Thermo Fisher Scientific Inc (TMO) — Q1 2026 Earnings Call Transcript

Good morning, and thank you for joining us. On the call with me today is Marc Casper, our Chairman and Chief Executive Officer; and Jim Meyer, 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 News Events and Presentations until July 22, 2026. A copy of the press release of our first quarter earnings is available in the Investors section of our website under the heading Financials. 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 within the meaning of applicable securities laws. 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 and subsequent quarterly reports on Form 10-Q under the heading Risk Factors. These forward-looking statements are based on our current expectations and speak only as of the date they are made. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even in the event of new information, future developments or otherwise. Also, during this call, we will 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 earnings and also in the Investors section of our website under the heading Financials. So with that, I'll now turn the call over to Marc.

Thank you, Raf. Good morning, everyone, and thanks for joining us today for our first quarter call. As you saw in our press release, we delivered a strong start to the year. Our end markets are progressing in line with our expectations. We continue to strengthen and add to our capabilities by executing our proven growth strategy and completing the acquisition of Clario. Our progress in the quarter further advances our leadership position as the trusted partner to our customers. And as you know, we're actively managing the company, leveraging our global scale and the strength of our PPI Business System to create value for our stakeholders and position our company for a very, very bright future. To start, let me recap the first quarter financial results. Our revenue grew 6% to $11.01 billion. Adjusted operating income grew 6% to $2.4 billion. Q1 adjusted operating margin was 21.8%, and we grew adjusted EPS by 6% to $5.44 per share. Turning to our end markets, performance played out as we expected. I'll briefly cover each end market, starting with pharma and biotech. We delivered mid-single-digit growth during the quarter. Performance was driven by strength in our bioproduction business, our clinical research business and our research and safety market channel. In academic and government, revenue declined low single digits driven by muted macro conditions in the U.S. and China. In Industrial and Applied, growth was flat during the quarter. Growth was led by our chromatography and mass spectrometry business as well as the research and safety market channel. Finally, in Diagnostics and Health Care, revenue declined in the mid-single digits. We delivered another quarter of strong growth in our transplant diagnostics business. As I look ahead, we see our end markets progressing as expected in our original guidance. When I think about the broader macroeconomic environment, there is added complexity, of course, given the conflict in the Middle East and we expect this to create some modest level of inflationary pressure. Our customers remain focused on advancing their priorities, and we expect our end markets to prove resilient. We are well positioned to navigate through this period, leveraging our experienced management team, global scale and the strength of our PPI Business System. Let me now provide some highlights from our growth strategy this quarter. As a reminder, our growth strategy consists of three pillars: high-impact innovation, our trusted partner status with customers and our unparalleled commercial engine. Starting with the first pillar of our growth strategy, high-impact innovation. We had an excellent start to the year. Our innovation enables customers to advance science and improve lives around the world. During the quarter, we launched a number of new technologies across our business that strengthen our industry leadership and help customers break new ground in their important work. In our Analytical Instruments business, we introduced the Thermo Scientific Glacios 3 Cryo-TEM, a next-generation cryo transmission electron microscope that features AI-enabled workflows. What's really exciting about this launch is that it further democratizes access to cryo-EM through the robustness of the instrument that allows installation in a broader range of lab spaces, bringing high-end structural biology capabilities to more customers. In Mass Spectrometry, we introduced the Thermo Scientific TSQ Certis Triple Quad Mass Spectrometer. This advanced platform delivers faster, high-quality results helping customers enhance productivity and reliability in pharmaceutical and applied markets. We also launched the Thermo Scientific Niton XL5E handheld XRF analyzer, which is a great addition to our handheld portfolio. This new instrument enables industrial and applied customers to identify materials in the field, helping them drive productivity and speed decision-making. In Life Science Solutions, we launched the Gibco CTS Compleo fill and finish system. This automated system helps address manual fill and finish challenges in cell therapy manufacturing, enhancing productivity and reliability while enabling scalable manufacturing. In laboratory products, we introduced the FluidEase Pro ClipTip electronic pipettes, which improve precision and efficiency in everyday lab work helping customers generate more reliable results. Let me now cover the remaining pillars of our strategy. Our trusted partner status provides us with unique insights to guide our strategy and continually strengthen our capabilities for our customers. At the same time, our industry-leading commercial engine enables us to deliver those capabilities at scale. During the quarter, we continued to strengthen our leading position in both of these areas. Earlier in the year, we announced a strategic collaboration with NVIDIA, combining our leadership in laboratory technologies with NVIDIA's advanced AI capabilities. The team is making great progress working together towards the commercialization of new workflow solutions that will enhance scientific instrumentation and help customers work faster, improve accuracy and get more value out of each experiment. To further strengthen our U.S. drug product manufacturing capabilities for our pharma and biotech customers, we formed a strategic collaboration with SHL Medical, a leading provider of advanced drug delivery systems. We will be leveraging our recently acquired Ridgefield, New Jersey sterile fill-finish site to offer fully integrated sterile fill-finish and device assembly solutions for our customers. Another great example of our trusted partner status is the continued adoption of our unique accelerated drug development offering which combines our leading capabilities in pharma services and clinical research. This competitive differentiator is translating into strong performance and share gain in our clinical research business which delivered strong revenue and authorizations growth once again in the quarter. We also continue to invest in our commercial engine to ensure we're meeting the current and future needs of our customers. Let me share an example. We opened a new Cryo-EM Drug Discovery Center in San Francisco. It provides pharma and biotech customers with hands-on access to further accelerate adoption of our advanced Cryo-EM technologies to advance drug development. So wrapping up on our growth strategy, we made great progress during the quarter, and we're continuing to advance our leadership position. Let me now turn to capital deployment. We continue to successfully execute our disciplined approach to capital deployment, which is a combination of strategic M&A and returning capital to our shareholders. In late March, we completed the acquisition of Clario and had a terrific kickoff with our new colleagues. Clario is a market leader in digital endpoint data solutions. This technology business is an outstanding strategic fit and highly complementary to our clinical research capabilities. It enhances our ability to serve pharma and biotech customers by enabling deeper clinical insights and helping improve the productivity of the drug development process. This acquisition is a great example of the value that our proven M&A strategy creates for the company. Clario further strengthens Thermo Fisher's position as the trusted partner to pharma and biotech customers delivering important benefits to enable their success. And the acquisition has a very attractive return profile for our shareholders. We're also very pleased with the progress we're making with our filtration and separation business, which we acquired from Solventum. I had the chance to visit the team in Germany recently. The business is performing very well. The integration is going smoothly and customer enthusiasm for these capabilities is very high. Finally, in terms of return of capital during the quarter, we repurchased $3 billion of shares and increased our dividend by 10%. Let me now give you a brief update on our PPI Business System because of its relevance to our success. PPI is deeply embedded in our culture and empowers colleagues across the company to operate with agility. The mindset of finding a better way every day is a core part of our culture and gives me great confidence in our ability to manage through the current environment. We have a proven track record of actively managing the company and consistently delivering strong operational performance. As a reminder, a few areas of focus for the PPI Business System in 2026 are driving an accelerated level of cost productivity, deploying AI at scale to run the company better, and the continued mitigation of tariffs. Our teams are proactively working to mitigate any potential impacts from higher inflation given the current macro environment. Now I'd like to review our 2026 guidance at a high level. We are raising our guidance for the full year on the top and bottom line, incorporating the positive impact of Clario and the strong first quarter earnings performance. We are raising revenue guidance from a range of $46.3 billion to $47.2 billion to a new range of $47.3 billion to $48.1 billion, which represents 6% to 8% reported revenue growth over 2025 and continues to assume 3% to 4% organic revenue growth for the year. And we expect adjusted earnings per share to be in the range of $24.64 to $25.12 which represents 8% to 10% growth over 2025, an increase from our original guidance of $24.22 to $24.80. Jim will take you through the details in his remarks. So to summarize our key takeaways, we delivered a strong start to the year. We're raising our full year revenue and adjusted EPS guidance. Our end markets and our business are progressing in line with our expectations and we're on track to deliver a strong year. We've advanced our long-term competitive position in the quarter with high-impact innovation and important strategic collaborations. We're incredibly excited about the addition of Clario to our capabilities and we'll continue to leverage the strength of our PPI Business System to create value for our stakeholders while building an even brighter future for our company. With that, I'll turn the call over to Jim.

Thank you, Marc, and good morning, everyone. I'll start by thanking Marc and Stephen for their support during my transition into the role. I've appreciated meeting many of you on the call over the past few months and look forward to continued engagement with the investor community. In my remarks today, I'll take you through an overview of our first quarter results for the total company and then provide color on our four business segments. And finally, I'll share details on our updated guidance for the year. Before I get into the specifics of our financial performance, I'll provide a high-level view on how the first quarter played out versus our expectations at the time of our last earnings call. As you saw in our press release, we have a strong start to the year. We advanced our proven growth strategy, closed the acquisition of Clario and delivered strong earnings growth. Let me begin with Clario, which was not included in our previous guidance. We were excited to complete the acquisition in late March and the business added $30 million of revenue and $0.01 of adjusted EPS to our first quarter results. The business is on track, and the integration is progressing well. Turning back to the total company, both revenue and organic revenue growth were in line with our previous guidance for the quarter. On the bottom line, we delivered adjusted EPS in the quarter that was $0.14 ahead of our previous guidance. This included the $0.01 from Clario and $0.13 from strong operational performance, demonstrating our continued active management of the company and the power of the PPI Business System. So a strong quarter with excellent execution by the team which enabled us to deliver Q1 financial performance ahead of what we'd assumed in our prior guidance. I'll now provide you some additional details on our performance. Starting with earnings per share. In the quarter, adjusted EPS grew by 6% to $5.44. GAAP EPS in the quarter was $4.43, up 11% from Q1 last year. On the top line, Q1 reported revenue grew 6% year-over-year. The components of our reported revenue change included 1% organic growth, a 3% contribution from acquisitions and a 2% tailwind from foreign exchange. As a reminder, in Q1, we had one less selling day than the prior year quarter. This impacted organic revenue growth by approximately 1 percentage point. Turning to organic revenue performance by geography. In Q1, North America grew low single digits, Europe was flat and Asia Pacific was flat, with China declining low single digits. With respect to our operational performance, we delivered $2.4 billion of adjusted operating income in the quarter, an increase of 6% year-over-year and adjusted operating margin was 21.8%, 10 basis points lower than Q1 last year. This includes approximately 80 basis points of headwind from tariffs and related FX versus the prior year. In the quarter, we delivered very strong productivity. This enabled us to fund strategic investments to further advance our industry leadership and largely offset the impact of unfavorable mix and the headwind from tariffs and related FX. Total company adjusted gross margin in the quarter was 40.8%. The drivers of adjusted gross margin are similar to those of adjusted operating margin. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 16% of revenue. Total R&D expense was $340 million in Q1, reflecting our ongoing investments in high-impact innovation. R&D as a percentage of our manufacturing revenue for the quarter was 6.9%. Looking at our results below the line, Q1 net interest expense was $120 million. The adjusted tax rate in Q1 was 10.5%, and average diluted shares were $373 million in Q1, $6 million lower year-over-year, driven by share repurchases, net of option dilution. Turning to free cash flow and the balance sheet. Q1 cash flow from operations was $1.2 billion and free cash flow was $830 million after investing $370 million of net capital expenditures. During the quarter, we completed the acquisition of Clario for approximately $9 billion plus potential future performance-based payments. The business is now part of our Laboratory Products and Biopharma Services segment. In Q1, we also deployed $3.2 billion of capital to shareholders through $3 billion of share buybacks and approximately $160 million of dividends. We ended the quarter with $3.3 billion of cash and equivalents and $43.2 billion of total debt. Our leverage ratio at the end of the quarter was 3.8x gross debt to adjusted EBITDA and 3.5x on a net debt basis. Concluding my comments on our total company performance, adjusted ROIC was 11%. Now I'll provide some color on the performance of our four business segments. In Life Sciences Solutions, Q1 reported revenue increased 13% versus the prior year quarter and organic revenue growth was 1%. The growth in this segment was led by our bioproduction business, which had another quarter of excellent organic growth. Q1 adjusted operating income for Life Sciences Solutions increased 14% and adjusted operating margin was 36.2%, up 60 basis points versus the prior year quarter. During Q1, we delivered very strong productivity, which was partially offset by unfavorable mix and the expected impact from the acquisition of our filtration and separation business. In the Analytical Instruments segment, Q1 reported revenue was flat, and organic revenue decreased 2% year-over-year. Performance reflects muted demand for instruments from academic and government customers in the U.S. and China. In this segment, Q1 adjusted operating income decreased 11% and adjusted operating margin was 20.7% down 250 basis points versus the year ago quarter. The majority of the margin change was driven by the expected impacts of tariffs and related FX. Beyond that, we delivered good productivity. It was more than offset by lower volume and unfavorable mix in the quarter. Turning to Specialty Diagnostics. In Q1, reported revenue declined 1% year-over-year and organic revenue declined 3%. Performance in this segment reflects the impact of one less selling day in the quarter and a strong year-over-year comparable. In Q1, growth in this segment was led by our transplant diagnostics business. Q1 adjusted operating income for Specialty Diagnostics increased 3% and adjusted operating margin was 27.4%, 90 basis points higher than Q1 2025. During the quarter, strong productivity and favorable mix were partially offset by lower volume. Finally, in the Laboratory Products and Biopharma Services segment, reported revenue increased 7% and organic growth was 4%. In Q1, growth in this segment was led by our clinical research business and our research and safety market channel. Q1 adjusted operating income in the segment increased 6% and adjusted operating margin was 12.9%, 10 basis points lower than the prior year quarter. In the quarter, we delivered very strong productivity, which was more than offset by unfavorable mix, strategic investments and expected headwinds from foreign exchange. Turning to guidance. As Marc outlined, we're raising our 2026 full year guide to reflect the strong start to the year and the acquisition of Clario. We now expect revenue to be in the range of $47.3 billion to $48.1 billion and adjusted EPS to be in the range of $24.64 to $25.12 representing 8% to 10% adjusted EPS growth. Our updated guidance for the year continues to assume 3% to 4% organic revenue growth. The midpoint of our organic growth guidance continues to be slightly above 3% and we continue to assume a $300 million tailwind to revenue from foreign exchange for the year. At the midpoint, the guidance includes $900 million higher revenue, 20 basis points of additional margin expansion and $0.37 higher adjusted EPS compared to our previous guidance. This incorporates the acquisition of Clario, which increased our 2026 revenue guidance by $900 million and added $0.32 of adjusted EPS net of financing costs. At the midpoint, the increase in adjusted EPS reflects the contribution from Clario and the strong operational performance in Q1, partially offset by an assumption for higher inflation in future quarters that we are actively working to mitigate. In terms of adjusted operating margins, our guide has increased to 70 basis points of expansion for the year, including the addition of Clario and the strong performance we delivered in Q1. We are continuing to actively manage the company and drive excellent operational performance, enabling us to increase our guidance for the year while navigating a complex macro environment. Let me provide you some of the modeling elements for the full year. We expect approximately $660 million of net interest expense, which now includes financing for the Clario acquisition. We continue to assume that the adjusted income tax rate will be 11.5%. We expect between $1.9 billion and $2.1 billion of net capital expenditures and free cash flow in the range of $6.9 billion to $7.4 billion for the year, both reflecting the addition of Clario. In terms of capital deployment, we're assuming $3 billion of share buybacks, which were already completed in January and that we'll return approximately $700 million of capital to shareholders this year through dividends. We estimate the full year average diluted share count will be between $370 million and $375 million shares. Now let me provide some color on phasing for Q2. Aligned with the quarterly progression in our original guidance, we are assuming organic revenue growth of about 3% for the second quarter. We expect Q2 adjusted EPS to be between $0.25 and $0.30 higher than Q1. So to conclude, we had a strong quarter. We executed very well to deliver on our commitments. We are thrilled to have welcomed Clario to the company, and we are raising our adjusted EPS guidance for the year. With that, I'll turn the call back over to Raf.

Operator, we're ready for the Q&A portion of the call.

Great. Marc, let me start with a high-level one. A lot of questions from investors, both this morning and over the last couple of weeks, have been about the acceleration as you go through the year. Investors are increasingly worried about the ramp given some of the end-market concerns and lingering macro pressures. You touched on a couple of those when you were talking about the first quarter. So what would you say to allay some of those fears about the ramp needed to hit the full-year guide? You mentioned you did 1% in the first quarter, as Jim just called out, and 3% for the second quarter. I think a lot of people are assuming about 3% in the third quarter and then 5% in the fourth. You have days impact in there. But beyond that, just talk about the confidence in the improvement in performance as you go through the year.

Yes. So Mike, thanks for the question. When I step back and look at the quarter, I had the opportunity to see many customers during the quarter. And of course, the macro is challenging with the war in the Middle East and so forth. But that's not really in customers' thinking. They're focused on their pipelines and the scientific advances. It's an incredibly exciting time for the industry. The markets played out as we expected in the first quarter. We understand the ramp, but the ramp is not really assuming a change in the underlying market conditions. This relates to comparable days and similar timing effects. So it's nice to have a good quarter behind us and then we step up in a logical way from there. Jim, maybe you want to talk a little bit about the phasing?

Yes. When you think about the phasing from Q1 to Q2, you have the impact of the headwind from selling days in Q1 that doesn't exist in Q2, and you also have a significant comparable change in Analytical Instruments. So that step-up is driven by those two factors, Q1 to Q2. And then if you think about the first half to the second half, you obviously have the impact of days, the headwind in Q1, the tailwind in Q4 and you have a meaningfully different revenue phasing profile in Pharma Services that impacts both this year and last year. Our Pharma Services business delivers much stronger growth in the second half of the year aligned with how we modeled the year to start it.

Okay. And then a follow-up, if I could. It sounds like you had another good strong quarter in Pharma and Biotech. You called out bioproduction, you called out clinical research continuing to do well. Is there anything in particular that offset that? I think you touched on weaker U.S. academic and government and in China, maybe a little softness in diagnostics. So is there any moving pieces in terms of what came out worse than expected to offset some of the strength in pharma and biotech?

No. When I think about the end markets and the growth that we delivered across the four end markets, they were pretty much what we expected to happen during the quarter. We knew that pharma and biotech would be the strongest growth among those end markets. That was our expectation, and the strength was broad-based in terms of the momentum there. So I don't think there was anything materially different. On a small scale, we had a weaker respiratory season, but it's relatively insignificant in terms of overall impact. So it was a very predictable quarter and our team did a nice job executing against it.

Marc, just maybe picking up on that biopharma thread. Curious if you could talk on PPD. I think one of your peers had light bookings last night, obviously you're coming off a very strong fourth quarter. So curious what you saw in the quarter on PPD. And then is the biotech funding, which has been okay here, starting to translate into spending? And then early feedback on Clario from customers and how we should think about the combination there.

Yes, Tycho, thanks for the question. Clinical Research had an excellent quarter. Sequentially, the business stepped up and showed stronger organic growth. Year-over-year, it delivered nice organic growth in both revenue and authorizations. Customers really value our capabilities. We're continuing our share gain momentum and conditions are improving. The biotech funding environment is improving, which is positive for us. Sentiment continues to strengthen and we've been able to close good opportunities while maintaining a strong funnel. Our accelerated drug development capabilities, which simplify the process and reduce complexity and time, are highly valued by customers. It's unique to us because we can leverage insights from our development and manufacturing organization as well. We're also embedding AI into our capabilities through collaborations, including with OpenAI, and customers value that. So the business is healthy and our trusted partner status is progressing well. Clario is exciting. We closed it on March 24 and I was there for day one. Early feedback from customers, even from announcement to close, is that they are very excited about Clario's technology and how it brings major endpoints together in an easier way to execute clinical trials. I'm very excited about the acquisition and the value it will bring for the company and our customers.

Great. And then maybe just a quick follow-up on Analytical Instruments. Obviously, everyone has been dealing with the academic and government headwinds. As we think about that business for the remainder of the year, how are you feeling about a recovery on the instrument side?

When I think about the instruments business, the market conditions are below normalized levels, driven by the academic and government environment in the U.S. and China. Our innovation is very strong, so I feel good about what's ahead. We are investing in product innovation across the instrument business—next-generation cryo-EM, new mass spectrometers, new handheld devices, and more. ASMS in June will be an important event for us. The comparisons are a little odd this year due to tariffs and timing, but the comparison for Analytical Instruments is much easier in Q2 because of the impacts of tariffs in the prior year. So you'll see growth normalize as we move through the first half.

Marc, I wanted to get your thoughts around AI as this is obviously a huge topic for the market. As you look across the business segments, can you talk about how adoption might be influencing your customer spending behavior? And I'm not sure if you're planning an Analyst Day or not, but any color you can share on new offerings you might be able to highlight that leverage your data and Clario?

So Jack, thanks for the question. We are planning our Analyst Day the morning of May 20 in New York, and we're excited to host analysts then. Regarding AI, it's super exciting. AI is accelerating scientific discovery, deepening understanding, and ultimately accelerating bringing new medicines to patients faster. We believe AI will improve returns on investment for the drug development industry, which should lead to more products coming through the pipeline and enhanced funding interest in the biotech community. That is a meaningful positive for Thermo Fisher. We are exceptionally positioned to shape and benefit from AI across our clinical research business, our instrument businesses, and parts of Life Science Solutions. Collaborations with OpenAI and NVIDIA span our portfolio and will strengthen connectivity, workflows and analytics. AI amplifies our durable competitive advantage—our scale, portfolio breadth, trusted partner status and execution. It's an exciting time and we're focused on driving adoption that makes a difference for our customers.

Cool. I'm looking forward to May 20. Jim, one follow-up. You called out higher inflation a few times in the script. Could you elaborate on which areas you might be seeing that in and what the strategy is around offsets and productivity?

Yes, Jack, thanks. Given the daily variability in oil prices, we felt it appropriate to put a placeholder in the guide for potential inflation in future quarters that we aren't fully able to mitigate within a year. The teams are activated to offset and mitigate it, and we expect to be able to do that, but there is a wide range of outcomes so we put something prudent in the guide. The areas you see it first are shorter-term supply chain logistics and transportation. We have started to see some of that and are actively executing against it. Right now, it's a placeholder given the variability.

Marc, last quarter you and Stephen framed the year as looking to retire risk as you go along. When you're answering Mike's question you talked about some moving parts on the macro that have cropped up. I'm curious if you think there's anything that has improved in the last 90 days that you would consider risk retired at this point?

Every year we have expectations of how things will play out based on our experience and our customer relationships. When things go as expected, as Q1 did, that retires risk. Our operating discipline was even stronger than what we embedded in our guidance, allowing us to raise our earnings outlook. Customer sentiment is quite strong. Pharma and biotech customers are excited about their pipelines and the improving environment. That bodes well and reduces risk. Operationally, we beat by $0.13 and largely flowed that through the P&L, with a modest holdback because of inflation uncertainty. Our team is focused on offsetting inflation with all available levers. If inflation is modest, we will offset it and that will flow to the bottom line. If it becomes more material, we have a cushion to manage it. I feel good about the year at this point and we are excited to deliver a strong performance.

Yes, Daniel. Your characterization is correct. The 1% growth in Q1 was impacted by about 1 point from the impact of selling days and about 1 point by the timing of revenue phasing in the Pharma Services business. In Q2, there are puts and takes, but in aggregate that characterization is accurate.

Just wanted to follow up on Jack's question on AI and the instrument innovation highlights you shared. It seems like there will be an enhanced emphasis on scale, automation, connectivity and auditability or proof of work both for large-scale generation of biological data and in autonomous labs. Given your portfolio, how does the way customers might shift how they use your instruments affect how you are thinking about developing them?

So Matt, excellent question. Adoption of AI in research is driving experimentation to scale in ways that didn't happen before—large-scale generation of biological data to build biology models. Customers want instruments to be more automated or automation-ready and they want data that easily populates their models. These trends are not entirely new—we have been preparing for lab of the future and lab-in-the-loop concepts for years—but now scaled facilities are coming online. Our R&D roadmaps focus on better connectivity and automation, and we're making good progress on delivering those capabilities.

Okay. Great. And then on reshoring, I think that was probably a 2027 and beyond item. An industry conference this week suggested people are seeing RFPs. Curious your level of confidence that that will remain a tailwind and what activity you are seeing for Thermo Fisher?

When I think about reshoring activity, it's a nice tailwind in the '27/'28 timeframe. We've already secured work, starting with our CDMO business, where a number of customers have decided that leveraging our capabilities is the best way to meet production needs in the U.S. Some announcements and topics we've discussed reflect that. President Trump's visit to our drug product site in Cincinnati highlighted the reshoring theme. In bioproduction, we expect revenue from reshoring to be largely a '27 and '28 activity. We've won some brownfield contracts that are scaling up, so there's real momentum and signed contracts. Our bioproduction business had a phenomenal quarter and we feel very good about prospects. We view reshoring as an incremental tailwind that will develop over the next couple of years.

Congrats on the quarter. Maybe on the preclinical market, which is a big part of the business but hard to track, has it been a drag on your business? Is that something we could see get better this year?

When I think about the lab-based portions of pharma and biotech, it's a bit hard for us to separate QA/QC lab versus research lab demand in our data because customers don't always segregate spend. Roughly, the channel business is showing good momentum in higher-tech portfolios. Life science reagents are a little softer but still progressing in the right direction. That area is showing signs of pickup and we feel okay about how it's progressing going forward.

And on U.S. academic and government, are you seeing any signs that things are bottoming out and improving? What are you assuming for the rest of the year in that market?

In the U.S., conditions were muted in the quarter as expected. The passage of the budget in late January is positive and we saw funding flows start to improve during the quarter. Our assumption for the year is greater stability in the U.S. end market with modest improvement over time, but not a return to full normalization relative to historical levels. That is the assumption in aggregate similar to what we saw last year.

Maybe walk through the Specialty Diagnostics performance in the quarter and the mid-single-digit decline there. I think you called out strength in transplant and minimal impact from respiratory, but please walk through where the softness occurred in the quarter. We've seen a couple of reports of a weaker microbiology market in China, did that contribute? And any color on pacing and Specialty Diagnostics for the rest of the year? I think you have an easier comp in Q2 and tougher comps in the back half, so how should we think about the growth cadence there?

In Specialty Diagnostics, we are focused on high-value clinical insights across immunodiagnostics, transplant diagnostics, biomarkers and other protein diagnostics. Q1 performance reflected the impact of selling days—this business is almost entirely consumable and thus sensitive to selling-day effects—and a tougher comparison versus the prior year because of respiratory seasonality which doesn't repeat. Growth was led by transplant diagnostics, and the business performs in line with our expectations. The phasing improves as the year progresses, consistent with the comps you mentioned.

Got it. That's helpful. And a quick follow-up on China. How did performance in the region play out relative to expectations across different businesses? You called out weaker academic in the region, but how did pharma perform and do you expect China to return to growth this year?

China is about 7.5% of our revenue and declined low single digits in the quarter. Conditions are muted overall with academic and government softer, while pharma and biotech are performing well. I was in China in March for the China Development Forum and had productive engagements with customers, our team and government stakeholders. I left China incrementally more positive, particularly because China pharma and biotech innovators see value in partnering with a company like us. Our technology and capabilities are a differentiator and can help Chinese innovators compete globally. We're not assuming meaningful growth from China this year, but it is an upside opportunity if conditions improve beyond our assumptions.

Operator, we'll take one more question.

So Marc, the research and safety market channel was a strong contributor to growth in Q1. Can you help us understand how indicative of that is a recovery in the end market versus ongoing market share gains? And likewise, the clinical business has also recovered nicely and is taking share. Can you help us understand the appetite for customers to reinvest in early stage and for your upstream R&D and what you're seeing there?

Justin, thanks. On the research and safety market channel, the performance is a blend of both improving end market conditions and market share gains. So it reflects both demand recovery and our execution. On clinical research, we're seeing strong customer interest and reinvestment. We had strong authorizations growth and a robust pipeline. Both authorizations and pipeline have moved nicely, and the business is stepping up as expected this year. The wins we've discussed in prior quarters have translated to meaningful growth. So good news on both fronts. Let me wrap with a quick couple of comments. First, thank you to everyone for participating in our call. We're pleased to deliver a strong quarter, and we're on track to deliver a strong year as we continue to create value for our stakeholders and build an even brighter future for our company. We look forward to updating you at our Investor Day, which we've scheduled for the morning of May 20, as well as throughout the year. As always, thank you for your support of Thermo Fisher Scientific. Have a good day, everyone.