Waters Corporation at Leerink’s Global Healthcare Conference: Strategic Growth Drivers

On Tuesday, 11 March 2025, Waters Corporation (NYSE: WAT) presented at Leerink’s Global Healthcare Conference 2025, outlining a strategic vision marked by impressive growth prospects and unique market advantages. Despite a challenging economic environment, Waters forecasts high single-digit growth, setting it apart from peers. The company’s focus on replacement cycles, biologics, and PFAS testing positions it for long-term success, though questions remain about the sustainability of this growth beyond current cycles.

Key Takeaways

• Waters projects high single-digit growth, contrasting with peers’ 1% to 3% growth expectations.
• Key growth drivers include replacement cycles, biologics, India generics, and PFAS testing.
• The company emphasizes its differentiated chemistry portfolio and vertical integration as competitive advantages.
• Waters anticipates continued growth in China, supported by local market dynamics and stimulus measures.
• Pricing strategies and the transition of Empower software to a subscription model are central to Waters’ future plans.

Financial Results

• Revenue Growth:

- Waters guides for 4.5% to 7% top-line growth for the full year.

- Positive Q4 growth in China, with expectations for continued low to mid-single-digit growth.

• Recurring Revenue:

- Recurring revenues account for 67% of total revenue, providing stability across economic cycles.

• Pricing:

- Implemented price increases surpassing pre-pandemic levels, with chemistry prices rising 5% to 10% annually.

• Margins:

- Successfully passed pricing increases through to the P&L in ’23 and ’24, despite economic slowdowns.

• Future Projections:

- Contributions from biologics and India genetics expected to add significant basis points to growth.

Operational Updates

• Instrument Replacement Cycle:

- Expected to outperform the 5% average for instruments by 2% to 3% over the long term.

• Chemistry Portfolio:

- Focus on large molecules and differentiated chemistry.

• Vertical Integration:

- Enables premium pricing through better control over the separation process.

• PFAS Testing:

- Achieved 45% growth over the last two years, outpacing the market’s 20% growth rate.

• Empower Software:

- Transitioning from on-prem to a subscription model, enhancing compatibility with various instruments.

• BioAccord:

- Shows reasonable performance but faces challenges in QC integration due to compatibility issues.

Future Outlook

• Growth Drivers:

- Replacement cycles, biologics/bioprocessing, India generics, and PFAS testing remain key.

• Market Share:

- Difficult to quantify gains in replacement cycles directly.

• China Market:

- Anticipates low to mid-single-digit growth, with a modest stimulus impact.

• PFAS Regulation:

- Expects more stringent regulations, which may drive further growth.

Q&A Highlights

• Growth Outlook:

- Long-term sustainability beyond the current upcycle questioned; Waters confident in five-year consistency.

• Pricing Strategy:

- Focus on premium products to justify higher pricing.

• Empower Software:

- Discussed its role in the evolving biologics landscape.

• China:

- Explored potential growth and performance in the Chinese market.

For further details, readers are encouraged to refer to the full transcript of the conference call.

Full transcript - Leerink’s Global Healthcare Conference 2025:

Puneet Sada, Host, Lering: get started here. I’m Puneet Sada. I cover life science tools and diagnostics here at Lering, and, it’s my pleasure to be hosting doctor Uddhil Batra from, Waters.

Company. Uddhil. Thank you for being here. Thanks for taking the time. So, I think the time won’t do justice to it because there’s so much information you provided at the Investor Day, and and really great perspective at the Investor Day.

It’s just, and I think, I I have to say, you know, congrats to and and and and and putting all the details on the numbers and and providing a very, very, very in-depth view of the business and how you think about and what you’re calling as idiosyncratic drivers. So, maybe, I’ll kick off with the first question around the high single digit plus growth. I mean, as I said in the Investor Day, it’s not lost to anyone that this is tough backdrop for market and you’re delivering in that. Your peers are projecting somewhere around 1% to 3% type of growth and you’re doing high single digits. Again, very impressive.

Just given that context, maybe just help us understand what’s what could be, you know, what is the potential for upside there? Or what are some of the things that you’re looking out for and that gives you that thought about keeping prudence at least for 2025?

Uddhil Batra, Doctor, Waters: Lots lots in there to unpack, Puneet, as usual. But thank you for for having us. And, a big thanks to Casper and the team for setting up the Investor Day. There’s there was sufficient level of detail, perhaps too much in some places, but excited to sort of continue to build on that story. Look, we guided four and a half to 7% on the top line.

I think that’s where your question is for the for the full year. And to sort of address your last question first, why do we, having exited the year at 8%, why have we range bounded to the high high at 7%? I mean, recurring revenues are between 67% no matter what the economic environment. So it’s all about instruments. Right?

And we believe and instruments have to do four and a half percent for us to hit the midpoint of the guide, which seems okay. And your question is, hey, you know, given it was high single digits at the end of the year, why not higher? Number one, we want to get constructive as the year goes along. Q one is the smallest quarter, and I think the point is not lost on anyone that it’s a pretty volatile environment. And we want to take some time to sort of get the runs on the board, and then we’ll claim the data point and then we’ll go to the next one, then we’ll go to the next one.

I would rather do it that way. Now to your question on the midterm, projections on high single digit or high single digit plus, I mean, the first driver is the replacement cycle. And any time you start the replacement cycle, there’s a 2% to 3% outperformance versus the 5% average of instruments over the long term. That’s a hundred to 50 basis points on the overall company. And that’s what we showed at the Investor Day.

This time around, we feel the replacement cycle will be a bit prolonged. Mhmm. Right? So it might not peak as high, but it will be prolonged given there are several segments that are not yet starting to recover. Right?

So drug discovery, biotech, CROs. And if you look at China, which was our largest market for for for a for a long period of time, especially for a number of LCs, that’s still, going to be a low single digit to mid single digit grower. So I think reason to believe that it’s a prolonged cycle on the replacement side. And then I’ll take one example and then you can poke at others where, yes, there is a bit of bit of prudence built in. Right?

So for instance, in, in GLP one testing, we’ve assumed 30 basis points of accretion, and that’s only accounting for our market share and our development with the two large GLP one producers. It does not include any contribution from orals where we have a very good share. It does not include any contribution from semaglutide gen generalization, and you can argue where that should be. But if it’s outside of India, it could be in Canada and and and Brazil, and that should be in the GLP one number. So there is reason to believe that this could be better.

And I think that’s the at the heart of your question. So in each of the different drivers, what you’ll find is we’ve taken the set of facts and given it a bit of haircut just to find the data point in the rear view and then claim victory. And as far as the competition is concerned, and I said this at the investor day, I mean, our competitors are world class. They’re very, very strong, and we learn a lot from them just watching them. And they’ve implemented systems and processes that we’re just starting to implement.

Right? And there’s a lot to learn. So you’ll never find me saying, well, this one’s bad and this one’s bad, and we’re doing this worse. We’re in a very good environment where we can learn a lot from from what they’ve done.

Puneet Sada, Host, Lering: No. That’s a very helpful perspective. And and the question that I’ve been getting since the investor day is, well, it’s it’s great that, you know, the near to medium term high single digit plus growth outlook, again, lifted by this upcycle in instrumentation. But there is a question a bit about longer term after that. Is that so in this new era of growth, is that sustainable afterwards?

Or are, you know, is this is there a view that Waters would revert back to that sort of mid single digit plus type of growth profile?

Uddhil Batra, Doctor, Waters: I think you just have to look at the the individual drivers. Right? So let’s take them in turn. Right? We said biologics, bioprocessing, and bioanalytical characterization will be 40 basis points accretive.

That is accounted for alone by Viator. And the fact that 50% of the pipeline is gonna be biologics, I don’t see that slowing down. Right? Mhmm. Second, if you look at India Genetics, we’ve said 70 to a hundred basis points of accretion.

Let’s just take the last five years. Last five years, roughly 15 blockbusters, small molecules have gone off patent. Over the next five years, this number is gonna be 21 with a higher total volume per molecule going off patent. Right? And in the last five years, India has grown in the high teens for us under the leadership of Anil, who you’ve met as well.

Over the next five years, we’ve assumed for that 70 to hundred basis points to come true. That number just has to be low teens. Right? So there is a bit of prudence built in and there is a, at least, line of sight for the next five years on even these two drivers. Take the fast testing now as a third one.

The last two years, they’ve grown roughly 45% where the markets, according to many others, has grown 20%. We’re assuming that it grows 20% over the next few years for 30 basis points of accretion. Right? And p fast testing, I I think it’s safe to assume people want clean water and and safe food, and want their consumer products not to have, not to have PFAS in them. We don’t expect the regulations to be rolled back.

And when you if you again, going back to the investor day, we showed that across the globe, the water testing regulations have been implemented, but food testing, portable water testing, consumer testing have not yet been implemented. Right? And it’s not just a US story even if regulations change in The US. The rest of the world has also caught up. Right?

So packaged goods export in India require PFAS testing now. In Japan, Two prefecture two prefectures have now implemented PFAS testing. There’s a lot more to go. In Europe, food testing regulations are much more stringent than The United States. So for PFAS testing also, there’s a long term secular driver.

So for these particular drivers, and there is a reason why we highlighted them, we said replacement cycle is transient, whereas these four to five drivers are now consistent at least for the next five years.

Puneet Sada, Host, Lering: Got it. I wanna come back to the PFAS question, but maybe just on the replacement cycle, which is more near term and and as you said, you know, transient. So how much obviously, this is the numbers you laid out are replacing your own install base. How should we think about any share gains in that in that process itself?

Uddhil Batra, Doctor, Waters: I think very difficult to think of share gains and replacement, not because the Alliance IS is is by far not the best instrument. In the QC setting and late stage development, customers are very reticent to change anything because it’s a five drug master file. The instrument is, the chemistry is, the software is, the methods are. You don’t change that. Right?

And I have personal experience with this. When I joined the company four and a half years ago, Waters had been trailing in growth through some of our competitors. And I said we lost market share. And then as I dug in deeper, I realized that none of the Waters instruments had been replaced by an Agilent or a Shimatsu or somebody else because customers are reticent to change a vendor unless you abuse them, unless you do something crazy. And and these instruments work fine.

Right? They might not be Alliance IS, but they work fine. So people are not ready to change replace instruments with another vendor and take undue risk. They’re willing to do it if it’s a new use, if it’s a new manufacturing site, and you prove to them that you they have a better value by using Alliance IS by reducing errors by 40% versus any other LC in the market. They are then open to replacing their their instruments with with an Alliance IS.

And there we’ve been winning more than we’ve been losing.

Puneet Sada, Host, Lering: Got it. Okay.

Uddhil Batra, Doctor, Waters: So I think different ways to think about it. Unfortunately, Puneet, the other challenge in the tools industry is you don’t have a third party that reports market shares. So when you compare one peer to the other, I mean, our nearest competitor is double the size of our company, and they have a much larger instrument portfolio. They have some other pieces of the business. So by the time you sort of break it down, there’s so many assumptions.

Mhmm. The best way to look at it for us is we basically look at the overall growth rates, and there are choices embedded in that overall growth rate. So a few years ago, we were told, hey. You’re a small molecule company, and and you shall grow only like this, and there’s no innovation in small molecules. Well, Alliance IS shows you that there’s a lot more innovation to be had in small molecules.

There’s a lot more innovation to be had with our informatics, informatics software, Empower. A lot more innovation to be had with chemistry even in small in small molecules and now with large in the in the large molecule space. So I think the overall growth is a resultant of execution, commercial innovation, etcetera, but also portfolio choices. Mhmm. Right?

And we suffered from that for a little while, and I think we’re benefiting from that at least in this short period of time.

Puneet Sada, Host, Lering: Got it. No. That’s that’s super helpful perspective. So one, I wanted to touch on pricing and as you laid out in the algorithm, it’s 100 incremental contribution that you expect in that high single digit plus number. You know, if I recall Waters, even back in the day as a customer, Waters was and is a premium product in the marketplace, a strong brand recognition there that supports it.

So that’s my question is, you know, how does that premium product continue to push the pricing higher? Maybe help us understand that.

Uddhil Batra, Doctor, Waters: I I I think the two answers to the question. First, just looking at the facts. Right? And there’s part a and part b. In the last four years, we’ve passed on well above the 50 basis points we used to in the pre pandemic era.

Part b, it’s all well and good to talk about price increases. It’s more important to show it in your bottom line. And in ’23 and ’24 with a slowing economy, we were able to take the margin and take the pricing and have it flow through the p and l. Right? And we were probably one of the only ones in the industry to be able to do that.

So I think to me, it’s once in a while good to look at the facts. Right? And the fact suggests that it is possible to do. Now going forward, what is the conceptual explanation? And that’s what you’re after.

Let’s keep it very simple. Our chemistry portfolio is differentiated. Right? And we showed again at the investor day, as you look at 50% of the pharma pipeline, it’s large molecules. And large molecules are not all created equal.

They range from a 50 angstroms or 15 nanometers in diameter, which is proteins and peptides, small proteins and peptides to all the way to lipid nano particles, which are eight times the size, eight to 10 times the size, which is about 2,000 angstroms or 200 nanometers. All of these require very specialized chemistry and material science. Right? They require the morphology of the particle that you’re using to separate these molecules to be matched to the size of the particle, and the chemistry on the surface has to be modified to be able to entrain that molecule in the column that you’re using to separate it. Right?

And that requires very significant skill, which our customers recognize. And he said, well, why is he telling me all the story? It is complex. It is difficult. Not many people in the world can do it.

So you can pass on pricing to the customer and they accept it. Right? We pass on roughly 5% to 10% increase in price every year on chemistry. And customers happily accept it and they say, look, great. There’s no other choice.

This is the best product in the in the industry. You’re the only ones who are able to help me separate this, and you’re collaborating with me day in, day out. And there’s a % stick rate on that 5% price increase. Right? So that’s already a hundred basis points.

Then on chemistry, then on service, we have the highest attachment rate in the industry. That’s about 40% of our business. Right? There too, we get about a hundred percent, the hundred basis points of pricing fall through. So you’re starting with 200 basis points, and that’s a gift that the headquarters and the innovation team gives to the regions.

And we said, guys, you start with 200, you have to deliver at least a 50 by the end of the year. So don’t lose more than 50 basis points on instruments. And there, we have a lot of systems and processes, so there’s not illogical behavior in reducing price for a premium product that is ordering that that is giving you sufficient levels of service. Right? So just with service and chemistry alone, we get 200 basis points, and you just have to protect the instrument, the instrument pricing and there with a differentiated portfolio over time, we don’t expect that to be a challenge, right?

So that’s the logic behind the 200 basis points. That’s 150 basis points incremental that we think we have line of sight on and so we can say, you know what, we’ll commit to a hundred basis points.

Puneet Sada, Host, Lering: Yeah. No. That’s excellent. So, the point, following up on that, it’s a good segue into the chemistry question that I had and and part of it you addressed at the Investor Day was not all recurring because, is is is, you know, not all recurring revenue is truly recurring, you know. And and there is differentiation when you get into this into the QAQC space stage.

But maybe just briefly touching on something that was said at the Investor Day in terms of the chemistry itself. You have vertical integration across chemistry, and that’s, I believe, was an important point when you showed the chart of chromatogram showing a differentiation that helped you win that share. Right? So maybe talk to me about that.

Uddhil Batra, Doctor, Waters: I know. So that was a very geeky slide, and I insisted with with Casper that I wanted in my slides and I want to show people why our chemistry is so differentiated is that you lose people. I said, I don’t care. Somebody like Puneet will ask again. So the chart basically simply said, if you have an impurity in a sample, you want to detect it and detect it differentially from the the new molecular entity.

Right? So a chromatogram is just two peaks or is is set of peaks. One peak corresponds to the molecule of interest and another peak corresponds to an impurity. Right? And you don’t want impurities in your samples.

Right? The FDA says your impurity level should be less than point 5.5% in a sample. What happens with many large molecules is these two peaks merge. Right? And they merge not because there is no differentiation between the species that you’re trying to analyze and the impurity.

It’s because your separation method is not sensitive enough to separate those two things. And this is exactly what was happening with Eli Lilly with their GLP ones. So they had a sample where they had the peak of interest, and then they had the impurity that was merging into the peak. So people were not sure how much impurity was present in the sample. Right?

And they basically were running batch to batch, and they were getting different results from the same batch of same manufactured batch, but using different columns. Right? So the variability was in the columns of the manufacturer. And they told us they they they called us and they said, can you guys do better? Right?

So we came in. There was a three month head to head race between us and another another manufacturer, and we were able to show that we can increase the resolution and separate the impurity from the from the from the, molecule of choice. And that showcased what having vertical integration and deep capabilities allows you to do. So we have complete control on the on the value chain of columns we produce. And columns basically have little particles that you have to synthesize.

You have to modify them. You have to change the chemistry on the surface, then you have to pack them. And, and the the steel tube that they’re packed in requires a certain type of functionalization. Most companies don’t do this whole process internally. They sometimes outsource the particle manufacturing, sometimes they outsource the functionalization, and sometimes they outsource the packing.

We do all of it in house. So we have exquisite control on the separation that, the the the columns that we produce and hence the separation that our customers demand. So long answer to your question, but it highlights what the chemistry capabilities and again goes back to pricing. Right? Why our customers are willing to pay a premium for such capability and such collaboration.

So customers so Lilly visited the plant. They went to Ireland. They went to Taunton, Massachusetts where part of the value chain is. They talked to our experts, and they said, do you guarantee? And we said, yeah.

Within reason, we guarantee that you’ll be able to see variations in your sample that are sample led and not column led.

Puneet Sada, Host, Lering: No, that’s excellent. And thanks for walking us through that. Maybe just switching gears to maybe a bit of a high level question that we continue to get from investors on China. In the model, I believe you had, that’s where there was some offset for China. Talk to us about when we recently we had the news of 30% more stimulus beyond the 1,000,000,000,000 in China.

So is it because of the portfolio you have in China? Is that the caution? Or I mean, it seems like tools companies should benefit from that, stimulus.

Uddhil Batra, Doctor, Waters: I think, again, worthwhile just looking at the facts. Right? China for us in q four, unlike many of the companies in the sector, China grew, right, and and, instead of declining, right? So China grew for us in Q4. We’ve assumed that 2025 will be similar to Q4.

Basically, low single digit growth, low to mid single digit growth, including a modest impact of the stimulus. Now why modest? There is line of sight on on pretty significant number of orders, but orders conversion to sales has its own timing. And we would rather look at it in the rearview mirror and say, yes, it it was higher than what we what we told you or what we assumed than committing to something and then it disappointing all of us. Right?

And so there is line of sight on orders. It was very good at the end of the year. We were we’re winning more than our fair share. And I’ll remind you that our business was mostly pharma in the past. Right?

And now there’s a bit more industrial. We’ve expanded our distribution. We’ve localized our production. So we’re competing very well for our fair share. But again, I would rather look in the rear view mirror and say, hey, this is what the impact of the stimulus was.

Now to your point on 1,000,000,000,000 or 1.31 is a huge number in itself. So 1.3 is even better. But it’s very difficult to reconcile that 1,300,000,000.0 with what is what is being doled out to the individual segments that impact us. We know there is an impact. We know provinces are having procurement processes.

Government institutions are. Now food companies are. We’re participating in those. But if you ask me to reconcile the 1,300,000,000,000 to how it’s being doled out in the economy, I don’t think it’s straightforward to do. So, yes, it’s interesting headlines, but the reality on the ground is that there is stimulus, but the reconciliation is virtually impossible.

Puneet Sada, Host, Lering: So coming back to PFAS, obviously, an important driver in the space. Of the companies are putting up strong numbers as well. But, what I would love to understand is when you look at Waters, sort of premium products in the in the marketplace, environmental labs are sometimes more cost conscious. They’re looking at their margins as well. So maybe just help us understand where you continue to see where in what part of that, PFAS testing and what type of labs where you continue to see traction?

Uddhil Batra, Doctor, Waters: So I think taking a step back on PFAS testing. For the last two years, we’ve grown roughly 45%. Right? And the market reports suggest that the market is growing 20%. Others are claiming they’re growing at a similar rate.

I cannot tell, but we’ve grown 45%. We have to grow roughly 20% for it to be accretive by 30 basis points for us this year, next year, the year after. The reason we win, is because of the full portfolio that we offer. But most importantly, the fact that the Zivo TQ Absolute that we launched as a mass spec is the most sensitive instrument in the industry. Currently, the EPA requires testing of water, and I think you were at the at the, at the Investor Day where one of our experts talked about this.

The EPA requires one to a hundred parts per trillion of impurity to be detected. Our instrument can detect one parts per quadrillion. If you sort of want to look at that math, that’s six orders of magnitude more sensitivity. The sensitivity requirement is continuing to increase. By that, I mean, it’s gonna go one parts per trillion and then one parts per, or 0.1 part per trillion, then 0.01 part per trillion.

So the insensitivity requirement continues to rise, and many of our customers don’t want to don’t want to have to purchase new instruments each time the sensitivity requirement increases. So they are they are leaning towards the most sensitive instrument in the industry. Right? So that’s the number one reason. And that is, of course, armed with a very wide range of sample prep and automation and a software just like Empower that has the ability to submit data with a complete audit trail.

Right? And so that full solution is now embedded with our customers with a great service team. Right? So it’s the same model. It just happens to be in the p fast testing arena as opposed to QA QC, and we have the most sensitive instrument in the industry, which is making a difference.

Right? We win more than we lose. I think two out of every three head to head tenders that we’re in, we win with the with the instrument.

Puneet Sada, Host, Lering: That’s great. So that’s a great segue. But given the time, let me, ask the question on Empower. And, you know, sometimes I’d say to investors, you know, Empower is the power. And and and and it it has delivered, quite a dividend for you over the years.

But maybe just, talk to about how do you see Empower positioning in the new biologics world as you emerge? What are the capabilities that Empower needs to have to serve that market? And maybe a broader question there is in terms of molecules. These molecules are getting complex. They’re larger.

Maybe mass spec or LC maybe is not the most perfect solution when we start to get into cell therapy and gene therapies. So

Uddhil Batra, Doctor, Waters: EMPOWUR has been the razor in the razor, in the razor razor blade model. Right? But it has not nearly been monetized to the level that we would like to monetize it. So the first step is in taking the existing infrastructure, the existing commercial relationships, and changing the charging model from an on prem to a subscription model. And for those of you who want to learn about that, go to any IT company, go to Adobe, go to PTC, go to Veeva.

You’ll see that they’ve they’ve made this transition, and that increases and makes the cash flows much more predictable. Now to your question on the technical side, Empower is relevant to large molecules even today. It’s it’s basically compatible with a certain set of instruments that are more prevalent in their use for smaller molecules. Right? But today, you can take u UV data.

You can take, mass detection data. You can take capillary electrophoresis data that a competitor of our supplies, and that data is compatible with Empower. But as complexity of molecules rises, other instruments are required Mhmm. Like flow cytometers, like, mass spec, like light scattering. And all of these now have to become compatible with Empower, and we are spending a lot of time and energy doing it.

So multi angle light scattering with the acquisition of wired will now be compatible with with Empower in the middle of the year. Customers have already signed up, and that’s a barrier for it to get into QC. Right? So light scattering can get into QC much much more simply now. That I’m not saying it will as a consequence, but the barrier’s gone.

Same thing is true with Marspec by the by the middle of next year. And there are several other instruments in the lineup that we will bring in. So we want to make the current version of Empower compatible, and then we want to raise the the technical, content and empower, basically taking it from an on prem software, to a subscription software and then to a SaaS model. Right. Right?

And so there’s a bit of technical work to be done, first to make instruments compatible and second, to increase the the, or modify the tech stack to make it a SaaS compatible software.

Puneet Sada, Host, Lering: Okay. Just, given the time we have, let me just ask you quickly on BioAccord. What’s been the traction there, and when do we see that getting specked in?

Uddhil Batra, Doctor, Waters: So BioAccord’s been doing reasonably well. I think the the challenge again is is lack of compatibility with Empower for it to enter into QC. Right? And that’s expected sometime in the middle of next year. But I would not expect a massive inflection point, Puneet.

This is a highly conservative customer base. Things have to start in early stage in development and then stay with the molecule downstream. And that’s where we’ve had a lot of success with BioAccord. So BioAccord is now used for raw material characterization. It’s used for, cell line development, which we had not anticipated when we launched it.

It is now in late stage development and in a couple of companies’ drug master file. And as those companies move it into into into the launch phase, you’ll start to see more come in. So but I would expect it to be a slower build as opposed to an inflection point.

Puneet Sada, Host, Lering: More gradual. Okay. Alright. Well, this is great. Thank you again.

Thanks for the time here and really

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