© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2021 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.
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 and 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 Webcasts and Presentations until May 14, 2021. A copy of the press release of our first quarter 2021 earnings is available in the Investors section of our website under the heading Financial Results.
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 for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's most recent annual report on Form 10-K which is on file with the SEC, and available in the Investors section of our website under the heading SEC Filings.
While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.
Also, during the call, we'll 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 first quarter 2021 earnings, and also in the Investors section of our website under the heading Financial Information.
So, with that, I'll now turn the call over to Marc.
Thanks, Rafael. Good morning, everyone. Thank you for joining us for our Q1 call. As you saw in our press release, we had a very strong start to the year. We delivered another quarter of outstanding financial performance with excellent growth on both the top and bottom line.
As you know, we're playing a significant role in enabling society's response to the pandemic, including a rapidly expanding role in supporting vaccine production. In our base business, we meaningfully accelerated growth across all our businesses in the first quarter.
We had very strong execution of our growth strategy, including launching a number of innovative new products, capitalizing our leadership in the high growth and emerging markets, strengthening our unique customer value proposition. And we're already starting to see the benefits of the accelerated investments we initiated in 2020.
We continue to execute our capital deployment strategy, completing our acquisition of a European viral vector business and Mesa Biotech a rapid point of care molecular diagnostics company. We also return capital to our shareholders through stock buybacks and dividends.
As I'm sure you saw, shortly after the quarter closed, we announced our agreement to acquire PPD, a leading provider of clinical research services serving pharma and biotech customers, our fastest growing end market. So another great quarter of delivering for our stakeholders in the near-term, while investing organically and in organically appropriate future.
I'll cover each of these topics in more depth in my remarks but first let me recap the financials. Our revenue in Q1 grew 59% year-over-year to $9.91 billion. Our adjusted operating income for the first quarter increased 155% to $3.51 billion and our adjusted operating margin expanded 13 percentage points in Q1 to 35.4%.
Finally, we delivered another quarter of strong adjusted EPS performance, achieving 145% increase to $7.21 per share.
Turning to our end markets conditions were very robust, driven by three factors. The strong fundamentals and life sciences, ramping of economic activity globally and the role our industry is playing in the pandemic response.
Our unique competitive position has allowed us to deliver another fantastic quarter. So starting with pharma and biotech, with outstanding performance with growth of approximately 35% driven by strong underlying market dynamics, the benefits of our unique customer value proposition and our leading role in supporting our customers across a wide range of exciting therapeutic areas, including our significant role in supporting COVID-19 vaccines and therapies.
We saw excellent growth across all businesses serving these customers, including bio production, pharma services, bio sciences, chromatography and mass spectrometry and in our research and safety market channel. We're clearly benefiting from our trusted partner status that we've earned over many years with these customers.
And academic government, we had very strong performance and grew 20% driven by robust customer activity globally. In Q1 who saw strong growth across a number of our businesses supporting this customer base, particularly in bio sciences, chromatography and mass spectrometry and electron microscopy.
Turning to industrial and applied, we grew in the low double digits in the first quarter. The team continues to execute at a very high level to capture opportunities as more customers increase their activity level. During the quarter, it was good to see strong growth across all of our instruments businesses.
And finally diagnostics and healthcare. We had another outstanding quarter delivering approximately 150% growth. Demand for our COVID-19 testing solutions was very strong. And our base business, while demand is still below pre pandemic levels, it was encouraging to see our immunodiagnostics business returns a strong growth in the quarter.
To summarize our performance, our teams capitalized on improving conditions in our end markets, and we continue to gain market share.
Now, let me give you an update on our role in supporting the pandemic response. Once again this quarter Thermo Fisher played a very meaningful role in fighting COVID-19 globally. We generated $2.9 billion in COVID-19 response revenue in Q1. Demand for our PCR testing solutions was strong, and our role in the development and production of vaccines and therapies continues to ramp even faster than we expected.
Coming into this year, we expected our role in supporting vaccines and therapies to represent $1 billion in revenue. Based on our orders and at the speed at which our capacity expansions are coming online, we now expect to deliver $1.5 billion in vaccine and therapy revenue in 2021.
We also continue to leverage our expertise with new solutions to the fight against COVID. One example in the quarter was a launch of a Thermo Scientific AerosolSenseSampler, a new air monitoring system to help facilities such as hospitals, schools and businesses identify the presence of in-air pathogens, including the virus that causes COVID-19.
As more people returned to public spaces, the AerosolSenseSampler will complement other safety protocols.
We also acquired Mesa Biotech, which adds simple and rapid PCR testing to decentralized testing -- to decentralized settings, including doctors' offices, pharmacies, and to support a number of back to life applications. Customer interest is very high. And we're using our PPI business system to scale the manufacturing of the rapid diagnostic cartridges used by Mesa. We expect to generate $200 million this year from these capabilities, and are very excited about the potential for this molecular diagnostic technology post pandemic.
The other point I would like to make is that because of our leading role that we played in the pandemic response for 2020 and our outstanding financial performance, we were able to significantly accelerate our investment programs last year in R&D, commercial enablement, as well as capability and capacity expansions. These accelerated investments are really positioned Thermo Fisher for an even brighter future.
For glimpse into the early momentum building from these investments, let me turn to the great progress we made in Q1 on our growth strategy, which is based on three pillars. Watching high impact innovative new products, leveraging our scale and high growth in emerging markets, and delivering a unique value proposition for our customers.
I'll now share a few examples that demonstrate how we use this strategy to continue to build on our success and create value for our customers.
Started with innovation. During the quarter, we launched a number of new products across for businesses to strengthen a leading position and to enable our customers to break new ground and achieve their goals. Let me highlight just a few.
In chromatography and mass spectrometry, we launched two new Thermo ScientificOrbitrap Exploris GC-Mass Spectrometers, which further extend the impact of our industry leading Orbitrap plant tries to bring high resolution analysis to a range of applications, including toxicology and metabolomics.
In materials and structural analysis, we launched the Thermo Scientific Spectra Ultra, a new generation scanning transmission electron microscope for material science applications, which provides insights at atomic scale resolution to solve research and improve manufacturing productivity. And in our bio sciences business, we launched the Kingfisher Apex Purification System for high throughput sample preparation.
Turned to the second pillar of our growth strategy, we're leveraging our scale to create an outstanding experience for our customers in the high growth in emerging markets. We're seeing excellent growth, particularly in China, where customer activity has returned to pre pandemic levels, and we grew more than 60%.
And we continue to strengthen our capabilities serving these markets. As an example, in the quarter we started shipping products from our new single use facility in Suzhou, which localize the bio production manufacturing for biotech customers in China, and our investment in the bio production capabilities in Singapore at single use capacity for pharma and biotech customers globally. So we have strong momentum in high growth in emerging markets, and we continue to strengthen our position.
Turned to the third pillar of our growth strategy, our customer value proposition. We continue to increase our capabilities and capacity to be an even better partner for our customers and help them achieve their goals.
Let me update you on our progress and serving our pharma and biotech customers. Our upcoming acquisition of PPD a leader in clinical trial management services is a great complement to the world we play in supporting research and development, clinical trials and production. These combined capabilities, along with a complimentary reputation for excellent quality service will further enhance Thermo Fisher value proposition for pharma and biotech customers. Importantly, our customers will be able to more efficiently access these services, which are key enablers of their success.
I've interacted with a number of our customers since the announcement, and they're excited about the new capabilities that PPD will bring to Thermo Fisher Scientific. By adding these highly complementary services to our portfolio, we'll be able to further advance our strategic partnership, as our customers work to bring a scientific idea to improve medicine. It will also provide terrific career opportunities for our colleagues and will create significant shareholder value.
Our organic investments are also building capability and capacity for a pharma and biotech customers. One lens which highlights this is the support of a scale up of mRNA vaccines, which are in high demand globally for COVID-19 today, but also for many other diseases going forward. As you know, we're an important supplier in this area. And we have continued to invest a scalar capacity including in our bio sciences business, we're building additional capacity for essential raw materials in different regions of the world. We're also expanding our bio production purification resin capacity which is due to the mRNA manufacturing process.
And finally, we're ensuring expanded and regionally available sterile finished capacity to produce final drug product. As always, our PPI business system helped to drive our success during the quarter, enabling us to find solutions and better ways to serve our customers, work more efficiently and effectively, and create even greater value for all of our stakeholders.
Now I'll give you a quick summary of our capital deployment activities so far this year. We've had a very active start, closing $1.4 billion in acquisitions in the quarter. And as I just mentioned, entering into an agreement to acquire PPD for $17.4 billion plus the assumption of approximately $3.5 billion of net debt.
We also returned significant capital to our shareholders during the quarter, we purchased in $2 billion of our shares and increasing like dividend by 18%. So we've had a great start to the year and capital deployment front and our M&A pipeline remains very active.
Turning to a brief update on the progress of our ESG initiatives, our mission to enable our customers to make the world healthier, cleaner and safer, has never been more relevant. And in addition, we want to make a very positive impact in the communities in which we live and work. I'm very proud that over the past year, we've significantly increased our social impact. And in the first quarter, we committed to an impact investment of $25 million to support financial institutions serving black minority communities and businesses.
Just like the just project and our foundation for science, which we launched last year, this more recent investment is meant to help create opportunities for all.
Turning to our guidance for 2021. Given by our very strong start to the year and our confidence in the full year outlook, we're raising both our revenue and earnings guidance for the full year. Steven will get into the assumptions behind our guidance and I'll cover the highlights. We're raising our revenue guidance by $550 million to $35.6 billion, which represents 10% reported growth over 2020.
In terms of adjusted EPS, we're raising our guidance by $0.35 to $21.97, which will represent 12% growth over 2020. Before I turn the call over to Steven, let me summarize our key takeaways from Q1.
We delivered another excellent quarter of financial performance above the top of bottom line. The end markets are strong. We committed to execute -- we continue to execute our proven growth strategy to be an even stronger partner for our customers. We effectively deploy capital to create significant value for our customers and our shareholders. And we couldn't be more excited about our plans to acquire PPD. I'm very much looking forward to welcoming PPD is 27,000 colleagues at Thermo Fisher, which we expect to do later this year.
Finally, I'd like to thank my 80,000 colleagues at Thermo Fisher for their dedication to our company, our customers, and for once again delivering another fantastic quarter.
And now I'll turn the call over to our CFO, Stephen Williamson. Steven?
Thanks, Marc. And good morning, everyone. I'll begin with a high level summary of our Q1 performance. As Marc mentioned, we have another exceptional quarter and grew our revenue 59% including 53% organic growth. We deliver $2.9 billion of COVID-19 response revenue and accelerated the growth of our base business 13%. So a great start to the year on the top line.
We also had an excellent start of the year on adjusted EPS growing 145% in Q1 to $7.21. This was $0.70 higher than our expectations for Q1 at the time of our last earnings call driven by great operational execution, the timing of expenses within the year and then higher tailwind from FX. Overall exceptional financial results in Q1 continuing that momentum from 2020.
Let me now provide you with some additional details on our Q1 performance. GAAP EPS in the quarter was $5.88 up 198% from Q1 last year. On the top line, our Q1 reported revenue grew 59% year-over-year. The components of our Q1 report the revenue increase included 53% organic growth, a 4% tailwind from foreign exchange, and a 2% from acquisition.
As a reminder, we had three extra selling days in Q1 which represents a tailwind of approximately 3%. Looking ahead, we have four fewer days in Q4.
Turning to our performance by geography during the quarter, all regions will have a very strong growth. North America, Europe and Asia Pacific all grew approximately 50%, China grew 60% and the rest of the world grew over 80%.
Turning to our operational performance, Q1 adjusted operating income increased 155% and adjusted operating margin was 35.4%, 13 percentage points higher than Q1 last year. And the quarter our PPI business system enabled us to drive exceptional volume leverage and strong productivity. We also had favorable business mix and a tailwind from FX. This was partially offset by strategic investments across our businesses to support our near and long-term growth.
Moving on to the details the P&L, total company adjusted gross margin in the quarter came in at 54.1% up 810 basis points from Q1 of the prior year. The increase in gross margin and very similar drivers as those of our adjusted operating margin.
Adjusted SG&A in the quarter was 15.4% of revenue a decrease of 460 basis points versus Q1 2020 reflecting strong volume leverage. Total R&D expense was $320 million, representing growth of 31% over Q1 2020, reflecting our increased investments in high impact innovation to fuel future growth.
Looking at results below the line for the quarter, our net interest expense was $113 million, $23 million higher than Q1 last year. Adjusted other income and expense with a net income in the quarter of approximately $14 million, $11 million lower than Q1 2020 mainly due to changes in non-operating FX.
In line with our expectations, our adjusted tax rate in the quarter was 16% up 550 basis points versus Q1 last year, due to the substantial increase in pre-tax profit. Average diluted shares with $397 million in q1, about $2.5 million lower year-over-year. Driven by share repurchases net of options dilution.
Turning to cash flow and the balance sheet, cash flow was another strong highlight for the quarter. Our PPI business system enabled us to deliver a significant cash flow from the very strong top line performance. Cash flow from continuing operations was $2 billion and free cash flow was $1.4 billion.
Our capacity and capability investments are proceeding very well. And this quarter net capital expenditures were $620 million.
In the quarter we returned $2 billion of capital to shareholders through buybacks. $1.5 billion in January, and a further $500 million in March. During the quarter we also increase that dividend by 18%.
We deployed $1.4 billion in acquisitions in Q1 including Mesa Biotech, and the acquisition of a European based viral vector business. Shortly after the quarter end, we also announced an agreement to require CPD.
Earlier in the quarter, we completed the redemption of $2.6 billion of senior notes, at the end of Q1 with approximately $5.6 billion in cash and $18.6 billion of total debt. A leverage ratio at the end of the quarter was 1.5 times gross debt to adjusted EBITDA, and 1.1 times on a net basis.
Concluding my comments on our total company performance adjusted ROIC was 21.4% up 960 basis points from Q1 last year, as we continue to generate exceptional returns.
Now provide some color on the performance of our four business segments. Similar to the last few quarters, I'll start with some framing thoughts on the impact of the COVID-19 response on our segment results. From a revenue standpoint, as was the case from the last two quarters, the majority of the COVID-19 response revenue is recognized in lifetime solutions, with the remainder recognized and specially diagnostics and the laboratory products and services segment.
From a margin standpoint, the impact of COVID-19 different across the segments based on the scale of the response revenue and the different levels of profitability on that revenue. In addition, during the quarter, we continued to make strategic investments across all of our businesses that included investments in commercial, R&D and production capacity. The size of those investments does not necessarily align with the COVID-19 response revenue in each segment. So that does skew some of the reported segment margins.
A lot of moving parts from a segment margin standpoint, but it reflects a very active management of the company successfully navigating the current environment to position the company for even brighter future.
So moving on to the segment details starting with life sciences solutions. In Q1 reported revenue in this segment, increased 137% and organic growth was 129%. In the quarter, we saw exceptionally strong growth in genetic sciences, bio sciences and bio production businesses. Q1 adjusted operating income and Life Sciences Solution increased 238% adjusted operating margin was 54.2% up 16 percentage point year-over-year.
In the quarter we drove very strong volume pull through at positive business mix. And we continue to make strategic investments across all businesses in this segment. We also had a tailwind on margin from FX in this segment in Q1.
The analytical instruments segments reported revenue increased 26% in Q1 and organic growth was 22%. During the quarter, we saw strong growth in both the chromatography and mass spectrometry and the materials and structural analysis businesses. And it was good to see chemical analysis returned to growth.
Q1 adjusted operating income in analytical instruments increased 59% and adjusted operating margin with 19.6% up 410 basis points year-over-year. In the quarter we drove very strong volume leverage and productivity with more than offset strategic investment.
Since especially diagnostic segments, the Q1 reported revenue increased by 69%, organic revenue growth was 65%. A COVID-19 response enabled us to deliver very strong growth in our microbiology, healthcare market channel and clinical diagnostics businesses.
In addition, it was good to see immunodiagnostics business returned to growth in Q1.
Adjusted operating income increased 81% in the quarter and adjusted operating margin was 26.5% up 180 basis points from the prior year. And in Q1 we drove very strong volume leverage, which is partially offset by unfavorable business mix and strategic investments.
Lastly, in the products and services segments, Q1 reported revenue increased 32%, organic growth was 26%. In the quarter, we saw a very strong growth in all of our businesses in this segment. Adjusted operating income in the segment increased 80%. And adjusted operating margin was 14.8%, which is 400 basis points higher than the prior year. In the quarter we delivered strong volume pull through and productivity, partially offset by strategic investments.
So with that, let me now turn to our updated 2021 guidance. Consistent with the approach we took with our initial guidance, we're providing a point outlook rather than a range. We think this is the most helpful approach given there are a multitude of different potential customer demand outcomes for the year.
As Marc mentioned, we're raising both revenue and adjusted EPS guidance. Let me walk you through the detail. Talking about revenue, we're raising our revenue guidance by $550 million to $35.6 billion, which represents 10% reported growth over 2020, including 8% organic growth.
This increase was driven by three factors. $250 million of the increase is due to an improved organic growth outlook for the base business. The strong start to the year, enabling us to increase base business organic growth from 7% to 8% for the full year. $225 million of the increase comes from the higher impact of acquisition, reflecting the acquisition of Mesa Biotech, which was not included in our initial guidance, and a good start to the year for our European viral vector business. And the final element is increases $75 million for the higher FX tailwind.
Turning to adjusted earnings per share, we're increasing our annual adjusted EPS guidance by $0.35 to $21.97, which would result in 12% growth over 2020. The increase reflects $0.20 from improved operational outlook for the year, $0.10 for FX and $0.05 from capital deployments.
To break down the $0.05 increase in the impact of capital deployment versus our initial guide, I'm now including $0.10 of additional interest cost in Q4 as a placeholder for pre financing for the PPD acquisition. And this is more than offset by $0.06 benefit from the $500 million stock buyback undertaken in March and $0.9 benefit from acquisition.
So after great starting Q1, we're able to increase our outlook for the full year. Let me now provide you with some additional assumptions behind our updated -- our updated guidance.
We're now assuming that will deliver $7.3 billion of COVID-19 response revenue in 2021. This is $200 million higher than the initial guidance reflecting the acquisition of Mesa Biotech. Within the $7.3 billion we're now assuming vaccine and therapy related revenue of approximately $1.5 billion for the year. This is $500 million higher than our initial guidance assumptions, reflecting strong customer demand and progress with our capacity expansion project. Still remains a large range of outcomes for testing demand and we remain well positioned to support our customers.
With regards to FX, we're now assuming a year-over-year tailwind to $475 million, or 1.5% of revenue, and $0.24 or 1.2% of adjusted EPS. We're assuming that completed acquisitions contribute $350 million to our reported revenue growth in 2021 or 1.1%. The guidance does not include any operational benefit in 2021 from the acquisition of PPD. We get more clarity on the actual close dates will provide an estimate of the likely 2021 impact.
As mentioned earlier, and included $40 million or $0.10 to adjusted EPS impact of higher interest costs in the guide as a placeholder for the pre-financing of the PPD transaction.
We now expect net interest expense in 2021 to be approximately $510 million. We continue to expect the adjusted income tax rate to be 14% in 2021, no change from prior guidance, receiving net capital expenditures of approximately $2.5 billion to $2.7 billion. This is $300 million higher than your initial guidance for the year as we continue to identify opportunities to support future customer demand with our capacity and capability expansions in our pharma services bio production, bio sciences and the Laboratory Products businesses.
Free cash flow is expected to be approximately $7 billion in 2021. No change from prior guidance. The guidance now includes $3.8 billion of capital deployment, $2 billion a share buybacks, which were completed in Q1, $1.4 billion for completed M&A, and $400 million of capital returned to shareholders through dividends. We have to make that the full year average diluted share count will be 397 million shares.
And finally, I wanted to touch on quarterly phasing for the year and give a reminder of the factors that I outlined when I gave the initial guidance. First, as mentioned earlier, we had three extra selling days in Q1, we have four fewer days in Q4. The COVID-19 response revenue in the guidance is more significantly weighted to the first half of the year and the 2020 comparisons are significantly easier at the beginning of the year. That sets up for very strong growth in the first half of the year and given the revenue phasing the adjusted EPS is weighted more to the first half of the year.
In summary, we started the year with an excellent Q1 are in great position to achieve our goals for the year.
With that, I'll turn the call back over to Ralph.
Thank you, operator. We're ready to take questions.
[Operator Instructions]
Your first question comes from the line of Jack Meehan with Nephron Research.
Thank you. Good morning. I was wondering if you could start and talk about PPD, they got off to a strong start to the year a lot of momentum. Can you talk about how the initial integration planning is going to ensure they keep that momentum going? And you mentioned some of the customer feedback? Can you talk about maybe from a therapeutic perspective where customers are seeing the value?
Sure. Thanks for the question. As you know very excited about the combination of PPD and offering to our pharma and biotech customers. And as you know, the CRL market is very, very good characteristics of strong growth, because of the relevance of that offering and the trend for more and more of the activities that go to the biotech area where there's less of those capabilities and how. So you've got good market and PPD off to a very good start to the year financial performance and authorizations backlog very, very encouraging, it's a great business performing at a very high level.
We're just starting that process of planning the combination, and we've had very good collaborative dialogue with the leadership there. And over the coming months, we'll be working on that process. But for the colleagues there, we can't wait to walk on them. And it really is largely business as usual and bringing new ways to add more value to our customers.
So very encouraging and customers are very excited that the customers are interacted with. They get it, they understand the logic and they like the fact that we're going to have more capabilities to help them navigate the important things that they're doing. In terms of therapeutic areas, PPD covers the full range of the therapy classes and as Thermo Fisher, so we'll be able to support our customers and important work that they're doing.
Great. And then everyone is focused on the durability of the COVID benefit. Appreciate all the color so far. I guess I'm curious based on the core recovery, and the increased outlook on the vaccine and therapeutic side. Do you think the street forecasts in 2022 are a good baseline? And can you just talk about the level of visibility on the interplay between COVID and core?
Yes. When I think about the COVID response, the first quarter was exactly how we thought it was going to play out. And when we look at the outlook for the year, we've assumed parts of that response are going to within the parts of our growing parts of it will be less and in aggregate. We feel very comfortable with the outlook of the same number the $7.1 billion that we started with at the beginning of the year and added $200 million for Mesa. So that's been our view and three months into the year. That continues to be a view that we think makes sense. Thanks, Jack.
Our next question comes from the line of Tycho Peterson with JP Morgan.
Thanks. Marc, can you actually brought up the benefits of accelerated investments in a brokerage in your comments. I know you took the 20% last year and it was up 31% in the first quarter. Can you make this give us a little sense of where the incremental R&D investments are going, and how you think about some of the payoff there?
Yes. So it would go in areas as you would expect, right, where we were are in the budget is largely deployed. So increases in mass spectrometry, electron microscopy, would be two of the big areas, bioscience reagents, as well as clinical sequencing. Those are all the areas that got good investments. And when I look at our results, obviously, products take time to have the big impact, but those businesses are performing at a very high level.
And you saw from the press release, and some of my comments. We had a very good, strong start to the year on new product launches to mass spectrometers, building on our leadership and Orbitrap. Another exciting electron microscopy offering this one, particularly for material science applications that we launched in the quarter.
We've had good launches around our clinical sequencing business. And then one to meet a societal need, probably not a huge revenue opportunity, but an incredible need, which is how do you know if COVID is present in an indoor space, and because of our very deep scientific knowledge about air monitoring. We were able to launch a very relevant solution for that application. We also have applications in the past and things that we learned from anthrax challenges of years in the past, we were able to deploy here. So bringing out solutions that are relevant for our customers.
It's like that the OpEx yield and CapEx are substantially increased a CapEx for the last couple of years. And we're seeing the benefits of those coming online, selling now as the market highlighted a couple of lenders prepared remarks. And they'll be more of those coming along, as we go through this year and next year.
Thanks. And then, Stephen for the follow-up two on the model. I'm just curious, as we look a little bit further out. If you give us any sort of rough guidance on how we should think about normalized, ex-COVID margins, 2022 and beyond? And then any preliminary thoughts on the tax rate, given what's on the table here with perform longer term?
Yes. So we started before the pandemic, we had a strong margin profile as a company will exit the pandemic with a higher revenue base, which will come through at a higher margins. So, margins will be elevated from where we went into this pandemic, and look forward to getting more details about that, at the appropriate time. In terms of tax, we've continued to follow closely, what's happening in DC and various different proposals being made. As we've done in prior times have changed, we remain active and since advocating for change to happen, that is the right change and the unintended consequences. And we'll manage the company appropriately through that period of time. We have a competitive tax rate versus others and will remain with that competitive acquisition, through whatever change happens is the way I think competitive.
And your next question comes from the line of Vijay Kumar with Evercore.
Hi, guys. Congrats on announcement here. Two from me, maybe I'll start one on the, Stephen. What is the base business growth in Q1 was a high-single. So I just want to clarify that. And now, when you speak about $1.5 billion of vaccine revenue. Does that is you have any contribution from booster opportunity, or perhaps a pediatric label indication?
So Vijay, I'll start. So, based business was 13% in the quarter. And as a reminder, the days are favorable in Q1 less favorable in Q4. But we raised our base business, the $250 million organic raise is based on the base business performance so that the base business organic growth also goes up from seven to eight from that perspective.
On the $1.5 billion of vaccine and therapy revenue. It's -- the demand is very strong. It's probably not tied actually to the label. It's really a combination that orders are very large, and we've been able to get our manufacturing capacity to ramp up more quickly than we originally anticipated. It's really the benefits of the PPI business system. So that means that for '21, we have a big increase in expectation. And my take on the discussions with our customers, and certainly what we understand from the medical side of things.
The vaccine and therapy revenue is likely to be quite a bit duration well beyond 21. So as you get more indications of potential need for boosters or even annual vaccinations, you could imagine that the demand for vaccine revenue to be willing to '22 and beyond.
That's helpful Marc. And then one follow-up maybe a bigger picture question in the testing. There's been some chatter from your peers saying, look, as we get past the peak of the pandemic, perhaps testing is going to consolidate and more automated platforms. And I think the implication is perhaps your systems are not as automated, maybe it could be clockwork, but more often on how does Thermo stacker versus peers in that spirit? And then the pieces that I mean, I'm looking at your guidance, it looks like testing, you guys are faring much better than competition. So it seems to be slightly confusing on the messaging versus what we're seeing on the numbers?
Vijay, thanks for the question. So when I think about our role in the response. We understand customer needs, we have an incredible team of people that respond to it. We had the largest COVID response revenue last year, by a huge margin, right? And we've had these discussions in the past, where people in March bets at Thermo Fisher would have done the best job in supporting the industry, probably not on that particular dimension.
Broadly, yes. But on molecular diagnostics, we didn't go in with the strongest hand, if you will. But we made a huge difference. And the demand in the first quarter, as you see in the $2.9 billion was extremely good for us. And so, we're assuming that, will play a role in both symptomatic and asymptomatic testing. And remember, it's quite a global business, right? Our install bases around the world. So that's the view.
Now, we expect that there'll be less testing, right? In Q2, and in the second half, exactly, as we said back in January. As more vaccinations happen, that testing will come down a bit. And that's embedded in our guidance, sure. So I'm very enthusiastic about the role we're playing. And to be honest, I'm looking forward to the world, when we'll have so much testing, because it means that, we're going to sporting events, and we're traveling around the world and all the good things that come with it. And what happens when that happens is our base business really picks up as well. So, hopefully that gives you a sense of where we are.
And your next question comes from the line of Dan Arias with Stifel.
Good morning, guys. Thanks. Marc on bio production, obviously, you guys have quite a bit going on there in terms of expansion activity touched on that. I think the press release from March talked about 600 million in investments there. Are you able to sort of just crystallize for us what kind of incremental revenue capacity you think you'll be adding? By the time all is said and done, if we just sort of look 12 to 18 months, down the road? I mean, it feels like if you're looking for where the base business might be most different in 2022 or 2023. That's sort of a good place to start. So I'm wondering what you might be able to just put some numbers around that.
Yes. So the way that I think about the investments in bio production. That's always been a very rapid growth double-digit -- strong double-digit growth, historically, right. And you can glean from the comments over the many years, that when we look at the other companies in the field reporting, and we're comfortable saying we're growing faster or gaining share, that means that we don't get down to the micro detail of how each of our sub businesses are reporting there, performing there, we're doing very well.
And the expansion of $600 million of capacity supports that growth. For a number of years, we're pulling forward programs that we had online so that we can sustain very strong growth for many, many years to come. And when I look at the Q1 performance for bio production, the business has been extremely robust. And that takes into account what others have reported so far.
Okay. Maybe just as a follow-up on federal research funding. You've usually got a better than average line of sight into what's been talked about in Washington? Any views on the NIH budget next year and how that shapes up the President's proposal is obviously pretty encouraging. It does have that ARPA H program in there. I'm curious if you have a view on that, the appetite for that and whether you think that that might actually end up translating to fund availability for basic research, if that does come to fruition?
Yes, I mean, historically, there's been bipartisan support for national institutes of health funding. And as the former Vice President, and as the President might basically also listen to his remarks last night. I would expect him to be a real advocate for NIH, and he is a champion of tackling cancer. And the NIH plays a real role in that. And I think that bodes well for funding. So we'll see, obviously, but I would expect that the NIH should be in good stead, which is good news for academic and government customers, for sure.
Your next question comes from the line of the Doug Schenkel with Cowen.
Doug? Doug, you're on mute. We'll go to the next question and come back around to Doug.
Okay. And your next question comes from the line of Derrick Brown with the Bank of America.
Good morning, Derrick. Derrick?
Your line is open sir.
Derrick, we don't hear you unfortunately. We'll go to the next question and see if we can sort out what the technical challenges operator.
Okay. And your next question comes from the line of Puneet Souda with SVB Leerink.
Hi, Marc. Can you hear me?
Yes.
Okay. Thanks. So just wanted to get your view. In terms of post-pandemic, PCR installed base, you obviously have a very large install base here. Obviously, you're pointing out decline in COVID testing in line with their previous comments. But as we think about that larger instrument, install base, and some of that is automated amplitude and others. How should we think about menu expansion on that? How can you monetize that further into a broader diagnostics operating around the world?
Yes. So pretty thanks for the question. When I think about post-pandemic, right. I'm going to give a holistic answer including the specifics around the question that you asked. One of the things that we said back a year ago, was we've managed the company in such a way that we exited the pandemic, with a meaningfully stronger industry leadership than when we went in, obviously, we end up with a very strong position. And if I think about the actions that we've taken, we've accelerated our investments in operating expenses, R&D and CapEx to be a faster growing company organically exiting the pandemic.
So that's the overarching thing that we've done. So we didn't necessarily say, let's put all of the money where the pandemic stuff was where rather, where's the best opportunities to make a difference for your customers long-term. So the first thing we expect, and whether it's '22 or '23, whatever the timeframe is, as the pandemic, we -- is to expect that we will be a faster growing company.
At the same point, we've made very significant investments in our pharma services, and by our production business, they're very strong performing in their normal activities across many therapeutic classes. But that capacity will easily shift from COVID related demand to non-COVID related therapy classes. So when you think about those investments, the capacity is usable for the different areas. So again, you see that those investments transitioning from one type of use to the other.
When you think about the molecular diagnostics business, and you think about what's happened, we're obviously going to exit a much stronger player than where we were when we started. We have a much expanded install base of PCR instruments. We also have a refreshed base of a PCR instruments. And those instruments are very good for lab developed tests, where customers are looking for excellent economics and to customize their work and we're a major component supplier.
And we'll also be adding regulated content on top of that as well. So you'll see respiratory panels and overtime and things of that sort. We've dramatically increased our installed base of sample preparation instrumentation and we've gained very meaningful share. And we're well positioned to have a much stronger business going forward.
The two other things that have changed is that our lab plastics business, lab plastics essential, the pipette tips, the micro tighter plates, all things you use for testing. We've expanded capacity, we have alleviated supply chain issues across the industry. And we put ourselves in a position to have a bigger business coming out of the pandemic. And then finally, we were a tiny player in specimen collection. And we'll have a nice business on things like viral transport media, obviously, at a much smaller level than the pandemic. And it's been unprecedented, the demand for viral transport media during the pandemic, but we built low cost capacity in two countries to be able to serve the world. And that's going to be a nice, smaller but nice, profitable business that serves customer needs.
So we will exit the pandemic period at some point in time with a stronger molecular diagnostic business and we had coming into it and I feel great about it. The big numbers are going to come from the organic growth of the company and the repurposing of the capacity for of our production and pharma services. Yes, that's probably the way to think about the question.
And your next question comes from the line of Doug Schenkel with Cowen.
Good morning. Can you hear me now?
Hi Doug. Perfect.
Okay. Excellent, excellent. Well, thank you for taking my questions. The first thing I want to talk about is just really trends, your capital exposed business, and then I want to go back to guidance. So Marc, how much of the strength you're seeing in your more capital exposed businesses, what you talked about in your prepared remarks was do the recapture of demand from earlier drivers that maybe got pushed off because of the pandemic versus a real sign that things are improving here. Can you give us some sense of, are you seeing backlog build and in turn are you now expecting capital equipment demand to trend better than you might have a few months ago over the balance of 2021? So that's the first topic I want to talk about.
Let's do that one, and we will hit the second one.
Okay.
So, Doug, thank you for that question. And when I think about our analytical instruments business, off to a very strong start. Obviously gets an easy comparison. But nonetheless, very good to see demand, build excellent growth in the crawling aspect business, and very strong growth in electron microscopy and very good production, chemical analysis, all three businesses did well, with calling us back doing the best. Bookings orders, we're meaningfully ahead of the revenue.
So part of the outlook, we don't in segment level, our part of our confidence and in raising organic outlook is that the instrument business is well positioned after the start of the year to have a strong 2021. It's hard to know whether that was activity that just didn't happen last year. It's hard to know exactly why but activity is robust around the world. And that's very encouraging.
Okay. That super helpful. So thanks for that. And then on guidance, and again, maybe this is overdoing things. But at a simple but important level, Q1 revenue growth was better than your target, Q1 earnings was over $0.50 better than Street expectations. However, while you increased for your revenue targets by more than the magnitude of the Q1 revenue beat. You increased for the EPS targets by less than the magnitude of the Q1 beat. You did provide EPS guidance teams bridge in your prepared remarks.
So thanks for that, Steven. So this is maybe where I'm over thinking things. But I am wondering if this is also a reflection, this change EPS is the fact that you're seeing a base business trending a lot better than you expected coming into the year. And you are now taking a more conservative stands on COVID-19 revenue. And given the ladder is higher margin that this is going to have some impact on earnings. Maybe that was intended to be clear, or maybe I'm just wrong, but I'd love it. If you could just talk about that a little bit. Thank you.
Doug, it's simpler than that. So we're basically banking the great performance on the base business in Q1 for the full year, both on the organic growth that goes into the revenue and then the adjusted EPS. We're banking the Q1, strong FX stronger than we'd anticipated. The timing of expense about $100 million expenses that have been more Q2, Q3 than we expected in Q1. And then we're adding in $0.10 of impact of interest costs in Q4 for the acquisition PPD. I mean, the response revenue, it's basically the increased response revenue. We've added and they serve biotech for the year and kept to 7.1 plus Mesa, so 7.3. That's the way to think about the guy.
In the way you frame the question. It's really the $0.10 of PPD interest costs, obviously, a little bit of variability and other aspects of it, but that's probably what the differences and there's nothing, as Steven just said, on this off in a read into the COVID response revenue in terms of the guidance on EPS.
And your next question comes from the line of Derrick Brown from Bank of America.
Derrick, you there?
I'm here. Can you hear me?
Awesome. We can.
Perfect. Great. So Marc, I won't ask you on '22 this time.
You could have, I think, I got it when you asked it. So I think I try to get it there.
Yes. But I do want to follow-up on some of the macro rebounds and recovery in that. And just can we talk a little bit about FDI? I mean, you called out your electron microscopy business. I mean, is that still mostly require that you've seen? Have you seen any sort of pickup in the semi side of the business obviously? There's a lot of semiconductor shortages concerns about that. Can you talk about, what sort of opportunity is that for you? And you're sort of like near-line testing?
Yes. So Derrick, the electron microscopy business performed very well, broad based strength and material science and life sciences, applications. So and obviously, within material science, because of all of what we read about chip shortages and capacity expansions. We typically benefit from the capital investment cycle that will be coming online in the semiconductor industry is one of the material science applications. So I would think that's encouraging and we're seeing good activity and strong bookings across the board, they're so off to a good start.
Got it. And just as a follow-up. The Mesa acquisition is interesting, just because you historically have not done deals like that. And just sort of wondering if you could pontificate on sort of point of care versus central lab testing and sort of how you see it given you've got your fingers above it. I mean, how do you see sort of a mix of that evolving as we go forward? I mean, it's one of the debates in the diagnostics industry right now, is there like what is ultimately that central lab portion going to be? And how much of that is going to go to the PSC? And is this an area where you would see some incremental, potentially capital deployment in that space? Thanks.
Thanks Derrick. In terms of Mesa, one of the things obviously, that the pandemic drove, was testing happening in totally different ways and in different locations than it was pre-pandemic, and certainly, there was also back to life applications, which historically wouldn't have had any testing, if you think about it. And we got inundated with technology companies coming to us for either distribution partnerships or acquisition opportunities, a huge number. And a sub counting, I think they get 50 or 60 different ones that we looked at extensively.
And we were very impressed with the Mesa Technology in terms of ease of use and accuracy. And already having the 510(k) on the respiratory tests. We saw as a really interesting addition to the portfolio and that actually, its role in COVID on back to life applications. With the 30 minutes PCR answer, very easy to use. We a lot of what COVID will do will pay for the acquisition, and then you get an option on the upside for its application as you build out a menu over time. That's how we thought about it.
So it was probably less about a huge change in strategy or a huge move from a point of care standpoint, other than technology that we like we're extremely capable and PCR and said, this is a really natural extension of our offering. So and the business often I start, which is great. Thanks, Derek.
Operator, we have time for one more question.
And your next question comes from the line of Dan Brennan with UBS.
Great. Thanks for taking the question. Marc, I wanted to test you a question. Start off with a question on COVID testing. And then just wanted to ask you, just to give us a look around the world. But what's happening with the reopening, but just on COVID testing is an important question that we get. I know Derrick was pressing on '22. I'm even looking beyond '22 to '23. How do we just, it's possible just to frame where thermal business could go as things normalize? Obviously, there's a ton of assumptions that go into what we've had a lot of conversations with investors just trying to figure out where this could go. So firstly, the $6.1 billion that you give in 2020. Any sense of as you look at me, it's one normal state of testing a couple of years out what some level of that could be.
And then the second question was just related to, just you talked about the really strong rebound in China. Just -- could you give us a sense of kind of what they gain within your new 2021 guidance, kind of reasonably? Thank you.
So in terms of geographic view, incredible strength across the world, with all regions growing greater than around 50%, and rest of the world with 80%, and China with 60%, really broad base strength. And we're seeing encouraging, obviously, encouraging outlook, and that from a geographic perspective. From a testing perspective, we're going to play a larger role than what we would have played back in 2019, based on the comments around a larger specimen collection business, a larger installed base of PCR instruments that's also refreshed as well as meaningfully higher share and sample prep, and adding content to that install base overtime.
Very hard to quantify what it is in '23. Because you really have to make an assumption of what the pandemic looks like. Is it history or are we still fighting new variants and those things, and depending on that, you can have an incredibly wide range of outcomes. So we'll keep updating you periodically, overtime. So thank you, Dan. Let me just wrap it up here with a quick comment, which is -- as I think about the quarter, your market conditions are strong, we're off to an excellent start. And we're on track to deliver really another outstanding year. We look forward to updating you on our Q2 call, and please continue to stay safe. And as always, thank you for your ongoing support of Thermo Fisher Scientific. Thanks, everyone.
Thank you. And thank you for your participation. This conclude today's conference. You may now disconnect.