Q4 2025 Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2025 Fourth Quarter Conference Call. If you change your mind, please press star followed by 2 on your telephone keypad. I would now like to introduce our moderator for the call, Mr. Rafael Tejada, Vice President, Investor Relations. Mr. Tejada, you may begin the call. Good morning.

And thank you for joining us. On the call with me today is Marc Casper, our Chairman, President, and Chief Executive Officer, and Stephen Williamson, Senior Vice President, Chief Financial Officer. Please note this call is being webcast live and will be archived on the Investors section of our website thermofisher.com under the heading news, events, and presentations, until April 22, 2026. A copy of the press release of our fourth quarter and full year 2025 earnings is available in the Investors section of our website under the heading financials. So before we begin, let me briefly cover our safe harbor statement.

Various remarks that we may make about the company's future expectations, plans, and prospects, constitute forward-looking statements within the meaning of applicable securities laws. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q under the heading Risk Factors. These forward-looking statements are based on our current expectations and speak only as of the date they are made. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even in the event of new information, future developments, or otherwise.

Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth quarter and full year 2025 earnings and also in the Investors section of our website under the heading financials. So with that, I'll now turn the call over to Marc.

Thank you, Raf. Good morning, everyone, and thanks for joining us today for our fourth quarter call. As you saw in our press release, we delivered a strong year capped off by an excellent fourth quarter. Our results reflect outstanding execution from the team, the strength of our proven growth strategy, and excellent operational performance enabled by our PPI business system.

Looking to the year ahead, we entered 2026 from a position of strength as the market leader serving attractive end markets. Our growth strategy is resonating with customers. And our PPI business system will enable us to continue to deliver excellent operational performance. To recap our 2025 financial performance, starting with the quarter.

Revenue grew 7% year over year to $12.21 billion. Adjusted operating income grew 6% to $2.88 billion. Adjusted operating margin was 23.6%. And adjusted EPS grew 8% to $6.57 per share.

Now turning to our full year results. Revenue grew 4% to $44.56 billion. Adjusted operating income grew 4% to $10.11 billion. Adjusted operating margin was 22.7%, and adjusted EPS grew 5% to $22.87 per share.

As I reflect on the year, first, the environment evolved differently than everyone had envisioned entering 2025. We actively managed the company, and our team responded with agility, effectively managing tariffs and the US policy dynamics to deliver a very strong year. As a trusted partner, we work closely with our customers helping them navigate the landscape and enabling their success. Let me now turn to our performance by end market and provide some context on how the quarter and full year played out. Starting with pharma and biotech, we delivered high single-digit growth in Q4, and mid-single digits for the full year.

Performance in the quarter was led by continued strong growth in our bioproduction business, as well as our research and safety market channel. As expected, our clinical research business continues to strengthen delivering mid-single digits growth in the quarter. For the full year, revenue growth was broad-based. And was highlighted by strong performance in bioproduction, research and safety market channel, analytical instruments, and pharma services businesses.

In academic and government, throughout the year, performance in this end market was impacted by the macro conditions in the US and China. We declined in the low single digits during the quarter and for the full year. In industrial and applied, we declined in the low single digits during the quarter, and grew in the low single digits for the full year. Growth during the year was highlighted by strong performance in our research and safety market channel, as well as our electron microscopy business.

Finally, in diagnostics and health care, we delivered low single-digit growth in Q4 reflecting good performance across our Specialty Diagnostics businesses. For the full year, growth in this end market was flat, with strong contributions from our transplant diagnostics and immunodiagnostics businesses. Thanks to our proven growth strategy and our team's excellent execution, we delivered a strong finish to the year across our end markets and continue to drive meaningful share gains. Let me now turn to our growth strategy.

As a reminder, our growth strategy consists of three pillars. High impact innovation, our trusted partner status with customers, and our unparalleled commercial engine. In 2025, we meaningfully advanced the position of the company, becoming even more relevant for our customers, and enhancing our competitive position. Let me call out some key highlights for the year, starting with innovation. 2025 was another outstanding year of innovation, as we launched a number of high impact products across our businesses.

That strengthen our industry leadership and enable our customers to accelerate breakthroughs, and enhance their productivity. In chromatography and mass spectrometry, we launched the Thermo Scientific Orbitrap Astro Zoom. Building on the success of the Astro mass spectrometer, ASTROL Zoom delivers even greater sensitivity, speed, and depth of coverage. Enabling researchers to uncover new biological insights advanced precision medicine.

Customer adoption and feedback have been extremely strong, as the platform represents a significant leap forward in mass spectrometry. Enabling researchers around the world to accelerate discovery, advance the pace of scientific breakthroughs. In bioproduction, we expanded our single-use portfolio with the launch of the Thermo Scientific five-liter DynaDrive single-use bioreactor. Offering pharma and biotech customers increased workflow efficiencies and the ability to seamlessly scale up manufacturing, of new therapies.

In electron microscopy, we delivered a series of high impact innovations across life sciences, advanced materials. This included the Thermo Scientific CryoCryoCryoCryoCryoTem, which is advancing structural biology, by enabling faster, higher resolution insights to support drug discovery and development. In the fourth quarter, we launched the Thermo Scientific Helios MX-one plasma focused ion beam SEM, a fully automated semiconductor analysis designed to accelerate time to data for yield ramp and fab process control. In clinical next-gen sequencing, it's great to see the growing application of our Ion Torrent OncoMindDx target test as a companion diagnostic.

During the quarter, this technology received another FDA approval this time as a companion diagnostic for Bayer's new therapy targeted for certain patients with non-small cell lung cancer. In clinical diagnostics, we also achieved US five ten clearance, for the Exens system, a first of its kind automated platform that enables earlier and more confident diagnosis for patients with multiple myeloma and related disorders. So another spectacular year of innovation, And we also have an exciting pipeline of launches in 2026, that positions us well for the future. Let me turn to our trusted partner status and industry-leading commercial engine which can we continue to strengthen in 2025. Our trusted partner status with customers has been built over many years by anticipating, understanding, and meeting their needs.

Increasingly, customers are relying on us not just for technologies and services, but for our expertise and deep understanding of how to apply them to enable their success. We help our customers accelerate innovation, and improve their productivity. You've heard me talk about our accelerated drug development solution throughout the year. It's a terrific example of one of our unique capabilities.

As a reminder, Accelerator is our integrated CDMO and CRO offering that brings together the strengths of our pharma services and clinical research businesses to help customers reduce development timelines, improve decision making and enhance returns on their R and D investment. In 2025, we secured meaningful wins for our clinical research and pharma services businesses and continue to see outstanding customer adoption. During the year, we also expanded and deepened strategic partnerships that create value for our customers and our company. This included a technology alliance with the Chan Zuckerberg for Advanced Biological Imaging to develop new technologies to better visualize human cells.

We also announced a strategic collaboration with OpenAI, aimed at increasing our use of artificial intelligence at the company. This will improve productivity across our operations, and also allow us to embed AI capabilities in our products and services to accelerate scientific breakthroughs and advance the drug development process. In addition, we continue to expand our global footprint to better support customers. During the fourth quarter, this included the expansion of our bioprocess design centers in Asia, with the opening of a new site in India.

So as you can see, it was another excellent year of advancing our growth strategy. Let me now turn to capital deployment. We continue to successfully execute our proven capital deployment strategy. Which is a combination of strategic M and A and returning capital to shareholders. 2025 was a very active year.

As we advanced our strategy and added exciting new capabilities that further strengthen our long-term competitive position and create value for all of our stakeholders. During the year, we deployed approximately $16.5 billion including committing $13 billion to M and A. Returning $3.6 billion to shareholders through stock buybacks and dividends. In terms of M and A, we completed the acquisition of our filtration and separation business from Solventa.

The addition of filtration is a natural extension of our bioproduction capabilities. Where we have leadership in cell culture media and single-use technologies along with a rapidly growing purification business. Our pharma and biotech customers see real value Thermo Fisher offering these filtration capabilities for their vent for their manufacturing processes. The integration is going smoothly, and our new colleagues are thrilled to be part of Thermo Fisher Scientific.

This year, we also expanded our US drug product manufacturing footprint through the acquisition of Sanofi's state-of-the-art sterile fill finish site, in New Jersey. Both of these acquisitions enhance our ability to support our customers' growing production needs. During the fourth quarter, we also announced a definitive agreement to acquire Claria. The company is a market leader in digital endpoint data solutions, one of the fastest growing areas and an essential capability in drug development clinical research.

In 2025, the business generated approximately $1.5 billion in revenue. Its differentiated technology and deep medical expertise together enable unique capabilities in generating and delivering digital endpoint data for clinical trials. The business is an outstanding strategic fit highly valued by our customers, and complementary to our clinical research capabilities. By adding Clarios high growth capabilities over time, we will be able to deliver even deeper clinical insights for our customers and further accelerate the digital transformation of clinical research.

This is an incredibly exciting opportunity to help our pharma and biotech customers improve the return on investment of the drug development process. Financially, the transaction has an attractive double-digit return profile, is expected to be accretive to organic revenue growth and to adjusted operating margin. We expect it to be accretive to adjusted EPS by approximately $0.45 in the first twelve months of ownership, and we expect to close the transaction by the 2026. So overall, an active and high impact year of capital deployment. Let me now turn to our PPI business system.

In 2025, PPI continued to be a critical enabler of our performance. Throughout the year, we leveraged PPI to actively manage our cost base drive operational excellence, and deliver strong earnings growth while continuing to invest strengthen our long-term competitive position. PPI enabled us to operate with agility and discipline. As we navigated the environment and delivered excellent results for our customers and shareholders.

PPI is deeply embedded in our culture and empowers colleagues across the company to find a better way every day. That's why we're so we're also increasing increasingly using artificial intelligence into PPI which will further enhance its impact across the organization. The combination is helping us improve how we serve customers, streamline internal processes, and operate the company more effectively. Strengthening execution today, and positioning us well for the future.

Before I wrap up on 2025, I want to briefly touch on the progress we made with our corporate social responsibility priorities. Part of our mission-driven culture is a focus on making a positive impact on society by supporting our communities and being a good steward of our planet. You can read more about this on our website but I'll share a couple of highlights. In terms of the environmental stewardship, we increased the use of renewable energy across our global operations, and expanded the number of sites achieving zero waste certification, keeping us on track with our long-term sustainability commitments.

We also continue to launch more sustainable products to help our customers achieve their own sustainability goals. In our communities, we remain focused on expanding access to STEM and advancing global health equity. In addition, our engaged colleagues and community action councils made a huge impact around the world, through their volunteer activities throughout the year. As I reflect on 2025, I'm very proud of what our team accomplished and deeply grateful to our colleagues for their unwavering passion, for our mission, which fuels our success.

So let me now turn to guidance. Steve will outline the assumptions that factor into the guidance for the upcoming year. So let me quickly cover the highlights. In 2026, we will continue to actively manage the company leveraging the PPI business system to enable excellent operational performance and very strong earnings growth.

We are also well positioned to continue our share gain momentum. We are initiating a 2026 revenue guidance range of $46.3 billion to $47.2 billion which represents four to 6% reported revenue growth over 2025 and assumes 3% to 4% organic growth for the year. We are initiating our earnings guidance with an adjusted EPS range of $24.22 to $24.80 per share. Which represents 6% to 8% growth in adjusted earnings per share.

So to summarize our key takeaways, we delivered a strong 2025 capped off by an excellent fourth quarter. We delivered another year of excellent operational performance and share gain reflecting the active management of the company. The strength of our proven growth strategy and the power of our PPI business system. We advanced our long-term competitive position throughout the year, with high impact innovation, strategic partnerships, and disciplined capital deployment.

And we enter 2026 with strong momentum Our growth strategy is resonating with customers, and positions us for a very bright future. With that, I'll turn the call over to our CFO, Stephen Williamson.

Thanks a lot, and good morning, everyone. As you saw in our press release, we had a great Q4 to cap off the year. Throughout the year, the team effectively navigated the external environment and remain focused on delivering for all of our stakeholders. I'll take you through an overview of our fourth quarter and full year results for the total company, then provide color on our four business segments, I'll conclude by providing our 2026 guidance.

I get into the details of our financial performance, let me provide you with a high-level view of how the fourth quarter played out versus our expectations at the time of our last earnings call. In Q4, we delivered 3% organic growth and 8% growth in adjusted EPS. It was another quarter of excellent execution. These results are significantly ahead of the assumptions of the midpoint of our prior guidance, on both the top and bottom line.

Q4 revenue was approximately $250 million ahead, driven by 1% stronger organic revenue growth and a stronger than expected tailwind from FX. Adjusted EPS in Q4 was $0.14 ahead, This is comprised of $0.25 from very strong operational performance partially offset by $0.11 of higher FX headwind on the bottom line. The FX impact was driven by continued volatility in rates during the quarter due to trade tensions. And represented an incremental 65 basis points of headwinds of margins relative to our prior guidance.

So as I said, a great Q4 with a strong beat to cap off the year. Let me now provide you with some additional details on our Q4 and full year 2025 performance. Starting with earnings per share, In the quarter adjusted EPS grew by 8% to $6.57 For the full year, we delivered adjusted EPS of $22.87 a 5% up 5% compared to last year. GAAP EPS in the quarter was $5.21 and for the full year it was $17.74. On the top line, Q4 reported revenue grew 7% year over year.

The components of our reported revenue change included 3% organic growth, a 2% contribution from acquisitions, and a 2% tailwind from foreign exchange. For the full year 2025 reported revenue growth increased 4% organic growth was 2%, and both acquisitions and FX were a 1% tailwind. Turn to our organic revenue performance by geography, In Q4, North America grew low single digits Europe grew mid single digits, and Asia Pacific grew low single digits with China declining low single digits. For the full year, North America grew low single digits Europe grew mid single digits.

And Asia Pacific grew low single digits. With China declining mid single digits. With respect to our operational performance, we delivered $2.88 billion of adjusted operating income in the quarter, an increase of 6% year over year, and adjusted operating margin was 23.6% thirty basis points lower than Q4 last year. Which includes over 100 basis points of headwind from tariffs and related FX.

For the full year, we delivered $10.11 billion adjusted operating income a year over year increase of 4% versus 2024, and adjusted operating margin was 22.7% ten basis points higher than the prior year. Which also includes a headwind from tariffs and related FX of over 100 basis points. Throughout the year, our active management of the business and the power of our PPI business system enabled us to effectively manage the unexpected macro headwinds and continue to grow our adjusted operating income and expand our margins. I'm proud of how the team stepped up this year to enable these results.

Total company adjusted gross margin in the quarter was 41.8%, and for the full year, it was 41.7%. The drivers of gross margin are similar to those adjusted operating margin. Moving on to the details of the P and L. Just SG and A in the quarter was 15.3% of revenue, down 80 basis points.

The full year, it's 15.9% of revenue. Down 40 basis points. Total R and D expense was $357 million in Q4 and $1.4 billion for the full year up 1% year over year reflecting our ongoing investments in high impact innovation. R and D as a percent of our manufacturing revenue for the year was 7%.

Looking at our results below the line, our Q4 net interest expense $107 million Net interest expense for the full year was $426 million The adjusted tax rate in Q4 was 10.5%, and 10.4% for the full year. And average diluted shares were $377 million in Q4 dollars 6 million lower year over year driven by share repurchases net of option dilution. Turning to free cash flow on the balance sheet. Full year cash flow from operations was $7.82 billion and free cash flow was $6.34 billion after investing $1.48 billion of net capital expenditures.

Cash flow was slightly lower than we'd assumed in the prior guide largely driven by temporary impacts in working capital and the timing of cash taxes. During 2025, we continue to successfully execute our capital deployment strategy deploying approximately $16.5 billion in 2025. This includes $4 billion for the acquisitions of our filtration and separation business from Sorventum and the sterile fillfinish site from Sanofi earlier in the year. Then in Q4, we announced a definitive agreement to acquire Clario for approximately $9 billion in cash plus potential future performance-based payments. We expect to complete the transaction by the 2026 at which point the business will become part of our laboratory products and biopharma services segment.

In 2025, we also deployed $3.6 billion to the return of capital to shareholders. 3 billion of share buybacks, and approximately $600 million of dividends. We ended the year with $10.1 billion in cash and short-term investments and $39.4 billion of total debt. Our leverage ratio at the end of the year was 3.5 times gross debt to adjusted EBITDA and 2.6 times on a net debt basis. And concluding my comments on our total company performance, adjusted ROIC was 11.3% reflecting the strong returns on investment that we're generating across the company.

Now provide some color on the performance of our four business segments. In life science solutions, Q4 reported revenue in this segment increased 13% versus the prior year quarter, and organic revenue growth was 4%. Growth in this segment was led by a bioproduction business which had another quarter of excellent growth. For the full year, reported revenue increased 8% and organic revenue growth was 3%.

Q4 adjusted operating income for Life Science Solutions increased 10% and adjusted operating margin was 35.5% down a 110 basis points versus the prior year quarter. During Q4, we delivered very strong productivity, and good volume leverage which is more than offset by unfavorable mix strategic investments and the expected impact from the acquisition of our filtration and separation business. For the full year, adjusted operating income increased 8% and adjusted operating margin was 36.3%, down 10 basis points versus 2024. In the analytical instrument segment for both Q4 and the full year, reported revenue increased 1% and organic revenue growth was flat.

Growth in the quarter was led by our chromatography and mass spectrometry business. In this segment, Q4 adjusted operating income decreased 12% adjusted operating margin was 26.3% down four twenty basis points versus the year ago quarter. The majority of the year over year margin change was driven by the impact of tariffs and related FX. Outside of that impact, strong productivity was partially offset by strategic investments and unfavorable mix.

For the full year, adjusted operating income decreased 11% and adjusted operating margin was twenty three percent twenty basis points lower than 2024. Turning to Specialty Diagnostics in Q4, reported revenue grew 5% year over year and organic revenue growth was 3%. In Q4, growth in this segment was led by our clinical diagnostics Transplant Diagnostics and Immunodiagnostics businesses. For the full year, reported revenue increased 4% and organic revenue growth was 2%. Q4 adjusted operating income for Specialty Diagnostics increased 19% and adjusted operating margin was twenty six point six percent three hundred basis points higher than Q4 twenty twenty four.

During the quarter to deliver good productivity and volume leverage, and have favorable mix. Which is partially offset by headwinds from foreign exchange. For the full year adjusted operating income was 8% higher than 2024 and adjusted operating margin was 26.9% an increase of 120 basis points versus the prior year. And finally, the Biology Products and Biopharma Services segment reported revenue increased 7% and organic revenue growth was 5%.

With broad based strength across our research and safety market channel, pharma services, and clinical research businesses. For the full year, reported revenue grew 4% and organic revenue was 3% higher year over year. Q4 adjusted operating income in the segment increased 12% adjusted operating margin was 14.5%, 50 basis points higher than Q4 twenty twenty four. In the quarter, we delivered very strong productivity and good volume leverage.

It is partially offset by unfavorable mix strategic investments and headwinds from foreign exchange. For the full year, adjusted operating income increased 8% and adjusted operating margin was fourteen percent seventy basis points higher than 2024. Turning now to guidance, As Mark outlined, we're initiating a 2026 revenue guidance range $46.3 billion to $47.2 billion and an adjusted EPS guidance range of $24.22 to $24.8 representing 6% to 8% growth. The guidance assumes 3% to 4% organic revenue growth, a $300 million revenue tailwind from foreign exchange, and 50 basis points of adjusted operating margin expansion.

All of this will enable a really strong 6% to 8% growth in adjusted EPS. This guidance is consistent with the financial framing for '26 and '27 that we shared with you back on our Q2 earnings call. It reflects the continued improvement in our organic growth in 2026 coupled with very strong earnings growth. The strength of our guidance reflects our industry-leading position our proven growth strategy and the power of our PPI business system.

Let me now provide some detailed context behind the guide. The mid-point of our guidance assumes organic revenue growth is slightly above 3%. This is a step up from 2025. We think this appropriate to start at 3% at the beginning of the year. And as we through 2026, we can retire risk as we go and progress higher in the range.

As is our normal practice, we've not included any future acquisitions or divestitures within our guidance. The guide, therefore, does not include the benefit of the pending acquisition of Clario. As a reminder, we expect this deal to close by the 2026 Should that be the case, we would expect $0.02 0 to $0.25 of incremental adjusted EPS for this year, reflecting the strongly accretive nature of the acquisition. That would represent roughly one additional point of adjusted EPS growth for 2026. Taking the total company growth into the range of 7% to 9%.

In terms of macro environment, our guidance is based on the tariffs that are in place as of today. It doesn't contemplate any future changes in tariffs nor their potential impact on FX rates. Should additional tariffs be levied, we did last year, we will act with speed and scale to minimize them and provide our usual level of transparency as to their impact. The guidance includes $600 million of inorganic revenue from the acquisitions closed in 2025. In that inorganic period, these acquisitions are expected to contribute $60 million of adjusted operating income.

The math of which adds a 20 basis point headwind to adjusted operating margins in 2026. After factoring in the financing costs they represented 7¢ of adjusted EPS dilution for 2026. These acquisitions are progressing well versus our deal model expectations. We're in the integration and investment phase in 2026, which is setting us up to deliver strong accretion and very attractive returns going forward. To help you with your modeling, here are a few additional assumptions behind the guide. We expect approximately $500 million of net interest expense in 2026. We assume that the adjusted income tax rate will be 11.5% in 2026, largely driven by the increased earnings.

We're expecting between 1.8 percent and $2 billion of net capital expenditures in 2026. The increase over '25 is driven by our investments in U. S. Manufacturing. In terms of free cash flow, we're expecting that to be in the range of $6.8 billion to $7.3 billion for the year.

In terms of capital deployment, we're assuming $3 billion of share buybacks which were already completed in January. We estimate a full year average diluted share count will be between three seventy and three seventy five million shares. I'm assuming we'll return approximately $700 million of capital to shareholders this year through dividends. And finally, I wanted to touch on phasing for Q1. Embedded in the guidance is the assumption that Q1 organic revenue growth will be a couple of points lower than the full year 2026. This is largely driven by selling days and the expected phasing of our revenue in our pharma services business over course of 2026. And we're expecting low single digit adjusted EPS growth in Q1. So in conclusion, Q4 capped off a very successful 2025. The team is focused on continuing to maximize share gain, living very strong earnings growth and generating great returns from our capital deployment.

Also enable an excellent 2026 and advance our strategy for an even brighter future. With that, I'll turn the call back over to Marc.

Thanks, Steven. So before we turn to Q and A, I just want to say a few words. As you know, Steven will retire at the March. Let me start with thank you to Steven for all of your contributions, to the success of Thermo Fisher and the deep friendship have developed over the past twenty five years.

And let me say a heartfelt congratulations on a spectacular career at Thermo Fisher. Including being our CFO for the past ten years. You have played such an active leadership role in our growth and success and we're all very grateful. What is both so cool and so important your consistent passion for developing people and also in building a world class finance function.

I'm thrilled to have the opportunity to work with Jim Meyer, who'll be taking the reins as CFO in March, having spent seventeen years at the company. Steven, on behalf of all of your colleagues and stakeholders of Thermo Fisher, thank you and congratulations. We wish you a wonderful retirement. And, Jim, congratulations on your promotion.

Thanks a lot for those incredibly kind words. It's been an honor to be part of this amazing company. I'm really excited about my next chapter. And I'm also excited about the continued success of Thermo Fisher with Jim as the CFO. Let me turn it back to Raph to start the Q and A. Operator, we're ready for the q and a portion of the call.

Thank you. When preparing to ask your question, please ensure your device is unmuted locally. In order to allow everyone in the queue an opportunity to address the Thermo Fisher management team, Please limit your time on the call to one question and only one follow-up. If you have any additional questions, please return to the queue.

Our first question comes from Michael Ryskin from Bank of America. Your line is now open, Michael. Please go ahead.

Great. Thanks for taking the question. And first off, on your remarks' comments, congrats, Stephen. It's been a great run.

A pleasure working with you, and wish you all the best going forward. Marc, maybe I'll maybe I'll start with the high level one on on the guide. As you laid out, you you guys had a framework previously that you talked to, and then the guy falls in that range. Just, but still, you know, you're talking about the acceleration from 2%.

That you did in 2025 organic to this three to four Just can you talk a little bit more about what's underpinning that? What gives you confidence that the acceleration any particular end markets or customer groups that you where you're seeing the the most improvement in activity as you'll go ahead And I have a quick follow-up. Thanks.

Sure. So Mike, thanks for the question. When I think about the way we are opening up our guidance for the year, we're actually assuming market conditions are going to be pretty similar to 2025. As a reminder, we had just under one point of pandemic runoff in our 2025 results. So, you know, adjusted for that, we roughly had 3% growth last year.

And we're assuming that we're gonna be in the three to four range. And as Steven said, know, start with the assumptions, you know, around three. What we expect over time or in this two year time frame is that just the absence of the negatives will start to allow for conditions to improve and and build within that range, but we don't wanna make any major changes until the markets start the year. There's lots of things I'm optimistic about actually just based on how January is in terms of customer meetings and so forth.

But we just wanna set ourselves up, in the industry for success this year.

Okay. And then maybe as a quick follow-up, again, Steven, you referred to that prior framework you gave on the 2Q guide last year. At the time, I think you talked about three to 6% over the course of 2026 and 2027 combined. Just wanna make sure that entire framework is still intact, especially how we think about, next year about 2027. Nothing's really changed in your in your forward outlook there.

Thanks.

Yes. I think when we gave the the back of the time when we gave that framework and and where we are now, yeah, we see that consistent in terms of our assumption about the future and executing towards that. So yeah. Yeah.

And what I would add is that, one of the key focuses back in April is that irrespective of market conditions, we were just going deliver great earnings right? And we did a great job of navigating 2025 There was a lot of, you know, you know, headwinds around tariffs and so forth that we just worked our way through in delivering 5% EPS growth for the year, I feel very good about in our opening position with effectively around 3% growth, assuming 6% to 8% of EPS growth without any of the capital deployment embedded into that. So that's what we we can control. That's what we're gonna deliver.

And I'm optimistic about the progression of the industry as well, but we wanted to keep ourselves focused on controlling our destiny, which is just great earnings growth, drive share gain, and that's gonna serve us well.

Thanks, Mike. Great. Thanks. I'll leave there. Thanks, guys.

Thank you. Our next question comes from Daniel Anthony Arias from Stifel. Your line is now open.

Hey, good morning, guys. Thank you. Marc, I wanted to ask about biopharma here. One of the ideas seems to be that sentiment on spending at a high level has has improved just because these companies are seemingly breathing a little easier now that you have some of these MSN deals and place.

I'm just curious, are you finding that that's actually translating the spending plans? Are 26 pharma budgets actually looking better you know, to the extent that you can tell with these with these meetings that you're having so far?

Yeah, Dan. So so it's a it's a great question. So we have a really unique set of capabilities to serve pharma and biotech. Right?

And when I think about the year last year, you know, mid single digit growth, You know, obviously, we had some headwinds around the final roll off of the pandemic embedded in that. To finish the quarter, the last quarter at high single digit growth. Team is doing a great job. And our customers really value trusted partner, and I'll come back to that in a moment.

So when I think about the tone of know, what we heard in the health care conference and and certainly in my meetings in Europe in January. Saw quite a number of customers Pharma, consistent with what we've been hearing for a while, which is good confidence around the ability to navigate governments, and feel good about the, you know, things that have been agreed to. And excitement around their pipeline. So, you know, the the tone feels good in pharma and I think that ultimately we'll see that in activity.

And then from a biotech, know, you're seeing the data to show that funding is starting to improve, but the tone was incredibly positive. Now there's of course, is a lag, between when funding flows and when money is spent, but would say January in terms of what the sentiment is in our in our customer base, was quite positive. Trusted partner is the other aspect of it. Right?

There's one is what is the industry, and two is what is our role in all of this. Know, when I think about trusted partner, I've talked about it for a number of years. And so what does it really mean? And I thought maybe two anecdotes.

Might be helpful to just bring it to reality. Right? Because we see lots of customers and, you know, all of our industry peers do. So so I was at a health care conference.

I was meeting with the CEO of one of our larger customers, and discussing objectives for the year, where we can be helpful, what are the challenges. The discussion was so positive that he literally said, can we go and find my head of development? And which we did. And let's talk about the specifics.

Right? Literally, just kinda real time, we tracked his his peer down or his colleague down and we got into the details. And the right follow ups happened from that. And if I think about spending a half day with the management team of, you know, one of our larger biotech customers and just working through systematically about are their priorities, how we can help them, and then the the long list of follow ups about what the new opportunities are and why that's so relevant to their success.

I hope that brings, you know, that a little bit more to life. And it's across our whole management team we're having these dialogue. Right? And that's the super cool thing about our role in pharma and biotech and why we're so well positioned there.

Yep. Okay. Helpful perspective. May maybe just to sort of summarize the point that you, you kind of touched on there. Mid single digit growth in 2025 in biopharma a year with some obvious headwinds. Is mid singles plus the right way to think about things? Or something different?

Yeah. I think that's the right way to frame it. There's obviously different ways we can get to the three to four, but that's enough so way to frame the year as it moves down here now. Thank you, Dan.

Okay. Thank you.

Our next question comes from Jack Meehan from Nephron Research. Your line is now open, Jack. Please go ahead.

Thank you. Good morning, guys. Wanted to build off of where Dan left off focusing on the LPBS segment. So in pharma services, Marc, how are you feeling about industry supplied demand dynamics entering 2026? And any color you can share on what's reflected in the guide for that business?

Yeah. So when I think about our pharma services business, really executing very well. A reminder, we have you know, the leading positions in the drug product sterile fill finish and in our clinical trials logistics packaging business. We have a smaller position but meaningful in biologic drug substance as well.

So when I think about industry demand capacity, really sterile fillfinish has been the area where there is heightened demand relative to industry capacity. It's part of the reason that we acquired the Sanofi site in New Jersey. It's really in a way a capital project to expand our capacity You know, we're winning contracts to meet our pharmaceutical customers' needs. For reshoring to The US.

So, the demand profile is good, and and our business is had a strong year and will continue to step up in growth. Over the next couple of years. So well positioned there and you know, I I would believe that that will continue to be a a nice contributor to our long term growth in this business.

Excellent. Okay. And then next one to talk about the channel. So if you do some relatively simple benchmarking, it seems like you're doing pretty well there competitively.

Wondering if you could just talk about what's resonating in terms of investments you've made there. And do you see this competitive advantage as stable or expanding, weakening, entering this year? Just any color on that business would be great.

Yeah, Jack. Thanks for the question on our channel business. So when I think about how we serve the, you know, the research and safety market, It's a business that's performed well for us for a long time. We have an excellent portfolio of supplier partners that has what are customers need and you see the strength of the performance broad based.

We've done well in pharma and biotech in terms of winning business. We have, you know, done well in serving industrial customers. We called that out. And while academic and government is certainly more pressured as the end market is, Actually, our share position has been been quite stable there.

So I think competitive dynamics remain, you know, pretty consistent. We've been a, you know, methodical share gainer over many years and that trend continues. And we'll continue to do a great job serving our customers and helping them meet their innovation and productivity needs.

Excellent. Thank you, Marc.

Thank you, Jack.

Next question comes from Matt Larew from William Blair. Your line is now open. Please go ahead.

Hi. Good morning. You know, since you launched Accelerator in in late twenty twenty four, now you've seen a number of pretty big changes in the drug development and manufacturing ecosystem in terms of manufacturing re regionalization, rising use of AI and drug discovery, Marc, you referenced outstanding customer adoption of that solution. Just curious how some of these ecosystems changes are affecting customer preferences for outsourcing in general, and, I guess, more specifically in the accelerator offering?

Yeah, Matt. Great question. So so when I think about let me start with this clinical research more broadly, and then I'll delve into change and and a little bit about accelerator. So, you know, the clinical research business Thermo Fisher is performing very well.

And the the year played out really exactly as we thought it would play out, and you know, with a steady progression of revenue building, sequentially quarter over quarter and then returning to growth in Q3 and mid single digit growth in Q4. Organically. And authorizations have been far ahead of our revenue throughout the year and is showing a strong momentum in our competitive position. So when I think about you know, accelerated drug development, which was something that we worked on creating for almost three years. We launched it in the 2024. What it really is about is how do you shave a week off here, a month off there, how do you get waste out of the system, and ultimately, meaningfully bring the drugs to market more quickly or have insights that a drug is not performing well and, therefore, end a clinical trial more quickly, both of which add value to our customers and it's really resulting in very meaningful authorizations wins for both our clinical research business and new total contracts for our pharma services business.

So so it is a differentiated capabilities It's one that we've really worked hard to understand where the best opportunity is and then apply it to customers. When I think about how we are collaborating with OpenAI, really focused on the, you know, clinical research side of the thing the equation. Is how do you further shave time and cost out of the process? And have even more insights?

And you know, that's gonna be a journey because it's a highly regulated industry, and we'll go on that journey with our customers and and look for new opportunities to drive an even more efficient drug development process. And our experience is the higher the returns our sponsors get on their investment, the more indications they want to go after, in terms of the scale of the clinical trials. And they actually, you know, in a way, pursue their pipeline more aggressively. Aggressively.

So we're really excited about what the future holds in terms of drug development more broadly, both in the manufacturing of the medicines as well as executing the clinical research.

Okay. Thanks for that. So so encouraged about drug development activities. But thinking about the drug discovery side, think still some debate about whether AI is a headwind or tail lift.

Tailwind to the amount of what lab work moving forward. Just would be curious experience has been with customers, be it, you know, AI, first, biotechs and then larger pharma companies that were perhaps more aggressively using AI. And what you've seen about their wet lab activity, their demand for instruments, etcetera.

So what what we're seeing is a recovery in the early research part of our business in terms of demand for you know, the bioscience reagents, the basic r and d labs and pharma from the channel. So you're seeing that, you know, methodically strengthen. Some of that will come with biotech funding as well as that improves. What I would say is on the application of AI, We're doing a lot of work with customers on the wet lab dry lab combination, meaning that we're actually working with our customers to better link what goes on in their wet labs with their data management and insights from AI.

Our experience to date and certainly our experience historically is the more confidence you have in the research, you wind up doing actually more wet lab experimentation. You're probably going to work on less things that are just gonna fail. So you there is some waste that comes out of the system. But customers wanna have total confidence in the work they're doing, and that's been our experience.

And so so we're actually quite optimistic about the intersection between AI and the demand for wet lab research. Thanks, Matt, for the questions.

Thank you.

Our next question comes from Casey Woodring from JPMorgan.

Thank you for taking my questions. And first, just want to reiterate the comments You know, congratulations, Steven, on retirement. And, Jim, looking forward to working with you moving forward. Wanted to touch on Analytical Instruments performance in 4Q.

Curious on how the performance played out relative to your expectations in the quarter. Obviously, a tough comp, but curious to hear what you're seeing in that business across the different regions and end markets and whether you saw a budget flush in the quarter or any sort of stimulus in China.

Casey, thanks for the question. So the analytical instruments team did a really good job in the fourth quarter. As you said, we had a more challenging comparison. And we were flat growth in the quarter.

And we grew modestly in the full year. So and when I think about that dynamic, that's in a dynamic where you have pressures on academic and government funding. Also have pressures in China more broadly throughout the year. So two of the important sectors of that part of the business faced the headwinds.

We did very well with our pharma and biotech customers, so I feel good about that. And feel good about the performance in aggregate. For us, a lot of what drives it is the quality of our innovation and the impact. Right?

We have an incredible year. Right? And if you think about where I allocated time, even in my remarks today, I spent more time on innovation than anything. Because customers want those breakthrough solutions that matter.

Right? And whether it was we're doing in mass spectrometry, the next generation of our cryo electron microscope for tomography and structural biology. For all of those insights that we're bringing, that's what drives demand here. So the business is well positioned.

We're applying AI to the capabilities as well, and announced an interesting collaboration with NVIDIA, at the beginning of the year. And so we'll continue to strengthen that business and it's an important part of our company. That's helpful. And then relatedly, as we think about your analytical instrument end market, know, The US academic market specifically there, Marc, at our conference a few weeks ago, you had talked about the expectation for US academic and government customers to really remain cautious until a finalized NIH budget is passed.

And then for spending to increase thereafter. I guess, what's assumed for US academic and government growth in 2026? And really, how quickly would you expect spending to pick up after that budget is finalized? You know, last year, saw a bit of a discrepancy between fund appropriations and ultimate you know, spending with tools.

So just any any further color on the expectations for US academic and government in 2026? Thanks.

Yeah. So so, Casey, when I think let me first globally. Our assumption for academic and government embedded in our guidance is similar conditions to last year in aggregate. Right?

And when I think about The US environment, our assumption here is that there'll be a level of customer caution that will probably abate as the year goes down, but I I would still assume in our guidance it'll be a more cautious environment. As customers are navigating the landscape. You know, seems likely that we'll get a flat to slightly up NAH budget. That's gonna be a good point in time exactly when that happens, TBD.

So that should create tailwinds. So when I think about over the next couple of years, I would expect that that will be one of the drivers of us higher in the range. But for now, our assumption is that relatively cautious for 2026. So thank you, Casey. Great.

Operator, we have time for one more question.

Thank you. Our last question comes from Daniel Gregory Brennan from TD Cowen.

Great. Thank you. Thanks, Marc. Steven, obviously, congrats. Nice working with you. Maybe just one housekeeping, and then I'll follow-up with more of, like, a deeper question. Just on the housekeeping, So the so, Steven and Marc, you want investors to like, 3% start at 3% for 2026 and around 1% the first quarter for organic. Is that right?

That's that's what I indicated on in my script. That's how I think about on the year. And then, yeah, as we yeah.

Terrific. Great. Okay. And and then and then and then, Marc, I just wanted to ask maybe one more follow-up just on biopharma given it's largest end market, obviously, and really strong growth to finish out the year.

I know you've mentioned a couple of times, the guide doesn't assume any change in end conditions. And I know Dan asked this, but I think, you know, most of us are are hoping or assuming that with all these deals in place and know, the level of obviously, cautiousness we think has persisted that there will be increase in spending. So I'm just wondering, and you obviously mentioned the commentary that you had with that one customer that was pretty favorable. So is that just conservatism or maybe you were out punching the market in 2025 so that for you, really, there's not gonna be know, any change even if the environment gets better?

Just wondering you can kinda maybe speak to that a little bit. Thank you.

Dan, truly appreciate the question. So when when I think about we've been consistently gaining share. So I love creating difficult comparisons. That's that's our job.

So that's a good thing. And we'll continue to build our momentum in pharma and biotech. I I think the way we're viewing the ear is we're starting out with market conditions or you know, roughly the same as last year in aggregate. And we don't have the repeat of the obviously, we wouldn't have the repeat of the roll off of the effect of the pandemic last of the revenue, right?

So that's the starting assumption And as Steven said, our goal is to retire risk as the year goes on. And work our way up in the range. And when I think about what would be the factors that would drive that, it's largely gonna be, as you said, pharma and biotech, biotech in particular, as funding flows. There's a lag between when funding flows and when money is spent.

Usually, in roughly six months on average. But that bodes for a strengthening environment. And you know, one could envision that it continues to strengthen, you know, into the following year as well, but I think just we all learned a lot over the last couple of years. I think starting out with, you know, a you know, prudent set of assumptions to start the year is helpful.

Gonna just deliver great earnings growth. Right? I mean, we're we're not looking at what the market's gonna be. We're we have a plan to deliver six to 8% growth plus the benefits of capital deployment, and we're excited about Clario.

So we're setting ourselves up for you know, the right way to start the year. And, ultimately, '26 will be you know, another year of excellent performance with Thermo Fisher Scientific. So, Dan, you for the questions. And and let me from here just wrap up with you know, thanks everyone for participating in the call today, and I think you got a sense from our enthusiasm.

We ended this year in a great position to deliver an excellent 2026. Of course, thank you for your support of Thermo Fisher Scientific, and we look forward to updating you as the year progresses. Everyone.

Thank you. This now concludes today's call. You all for joining. You may now disconnect your line.