Tom Polen
Chairman, Chief Executive Officer & President at Becton, Dickinson and Company
Thank you, Chris. Building off our strong performance in the quarter, I'd like to share more details about our plan to separate BD's Biosciences and Diagnostics Solutions business to enhance strategic focus, drive growth through targeted capital deployment and unlock significant value for what will become the new BD and the separated business. This separation decision was the result of a comprehensive business portfolio evaluation launched in early 2024. And this is the next natural step of our evolution, building on the strong foundation and momentum of BD 2025 and the high-growth platforms we've built and have been scaling. The new BD will be well-positioned as a pure-play med-tech company with leading positions in large attractive end-markets. With this added focus, we're excited about the opportunity for new BD to drive concentrated capital deployment in high-impact R&D as well as growth-accretive M&A, which positions us to deliver differentiated and durable growth rates in MedTech. At the same time, we're also excited about the opportunity for Biosciences and diagnostics solutions to realize its full market potential as a pure-play leader in-life science tools and diagnostics, continuing to accelerate growth through a strong innovation pipeline and industry-leading solutions. As we turn to Slide 11, let me start by setting some context on why this is the next natural step-in our evolution, building on the strong foundation and momentum of BD 2025. Over the past five years, we've been transforming into a faster-growing, more profitable organization, positioned at the forefront of long-term growth trends. We've been systematically increasing our WAMGR and long-term growth by intentionally shifting our portfolio mix towards higher-growth markets and executing against a strong innovation pipeline. In fact, by the end of this year, we're on-track to have more than doubled new product revenue since the launch of BD 2025. We established and honed our M&A and divestiture capabilities, deploying about $7 billion in capital to complete 20 value-creating transactions since 2020. These include the spin-off of Embecta, the sale of our surgical instruments business, Femuller and the acquisitions of the Edwards Life Sciences Critical Care Product Group, Systems, Straw Medical, TIFA and others. We created an embedded BD excellence, simplifying our operations and enabling us to deliver on aggressive long-term margin expansion targets. Through our disciplined capital deployment strategy, we've built significant balance sheet capacity and strengthened cash flows, allowing us to both invest in our business and return capital to shareholders through competitive dividends, value-creating tuck-in M&A and share repurchases. This was all achieved while advancing our quality systems and putting customer-centricity at the heart of how we plan and operate throughout BD. We've achieved 70% reduction in non-conformances and a 25% reduction in-field actions since launching BD 2025. Moving on to Slide 12, we have also built and have been scaling multiple new growth platforms as part of BD 2025. These platforms are directly linked to the most critical areas of healthcare such as connected care, new care settings and addressing chronic diseases and are some of the platforms which will reshape our growth profile for the long-term. Over 25% of BD revenue now comes from platforms that are growing high-single-digits or more, and this is just the beginning as we continue to expand our exposure to higher-growth categories. Moving to Slide 13. We are well on-track to exceed every financial target established at our 2021 Analyst Day, and we have outperformed historical averages. In November 2021, we targeted a base organic revenue CAGR of 5.5% plus through 2025. Based on the midpoint of this year's guidance, we expect to deliver 5.9%. We targeted an increase of base operating margins by 400 basis-points through 2025. And in fiscal year 2022, we increased the target to 540 basis-points. We are on-track to deliver 560 basis-points of margin expansion to margins of 25% plus. We also targeted double-digit base adjusted EPS CAGR and now expect to be well over double-digits at 13.8%. On to Slide 14. This track-record creates momentum as we move into our next phase of value-creation and positions both New BD and the Biosciences and Diagnostics Solutions business to focus and win in attractive growth categories. Let me start by sharing a perspective on the profile of the new BD. The new company will be a med-tech leader with scale and global reach across the $70 billion-plus addressable market, growing at about 5%. Each day, new BD will touch more patients than any other med-tech company in the world, including over 90% of patients admitted to a US hospital. We expect new BD will have an accelerating growth profile, attractive margins and a best-in-class recurring revenue profile of over 90%. The separation will also enable enhanced focus with targeted investment and a tailored capital deployment strategy towards attractive high-growth categories. This will be complemented by our strong execution, driving continued margin expansion and cash generation through BD Excellence. As I look over at the Biosciences and Diagnostics Solutions business, it's expected to be a leader across an attractive $22 billion-plus addressable market, growing at mid to-high single-digits. We expect the business to have a highly-attractive growth and margin profile with more than 80% recurring revenue. We will also have an opportunity to further accelerate its strong innovation pipeline in-markets with significant growth potential and realize its full market potential as a pure-play life science tools and diagnostics business. Turning to Slide 15, let's go deeper on the new BD, a $17.8 billion med-tech leader. On to Slide 16. We plan to organize new BD into four operating segments, each being market leaders in attractive end-markets with significant headroom for growth. First, medical essentials will consist of our medication delivery solutions and specimen management businesses that truly represent the backbone of healthcare delivery. These are our products such as IV catheters, picks, flush, syringes, IV sets and blood collection systems. We are the market-leader in each of these spaces, manufacturing 10s of billions of devices each year, resulting in durable recurring revenue and strong cash generation. Second, connected Care will include our medication management solutions business, which includes our pharmacy automation platform. And our advanced patient monitoring business with millions of smart devices that use automation, artificial intelligence and analytics to improve the efficiency and effectiveness of patient-care and creates compelling growth potential in new areas. Third, biopharma systems will bring a new name and increased focus to our Pharmaceutical Systems business unit, which is the global leader in biologic drug delivery, developing and manufacturing drug delivery devices for the pharmaceutical industry. Biopharma Systems is uniquely positioned to enable the transition to more biologics, including GLP-1 treatments and capitalize on the large growth potential of pharmaceutical industry trends as more drugs launches rely on patient self-injection. Fourth is the Interventional segment, which will include our urology and critical care, peripheral intervention and surgery businesses that advance the treatment of high-burden chronic conditions such as urinary incontinence, peripheral vascular disease, cancer and tissue reconstruction, all of which are high-growth categories with attractive margin profiles and meaningful headroom for new innovation. We will share more about timing of this new segment structure as we near completion of the transaction. On to Slide 17, we have an exciting and robust innovation pipeline across the new BD segments with a significant number of $50 million-plus revenue opportunities, fueling above-market performance. The new BD will have a meaningful runway for additional new innovation and growth both organically and through growth accretive tuck-in M&A. In conclusion, as we turn to Slide 18, New BD will deliver a durable and differentiated mid-single-digit growth profile, supported by attractive end-markets and best-in-class recurring revenue. We will continue to systematically increase WAMGR through disciplined capital allocation and our BD Excellence operating system will continue to enable investments in growth and meaningful margin expansion with the majority being realized from gross margin. And our targeted financial profile will support strong earnings growth and value-creation. Let's move to Biosciences and Diagnostics Solutions on Slide 19. We are excited by the opportunity this separation has to unlock meaningful value for customers, the business and shareholders. Turning to Slide 20, the opportunity here is an attractive $22 billion-plus addressable segment. The businesses have strong portfolios and pipelines and are positioned well for growth. Biosciences and diagnostics solutions operate in a market growing mid to-high single-digits with more than 80% recurring revenue and expected 30% adjusted EBITDA margins. Now turning to Slide 21. Each of these businesses are leaders in large attractive markets. Biosciences had $1.5 billion in FY '24 revenue, addressing a $7 billion-plus market with 6% to 7% category growth. Diagnostic Solutions had $1.8 billion in FY '24, addressing a $15 billion-plus market with about 6% to 7% category growth. As we turn to Slide 22, Biosciences is the undisputed pioneer that created the modern field of flow cytometry, helping scientists revolutionize our understanding of cell biology in the fields of cancer, infectious-disease and immune health and enabling countless breakthrough therapies. Scientists and clinicians around the world continue to rely on our flow cytometry platforms and reagents to enable the next-generation of discoveries, including through our new FAX Discover flow cytometry platform. Biosciences has a very strong innovation pipeline of future fax discover instruments, new antibodies, dyes and assays. This includes continuing to scale our single cell multi-omics platforms with a significant increase in commercial headcount to support strong double-digit double-digit growth. Moving to diagnostic solutions. This business is a pioneer in microbiology research and clinical diagnostics with multiple world firsts in advancing the diagnosis of conditions such as sepsis, TB, COVID and other infections and in applying robotics and AI to advance infectious-disease testing. This primarily comprised of our microbiology and molecular diagnostics platforms, which both have strong innovation pipelines. Our molecular portfolio is among the leaders in the high-growth molecular market and is anchored by the BD core high-throughput and BD Max medium throughput systems. Our BD Core-Plus our OnClarity HPV assays offer a complete paradigm shift in cervical cancer screening, and it starts with the ease of self-collection. Overall, this business is well-positioned to create value under multiple types of separation structures where the investments and deployment of capital are entirely focused on the life science industry. Turning to Slide 23, now I want to talk more about the milestones of the separation. Moving into Slide 24. In terms of the form the separation could take, we are committed to exploring all opportunities to execute the separation in a manner that maximizes shareholder value. Separation options include a reverse Morris Trust, sale, spin-off or other transaction. We expect to announce more specifics on the separation plans by the end of fiscal 2025 and are targeting to complete the transaction in fiscal 2026. As the company pursues the separation, we will remain focused on execution and continuing to operate the Biosciences and Diagnostic solutions businesses and the other BD businesses consistent with our BD 2025 strategy, including continued investments in commercial growth, innovation, M&A and other initiatives that are part of the company's multi-year strategic operating plan. Finally, turning to Slide 25. We are excited about what the future holds for new BD and the Biosciences and Diagnostics Solutions businesses as we established two strategically aligned entities with mission-critical portfolios to maximize impact. In summary, we believe the separation has the potential to unlock value through simplification, enhanced focus and tailored investment in capital allocation. We believe New BD will have an enhanced strategic focus and growth-oriented portfolio that positions the company for long-term value-creation. And as a pure-play life science tools and diagnostics business, we believe biosciences and diagnostics solutions will realize its full market potential while continuing to accelerate growth. In the meantime, we continue to execute against our fiscal year 2025 plan as seen in our Q1 performance. Thank you for joining and for your continued interest and support. I look-forward to our next chapter and to sharing more specific details upon formalizing the form of the transaction. GDI. With that, we'll open it up to questions.
