the growth rate, it doesn't. I think the way to think about it, if you go back over the last 8 years, 6 of the last 8 years, the company grew mid-single digits. So our view is, going forward, we feel very confident in our ability to grow mid-single digits. And if you think about why are we confident, great track record of innovation, and I think you got a sense of how good our pipeline looks. Incredible strength in emerging markets and it's getting stronger. A value proposition that nobody else has and is resonating in a world where productivity is important. And when we do M&A, it's helping our growth profile. I think that combination says even if the market is a little bit tougher, we're incredibly well-positioned to grow mid-single digits well into the future.
Isaac Ro - Goldman Sachs Group Inc., Research Division
But just be clear, it sounds like the assumption on the mid-single digit does not include the impact of any future deals. This is really the current assets...
Marc N. Casper
Just what we have. We don't assume any M&A in any other numbers going forward. It's our portfolio today.
Isaac Ro - Goldman Sachs Group Inc., Research Division
And then just one last one, if I could, on the ROIC assumptions. You're accelerating the pace of improvement over the next few years. Just to be clear, it sounded like you guys are not going to plan on deviating from your past use of free cash flow kind of split somewhat evenly between repurchase and acquisitions if we just kind of exclude the dividend. It's the remaining free cash flow that you guys will be using it relatively in the same rate proportions that you have in the past?
Marc N. Casper
We're going to look at the opportunities each and every year and say, "What's the best way to return capital, what's the best way to deploy on M&A?" And we don't sit there at the beginning of the year and say, "It's going to be 50/50." We say, "What's the right thing for our shareholders." So over a 5-year period, it's going to vary a little bit year-to-year on the mix but there'll be some buyback, there'll be some dividends and there’ll be over a long-enough period of time, there'll be some M&A. But in any particular year, there may be none. I mean, it just depends on can an acquisition our criteria. Yes?
Daniel Brennan - Morgan Stanley, Research Division
Marc, it's Dan Brennan from Morgan Stanley. And Pete, could you maybe just go back to the ROIC kind of target again and just maybe discuss in terms of as you think about, including acquisitions, within that base, are there any commitments that management made towards kind of a longer term projected ROIC-type improvement?
Peter M. Wilver
Yes, so let me just do it at a high level. Right? You look at it Dionex and Phadia, right? We showed the numbers last year. Kind of pre that, we're showing the increase. You see that we're steadily increasing ROIC. Both those deals are incredibly good deals for our shareholders. So the fact that we grew our ROIC this year, we're going to grow it by 10 basis points less than the trend is irrelevant because it's the right thing for our shareholders that are thinking beyond this quarter or next but actually thinking about a year or 2 years. So when we look at our outlook, with the businesses we own today, it's going to be 70 to 100 basis points. There may be a tiny bit of dilution that happens from some M&A, but the reality is that each deal has got to be something that we feel passionate about, about making the company better and creating shareholder value. And if we actually average 95 basis points versus 100, but we've really strengthened the company and have an even brighter next 5 years when we’re talking about 2016 to 2021, we've done the right thing by our shareholders. So that's how we think about it. And the reality is we're large enough as a company, it's not likely you're going to see deals that are going to be material enough that is actually going to move those numbers negatively in any big direction.
Daniel Brennan - Morgan Stanley, Research Division
And maybe just one quick follow-up just on diagnostics. So in terms of your vision and your strategy, do you feel you have the right channel in place to execute on the opportunities ahead? And secondly, as it relates to mass spec, any sense on timing for when really mass spec could become a real clinical opportunity?
Marc N. Casper
Yes. So in terms of the channel, we have an outstanding channel to the market, very strong presence from a commercial reach. And even in markets where it's more nascent, the company has huge commercial presence. So when you think about some of the emerging markets, we have 2000 people in China. Or even if we might only have a business that's relatively small is China from a diagnostic perspective, we've got all the infrastructure in place. So it's quite easy to scale it up. So from a clinical mass spec applications, obviously, we already have a presence, we already have strength and I think you'll just see that continue to accelerate over the next few years. Sure, Quintin?
Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division
Quintin Lai from Robert Baird. So when looking at your targets for penetrating into China, Analytical Technologies is actually already there. So to me the assumption would be that lab products and diagnostics then grow. You've been very successful with analytical technologies with the instrument platform and getting great adoption. Consumables is pretty competitive there. And talk a little bit about how you think that you can gain all that market share first on lab products and then maybe if you or Andy could perhaps tell us a little bit about getting that penetration into the diagnostic markets.
Marc N. Casper
Yes. So let's talk lab consumables first. That business is growing rapidly. Although it's a smaller business, it's growing rapidly in China? Why? Because our technologies are actually very relevant. Vaccines use our cell factories and they are the standard of how vaccine production is done in China. So you're seeing great growth. You're seeing all the ancillaries that go with that growing well. The Suzhou factory, which you saw both the mock-up, as well as where we are, and it's going to be opening in a couple of months, is actually about broadening out the offering of consumables. So on the high-value consumables, we're doing great. But we want to move to the mid-value consumables and that requires better supply chain, manufactured locally, better cost position. So we feel very confident. We've done this in equipment. We've done it in instruments. So we know the recipe. In Specialty Diagnostics, actually we feel great about our capabilities because we have very high value added tests and it's just about driving adoption. And the key opinion leaders in China understand our technology and they face a challenge on the health care scale that's unbelievable. So PCT is doing great in China because the whole idea is not to have that horrible video happen, because then that costs that it is to their health care system becomes incredibly burdensome. So things that are screening in and out, hugely valuable. So we have a strategy, we're scaling up our team. And I think we've got a great position in China for our diagnostic business. Okay.
Doug Schenkel - Cowen and Company, LLC, Research Division
Doug Schenkel from Cowen. I want to go back to Pete's commercial, if you will. As he noted, the average stock price for this year and last year and going back to 2007 is pretty similar. From a relative performance standpoint, your commentary makes it pretty clear that this is not where you want to be. Recognizing Pete's call for investors to kind of recognize the fact that the stock is cheap, your strategy has been clear and consistent for some time now. So I guess the question is, if the stock continues to be range bound for another 6 months, 12 months, 24 months, what are your prepared to do? Would it be time to consider adjustments to the long-term strategy? Essentially, what's on the table? Would you get more aggressive in terms of reshaping the business? Again, I think the EPS commentary that you made in this Q&A session for 2013 will demonstrate to investors that you're committed to continue to drive EPS growth even in a difficult situation. But again, strategically, what are your prepared to do if the stock continues to languish here in the low 50s?
Marc N. Casper
I think, Doug, it's a great question. I think part of it the market is very different, right? So valuations are just down across the board. So we shouldn't be doing anything differently if just stock valuations are done across the universe, whether it's the S&P or not, right? So that is what it is, right? If equities are less valuable today, then so be it. We don't like it but that's the challenge. If it becomes that we just saw are less favored, then we like our strategy. We like our position. We like the growth, and our job is to execute well, put up fantastic numbers every quarter and keep articulating the view. In terms of screwing up the business for the short-term, we're not going to do it, right? At the end of the day, that's not the right strategy and we'll continue to execute well in gaining share and doing well by our customers.
So thank you for the interest, and thanks for participating today. I think as you've got a sense from the company's leadership team, we're excited about our future. We have an incredible track record on innovation, a leading position in emerging markets, a value proposition that is unique in our industry and a track record of well executed M&A that continues to build a bright future. So thank you for the time today.
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