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Thermo Fisher Scientific, Inc. (TMO) Presents at 38th Annual J.P. Morgan Healthcare Conference (Transcript)

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About: Thermo Fisher Scientific Inc. (TMO)
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Thermo Fisher Scientific, Inc. (NYSE:TMO) 38th Annual J.P. Morgan Healthcare Conference Call January 13, 2020 7:00 PM ET

Company Participants

Marc Casper - President and CEO

Conference Call Participants

Tycho Peterson - J.P. Morgan

Marc Casper

Thank you. Nice to see everybody here in San Francisco to kick off, what I know will be another special year for Thermo Fisher Scientific. The format of our presentation will be similar to years past. I'll give you an update on the Company, review our progress against the goals that we highlighted at this conference at the beginning of 2019. And then, I'll end with a talk to what are our goals for the future and will follow that up with our financial guidance that we’ll give in a few weeks time during our earnings call.

So, starting with the Safe Harbor statement and the use of non-GAAP financial measures. You can find the reconciliation of those non-GAAP financial measures to the most appropriate GAAP measure on the Investor section of our website, thermofisher.com.

So, Thermo Fisher Scientific. We're the world leader in serving science; have built over a number of years the industry leader today. We're a $25 billion revenue company, with 75,000 amazing colleagues working around the world. We invest $1 billion in research and development each year.

Our customers know us, not only for our strong brands, Thermo Scientific, Applied Biosystems, Invitrogen, Fisher Scientific, Unity Lab Services and Patheon, but more importantly from the benefits of our industry leading scale and our depth of capabilities. That scale allows us to have an unparalleled commercial reach in our industry and able to work with customers across the world every day. From a depth of capabilities, we're known for innovation for our deep applications expertise, for helping our customers drive their own productivity, and then ultimately having a very comprehensive set of services offerings. All of that capabilities is underpinned by our business system, Practical Process Improvement or PPI, which engages all of our colleagues to make the Company more efficient and more effective, and helps enable really very strong financial performance.

When you look at our revenue profile in terms of orientation, as a $25 billion revenue, we have a really strong set of end markets, pharmaceutical and biotech being the largest, representing about 40% of our revenue, but we also serve the healthcare and diagnostics market, academic and government, and industrial and applied. About 75% of our revenue is recurring in nature through our services, and consumables products. And from a global reach perspective, we have industry leading scale in the emerging and high growth regions, and I'll highlight that in a little bit more detail in a few moments.

When you look at our business segments, we have four complimentary segments that add value to one another and in and of itself are industry leaders in their own right. Analytical Instruments business is about a $5.6 billion business. We are a leader in electron microscopy, mass spectrometry, chromatography will be some of the key product ranges. In our Life Science Solutions business, about $6.7 billion business, a leader in genetics sciences, bioproduction and biosciences capabilities. A niche player in specialty diagnostics where we have leadership positions in the areas that we compete. Transplant diagnostics, microbiology, clinical diagnostics, immunodiagnostics are some of the areas well known for our B·R·A·H·M·S PCT sepsis biomarker, one of the more significant ways that we play in that field. And the lab products and services, our largest segment, over $10 billion in revenue. We have a leading laboratory products and equipment business, our Fisher Scientific channel and our pharma services CDMO capabilities. So, that portfolio, impressive in the individual pieces, but each of those pieces adds value to one another, and I'll highlight some of that in the rest of my remarks.

Financially, we've delivered very strong financial performance over a long period of time. When you look back since 2011, we've averaged 10% revenue growth. We've converted that 10% revenue growth into 14% growth on an annual basis in our adjusted earnings per share, and have been able to grow our cash flows also at that rate, converting that earnings into cash generation at that mid-teens rate of growth. That industry leadership and the strategy that we pursued has allowed us to deliver very strong financial performance. And as we looked each year, we give a three-year outlook in May, and we continue to have exciting prospects, very similar to what we've delivered in the past.

With those great results, it's not just about the numbers but it’s also about doing business the right way. And the Company historically and continues to have a very significant focus on environmental, social and governance approaches that are responsible and continue to ensure that we have a bright future. Our mission is very much focused on enabling our customers to make the world healthier, cleaner and safer. It engages our colleagues in pursuing a socially responsible footprint. And when you think about some of the work that we do, we work in our communities that we live, we volunteer, we're focused on sustainability, and all aspects of doing business in the right way. And it's very important to all of our colleagues, our customers and our stakeholders to make sure that we have a bright future.

Last year in January, we outlined our goals for the year. Starting with revenue, our focus for 2019 was to continue our share gain momentum, and to do that by leveraging the proven growth strategy that we've been executing for more than 15 years, which is, have another year of great new product launches that innovation that matters to our customers. Secondly, to leverage the unique customer value proposition, which I’ll bring to life, for our pharmaceutical and biotech customers, and how we uniquely help them to achieve their goals. And third is to leverage our scale in the high growth and emerging markets.

The second aspect of our goals for last year was to take that top-line growth and convert it into strong margin expansion and do that by leveraging our PPI business system, well ingrained in the Company to make the Company more cost effective and more efficient.

Third goal was around integrating and capitalizing on the returns and the opportunities from the acquisition of Patheon, which we completed in 2017, and have momentum off of the success that we delivered the year before. And then, finally from a capital deployment perspective, use our significant cash flow and leverage capacity to ensure we have a bright future from a growth perspective for our business and continue to be shareholder friendly in our capital deployment through a balance of M&A, buybacks and dividends.

That's what we set out to accomplish. And as I look back at 2019, it was really an outstanding year. Starting with revenues, some of the highlights. We invested $1 billion in R&D. Some of the areas that we focused on was in these technology areas where we saw big opportunities to make a difference for our customer base. Mass spectrometry, focusing on resolution sensitivity and specificity to continue to expand the impact of mass spectrometry including the clinical marketplace. Chromatography continuing to use our technology, which is very well respected in the market to expand our presence in the QA/QC applications. Electron microscopy, advancing both material science applications such as battery technologies, to life sciences applications, such as structural biology, different areas of significant focus of our R&D investments and portfolio, and last year was a great year.

When you look at the highlights, just a small snapshot of some of the launches we had last year. In mass spectrometry, very strong offering at the mid-range with the Exploris 480 at the high end with the Orbitrap Eclipse, a really breakthrough sequencer we launched in November, which will allow oncologists to be able to give a result to patients in 24 hours versus the normal workflow of two to three weeks so that a patient can be put on the right regimen of treatment very rapidly and across the portfolio a very strong year for high impact innovation, the first of our drivers of growth.

The second aspect of our growth strategy is our unique customer value proposition. And what we're focused on here, primarily in serving pharmaceutical and biotech customers, is helping accelerate their innovation and improving their productivity as they look to bring new medicines to the market. We use our commercial access and our customer access around the world to be able to reach those customers effectively, and then we work on increasing the share of wallet that we have with each of those customers by bringing out relevant products, increasing the benefits of our research and safety market channel to them, expanding our services offering and continuing to refuel with new ideas from new capabilities that we bring in to the business. That result has led to very consistent strong growth, serving the pharmaceutical and biotech customer base. In fact, over that period since 2011, we've averaged 9% organic growth and well above the rate of the market. And through the first nine months of the year where we reported, we were growing in the double digits in terms of serving the pharmaceutical and biotech market.

So, why is that the case? And really, it’s when you look at it from the lens of a client, how they perceive Thermo Fisher Scientific is we are a company with the leading life sciences offering complemented with the leading CDMO or contract development and manufacturing capabilities to meet their needs. And what we do is support our customers from the discovery of a molecule all the way through to bringing it to becoming a medicine. And that value proposition well understood from the smallest company to the largest of the pharmaceutical companies, has really allowed us to gain significant share over a very long period of time in serving our pharmaceutical biotech customers. So, the second aspect of our growth strategy, another great year of success in serving pharmaceutical and biotech.

The third leg in our growth strategy is around how do you leverage scale in the high growth and emerging markets? Over time, what you see is that now 22% of our revenue comes from this customer base, with China being about half of that revenue, China, our second largest market. Many of you have heard me say in the past that the reason that we've done so well and delivered such strong growth over a long period of time in serving the China market is that it's rational for Chinese customer to prefer to work with us relative to other alternatives in the market, because our scale allows us to have applications labs that are tailored to the needs across the country, commercial offices, an exquisite supply chain and amazing talent who are out of the top universities that our scale allows us to be able to do, so that the day to day experience that a customer has in China with us is a superior than the alternatives out in the market. And that combination has allowed us to continue to gain share in the fastest growing markets around the world.

So, a very strong year in terms of execution of our growth strategy from a revenue perspective. With that revenue, our objective is to then turn that into strong margin expansion by leveraging PPI. And when you look at the PPI Business System, it fundamentally engages all of our colleagues to make the Company better, whether it's focus on our quality, the productivity that we deliver, or the customer experience, and the elisions that our customers have with Thermo Fisher Scientific. And PPI really makes the Company financially a much stronger company.

I thought that I’d give you an example to bring it to life a little bit. You may recall that we acquired FEI, a leading electron microscopy company, late in 2016. And we deployed our teams and the methodology to the FEI business, and it’s had fundamental impacts in improving the rates of growth, the competitiveness of the business, the profitability. But because it's now three years later, it's working at the micro level of just constantly making the business better. And I thought these examples would give you a sense of how widely adopted PPI is within across the company.

One example is how customers accept an electron microscope and that process where they might have invested $5 million to buy this tool. And what our teams did is look at the entire process from order to shipment, ultimately to customer acceptance, and was able to dramatically improve the thought process from a customer perspective, taking 30% of the time out of the process, reducing our warranty expense and getting much higher rate of customer satisfaction just by reworking a process that had been in place for decades.

That same team then focused on the cost side of the equation and looked at the way we ship the products to our customers. And you can imagine very large instruments. They were able to go and look and say, there's a better way of doing this, took out $600,000 of cost out of the system, just focus on the shipment of electron microscopes. Very small examples, but it gives you the sense of how deeply ingrained the methodology is across the Company. We had a strong year in terms of margins, and that's the second lever in terms of what we were focused on for 2019.

The third objective was really about integration of the acquisitions that we've done historically, with a big focus on really continuing to build on the momentum that we had with our Patheon business, which expanded our offering of contract development and manufacturing capabilities.

The integration is complete. Right? We have had a very successful integration. The business is performing very well, growing in the high-single-digits. And we took a business that was growing mid-single-digits prior to acquisition. And now, the outlook for the business and the performance of the business is strong high-single-digit growth organically.

The pipeline of activity for new wins is very strong. And that really is driving a very, very bright outlook for this business. Feedback and engagement with our customers is excellent. And we really have differentiated ourselves in terms of the reputation that we have as a CDMO. We're on track to deliver the synergy targets that we signed up for, when we announced the transaction of $120 million of total synergies, by year three $90 million of costs, $30 million of earnings from the revenue synergies that we achieved.

And when you look at the momentum that we have here, what you're seeing those were able to do is then build on our platform to ensure that we can continue to have a very bright future. And the way that we're doing that is investing in our network. We're doing that through internal capacity expansions. You may have seen us announce expansions of our biologics facilities, of our sterile fill/finish network, all about having the capacity to meet the strong demand that we generated from our customers.

In certain areas, we've been acquiring facilities from our customers to build out the capacity as well. And the most recent example is, we acquired in October, a state-of-the-art API facility from GlaxoSmithKline that was underutilized from a capacity standpoint, and we’re going to be able to fill it out with other customer’s business. A win for both organizations, because Glaxo knows that it’s going to have a very cost competitive supply and assurance of supply, and we are able to generate a strong return on that investment.

The third aspect of the investments in this kind of business is that we are adding new capabilities. Very excited about Brammer Bio, which we acquired back in the second quarter of the year, and that business is off to a good start. We are the leading outsource provider of viral vector manufacturing for -- and development for gene therapies, and the business is doing extremely well and is a business that we expect to grow in the roughly 25% range for the foreseeable future. So, different aspects of how we're fully leveraging the commercial momentum that we have in the acquisition of Patheon. So, another strong year from integrations of acquisitions and generated strong shareholder returns.

So, the final aspect is then from a capital deployment perspective to continue to leverage our cash flows and balance sheet and be friendly about how we deploy our capital. 2019 was a great year in that regard.

Very balanced from an M&A perspective. We deployed $1.8 billion in capital, buying Brammer, the GSK Cork site, and a mass spectrometry software business. We also returned $1.8 billion of capital, combination of share repurchases and dividend, which we increased by 12% last year. And at the same point in time, we continued to strengthen the balance sheet as well. We refinanced the $5.6 billion of our debt, debt that was due over the next three years. We have an average tenor of that new debt of 15 years and in the process we cut the interest cost in half, saving the Company about $80 million a year through that refinancing activity and freeing up substantial capacity going forward. We divested one of our businesses and also generated $1.1 billion of capital through that. And you see through the third quarter, we were able to take our leverage ratio down to a very healthy 2.6 times. So, a substantial capacity for us to deploy going forward.

From an M&A perspective, we continue to be very active. From a pipeline perspective, we evaluated many transactions during the course of the year and will continue to do that and will look for M&A transactions that meet our strict criteria around generating strong shareholder returns as measured by returns on invested capital and making sure that transactions really are well understood by our customers and would be valued in terms of having Thermo Fisher be the provider of those capabilities.

So, when I look at 2019, really another excellent year and we look forward to reporting our financial results at the end of January. But, we accomplished what we set out to accomplish for the year.

As we look to 2020, I couldn't be more enthusiastic about what 2020 holds. Nothing should surprise you in the goals. Right? If you go back over the last decade about what we’re trying to accomplish, the consistency of strategy, the consistency of execution has really served the Company incredibly well. We’ll focus on leveraging our strategy to drive share gain, have another great year of high-impact product launches, continue to leverage our value proposition with our pharmaceutical and biotech customers and continue to use our scale in high-growth regions.

PPI will continue to expand our margins and will deliver the benefit from the recently completed acquisitions as well. Capital deployment, leveraging our strong balance sheet and cash flow to be able to continue to propel the growth trajectory of the Company and continue to be very friendly in how we return capital and deploy capital for our shareholders. And then, finally, we continue to do business in the right way from an environmental, social and governance standpoint, making sure that we execute against our ESG priorities that will continue to make sure that all of our stakeholders continue to benefit from Thermo Fisher Scientific’s activities.

When I stand here today, and I think about 2020, the end markets are very strong. Right? And, when I look at the NIH budget that passed late in the year, a real positive as we enter the year. When I look at the business confidence that I see around the world relative to a year ago about talking about less talk about recession and all of the downsides but much more of a positive and constructive environment. Those are big positives as we enter this year.

And if you look at the share gain momentum that we've been delivering over the last three years, we're incredibly well-positioned to deliver another outstanding year in 2020. And we look forward to highlighting all the details of that on our upcoming investor call at the end of the month.

So, thank you for joining us here today for the presentation. And we look forward to your questions in the breakout session. Thanks, everyone.

Question-and-Answer Session

Q - Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. Sure. So, the question was high level 2020. How do we see the world relative to the past? So, I think the business confidence, as I said in the other session, feels stronger kind of a sentiment. NIH funding, so U.S. academic and government should be stronger, based on the budget that passed. I would say that from a biotech which has been on a really good role for the last several years, continues to feel very strong. Science is very good. So, I would think that will continue to be a very robust market. And I don’t think significant changes elsewhere. When I think about industrial, weaker year last year in terms of industrial, comparisons get easier in the second half is the way I would think about it, even if the market stays exactly the same, that would be the -- my interpretation.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. I would say that bioproduction is a strong double-digit growth business. And we've done well in terms of growing faster than that in terms of our production as a leader in the single-use technologies and in cell culture media. So, we feel good about the prospects and continuing to drive elevated growth. And it'll vary quarter-to-quarter by how strong it is, but it's been very, very robust for the last few years.

Unidentified Analyst

[Question Inaudible]

Marc Casper

So, the question is around our acquisition of Brammer Bio, and how's that doing and sort of what the future holds? It's been about nine months since we acquired the business, really also nice start, right? The customer feedback has been excellent and the value add in terms of bringing the regulatory experience to that business, which is super important, because it's a young field, where the science knowledge is incredible in our viral vector space, but actually going through the regulatory process is something that the rest of our pharma services business just has great capabilities. That's going to really help our clients. We expect that should be roughly 25% type growth business, off to a good start. In December, I was part of the opening of our third facility, this one in Lexington, Massachusetts. And as we had talked about at the time of the acquisition, we’ll be breaking ground on our fourth facility in the very near future as well. So, we feel very good about sort of what the pipeline is and the expansion of that business, and the first four facilities that we have should allow us to be able to achieve our goals for the next, I'd say, four or five years.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. We have continued to have an attractive economic model from our perspective.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. So, in terms of M&A, capital deployment, we had a busy year in terms of things that we looked at. I liked the three transactions that we did. And we continue to be busy in terms of what we're looking at and what we're working through. So, I thought it was good. Roughly, as a reminder, we look at roughly 10 businesses, for every one that we buy. And our track record on the performance of the businesses that we acquire has really been exquisite. And that's a combination of the right selection criteria. We're buying businesses that you understand well, you can add value too and then a methodology from an integration perspective that really brings that value to life. And because of that, we've been able to exceed the financial return hurdles that we've articulated externally. So that our deals, the vast majority of which have been well ahead of what we signed up for. And when I look at going forward, we have a very strong balance sheet. We have good cash generation. So, we have plenty of capacity. And, we're in a very fragmented market, $178 billion plus serve market, as the industry leader with $25 billion in revenue, it’s still incredibly fragmented. So, we think there'll be plenty of opportunities and we'll be thoughtful about which one we should ultimately close on.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. I actually think the regulatory environment has been pretty similar over a long period of time. And if you look at the larger transactions, they clear. Right. They clear the process because you can have remedies that that you can meet whatever the regulator's requirements are, and still be able to do deals that are value creating. When you have very narrow transactions, there are no remedies. It's a binary event, either the regulars approve it or not, because there's nothing you can do that is going to say, if the regulator raises a concern on how you're going to solve the problem. So, if I use the Illumina-PacBio example, the most recent example, once the regulators flagged the concern, there's not really a practical remedy that you could do anything about versus the larger transaction that you see going on right now in this space. And there's some divestitures, but that transaction looks like it's going to get through the process.

Unidentified Analyst

[Question Inaudible]

Marc Casper

We don't comment on the specifics, but we typically look at most things. Not everything out there, but we look at most things out there.

Unidentified Analyst

[Question Inaudible]

Marc Casper

So, in terms of our CDMO strategy from how do we grow the business from a capacity standpoint capability, most of it is organic investment, right, leveraging our network building out our network. There are opportunities. There's always facilities available from the industry, but you only want add capabilities of really outstanding capabilities that commercially other clients are going to want to use. So, you'll see us periodically pick up sites from other companies. And when you see us do that, it means that those sites are really amazing in terms of what it brings. And you're usually buying them for pennies on the dollar versus what it would cost you build it. And then, in terms of capabilities, you may see us do the occasional thing like Brammer, but we have a very deep set of capabilities, so probably less of those types of transactions, we're adding a new service line, maybe some but probably less so in that vein.

Unidentified Analyst

[Question Inaudible]

Marc Casper

You'll have to wait for the earnings call for the budget flush discussion.

Unidentified Analyst

[Question Inaudible]

Marc Casper

No, I mean it was very straightforward. We plan every year for a normal level of year-end spend, right? And that's our planning assumption for the previous two years. The actual spend was very strong year-end spend. The year before that, it was actually below average year-end spend. So, it varies. And our convention is we're assuming of normal level of year-end spend. So, there’s no uncertainty. You just don't know what customers are going to do the last couple weeks of the year. And so, that was the convention. With that assumption, we were able to raise our organic growth guidance going into the final quarter of the year. So, it wasn't holding our back or our ability to deliver really exceptional performance in terms of what our expectation was.

Unidentified Analyst

[Question Inaudible]

Marc Casper

So, this is a great industry from a pricing perspective. And on an average year, you get a half to 3 quarters of a point of price each year. And it's a great contributor to the profit growth for the industry and for the Company. When I look at where we expect last year to finish, probably about a point, so above the trend line. And really that was the ability to pass through incremental pricing because of tariffs. When we look at what we think is going to be in the deal that’s supposed to be signed this week, it doesn't have a big effect on the actual costs that we have. So, our categories aren't materially reduced. But, I think it takes some risk out of new things being added. I think, it kind of blends the sort of downside of more tariffs, which is good. And then, over time as some of these roll back, that would be great.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. So, the question is really around, give a little more flavor for the share gain that we delivered most recently and sustainability of that share gain. What's exciting is that the share gain that we experienced was broad based, right? Whether it was our bioscience reagents, whether it was our strength in bioproduction, our channel business, our pharma services business, our chroma mass spec business. Through the first nine months of the year, we grew meaningfully faster than the peers in those businesses. And, that is really been driven by a couple of things. One, the strength we have in pharmaceutical and biotech has allowed us to drive share of wallet, right? Customers are choosing to do more business with us and they see the benefits of working holistically with us. That’s been one driver. Our strength in the high-growth regions of the world also has been one of the key drivers. And we had a great year in terms of innovation in the higher technology portions of our product line. So, that was a really strong year. And that certainly served well in chromatography, mass spectrometry would be examples of where new product introduction made a real difference.

Unidentified Analyst

[Question Inaudible]

Marc Casper

So, in terms of our investments in research and development. By the major product categories, our instruments business, electron microscopy, chromatography and mass spectrometry and our clinical sequencing business would be the largest consumers of this one cut, sort of the largest areas. In terms of big programs, clinical mass spectrometry, which is a unique set of capabilities that we are developing is an area that is a big investment as well.

In terms of how we think about it. We think about it less about software versus hardware, but think about what's the purpose of the product, is it a breakthrough innovation, is it more of a incremental change or is a sustaining sort of health. And what you've seen over time is that a larger and larger percentage of our revenue or our dollar spend is on breakthrough innovation that we’re bringing out higher impact products and moving less about the basic sustaining of product lines and more about making sure you have the most relevant products for your customers.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. We increased last year our investments in the genetic analysis portfolio. And we continue to invest at a high rate. We're very excited as are our customers about what we launched in the Genexus platform. Today, the workflow for an oncologist is often that they get a result on a sequence that’s after the first set of decisions they make on treatment regimen, right, that it takes a couple of weeks, and they're not going to wait for the patient for a couple weeks to say what do you do? The workflow that we've developed with Genexus allows for you to get it resolved in 24 hours, so that literally you can use that information to actually guide where you're going to put a patient, what's the best way to address this. I think it’s profound. And the feedback, the early feedback, amazingly positive about what that technology is. So, we continue to invest, support it, and we're excited about what the future holds there.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. So, in terms of Genexus menu and is it sufficient to be adopted? The answer is yes. We have a strong menu today with our existing platform. And it's all compatible with the Genexus products, and we will continue to expand it. And we have a number of companion diagnostic programs with the major pharmaceutical companies which will continue to add to that menu as well. So, we feel good from liquid biopsy to solid tumor set of capabilities, very strong offering, and we're doing that primarily in-house.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Our expectation is that in the second half of the year of 2020 that you would see a step-up, just based on the growth rate of the business. That’s what we're assuming and so that slower growth in the earlier part of the year and then step-up from there.

Tycho Peterson

[Question Inaudible]

Marc Casper

Yes. So, one of the things that when we decided to acquire FEI that we're excited about was the use of electron microscopy for life science applications, particularly in the drug discovery and development process. And when we acquired the business, really from life sciences perspective, Tycho, you saw EM really in the Tier 1 academic centers. And that was it. And the NIH put out $130 million grant to increase the training of scientists to be users. So, this is hugely helpful. And today, you’ve seen widespread adoption of sort of a program around cryo-EM at the major pharmaceutical companies. Not across everything they do, but pretty much most of the companies are using cryo-EM now, getting accustomed to with a sample prep, building our capability, and the feedback has been very positive. So, we think that we've gotten to the next wave of adoption, and we think that will continue to accelerate. And then ultimately, we need to make the sample prep easier. And we need to bring the price point down in terms of the feature some of the instrumentation, so that we can have widespread adoption across tier II academic centers and at the same point in time the broader pharma and biotech community.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes. So, from a China perspective, I always like to start with a long view, historically and looking forward. But, if you go back over last decade or so, incredibly strong growth, not every quarter, but very strong growth year in and year out, because the societal priorities of the government are very aligned to the technologies that our industry provides from helping control pollution, improving food safety, expanding healthcare access through the highly effective technologies. Our industry is well-positioned there. And we in particular have done better than the industry, because as I said in the presentation, we really do create a wonderful experience for our customers by leveraging our scale.

When I look forward, the same macro drivers are there, right? From a government perspective, with the adder that the building of a biotech innovative industry in China for the Chinese market has been also a exciting development to consume many of our products, and that bodes well for the future. I think, as you look last year for the first nine months, it was a choppier year for the industry in China with good growth but not as strong as you saw in the previous year, really driven by slowing GDP growth and trade tensions between the U.S. and China, right? So, I feel great about the long-term prospects, the market continues to grow well, but there's some headwinds that mutes it a little bit.

Unidentified Analyst

[Question Inaudible]

Marc Casper

Yes, good question. So, on the Lab Products and Services segment, what's the margin outlook, especially given that we've been investing in our CDMO capabilities in that segment? So, when I look to the way that capacity comes on line, what's one of the nuances of a pharma services businesses, you hire the people in advance of when you actually bring the commercial product to market because you’ve got to train, make sure everybody's following the quality system. So, growth actually dampens margins. But, as you look at the math, you should start to see really -- you'll see some margin expansion this year in that segment, but you'll see a real step up in 2021 and beyond as capacity comes on line and you're generating revenue from those trained employees.

Marc Casper

Good, perfect. Tycho, thank you so much. Thank you, everyone.