Life sciences and diagnostics company Danaher is moving focus on the growth opportunities for Life Sciences and Diagnostics segments. The company intends to float off its Environmental & Applied Solutions (EAS) segment into a separate publicly traded company. DHR would then be to further capitalize on the seen powerful growth in the other segments having been entrenched in the development of COVID-19 vaccines and therapeutics through its $21.4 bln acquisition of Cytiva in 2020. Cepheid also received Emergency Use Authorization from the FDA for its Xpress SARS-CoV-2 molecular diagnostic test.
Life Sciences and Diagnostics
Such a move would sharpen focus on Life Sciences and Diagnostics with their market crossovers, such as labs, hospitals, pharmaceutical companies and research institutions. The EAS segment’s markets are utilities, industrial companies, splitting EAS off does make sense. By floating off EAS, the company can fully home in on the growth opportunities for Life Sciences and Diagnostics. EAS will be able to focus on it;s opportunities such as clean drinking water with droughts and a virus infected world crying out for solutions.
Danaher life sciences and medical diagnostic tools and instruments it manufactures continue to receive order way above expectations. The virus, and new viruses generated a major windfall for Danaher. DHR has said notable strength experienced in the life sciences and diagnostics segments. These segments have high exposure to COVID-19 vaccine and testing development. Revenue growth was 58% in 1Q21 and 36% in 2Q21. Though growth moderated back to (+7% in 2Q22 as demand for COVID-19 testing and vaccines decelerated.
Vaccine and therapeutic activity drove record bioprocessing demand with order growth for its Cytiva and Pall Biotech businesses. On the diagnostic side, revenue jumped as elevated virus testing demand drove a 100%+ surge in growth at Cepheid, which DHR acquired in 2016. Back in 2020 Q4 COVID-related tailwinds added about 1,200 bps to core revenue growth in Q4, compared to 3.5% for its underlying base business.
This is where the spin off comes into play so Danaher can focus on other growth drivers. Core revenue in the non-COVID business for Life Sciences rose by more than 20% in Q2. The company intends to focus on growth at customers that previously paused programs during the pandemic. During the Q2 earnings call that its Life Sciences backlog is very healthy as its customer continue transitioning away from COVID-19 vaccines.
DHR said it still anticipates achieving high-single to low-double-digit core growth in its bioprocessing business for FY22, despite COVID-19 vaccine revenue dropping to an estimated $1.0 bln in 2022, compared to $2.0 bln in 2021.
Diagnostics segment generated respiratory testing revenue of $750 mln in Q2, well above DHR’s expectation of $400 mln, even as testing for COVID-19 slowed. Market share gains for its 4-in-1 combination test, and higher incidences of other respiratory infections, such as RSV and flu, helped drive a 9.5% core revenue increase in the Diagnostics segment.
The core of DHR is impressive with recurring revenue of 75% of the total business, this would be in a better position from focusing in both the post COVID 19 catch up opportunities it was already in, but also in expanding to growth like genomic medicines, biologics, and vaccines.
EAS
Daniher is forecasting mid-single-digit core revenue growth for the EAS segment over the long term, with 55% recurring revenue. The segment contributed about $5 bln in revenue, dis-synergies could total about $0.15 per DHR share on an annual basis.
After spinning off EAS will be able to build its business through organic means and through acquisitions, which the company anticipates will play a significant role in its future.
About Danaher
Danaher is a global science and technology innovator committed to helping its customers solve complex challenges and improving quality of life around the world. Its family of world class brands has leadership positions in the demanding and attractive health care, environmental and applied end-markets. With more than 20 operating companies, Danaher’s globally diverse team of approximately 69,000 associates is united by a common culture and operating system, the Danaher Business System, and its Shared Purpose, Helping Realize Life’s Potential. For more information, please visit www.danaher.com.
Source: Danaher
From The TradersCommunity Research Desk