PerkinElmer, Inc. (NYSE:PKI) 41st Annual J.P. Morgan Healthcare Conference Call January 10, 2023 11:15 AM ET
Company Participants
Prahlad Singh – President and Chief Executive Officer
Conference Call Participants
Rachel Vatnsdal – JPMorgan Chase & Co.
Rachel Vatnsdal
Hi, everyone. This is Rachel Vatnsdal from the Life Science Tools, Diagnostics team. Today, I’m joined by Prahlad from the PerkinElmer team. And so as you’ve seen with the rest of these sessions, today will be a 20-minute presentation from Prahlad, followed by a Q&A session. We do have mic runners throughout the room. Please raise your hand if you have a question. Otherwise, for those of you joining us online via the webcast, you can submit a question via the Q&A portal.
So with that, Prahlad, thank you.
Prahlad Singh
Good morning, everyone, and thank you, Rachel, for the opportunity to come and share our transformation story. It’s good to be back in-person, as I call it at the disease [war] after three years. Before I begin, I wanted to attract your attention to our Safe Harbor statement and encourage you to visit the Investors website section for further disclosures on any forward-looking statements that are made here today.
For those of you who are new to the company and for those who have followed us for a few years, I thought it would be a good point to reflect back as to what has transpired at the company over the past few years. Three years ago, I stood at this conference two weeks officially into my tenure as CEO of the company. COVID was not very well known outside of China at that point, and sort of we talked about four key areas of focus on our transformation journey. And these four key areas were realigning our portfolio into attractive end markets; increasing the percent of recurring revenue mix as part of our total product mix; increasing our presence from a revenue and an operational footprint perspective and attractive growth end market – geographic markets; and four, strengthening our competencies and capabilities from a competitive position in the attractive growth markets of life sciences and diagnostics.
And if you’ve been following our company at all recently, I hope you will appreciate that we’ve done a pretty good job accomplishing this transformation, albeit in a more rapid manner than even we had envisioned when I stood and spoke those words here a few weeks ago.
I think it’s also pertinent to appreciate that we have accomplished this in a truly exceptional manner and with a very strategic focus despite the macro volatile environment that we have all lived through. So where we are today? Post the divestiture or the close of the divestiture of the Applied and Enterprise Solutions business towards the end of the first quarter, we will be a pure-play life sciences and diagnostics business with faster growth, higher margin and nearly 80% of our revenue coming on a recurring basis. Once we close this divestiture to New Mountain Capital towards the end of the first quarter, we will be 11,000 strong company, globally diverse, and as I said, expecting to exit 2022 with nearly $2.7 billion in revenue, roughly split half and half between Life Sciences and Diagnostics.
And forward-looking, as I said, nearly 80% of our revenue coming from reagents, consumables, software and services. We will continue to share the PerkinElmer brand name with our Applied and Enterprise Solutions colleagues for a few months until we finalize the new company brand identity and name. Because it’s not just about creating a new brand name for the company. For us, it is what are the cultural and core values of the new company going to be, what is the value proposition that we bring forth to our customers, how internally we and our employees act. And I think it’s rarely you get a chance in your career to build a new company identity, a brand identity based on a solid foundation of a $3 billion revenue company, which is faster growing and is of high profit. And I’m excited to share that story over the next few months with you.
Today, my objective is threefold. One, to give you an insight into how our focus is around science first and how we want to lead by innovation and breakthrough NPIs that we bring to the table; second, give you an insight into some of the key strategic priorities and operational imperatives for 2023; and third, give you a peek into when you put all this together, what does the company look like from a financial profile perspective.
So to begin with, on the Life Sciences side of the business, we expect it to exit 2022, again, roughly $1.3 billion in revenue with nearly two-thirds of it coming from consumables, software, assays and services, ably supported by one-third of market-leading in imaging and detection instrumentation portfolio. As you know, we’ve put together a string of acquisitions that were strategically sought out over the last three years to bolster this business and put it on a growth trajectory, highly focused around reagents, instruments and informatics. And again, where we are sitting today is having a market-leading position in these three branches of that business.
What I thought over the next couple of slides, I’ll give you an insight into some of the key NPI breakthroughs that we are bringing to the marketplace and how we are leveraging the acquisition that we have made in this business. Starting with our all-in-one automated image cytometer and cell counter. The co-founders of this company are in the audience right now proudly looking at this. And when the Cellaca PLX was launched towards the end of September, this is the first-in-class product profile and NPI that allows our researchers to not only look at potential areas of interest, but also to assess the viability of those cells, leveraging our BioLegend reagent – proprietary reagents from the BioLegend side of the business. This is unique in not only that it increases the productivity of researchers and scientists, but also reduces their risks if they were to use their current traditional workflows. Again, this is something which is a breakthrough NPI and is really going to be something an exciting growth trajectory for us.
Another example is around Pin-point base editing. Just like we had done with Vanadis, our intent with Pin-point base editing is bring it into the mainstream. Pin-point base editing is the next chapter in the CRISPR growth story. It allows scientists to not just accelerate therapeutic development, but also get a better preclinical understanding of functional genomics and the impact of changes in genes and proteins has on functions and biological interactions. We intend to – this is through our exclusive partnership with Rutgers University, and we intend to bring this technology to our customers either through licensing to our pharma and biotech customers or providing them with commercial products and tools or providing specialized services to customers that might not have that capability and competencies in-house today. Again, this is something that we’ll continue to share progress on this in 2023 with you.
The third one, some or if not most of you might have heard from me earlier, is our focus around GMP. While we’ve got a very strong position on the preclinical research and development side for the Life Sciences business, our intent is to provide our customers with GMP reagents, antibodies, cytokines that they might need so that we can continue to support them from their transition from research to clinic. This is going to be more of an organic investment play for us over 2023 and beyond.
So hopefully, these few examples gives you an insight into where we are headed in the Life Sciences side of the business. Our focus will be to fuel our NPI engine, providing leading technology to our customers through novel contiguous solutions that helps accelerate their transition from the research to the clinic. This is what gives us the confidence that we expect our Life Sciences business to grow in the double digits in the future.
Now moving to the Diagnostics side of the business. This is something that as some, if not most, of you know, the transformation journey of this began several years ago when I joined the company. It was primarily a niche reproductive health or a newborn screening business. In 2022, this will exit $1.4 billion in differentiated primarily reagents business, excluding the COVID revenue that this business generated, and the three areas being around reproductive health, immunodiagnostics and applied genomics. Obviously, we have a flagship position in newborn screening and autoimmune disease testing, but what COVID did is gave us a platform, not just to be able to show our innovation, but also to significantly increase our installed base through our liquid handling, nucleic acid extraction and microfluidics business.
Again, to give you a few examples on how we think of our Diagnostics side of the business. Initially, our focus was around looking at it either from newborn screening or autoimmune. But sort of as you continue to evolve, our evolution here is to – we look at the whole human care cycle from a continuum of care perspective. Starting from the planning stage, we provide insight to families around whole genome sequencing, carrier screening, and as it moves into a pregnancy cycle for a woman, maternal serum screening is still prevalent in many markets where we have – we are a market leader. Pre-eclampsia is an excellent biomarker for preterm birth. And of course, Vanadis, our non-NGS based NIPT offering, which saw significant growth in 2022, and we expect it to continue to grow and be a major growth driver for our reproductive health business.
Moving from the pregnancy to newborn screening. Obviously, our flagship position around newborn screening. We continue to be a major provider of cord blood and tissue storage and the informatics platform that goes along with it. But to give you, again, a couple of examples around NPI breakthroughs here. We recently announced the FDA clearance of the first SMA screening in newborns for spinal muscular atrophy screening. And whether it’s around SCID, DMD or SMA, our network with key opinion leaders that has been established with more than three decades now has been really instrumental in that. Plus the fact that we have an in-house sandbox with a genetic testing lab that allows us to accelerate product development. But from a customer’s perspective, it’s really the full contiguous workflow that we provide them all the way from a dry blood spot cord to the informatics platform that provides the results back to the pediatrician or the health care solution from one single provider is what’s value added, and that’s really what has benefited us.
Moving from postnatal to prime years of a human cycle. We’ve done a really good job of assimilating assays as we build this business from diagnostic – from newborn screening primarily to a comprehensive diagnostics portfolio. We again have market-leading position, as you know, in autoimmune through our EUROIMMUN, Tulip franchises, but also in allergy and emerging infectious diseases. The thing that we were lacking here really was a full contiguous platform of instrumentation to be able to test these assays.
With the acquisition of IDS, that gave us stabletop, random access platform and the recent CE marking of our Excentis platform that was long awaited from EUROIMMUN, we now have a full comprehensive portfolio of instrumentation, whether it’s for a small lab or a clinic atmosphere, to do small testing or for a reference lab that wants to do high throughput and large capacity screening. Going forward, our focus here will be how do we continue to fuel the pipeline of NPIs that go to this portfolio now.
Another example of how we try to bring breakthrough NPIs into the mainstream, similar to what I have talked about Vanadis earlier, our Pin-point base editing. We just recently announced the launch of BioQule, which is an NGS library prep system, that really our focus is how do we make this mainstream by providing a low-throughput, benchtop solution for customers that might not have a lot of NGS experience, and it really provides a simplified user experience. And this is not just library prep for small labs, but even for large reference labs, if they want to do a small run to test something out, BioQule is an ideal product for them.
So again, my goal here was to give you a bit of a peek into how our focus is around science first, and in the Diagnostics side, how do we intend to continue to build on our leadership position, whether it’s around newborn screening or reproductive health, provide turnkey solutions for our customer so that it expands the reach into lab, not just in large reference lab, but also in a dissipated or a discrete point of care setting of benchtop solutions to our customers. Again, this is what gives us the confidence that the Diagnostics business will continue to grow into the high digits over the next few years.
Switching to the second topic, really around what are our operational and strategic imperatives. Obviously, the team is quite focused on ensuring a smooth close of the divestiture towards the end of the first quarter. I talked about creating a new brand identity of the company. Outside of that, three main areas of focus. The one I talked about providing breakthrough NPIs and innovation for our customers. While we’ve done a good job with the acquisitions and integrating them over the past three years, there is still an opportunity to leverage more commercial and operational synergies with these acquisitions. And then post the divestiture, diligent deployment of the capital, whether it’s for organic or inorganic investments.
In addition to these, another area of focus and increased investment for us will be around ESG. We recently raised our reduction target emissions by 50% to align with the Paris Climate Accord and became a signatory to the United Nations Global Compact. This is an area which will see an increased investment for us, not because we have to do it, but it’s because it’s the right thing to do.
So then the question comes, what does all this mean from a financial profile perspective? Again, this is not very different than what you have seen before, at least over the last six months that I’ve talked about. In 2021, when we gave our midterm outlook, we were essentially a mid-single-digit grower with nearly two-thirds of our revenue coming from recurring basis and operating margin target of about 23%. And our current midterm outlook is to – has taken us into double digits with nearly 80% of our revenue coming on a recurring basis and 30% plus operating margin and ensuring that there is 75 to 100 bps of operating expansion opportunity over the medium term that I talked about and an adjusted EPS growth in the mid-teens. Additionally, we’ll have significant capital available to deploy to further support this outlook that I have given you.
So the question comes, what does this all mean and where are we focused and where are we taking the company? It’s really to ensure that we successfully execute on the transformation part, ensure that we drive innovation and are a science first-led company so that we can deliver value for our customers, our shareholders and our employees. And we ensure that – we will ensure that we drive this through the innovation, integration and investment pillars that I talked about earlier.
Thank you for your time today, and I look forward to a Q&A session with Rachel. Thank you.
Question-and-Answer Session
Q – Rachel Vatnsdal
Thank you. As a reminder, if you do have a question, please just raise your hand, and then one of the mic runners will come to you.
So thanks, Prahlad. First off, can you just talk about timing of divesting some of these businesses? Why is right now the right time to divest the analytical food and enterprise services? And then can you talk about how does this really position you to become a life science and diagnostics pure-play going forward? And why is the timing right?
Prahlad Singh
Rachel, obviously, this was not opportunistic for us. This was thought out when – even before I came into my role – can you guys hear us? It’s tough to say. Even when I – before I came into my role as CEO of the company, starting with – we first built out the Diagnostics business and took it from being a niche player to a more comprehensive Diagnostics portfolio. And then COVID gave us a very good platform to be able to demonstrate our innovation and how we were able to do that. Plus, it also gave us a very rapid – robust balance sheet that we immediately deployed to ensure that we had the – once COVID and once the pandemic went away, we had a revenue profile of high-growth, high-profitable businesses that compensated for the drop in COVID revenue, which I think we’ve done a pretty good job in.
But I think consequent nearly when it came down to the point, once post the BioLegend acquisition closed, we were at a sort of a fork in our business profile, right? We were essentially two businesses, one with a high growth, high margin profile and one with decent growth but lower profitability. And I think that’s when it became apparent that, I think, to create more value for our shareholders, it would be best to divest that business. And with New Mountain Capital, we found an able partner who gave us three things that we’ve focused on: value, speed and certainty. And that was sort of the reason that we continued on that path of our transformation journey.
Rachel Vatnsdal
Got it. Helpful. And then just maybe regarding that medium-term outlook slide. So when the divestitures were first announced, it looks like that was really 10% plus growth from that 2024 through 2026 time frame. Today, it looks like that is 10% in the midterm. So a few questions on that. What drove that shift? I know it’s minor, but from 10% plus to 10%, and then is that guidance still through 2026? Or is that time frame kind of changing? And then last piece on that midterm guide is, how is capital deployment assumed within the guidance? It looks like that may be included in this updated guide from today, but just kind of walk us through the puts and takes there?
Prahlad Singh
Sure. I mean, I think the first thing is let’s be cognizant, there are not many companies in our peer group that can come up and say that they have 10% growth. So guys, I think let’s just start with that point. I think it’s more around, as you appreciate the market conditions that are playing out, you need to be cognizant and see what it is. In the medium-term and it is the 2026 frame, just to make sure that it’s there. I think 10%, and as if you all have seen our track record, we love to beat our numbers. And I think that’s the way you should expect that to be. The second question of yours, Rachel, was around the medium-term outlook. So yes, the capital deployment piece, as I said, it further supports that outlook. So it’s not that it’s – whether it’s in there. We ensure that it will continue to bolster that, if anything.
Rachel Vatnsdal
Okay. And then maybe just from looking at the slide, it looks like it assumes a stable macroeconomic environment. So just kind of digging deeper on that shift from 10% plus to 10%. What happened – if it’s assuming a steady macro environment, what shifted from today versus a few months ago where you have a little bit less confidence, understanding that you’re one of the few that’s growing in that double-digit range?
Prahlad Singh
No, I don’t think there is any lesser degree of confidence, let me begin with that, right? And I think the – assumes a stable macro environment has been something that we have talked about on an ongoing basis. So it’s not a new revelation from that perspective. I don’t think materially anything has changed, but I think we’ve all read what’s going on in China, and we’ve all seen what’s happening with Europe with the energy crisis. So it’s just being prudent, and that’s all. There is nothing that we are bringing up or down. Our confidence and our ability to execute on the numbers that we have put forth continues to remain the same.
Rachel Vatnsdal
Helpful. So then maybe shifting over to some of the assumptions within that guide for deals. You’ve been very active on the M&A front in recent years. And before that, that wasn’t a huge part of the Perkin’s story. So can you just talk about some of the deals that you’ve completed in the last two to three years and really how that’s contemplated in that 10% guide going forward? And then how is the execution? How has the integration gone on those deals as well?
Prahlad Singh
I mean, I think you saw a couple of examples today around how the integration of these acquisitions are going with the example on Nexcelom’s Cellaca and how they are leveraging the BioLegend reagents. I’ve talked earlier around how our liquid handling portfolio and Nexcelom’s, again, cell counting capabilities are being used in Oxford’s TB testing environment. So from – the commercial one was a low-hanging fruit. So that started earlier, but now we are seeing technological synergies coming out, other opportunities that I’ve talked about. So in short, the integration is going very well. And in terms of how the acquisitions are doing, and I think I have said this earlier, when I did the EUROIMMUN acquisition in 2017 fall, I had said that would be the best acquisition we would have done. I mean I’m eating my words right now. And then I think with the acquisitions that we did on the Life Sciences side, we’ve built a $700 million-plus reagent revenue business that is growing at double digits and spilling out great profit margins. Again, a very rare opportunity to be able to stand up and say that.
Rachel Vatnsdal
Helpful. Maybe just shifting over to framework for 2023. So can you spend a minute just talking about COVID? You’ve talked about how the $600 million this year is going to shift over to about $100 million in 2023. Obviously, we’ve had an outpaced flu and respiratory season in recent months. So can you just talk about some of that roll off? And could we see upside given the current environment? And then how should we think about that margin roll off and the impact from that $500 million differential?
Prahlad Singh
So let me start with the last part of the question. The margin roll-off is assumed in our 30%-plus outlook. So it’s already factored in. And as we’ve seen with our numbers in the 3Q, and we have said this that what we are focusing on COVID has been around PCR testing. And PCR testing has gone down rapidly in the U.S. And also, if you look at it in China, they have said that majority of the folks are not getting PCR testing. So I think when we had put that $100 million number out and that still stays, so nothing’s changed there, just to start there, right? But I think what changes is the profile of it.
One, majority of it was leveraging our increased installed base, especially from the capabilities that we would have around liquid extraction reagents that we would sell and services and all that. So that remains and continues. It just becomes tougher three-plus years going forward from the pandemic to be able to tell whether the customer is using that for COVID or for other NGS prep. The second piece is true, right? The PCR testing has gone down and most of our COVID direct revenue was from PCR testing. So while nothing has changed, I think what you will see is more the profile of how that revenue mix shifts.
Rachel Vatnsdal
Helpful. You mentioned China. So I’m going to do a follow-up on that one. During 3Q, you expected China to drive a roughly 200 basis points headwind to RemainCo for 4Q and then totaling 300 basis points for the year. So can you talk about how that’s trended given some of the recent lockdowns? It’s like [earlier into] the discussion just some of the COVID headwinds there. So how should we think about China recovering in the near term, but then also returning to a normalized growth rate for you guys just given your exposure there?
Prahlad Singh
Sure. I think when we did our 3Q earnings call, I mean, specifically around 4Q, obviously, we’ll talk about it a month from now. But I think our reagent – diagnostic reagents business, specifically in China, is on the non-critical side, right? And then I think as we’ve all seen what happened with China in December, life needs to return back to normal for people to go for autoimmune and allergy or infectious disease testing. And life has not yet returned back to normal for our purposes. But we still – as we’ve said, we still expect life – it to come back to normal in the second half of the year, which is the way it’s playing out.
Rachel Vatnsdal
Helpful. Maybe let’s shift over to pricing. So historically, pricing hasn’t been that meaningful part of the model for PerkinElmer. So can you talk about the pricing that you guys have seen so far this year? During 3Q, it was 200 basis points. So how are you thinking about that pricing shifting into 2023? And then after this transformation and some of the divestitures, how are you thinking about using that pricing lever going forward once you become that life science and diagnostics pure-play?
Prahlad Singh
Yes. So I mean, I don’t think we’ve seen the full impact of the rollout of the pricing yet. So it’s still going to be healthy, Rachel. We said a couple of 100 basis plus point in the third quarter, and I think I would say that we’ve also talked about the fact that we’ll see at least 100 bps pricing impact in 2023 for us, which is higher than what we normally have. But I think what the question that you asked is more important is going forward, what does it look like? I think what we’ve done a good job is now with the portfolio that we’ve built around Life Sciences more specifically, we have a better opportunity to continue to leverage pricing and the impact that we will get out of it. So we are confident of that happening.
Rachel Vatnsdal
Helpful. Maybe shifting over to margins for 2023. So can you walk us through that bridge from the 31.4% operating margin for continuing ops during 3Q into that 30% plus op end that you guys expect to hit 12 months post divestiture? And then how should we think about the margin roll-off from the COVID perspective, but then also some of the stranded costs that you guys have flagged as well?
Prahlad Singh
Sure. I mean it’s to some extent, it’s apples and oranges, right? The 31.4% that we had in third quarter was more in terms of how you have to account based on GAAP accounting rules when you have discounts. So that’s why you see that number there. I think we’ll get a clearer picture post the close of the divestiture. But as we’ve said, over the next 12 months, we expect it to average around 30%, right? And that includes 1% to 2% of stranded costs that we have said earlier. I think and – but more importantly, it also accounts for the roll-off of COVID margins that we would have going forward. So that is accounted in the 30% that we have said in the first 12 months is for average.
Rachel Vatnsdal
Helpful. And then maybe shifting over to some of the comments around excess inventory levels that customers that some of your peers have flagged. On the liquid handling, the microfluidics businesses, for example, what are you seeing with your customers? Have you seen any excess inventory in the channel? And then is there anywhere where you would expect destocking in the next few months?
Prahlad Singh
Sure. Again, Rachel, this is where the portfolio that we have now with 80% of our revenue coming on a recurring basis with differentiated reagents and a relatively short expiry shelf life, customers are not going to be stocking this, right? And the second aspect is that we do not have much of a commodity business even on the instrumentation side. $300 million of that is imaging and detection for Life Sciences. Even on the diagnostics side, what we do with our applied genomics portfolio is with chemagen, liquid handling and also around the automated systems that we sell for our customers, right, we have not seen any decline or slowdown, and these are not products that they will have – want to stash a lot of inventory. So there is nothing that – we are fortunate with the new portfolio that we have built, that it doesn’t give us that impact.
Rachel Vatnsdal
Perfect. Great to hear. So then maybe let’s talk briefly about 4Q. You guys noted in your press release yesterday that you expect 4Q to come in above guidance expectations. So can you just dig a little deeper into that? What metrics do you think you came ahead on? And then were there any pockets of the portfolio that were even more outpaced than you expected?
Prahlad Singh
Love to talk about that a month from now, but yes, yes, and yes.
Rachel Vatnsdal
I had to try. So maybe can we spend a minute on Europe? Europe has been a big discussion this week, just given some of the headwinds from a macro standpoint, energy costs. So what are you seeing with your European customers? And what are the conversations look like there?
Prahlad Singh
I mean if you look until the 3Q, right, we were pretty much – Europe has grown in sync with our total company, right? And I don’t think that has changed. I think what has changed is now a more keen awareness around the energy crisis that’s going on, and I think we’ll see what the impact of that will be going forward. But as of now, I would say, Europe is sort of growing pretty much in sync with our total business and other geographies.
Rachel Vatnsdal
Helpful. So let’s shift over now to the life sciences portfolio. Kind of kick it off here, can you walk us through that life sciences portfolio as you’ve added some meaningful additions in the last few years, Horizon Discovery, SIRION, BioLegend? You expect that portfolio to grow low double digits. So how should we think about the opportunities there and to grow beyond that low double-digit range going forward? And then last question, where are there gaps in the portfolio that you think that you would like to add to on this life sciences side, especially post divestitures?
Prahlad Singh
Look, I think, as I said, right, we’ll have a $700 million reagents business growing double digits. We have a $300 million, $400 million, if you include services, instrumentation portfolio and $200 million informatics business around software, all of them being market-leading. I’m very happy with the double-digit growth forecast that we have. I don’t think there is – we are – I would love to see others that have that kind of a growth profile, as I said, really.
But coming back to the second half of your question, are there gaps in your portfolio that you would fill? Yes, I mean, we’ll continue to bolster our reagent side of the business. We’ll continue to bolster our position as we move from preclinical research to development. Our focus is not going on to the commercial side of GMP, but really from the transition point from preclinical research to our customers going into the clinical side. So that is an area where you’ll probably see us doing both organic and inorganic investments.
Rachel Vatnsdal
Helpful. BioLegend. So you flagged during your comments that the EUROIMMUN was going to be the best deal that you’ve done and then BioLegend has performed well so far. So can you walk us through how – as we lap that one year since close, how has that really performed relative to your expectations? And do you think that it can continue to drive that mid-teens growth? Or is there opportunity for upside there for BioLegend?
Prahlad Singh
Our total M&A portfolio grew double digits – has grown double digits, and we are very happy with the acquisitions. I think what – and I have said this earlier, rather than talk of specific acquisitions, I’ll attract your attention to our total reagents business, which is $700 million plus in revenue and growing double digits, and BioLegend makes up nearly half of it, if not more. So really, it’s the biggest piece of that reagents business, and it’s doing very well.
Rachel Vatnsdal
Helpful. So maybe shifting over to diagnostics then. To take a step back, you expect diagnostics to grow high single digits long-term, and you’ve continued to diversify that portfolio as well via the acquisitions. So how are you thinking about portfolio expansion beyond that for your current diagnostics portfolio to hit that high single-digit growth rate or above?
Prahlad Singh
Sure. I mean, I think if you – we have to break it down into the three pieces, right? With the reproductive health side, despite tough birth rates, we’ve done pretty well, growing amid single-digit, high single digits, and we expect to do that. Vanadis is a growth accelerator on that side of the business. I think what you will – we’ll continue to sort of bolster the assay pipeline. Now as I talked about on the autoimmune side, we’ve built a very strong portfolio of instrumentation all the way from a tabletop through the IDS acquisitions and in homegrown products to Excentis, which, as I said, got recent CE marking. We now need to fuel that engine, and we need to fuel that engine outside of the differentiated assay offerings that we have from autoimmune and allergy with more reagents. So that’s probably where you’ll see us to make more investments.
Rachel Vatnsdal
Helpful. Then shifting over just more to capital deployment given the part of the story that is. So how should we think about capital deployment priorities post divestitures and really how much firepower will the company have? And then as a follow-up, Perkin, you’ve been very active on deals for the last two to three years, but peers continue to roll up assets as well. So how do you see PerkinElmer positioning themselves to win in some of these competitive bids for companies moving forward?
Prahlad Singh
Yes. A great question, Rachel. I think two, three things, right? One, I want to make sure I don’t forget because there are three questions wrapped in that one. We’ll be very diligent with our capital deployment. We have $1.2 billion of debt that we have to ensure that we pay off, which we will be. I think the second and more important aspect is that we’ve got to – most of the deals that you see that we have done have not been one where we are in a competitive process. As you know, 90% of our founder, inventor, senior management for our acquired companies still stay with the company, and we hope to continue to partner and bring in companies into the PerkinElmer family because they are a good cultural fit in addition to the strategic fit and financial profile that we are looking for. So that’s where we sort of – we have some differentiated ability to be able to attract those founder owners, and those don’t go into a competitive process. So that’s where we will be focusing our attention at the right time.
Rachel Vatnsdal
Helpful. And then just as a follow-up, how quickly could we see you start to deploy some of that capital once you divest these businesses in the near future? And then where would you be comfortable from a leverage perspective going to, if it was for the right-size deal?
Prahlad Singh
I think we’ll stay investment grade, which means that even though short-term, once the capital – once the divestiture closes, we’ll be closer to 1.2 EBITDA. But I think, overall, we’ll try – our focus is to stay investment grade and 3x. So that’s where we’ll be from that perspective. I think we’ll be diligent in our capital deployment. We’ve talked about the fact that we have to repay debt. We’ve got some organic investments, whether it’s around GMP, around e-commerce, and we look at that. And we’ll continue to look for strategic opportunities. We’ve got an active funnel, and, at the right time, we will pull the trigger on those.
Rachel Vatnsdal
Perfect. Helpful. We spent a lot of time discussing some of the inorganic growth opportunities here, but let’s talk a bit about organic growth. From an R&D perspective, what areas of the portfolio are you looking at to spend most on R&D? And then are there any exciting things in the pipeline that we should be focused on?
Prahlad Singh
Yes, I think the benefit with – post the divestiture, it’s a very simplified portfolio now, life sciences and diagnostics. I think you will continue to see us making organic investments in R&D around some assays or differentiated NPIs that we bring to the table. Overall, at the company level, I’ve talked about e-commerce, nearly 45%, 50% of BioLegend’s revenue come from e-commerce. Only 5% to 7% of our total company comes from e-commerce. We have a great opportunity there to leverage an e-commerce platform. And that sort of not just is an efficient thing to do, but also a margin play. So that’s where from an organic perspective, you’ll see an investment in addition to the GMP facilities that I talked about.
Rachel Vatnsdal
Perfect. And with that, we are out of time. So thank you so much for joining us today.
Prahlad Singh
Thank you, Rachel. Thank you, everyone.
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