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Danaher Q4 2021 Earnings Call Transcript

Corporate Executives

  • Matthew E. Gugino
    Vice President, Investor Relations and FP&A
  • Rainer M. Blair
    President and Chief Executive Officer
  • Matt McGrew
    Executive Vice President and Chief Financial Officer

Analysts

Operator

Hello. My name is Ashley and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Danaher Corporation's Fourth Quarter 2021 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

I will now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.

Matthew E. Gugino
Vice President, Investor Relations and FP&A at Danaher

Thank you, Ashley. Good morning everyone and thanks for joining us on the call. With us today are Rainer Blair, our President and Chief Executive Officer, Matt McGrew, our Executive Vice President and Chief Financial Officer, and John Bedford, our Director of Investor Relations.

I'd like to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.danaher.com, under the heading, Quarterly Earnings. The audio portion of this call will be archived on the Investors section of our website later today under the heading, Events and Presentations and will remain archived until our next quarterly call. A replay of this call will also be available until February 10, 2022.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. Unless otherwise noted, all references in these remarks and supplemental materials to company-specific financial metrics refer to results from continuing operations and relate to the fourth quarter of 2021 and all references to period-to-period increases or decreases in financial metrics are year-over-year. We may also describe certain products and devices, which have applications submitted and pending for certain regulatory approvals are available only in certain markets.

During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made and we do not assume any obligation to update any forward-looking statements except as required by law.

With that, I'd like to turn the call over to Rainer.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Well, thanks Matt, and good morning everyone. We appreciate you joining us on the call today. 2021 was a tremendous year for Danaher, capped off by a very strong finish to the fourth quarter. Our well-rounded performance throughout the year was highlighted by outstanding core revenue and earnings growth as well as strong free cash flow generation. We're particularly pleased with the strength of our base business across the portfolio, which was up low double-digits for the year and we believe our accelerated innovation and capacity expansion initiatives have helped us capture market share at a number of our businesses. Now, these results are a testament to our team of 80,000 associates and their outstanding execution and what has been a challenging operating environment.

Despite the uncertainty that has come to characterize life for all of us, throughout the pandemic, our associates are showing up big every day, working longer shifts, launching breakthrough products in record time and going above and beyond to support our customers and they remain committed as ever to executing with the Danaher Business System. Clearly, their dedication to serving our customers and the global community is as humbling as it is inspiring and we're grateful for their invaluable contribution.

The circumstances over the last several years has also shined a light on the high-quality market-leading franchises and technologies that now comprise Danaher. We're seeing the results of our purpose-driven portfolio transformation and action today through higher growth in margins, stronger cash flow and a higher percentage of recurring revenue. We're exceptionally well-positioned to continue this trajectory going-forward and we see a very bright future ahead [Indecipherable].

So with that, let's take a closer look at our full-year 2021 financial results. We delivered 25% core revenue growth, 560 basis points of core operating margin expansion, nearly 60% adjusted earnings per share growth and over $7 billion of free cash flow. We deployed $11 billion of capital towards acquisitions, closing 14 deals across all four of our platforms. The largest acquisition, Aldevron joined our Life Science segment in August, providing a fantastic beachhead for us in the important frontier of genomic medicine. It's just a great example of how we're using strategic M&A to enhance our capability and bring greater value to our customers.

Now throughout the year, we also made significant organic investment to accelerate innovation across our businesses. Our R&D spend was up approximately 30% year-over-year and is now more than $1.7 billion annually. New products such as the SCIEX, ZenoTOF 7600 and the Triple Quad 7500 and Leica Biosystems, Aperio GT 450 digital pathology slide scanner are driving share gains in their respective markets through proprietary innovation while further enhancing our growth trajectory. Our total capital expenditures were $1.3 billion for the year, which reflect substantial investments to expand production capacity across our businesses, particularly at Cepheid, Pall and Cytiva.

In bioprocessing, I'm really happy to report that our new single-use technology plants in South Carolina and Beijing and our cell culture media expansion in Utah, all came online in the fourth quarter. And at Cepheid, we more than doubled our production capacity for respiratory tests in 2021. For near term, we believe these investments have been critical to support customer demand, and it helped us achieve meaningful market share gains and they're equally important in the long-term to support the significant growth opportunities we see ahead in this very attractive end market and it helped achieve meaningful market share gains. And they're equally important in the long term to support the significant growth opportunities we see ahead and is very attractive end market.

So now let's spend some time on the fourth quarter results. Our sales were $8.1 billion and we delivered 19.5% core revenue growth with strong contributions from all three segments. We saw broad-based strength across our base business, which was up approximately 10% in the quarter. And geographically, both the developed and high growth markets were up approximately 20%, led by nearly 25% growth in North America and high-teens growth in China. Gross profit margin was 60.7% and our operating profit margin of 26.4% was up 270 basis points, including 240 basis points of core margin expansion. Adjusted diluted net earnings per share of $2.69 were up approximately 30%. And now for the full year, we generated more than $7 billion of free cash flow, up 30% year-over-year. In fact, our free cash flow to net income conversion was 112% for the full year and it marks the 30th consecutive year, this figure has exceeded 100% for Danaher.

So now let's go into more detail on our quarterly results across the segments. Life Sciences reported revenue increased 20.5% with core revenue up 17% and these strong results were broad-based with most major operating companies achieving low double-digit or better core growth. In fact, Aldevron delivered over 30% revenue growth in the quarter and finished the year with approximately $400 million in total revenue. That business is off to a great start as part of Danaher and we couldn't be more pleased with the team's performance out of the gate. Our core revenue growth in our bioprocessing businesses continue to outpace segment level results with Cytiva and Pall Biotech, both up more than 25%. Non-COVID related bioprocessing trends remain strong with our businesses growing low double-digit again this quarter. We continue to support significant customer activity across the development and production of COVID vaccines and therapeutics, which drove $2 billion of revenue in 2021.

Moving to Diagnostics, reported revenue was up 29.5% and core revenue grew 29%, led by greater than 75% core growth at Cepheid. Non-COVID clinical diagnostic activity across all our operating companies, including Beckman Coulter Diagnostics, Radiometer and Leica Biosystems collectively drove high single-digit core growth as patient and testing volumes largely remained at or near pre-pandemic level. And we also saw an acceleration in demand across Cepheid non-respiratory test menu, led by sexual health, hospital-acquired infections and virology testing. Cepheid produced and shipped approximately $19 million of respiratory test cartridges during the quarter. This dropped the total number of respiratory tests shipped in 2021 to approximately 60 million cartridges, more than 10 times the number of test produced and shipped in 2019 prior to the start of the pandemic. In fact, our four-in-one combination test for COVID-19 Flu A, Flu B and RSV represented approximately 50% of Q4 respiratory test shipment, while our COVID only test accounted for the remainder.

Now let's move on to our Environmental and Applied Solutions segment. Reported revenue was up 4% with 7.5% core revenue growth. Our Water Quality and Product Identification platforms both delivered high single-digit core growth for the quarter. Now across our Water Quality businesses, strength was broad-based globally across industrial and municipal end-market. Customer activity accelerated with the support of a strong funding environment and many projects that were put on hold during the pandemic have now resumed. ChemTreat delivered low double-digit core revenue growth in the quarter to close out its 53rd consecutive year of growth, this is a tremendous accomplishment and a testament to the team's best-in-class commercial execution and commitment to continuous improvement, it's truly a differentiating combination which has driven consistent market outperformance.

In Product Identification, our packaging and color management businesses were up mid-single digit, and marking and coding was up approximately 10%. Videojet had its third consecutive quarter of double-digit core growth, led by strong demand in industrial and food and beverage end market.

So with that as a backdrop for what we saw in the quarter, let me highlight the trends we're seeing both geographically and in our end market. So a return to pre-pandemic levels of activity is driving healthy customer demand across most major geographies. This is reflected in the strong results we've seen throughout both the developed and high growth market and our strong order book growth, which continues to trend above revenue growth. While certain regions have implemented targeted lockdowns to address recent COVID-19 outbreaks, we're not seeing any widespread declines in our customer activity.

And given the size and scope of our business, we're certainly not immune to ongoing supply chain constraints and inflationary pressures, but we are proactively addressing these challenges across Danaher, leveraging the Danaher business system and tools such as daily management and working closely with our customers and suppliers to mitigate the impact. We're also using DBS to accelerate price action and manage cost pressures. In fact, we've achieved nearly 150 basis points of price each of the last three quarters, which is approximately double our historical price realization.

In Life Sciences, we're seeing robust demand across all major end markets. Lab and customer site access is holding at pre-pandemic levels, evidenced by more normalized customer productivity, equipment installations and project initiations, supported by a strong funding environment. Biopharma continues to be our strongest performing end market within the Life Science. The structural shift in treatment for biologics, as the standard of care and the accelerating focus on genomic therapies are driving significant investment in research, development, and production capacity across the sector and we believe we're well-positioned to support this work across our $7.5 billion bioprocessing franchise.

Now, in addition, we continue to see significant demand related to development and production of COVID-19 vaccines and therapeutics and we expect this activity to persist longer-term. Our customers are planning for ongoing production with the assumption that there will be an enduring need for effective treatment and prevention as the world transitions to approaching COVID-19 as an endemic virus. And more broadly, our customers increasingly view the potential applications of new mRNA modalities, including vaccines and other therapeutics as an important area for future investment.

In the clinical diagnostics market, patient volumes remain at or near pre-pandemic levels. Our customers have largely adapted their protocols and procedures to manage through recurring outbreaks, allowing them to continue wellness checks, routine screening and other diagnostic procedures. While selective lockdowns are causing modest disruptions in certain regions like pockets of China and Europe, we're not experiencing any material widespread negative impact from these measures.

In molecular diagnostics, global demand persists for Cepheid point of care PCR respiratory tests. Further heightened as a result of the recent global surge of the Omicron variant. Additionally, we are seeing a more active respiratory season in the Northern Hemisphere, driving customers' preference for our Four-in-One Combination Test and we expect both of these trends to continue into the first quarter.

Now in light of these dynamics and conversations we're having with our customers about their expectations for the upcoming year, we anticipate shipping the same number of respiratory tests in the first quarter as we did in the fourth quarter and approximately 50 million tests for all of 2022. In 2021, Cepheid placed a record 10,000 new GeneXpert systems, bringing the total installed base to more than 40,000 systems worldwide. The team's thoughtful approach to placing systems throughout the pandemic is focused on both the near and long-term value this technology can bring to our customers. More recently, we've seen several existing health care systems and integrated delivery network customers, adding new instruments at sites further out in their networks and closer to their patients, facilitating faster diagnostic and treatment decisions. The scalability and unique architecture of the GeneXpert where the same test cartridges are used on higher and lower throughput instruments with the broadest test menu in the market provides our customers with the confidence that they will achieve consistent reference lab quality results, whether they're testing in an urgent care clinic or essential hospital lab.

So now looking ahead with the assumption that COVID-19 will be an endemic disease, we believe that the point of care molecular respiratory testing market will expand significantly from where it was prior to the pandemic. Even Cepheid bleeding test menu and installed base combined with an advantaged positioning around speed, accuracy and workflow, we believe Cepheid will continue to gain share in an endemic environment.

So moving on to the applied markets, customer activity has largely back to pre-pandemic levels, which we see in robust order rates for both consumables and equipment. In fact, project-oriented activity is accelerating with an improving funding environment and more normalized site access is prompted the resumption of many projects and installations that were put on hold in the throes of the pandemic.

So now let's look ahead to our expectations for the first quarter and full year. Beginning with the first quarter of 2022, we will now include the impact of COVID vaccine and therapeutic related revenue as part of our base business core revenue growth. This change is driven by our greater confidence in the durability of our COVID-related vaccine and therapeutic revenue as the virus turns endemic. So now for the first quarter and full-year 2022, we expect our base business core revenue growth to be in the high single-digit percent range. Additionally, we expect to generate operating profit fall through of 35% to 40% in the first quarter and for the full year 2022, up from historical and pre-pandemic rates between 30% and 35%.

So now to wrap-up, 2021 with another terrific year for Danaher. Our team successfully executed through a challenging environment to deliver outstanding financial performance, all while supporting our customers and directly contributing to the global fight against COVID-19. We're seeing the results of our purpose-driven portfolio transformation and action to faster growth, expanded margin, stronger cash flow, and higher recurring revenue. We're a better, stronger company today and there is tremendous runway ahead for us to continue building upon this foundation. With the Danaher Business System as our driving force, our talented team and resilient portfolio of businesses, we believe Danaher will continue generating sustainable long-term shareholder value for years to come.

And with that, I'll turn the call back over to Matt. Thank you.

Matthew E. Gugino
Vice President, Investor Relations and FP&A at Danaher

Thanks. Rainer. That concludes our formal comments. Ashley, we're now ready to take questions.

Operator

[Operator Instructions] And we will take our first question from Tycho Peterson with JPMorgan. Please go ahead.

Tycho Peterson
Analyst at JPMorgan Chase & Co.

Hey, good morning. Rainer, you --

Rainer M. Blair
President and Chief Executive Officer at Danaher

Hi Tycho.

Tycho Peterson
Analyst at JPMorgan Chase & Co.

Guided for the based business grow to high single-digit. Can you maybe just give us latest thoughts on vaccine in therapies. I know you previously talked about this $2 billion backlog heading into the year. So if any of the assumptions around vaccines therapies changed?

Rainer M. Blair
President and Chief Executive Officer at Danaher

So just to confirm, that's right for 2022, we're guiding the base business to high-single digits, and know our assumptions as it relates to the vaccine and therapeutics business have not changed. We saw continued strength in our orders, in fact orders exceeded our sales here in Q4 and we continued to build backlog. At the same time, we have to say that from a roughly 75% -- 70% comp, we were down about mid-teens in terms of the orders growth. Nonetheless, orders still outpace sales. We built backlog and we're looking forward to roughly flat sales in the bioprocessing business for vaccine and therapeutic revenues in 2022. Now the core business, so in other words, the non-vaccine and therapeutic-related business for COVID, we expect that to continue to grow of course in the low double-digit area, has been the case here for many quarters.

Tycho Peterson
Analyst at JPMorgan Chase & Co.

And have any of the Aldevron assumptions change? I know you previously talked about $500 million this year growing greater than 20%?

Rainer M. Blair
President and Chief Executive Officer at Danaher

They're right on the mark. $500 million is a good number. That's the kind of growth and slightly better than we expected here closing the year off right around $400 million. So Aldevron is right where we think we should be and performing at our expectations.

Tycho Peterson
Analyst at JPMorgan Chase & Co.

Okay, maybe last one for McGrew. Environmental & Applied Operating margins were down quite a bit, I think 410 basis points. Can you maybe just touch on what drove that decline?

Matt McGrew
Executive Vice President and Chief Financial Officer at Danaher

Yeah, sure. What you said there was, it was down 410 basis points here in the quarter. It's probably three things. I would say first, that's probably the area that we accelerated the investment spend the most in the fourth quarter, given obviously a pretty strong year across the entire portfolio. I think we took an opportunity in the fourth quarter to kind of over-charge a little bit of the investment there. Yeah. So I think that's probably the first thing. I think the second thing is the supply chain. The challenges I would say there are probably modestly more pronounced at EAS than they are elsewhere, Tycho. There is a kind of a high number of legacy products here that probably I would say have more specialized components and really what's happening is kind of those specialty components are a little bit harder to procure, especially in this environment that we're seeing. So largely offsetting that with Danaher Management doing some spot buys and some other product redesigns etc, but I think a little bit more kind of supply chain issues there.

And then lastly, I think if you think about, there was a bit of mix issue here too with Trojan, which is are a bit lower margin business being up. I think it was even north of 20% in the quarter or so. So I think despite that though, the good news is, like I said, I think the team is doing a pretty good job, use of DBS to drive it from what we think and what we've seen here, it looks like even because of all that, I think we took some share here in Q4 and definitely in Q1 and that's really a result of being able to get through those challenges and still meet customer demand.

Tycho Peterson
Analyst at JPMorgan Chase & Co.

Great. Very helpful. [Indecipherable]

Operator

Then we will take our next question from Derik De Bruin with Bank of America. Please go ahead.

Michael Ryskin
Analyst at Bank of America Merrill Lynch

Thanks. Thanks for taking my question. This is Mike on behalf of Derik.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Hi Derik.

Michael Ryskin
Analyst at Bank of America Merrill Lynch

Hey, thanks. First of all, I'd focus on Cepheid both in 2022 and post pandemic. Given you're saying $19 million tests again in 1Q, seems like you're assuming a pretty sharp drop-off in 2Q, 3Q and you sounded pretty confident in duration, COVID being endemic now, the TLC market expanding significantly going forward in the market share. So could you give us some more color on continued market share gains in other 10,000 boxes you place this year, sort of, what are your expectations going forward? And just, is that 50 million testing, is that sort of assumed that that's going to be the run rate beyond that or do you expect continued sort of deterioration in COVID revenues offset by other MPX [Phonetic].

Rainer M. Blair
President and Chief Executive Officer at Danaher

I'll start with, as you know, the situation around COVID is incredibly dynamic, right. It started with the assumptions that we made around Delta and then Delta spiked and we thought that might become the dominant variant and then Omicron came 60 days ago and spiked. So the environment is incredibly dynamic. But in the discussions that we have both with public health officials, but also with our customers, I think there's a couple of takeaways. The first one is that we do think that COVID is going to turn endemic and a lot of the public health officials will talk about the end of 2023, perhaps the beginning of 2024 being that timeframe when we call it endemic with greater confidence. As we look at our customer feedback and what they see happening here, that's where we're triangulating for 2022 into the 50 million test area. And as we've talked about, we see our base business in 2022 growing at high-single digits and essentially having as a result of the step down from 60 million to 50 million in 2022 at 200 basis point to 300 basis point headwind there. As we think about that going forward beyond 2022, we think there is -- and once again in the discussions with our customers that there is still a likelihood that there will be a large respiratory testing business much larger than pre-pandemic in 2023 and beyond. And once again in the early days and this could change so dynamic, but we're thinking that probably steps down again in 2023 and our working number there for now is right around 30 million tests.

So as we think about the year 2023 and COVID testing, we see that going from 50 million in 2022, perhaps 2023, 30 million, but that's a number that of course there's a lot of dynamic, there is a lot to happen between now and then, but that's sort of the planning number that we're working with. At the same time as you think about 2023, we see our base business, of course, the primary aspect of our total business continuing to grow off the strength of our portfolio, we've re-rated our growth rate and discussed that at several occasions. So we feel really good about how we're moving forward and like this set-up.

Michael Ryskin
Analyst at Bank of America Merrill Lynch

Okay. Really appreciate the color there. And maybe one for Matt. Do you have some color on the pricing power going forward when you called out margin 70 basis points increase in the fourth quarter and throughout the second half over the last three quarters. Could you comment on how much further runway do you see in 2022 if we continue to be in an inflationary environment, the pass on price to your customers, any pushback you're seeing again in any of the end markets. And just in general, the comments on the higher fall through in the business, labor pressure logistics, obviously in the news a lot and how you are navigating that this year and implications for margins for the year.

Matt McGrew
Executive Vice President and Chief Financial Officer at Danaher

Yeah, sure. No, I mean I think as far as price goes, like you said, we saw kind of 150 basis points here in Q4 and I think that -- we've seen that for last couple of quarters. I think that's a pretty good placeholder to put into 2022. Our teams are obviously over the last six months, we've been working harder to get that price and I think you're seeing it show-up. I mean it's basically 2 times the price we used to get, call it five, six quarters ago. So I guess it is a good place to start for 2022.

As far as margins go just kind of maybe overall, I know we sort of put out a guide for 2022, call at 35% to 40% fall through, and that's down a little bit from where we stand, kind of more in that 40% to 45%, but I think that 35% to 40% kind of incorporates a little bit of what you're talking about. I think it's come in line with what we thought frankly our longer-term outlook was going to be. But if I think about year-over-year from 2021 to 2022, I think you're right, I think a component of sort of the step-down is going to be a little bit of return to work and maybe for the inflationary pressures that we see offset by price.

The other piece really is going to be largely on the volume step down that we see and that's mostly going to be at kind of a mix type issue. So throw-in some FX headwinds in share count and that's how sort of I'm thinking about the 40% to 45% in 2021 going down to 35% to 40%, but I think the good news is that's pretty much in our long-term framework right where we thought and I think it's also probably important to think about it that even though we're seeing headwinds on the testing front this year, call it 200 to 300 basis points, our COVID testing revenue is pretty much at the fleet average, right, which is why it's not a big step-down for us. It's pretty much fleet average from a margin perspective. So I think that helps us kind of on as we navigate the headwinds again.

Michael Ryskin
Analyst at Bank of America Merrill Lynch

Got it. Thanks so much. Appreciate it.

Operator

And we'll take our next question from Vijay Kumar with Evercore. Please go ahead, your line is open.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Hi Vijay.

Vijay Kumar
Analyst at Evercore ISI

Hi guys. Hi, Rainer. Congrats on the solid year [Phonetic]. I guess one on just the guidance here of fiscal 2022, some clarification. So your definition of the core now includes vaccines and I think that's comparable to how your largest peer looks at core organic, but vaccines, if I just understood you correctly, it's flattish year-on-year, which means your base Danaher ex-vaccine, that's really growing at the very high-end of high single. Is that right way to think about this guidance here on the base business and what's driving this strength. It looks since, I mean perhaps bioprocessing growing double-digits that's well above your [Technical Issues]. Can you throw us some comments on bioprocessing?

Rainer M. Blair
President and Chief Executive Officer at Danaher

Sure. So once again [Indecipherable] the base business includes bioprocessing for COVID vaccines and therapeutics, important to note that. And in fact, we see the entire base business growing both for the quarter and the full year at high-single digits and that's driven by a number of factors. One, as you just suggested, of course, the non-COVID bioprocessing business is still growing at the low double-digits that we have seen here and that continues to be strong. We also see our non-bioprocessing business goes, as you think about our diagnostic businesses, as you think about our life science instruments and so forth, we see them growing very strongly on the back of the investments that we've made around innovation, additional feet on the street and really driving the growth here determines that portfolio transformation that we've talked about has re-rated our base business growth and we continue to see that. We saw that here in the two-year stack in 2021 and you're seeing that here in the guide for 2022.

Vijay Kumar
Analyst at Evercore ISI

Thanks. So I guess now we have clarity on what the mid-single-digit plus for the plus mean. That's helpful, Rainer. Maybe one for Matt. The 35% to 40% incremental margins here, Matt. Is that sustainable going forward? Should we I guess my question is most of your peers who have benefited from COVID tailwinds, there is a cliff here or perhaps a transition year. It seems like Danaher does not have a cliff here, maybe talk about your sustainability of incremental and now -- why perhaps the dropdown in COVID tailwind shouldn't be a headwind for Danaher.

Matt McGrew
Executive Vice President and Chief Financial Officer at Danaher

Yeah. I mean I think that's right, Vijay. I think like I just kind of said, I mean our COVID kind of revenue both vaccine, therapeutic and the testing, it's more or less at fleet average, right. And so what I think you're seeing here is part of the reason we talked about the re-rating of the portfolio from a growth perspective as I just mentioned within the plus. We've also talked about the fact that the portfolio has re-rated from a margin perspective too, right, we used to be more 30%, 35%, now we're 35% to 40%. And I think what you see here is that as we go forward and think about kind of what the margin profile looks like, I think I feel very comfortable with the 35% to 40% in the fact that, yeah, like you said, we will have some revenue headwinds, we're going to have some volume headwinds testing like we sort of laid out and we can talk about 2023 maybe if you're interested. But I think as we get to those headwinds, it won't be above the fleet average, headwind, if you will, from a detrimental perspective. So while it will be a headwind and I think you can obviously, you see that a little bit here in 2022. From a margin perspective, it's not going to be overly burdensome.

Vijay Kumar
Analyst at Evercore ISI

That's fantastic. Helpful Matt. Thank you, guys.

Operator

We'll take our next question from Scott Davis with Melius Research. Please go ahead, your line is open.

Scott Davis
Analyst at Melius Research

Hey, good morning everybody. Congrats on a great year overall. But anyways Rainer, I was hoping you could talk a little bit about M&A, given that growth assets seemingly are out of favor in public markets, fairly meaningfully. Is that kind of gone down into private markets at all and helps you out on the valuation side much. If you could talk about that in the pipeline, please?

Rainer M. Blair
President and Chief Executive Officer at Danaher

Sure. But I mean first of all, to the environment that we see out there, this is an environment that over our history, we have thrived in whether you want to call this anxiety or uncertainty or even in times of just location, we've always viewed this as a time of opportunity for ourselves. Yeah, there is examples of that. If you think back to the financial crisis now going back some years, we acquired SCIEX at that period of time and it turned out to be a fantastic asset, the team has done a wonderful job. Also if you think about some anxiety around Cepheid or the Pall deal there that has been -- we couldn't be more proud of how the teams have performed there and turned those businesses into really real powerhouses. And so we sit here in this environment with a rock-solid portfolio, an outstanding team and a strong balance sheet and a great deal of optionality and we like that setup.

And so as we think about our funnels into your question, they continue to be as active as ever, they cover the gamut whether that's public or private and we'll continue driving our M&A strategy and our bias towards allocating capital towards M&A as we have in the past and that will happen when that attractive end markets, that first-class asset with competitive advantage meets our financial hurdles here as it's always been the case. So we like where we sit and we like the set-up.

Scott Davis
Analyst at Melius Research

That's helpful, Rainer. Rainer, you talked about new product launches like Beckman, how has COVID impacted those launches. Is there a -- were these things perhaps were pushed back a little bit because of COVID? Were they on schedule with customer response and the ability to get out and see the customer with that product? Is that all been altered or changed and just a little bit of color there would be helpful and then I'll pass it on. Thanks.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Sure. In our case COVID has actually accelerated innovation for us. Of course in the obvious sense in that, we were able to pull forward the GeneXpert COVID only test subsequently and very quickly thereafter, the Four-in-One, those are sort of the obvious examples. But at the same time you've noted that we increased our R&D expenditures by 30% at the $1.7 billion, which has manifested in a pulling forward innovation accelerating it and getting those into the market. And examples were mentioned, the Triple Quad 7500, most sensitive Triple Quad in the market with ZenoTOF outstanding and then of course the GT 450 pathology slide imaging, fantastic launches here, all of which was accelerated by the pandemic and we were able to turn that into real opportunity for us.

Scott Davis
Analyst at Melius Research

Great. Okay. Good luck in 2022, guys. Thank you.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Thank you.

Operator

And we will take our next question from Dan Brennan with Cowen. Please go ahead. Your line is open.

Daniel Brennan
Analyst at Cowen and Company, LLC

Hey, good morning, and congrats on the quarter. I guess the first question just on the vaccine therapeutics outlook now that you're including in the base. We were assuming in our model pretty steep drop-off in 2023 and 2024, just as we go from initial two dose regimens down the boosters and booster uptake looks good, probably not going to be nearly as good as the initial vaccines. So I guess first question, I mean is that reasonable to think there's going to be a healthy step-down, number one. And then number two, the fact that you're including in the base, just wondering, I know previously you've discussed Cytiva kind of high-single digits. Is that still fair to think about the high-single digits now that you've got vaccine and therapeutics in the base.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Sure. Well, let's start-off with why is vaccine and therapeutics in the base and that just comes from our belief of two things. One, that COVID-19 will be endemic and that there will be a continuing -- continuous requirement for vaccination and that is going to be a global requirement. We also think that new-age groups will receive vaccination more broadly in the world, kids in particular. And as such that there is a strong recurring demand there and that was discussed in some of the previous question.

But if we back up a minute here and we think about this longer-term and talk about our 2022 guide here with high single-digit growth in our base business and we talked about the 200 basis point to 300 basis points of headwind coming from testing. As you think forward now, how does all that play out, let's say in 2023 and once again it's important to start with the base, which is at the center of your question which is okay, well, we have this rock-solid portfolio that's transformed over the years that's going to be mid-single-digit plus growth and is going to have a different earnings profile as well as Matt just talked about. And then inside of that of course you do have vaccine and therapeutic revenues from COVID and that will continue. There are new therapeutics being developed and there are also a lot of additional vaccines that are still in the pipe. And then as you think about COVID testing, as I talked about, we see that stepping down to, we will call it a more endemic look from 50 million tests in 2022 to 30 million tests in 2023.

Now when you wrap all of that up, and of course, there's a lot of things that are still up in the air in terms of the number of spikes you might have in between. 2023 really looks a lot like 2022 in terms of how we think of the base growth going forward as well as our fall through.

Daniel Brennan
Analyst at Cowen and Company, LLC

Excellent. And then maybe as a follow-up to some more on bioprocessing, if you don't mind. Certainly low double-digit is impressive growth, particularly on the size of your business. Some of the capex that we've seen in the industry is really accelerating. Rainer talked about I think in their guidance 40% plus type of capex growth in 2022 on top of 40% in 2021. So I'm just wondering, could you give a little color or maybe the order book there like on the base business kind of what you're seeing and will be in a period of like hyper investment, where maybe that low double-digit bioprocessing upside over the next couple of years. Thank you.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Sure. So we do continue to talk about the low double-digit growth rate for the non-COVID bioprocessing business, that's what we've seen for many quarters. But we also talked about the fact that our backlog continues to build there. And these announcements that you're seeing here out in the market, those are important indications, the strength of the industry in the market in and of itself. And of course, you can imagine with the breadth of our portfolio, our global reach that we play if not on all on the great majority of those kind of investments and so could there be upside, sure, there could be, but of course, we're looking at the order book and that's in hand and thinking about how that developed and we'll continue to update. But for now, low double digits in the non-COVID bioprocessing business is a good planning number.

Daniel Brennan
Analyst at Cowen and Company, LLC

Great. Thanks, Rainer and thanks, Matt.

Operator

And we will take our next question from Jack Meehan with Nephron Research. Please go ahead.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Hi, Jack.

Jack Meehan
Analyst at Nephron Research

Good morning. Hello. So one of the big questions we've been getting is, the Fed looking to start raising rates, just would be great to get your thoughts around the durability of demand from biopharma customers and how much of a factor do you think higher rates could have on demand. And then finally, maybe any color on mix between development and commercial and interplay on those two sides of the market?

Rainer M. Blair
President and Chief Executive Officer at Danaher

Could you -- I'm sorry, could you repeat the second question, please. It came through a little garbled.

Jack Meehan
Analyst at Nephron Research

Sure. Sorry. Just thoughts on how higher rates might influence demand from customers on the development side versus those with commercial products?

Rainer M. Blair
President and Chief Executive Officer at Danaher

Understood. Well, let's start with the rates. Well, it's early days, of course, and we'll see where those go. As we look at the markets that we play in more broadly, the impact of those rate it could be different. But generally speaking, we see our end market to be able to perform and drive growth even in a market where we see incrementally higher Fed rates. And examples of that would be if you look at Biotech in aggregate, you see that the cash positions in these companies is extraordinarily high. We continue to see investments going in there strongly. So we don't anticipate any near-term impact due to Fed rates in that particular area. And that would of course overlap with the development part of your question.

And as it relates to those that are already in commercial production, they are out there driving growth and ensuring the penetration of the incredibly efficacious biologic drugs, not just in the developed markets, but increasingly also in some of the higher growth markets. So we see really the demand drivers here going beyond any one country's monetary policy and continue to see that in a very positive light. So Fed policy is one thing, the specific markets that we play in, we would see less impacted by any of the incremental rate increases that are being discussed.

Jack Meehan
Analyst at Nephron Research

Great. And then Dan just asked about capex going in on the CDMO side. Wanted to ask a similar question focused on all the capex going in from the bioprocessing players. Back at the Analyst Day, you talked about $1.5 billion of your own capex, some of your peers are talking about a lot of more investment going into the single-use and then just bioprocessing broadly speaking. So as you look across everything going on, just talk about supply versus demand and how you feel whether that -- just your views on that, broadly speaking?

Rainer M. Blair
President and Chief Executive Officer at Danaher

Sure. Well, let me characterize that a little bit. So the large CDMO investments that you see there are really a derivative of what we talked about in your question before, which is the strength of the biotech market either typically smaller companies that don't want to invest their precious cash in the manufacturing facilities and will outsource that to CDMOs. And as we talked about -- if you think about the fact that just in monoclonal antibodies over the last five years, we've seen a huge increase in the number of projects in the funnel. If you think about nucleic acid therapies, there we've seen a 10 times increase in the development funnel. And now you're seeing those work their way through the clinical trial process and that requires capacity. So that's what the CDMO investments are about and of course the customer -- our customers are also CDMOs and we're helping them build those capacity so that they can take care of those developments going forward.

And then we also continue to see drugs going commercial. And as these drugs go commercial, that's 10 times and 100 times increase in production capacity requirement and all of this then if you aggregate that is what's pulling on our demand and this is why we are so confident in the investments that we've made. And I mentioned this, not just for the short term, which of course is important, ensure that there are no supply bottlenecks as we work our way through the pandemic here and also for the long term, so that we continue to be that partner of choice that has the broadest portfolio can integrate that portfolio horizontally and can deliver it to the point of our impact around the globe with the necessary experts to help our customers get their drugs in the market more quickly and at a lower cost.

Jack Meehan
Analyst at Nephron Research

Thank you, Rainer.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Thank you.

Operator

And we'll take our next question from Patrick Donnelly with Citi. Please go ahead.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Hi Patrick.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Hey, Rainer. Thanks for taking the questions. I just wanted to follow-up on the bioprocessing piece. I know you touched a little bit about what the cadence could look like going forward, but that's certainly the question I think we get the most from investors, I just wanted to circle back on it. I mean it sounds like you feel really good about that underlying base business growing in the low double digits. And then the vaccine piece, maybe a little bit more of a variable. Can you just talk, I guess, about the trajectory, it sounds like 2022 is decent proxy where maybe COVID comes down and you take out somewhere in the mid-high single digits as a whole for that kind of $7.5 billion business? I was just hoping you could talk a little bit about the puts and takes as we go through kind of the next few years and again that vaccine piece comes down, but the base business seems like it's good enough to offset that momentum, but just wanted to get a better handle there?

Rainer M. Blair
President and Chief Executive Officer at Danaher

I think that's right. And as we look at 2022, I mentioned the COVID-related vaccine and therapeutic bioprocessing business will probably be roughly flat here in 2022, again the assumption being that we're starting to see the pandemic going endemic, on the one hand. On the other hand, what you start seeing to happen is if you will, we're going from 1.0 compounds to 2.0. So some vaccines and therapeutics are viewed as less efficacious in the current environment with the current variance and so those become less of a factor. On the other hand, you have new monoclonal antibodies and therapeutics turning to be proposed that show much higher efficacy here with the variance that you have.

And then for those that are already in market and quite effective, we're starting to see the recurring revenue as those companies are starting to recognize the recurring need for booster shots, not just here, but around the globe. So we think that that's a good baseline to move forward with and how to think about it and we continue to view it. As we've said in our long-term guide around the bioprocessing business that that's a high single-digit growth. And I think that's the way to think about it in 2022. And as we said, we think 2023 will look a lot like 2022 as well.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Okay, great. That's helpful. And I know the order book typically, you're taking orders from within a year. Is any of that building into 2023 yet or should we think about that as mostly a 12 month order book and then maybe conversations beyond that?

Rainer M. Blair
President and Chief Executive Officer at Danaher

It's a 12-month order book and conversations beyond that.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Okay. And last one just same topic for Matt. Margin profile, COVID [Indecipherable] for the bioprocessing, it's pretty similar, right. I just wanted to double-check on that.

Matt McGrew
Executive Vice President and Chief Financial Officer at Danaher

Yeah. In bioprocessing margin difference between COVID and not were drastic.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Yeah, exactly,

Matt McGrew
Executive Vice President and Chief Financial Officer at Danaher

Yeah. No real difference, I mean we're -- I would say that it's all again just depending on mix of what goes in their product lines, but no margin profile wise [Technical Issues].

Patrick Donnelly
Analyst at Smith Barney Citigroup

Great. Thanks guys.

Operator

And this will conclude today's Q&A portion for the call. I will turn the call back over to Matt Gugino with any additional remarks.

Matthew E. Gugino
Vice President, Investor Relations and FP&A at Danaher

Thanks, Ashley and thanks to everyone for joining us on the call today. We're around all day for questions.

Rainer M. Blair
President and Chief Executive Officer at Danaher

Thank you, everybody.

Operator

[Operator Closing Remarks]

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