COVID drop: Getting to the ‘core’ of Thermo Fisher’s 7% growth forecast

Thermo Fisher expects a 3% drop in core organic growth for 2023 as COVID-related revenues decline but associated capacity will shift to other products in pharma’s pipelines.

For the full year 2022, thermos Fisher reported sales of $44.92 billion, up 15% year-on-year. Its Laboratory Products and Biopharma Services division – which includes both its bioprocess and contract development and manufacturing organization (CDMO) businesses – pulled in $22.5 billion, up 51% on the year prior, though organic growth (without the impact of acquisitions including clinical services firm PPD) was 10%.

This figure included $1.7 billion in revenues from the production of COVID-19 vaccine and therapeutics. At the height of the pandemic, Thermo Fisher claimed to be supporting over 250-related programs, both through its range of bioprocess equipment and consumables, and as a CDMO, resulting in heavy investment in its capabilities and capacity.

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But as demand rapidly decline, management has predicted 2023 COVID vaccine and therapeutic related revenues will drop to $500 million, $1.2 billion less than 2022 and a 3% impact on core organic growth.

“Even with this headwind, we’re expecting to deliver 7% core organic revenue growth in 2023, demonstrating the strength of our initial outlook, the agility with which we’re managing the business and the ongoing benefits of our growth strategy,” CFO Stephen Williamson told stakeholders.

But with COVID shifting the dynamics of the biopharma space, an investor asked CEO Marc Casper his definition of ‘core sales’ on the firm’s financial call.

“When I think about the $500 million, and when I look at that, that number is primarily related to our pharma services activity,” he responded. “It’s around actually producing the active pharmaceutical ingredients for the therapies. It’s for the sterile fill finish primarily for the vaccines and some of the therapies.”

He added he has “pretty good visibility to that number,” referring to the strategy to invest in capacity early on in the pandemic. Around $1.5 billion was invested in 2020 to expedite and bulk up production capacity across numerous sites. A further $600 million CAPEX was announced in 2021.

“The definition of core was we invested in capacity,” said Casper. “If you think about a sterile fill finish line, as an example, can be used for a COVID vaccine. It can also be used for pretty much any other biologic and even some of the small molecules, right? And therefore, our view was we would transition that capacity over time, and we have been and we will.”

The firm has previously spoken about the ease of repurposing COVID-19-related capacity.

“The other aspect of core is that if you think about how strong our growth was last year, well above our own ambitions. Even the 12% we had laid out at the end of the third quarter, we’ve already transitioned a meaningful amount of that revenue in terms of other activities,” he continued.

“We didn’t contemplate at all about changing the definition of what success is. We think 7% is the right number for us. The core is the right definition for us.”