Danaher Corporation Executives Said on Tuesday that China's Complex Macroeconomic Environment and Volatility in the Life Sciences Market Impacted the Company’s Third-Quarter Financial Results and Are Expected to Have a Lasting Effect for the Remainder of the Year. In the life sciences business:The company's core revenue from its overall business in China saw a moderate decline in the third quarter, with a particularly significant impact in the bioprocessing field. Due to a weak funding environment and low levels of baseline activity, Danaher CEO Rainer Blair stated on the company’s earnings call Tuesday morning that the situation in the country was challenging.A 45% decline。Blair stated that the revenue in the life sciences sector experienced a larger-than-expected decline, particularly throughout the quarter, as China's challenging funding environment further deteriorated. The foundational life sciences business decreased in the low single-digit percentage range, while the life sciences instrumentation segment dropped by a mid-single-digit percentage. The pharmaceutical and biopharmaceutical markets remained weak, though the life sciences research and applied markets stayed stable. Blair noted that high-end instruments performed better compared to less specialized solutions.He pointed out that the life science instruments business accounts for less than 10% of Danaher's total business.Genomic consumables core business also saw a low single-digit decline. Although the company achieved double-digit growth in areas such as plasmids, proteins, gene synthesis, and gene editing, this growth was offset by declines in NGS and basic research, Blair stated. He noted that the pharmaceutical and biotechnology markets within the life sciences business "experienced some degree of downturn," particularly in the U.S. and China, as large pharmaceutical customers "tightened their belts" on capital expenditures.Short-term negative impact, long-term optimistic opportunities:Overall, the revenue of life sciences in China has underperformed expectations. Blair stated that some anti-corruption measures in the countrySlowed down the process of equipment bidding and installation.The equipment bidding has been postponed for several weeks, and the installation of large capital equipment has decreased. However, Danaher Corporation has seen this trend weaken in recent weeks. He stated that these anti-corruption measures will not negatively impact short-term or mid-term growth and will ultimately provide a level playing field for multinational companies in China.The company did not see changes in the demand for China's bioprocessing market, but Blair pointed out that the business had been affected by a weaker funding environment and overcapacity in the past few quarters.In terms of diagnostic services:Impact of Bulk Purchasing on Beckman Coulter:Compared with bioprocessing and life sciences, China's diagnostics business has seen a basic return to normal patient volumes post-pandemic. However, in China's diagnostics field,Volume-based procurement will mainly affect Beckman Coulter Diagnostics.Danaher CFO Matt McGrew said the company believes headaches associated with VBP (Volume-Based Procurement) will have an annual adverse impact of $50 million in the coming years.Because the price will decrease by approximately 50%.He said that this adverse factor "has been relatively mild and controllable for a period of time."Long-term optimism about the Chinese market:Despite Danaher's weak performance across multiple sectors in China, Blair stated that he believes China is currently undergoing a post-epidemic restart, and the demand for biopharmaceuticals is "just scratching the surface." A large and growing middle class "is demanding access to the most advanced medicines in the world," so Danaher continues to "view China as a mid- and long-term opportunity because the fundamentals are right."Overall, the Danaher report shows that third-quarter revenue decreased by 11% year-over-year.Revenue for the three months ended September 30 fell to $6.87 billion from $7.66 billion a year ago but was above Wall Street's consensus estimate of $6.26 billion. Core revenue, on a non-GAAP basis, declined nearly 12% year over year, including a 3% drop in the base business.According to the company's Q3 2023 Form 10-Q filed with the U.S. Securities and Exchange Commission, revenue from Life Sciences decreased from $1.72 billion in the third quarter of 2022 to $1.71 billion, while Life Science Instruments declined by a mid-single-digit percentage. Core revenue in this segment fell by nearly 3%.Blair also discussed Danaher's proposed $5.7 billion acquisition of Abcam, stating that the acquisition would allow Danaher to enter an "extremely attractive protein consumables market" estimated to be worth over $8 billion, with expected value creation at multiple levels, including core growth and profitability. He mentioned that the acquisition is expected to be completed by mid-2024. Abcam, headquartered in Cambridge, UK, currently offers antibodies, reagents, biomarkers, and assays for drug discovery, life science research, and diagnostics.Danaher Diagnostics Business Revenue:In terms of diagnostics, revenue fell from $2.68 billion a year ago to $2.25 billion (approximately RMB 6.463 billion), with core revenue also dropping by 16%, although the underlying business's core revenue grew in the mid-single-digit percentage range. Core revenue for the clinical diagnostics business increased in the mid-single-digit range.Due to Cepheid's non-respiratory testing growing by more than 20%Radiometer's core growth exceeded the high single digits, while Beckman Coulter Diagnostics' core growth reached the mid-single digits.Blair also noted that Cepheid's Group A Streptococcus and sexual health tests grew by 25%.Beckman Coulter showed double-digit growth in instruments, clinical chemistry, and immunoassays.Cepheid's Revenue Continues to Rise, Strong Demand for Quad Test:Cepheid's respiratory testing revenue reached approximately $350 million (approximately RMB25.61100 million RMB),Exceeding the estimated $100 million. Blair stated that the COVID-19 pandemic has increased respiratory testing volumes and demand for Cepheid's quadruple test for COVID-19, influenza A/B, and respiratory syncytial virus. He also noted that since 2019, Cepheid's installed base and revenue have doubled, and the company "continues to gain share and expand our installed base in today’s pandemic environment."Revenue from biotechnology operations fell to $1.66 billion from $2.05 billion in the third quarter of 2022, with core revenue declining 21% year over year. The bio-processing business was impacted by customers continuing to work through inventories purchased during the COVID-19 pandemic, but Blair said he believes the unit has bottomed out and the company has seen stabilization in its bio-processing business over the past two quarters.The company completed the spin-off of its environmental and application solutions business, Veralto, at the end of the third quarter.Outlook for the Fourth Quarter Performance:For the fourth quarter, Danaher expects the core revenue of its base business to decline in the mid-single-digit percentage range. For the full year, the company anticipates that the core revenue growth of its base business will be slightly lower than last year. The company stated that the financial results for the third quarter included contributions from Veralto, but noted that guidance for the fourth quarter and full year of 2023 will not include Veralto.Danaher Expects Biotechnology Core Revenue to Decline in the High Single-Digit Percentage Range, While Life Sciences Core Revenue to Remain Stable Throughout 2023.Diagnostic revenue is expected to decline in the mid-single digits in 2023, even as the company raised its testing revenue forecast for Cepheid from $1.2 billion to $1.6 billion.
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