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Thermo Fisher puts China concerns to rest, rides gene therapy wave in Q3

Thermo Fisher Scientific Inc. posted $6.27 billion in total third-quarter revenues and 13% growth in China, further distancing itself from life sciences tools competitors in the region and putting policy-related concerns to rest.

Waltham, Mass-based Thermo Fisher, a developer of diagnostics, drug discovery instruments and other laboratory equipment, also reported double-digit growth in its pharmaceutical and biotechnology business, which CEO Marc Casper attributed to the continued rise in cell and gene therapy. The company hosted its third-quarter earnings call Oct. 23.

According to J.P. Morgan analyst Tycho Peterson, Thermo Fisher far exceeded expectations for the quarter, affirming resilience to the negative impacts from tariffs and healthcare policy changes in China and business slowdown in Europe that the company's peers have faced.

Thermo Fisher's stock was trading up approximately 6.3% to $298.71 as of 11:36 a.m. ET following the call.

SNL Image

Thermo Fisher Scientific CEO Marc Casper.
Source: Thermo Fisher Scientific

Casper said new facilities in China to support ongoing clinical trials and the budding biotech industry have boosted the company's presence. He said Thermo Fisher is well-aligned with the government's five-year plan, including priorities around environmental protection, expansion of the healthcare system and building an innovative biopharma industry.

Thermo Fisher raised its revenue and adjusted EPS guidance once again, reflecting the strong third-quarter performance, CFO Stephen Williamson said. Full-year organic growth outlook increased to 6%, and adjusted EPS for 2019 is expected to grow 10% to 11%, in the range of $12.28 to $12.34.

The guidance also accounts for more adverse foreign exchange than in the previous guidance, now expected to negatively impact revenue by 2%, Williamson said.

Performance

The overall Asia-Pacific region grew in the high single digits, as did Europe. North America saw growth in the mid-single digits, and the rest of the world grew in the low single digits, Williamson reported.

The company's analytical instruments segment was up 3% in organic revenue year over year, a slightly lower than expected number, though analysts acknowledged the difficult comparison due to the previous year's 12% growth.

Thermo Fisher divested its anatomical pathology business in the previous quarter, but the overall specialty diagnostics segment still posted 7% organic revenue growth, driven by transplant diagnostics and immunodiagnostics.

Organic revenue was up 6% year over year in lab products and services, driven by pharmaceutical services such as drug manufacturing. Thermo Fisher added more manufacturing capacity with the €90 million purchase of GlaxoSmithKline PLC's active pharmaceutical ingredient production site in the fourth quarter.

The life science solutions segment saw a 13% jump in revenue year over year, led by bioproduction and biosciences, a testament to the intense interest in regenerative medicines, according to Casper.

On the call, J.P. Morgan's Peterson asked the executives to speak to some of the controversies around gene therapy data and how impacts from the U.S. Food and Drug Administration's increased scrutiny on these products could trickle down to the tools industry. Peterson specifically pointed to Sarepta Therapeutics Inc. as an example, which saw its genetic disorder therapy rejected by the regulator.

"You're going to see individual company volatility," Casper said. "But the promise around cell therapy and gene therapy continues to be very strong."

He added that Thermo Fisher has benefited from its acquisition of Brammer Bio LLC, a viral vector manufacturer for such therapies. Casper said the tools-maker's M&A pipeline will continue to be "very active."