Life sciences company Thermo Fisher Scientific (TMO 0.16%) played an instrumental role in delivering COVID-19 treatments to the world's population. The company supplies specialty diagnostics and equipment that other healthcare players use to develop COVID-19 technologies. With healthcare spending on the rise, Thermo Fisher is expanding its services in a bid to capture even more of the market.

COVID-19 changes the healthcare landscape

COVID-19 has highlighted the threat of widespread infectious diseases and the importance of the healthcare community to quickly mobilize a response. To help address this need, The White House released a Pandemic Preparedness Plan and hopes to increase biodefense spending. The 2023 presidential budget requests $88.2 billion to bolster research, development, and manufacturing in preparation for emerging COVID-19 strains and new diseases.

Other countries may also increase spending. The World Health Organization (WHO) argues that up-front spending reduces the odds of a health crisis causing a costly economic shutdown. The WHO also appealed to leaders of the world's biggest economies to assist poorer countries.

Overall, the global healthcare market is estimated to grow by 7.4% annually through 2027 as the prevalence of chronic and infectious diseases continues to climb. Thermo Fisher will benefit as a major provider of laboratory supplies and development services.

Thermo Fisher expands services

Thermo Fisher provided clinical research and manufacturing services for Moderna's COVID-19 vaccine Spikevax. The two companies agreed in February to extend this partnership by signing a 15-year collaboration in which Thermo Fisher will dedicate large-scale manufacturing services to Moderna's mRNA platform.

These services will cover the back end of the production process -- from filling vials with liquid and drying that liquid down to a powder for easier shipment and storage to labeling and packaging the final product. Moderna has a range of vaccines in the pipeline, including flu and respiratory syncytial virus (RSV) vaccines and COVID-19 boosters. This collaboration will likely keep Thermo Fisher busy going forward.

As a side benefit of the partnership, Thermo Fisher gained crucial experience with mRNA technology, which is increasingly becoming an area of biomedical focus. Major pharmaceutical players Pfizer and Sanofi are both adding mRNA vaccines to the pipeline, building onto their traditional protein-based vaccine technology. mRNA is also being considered for other treatments, and in 2021, more than 520 clinical trials were testing mRNA therapeutics across more than 20 disease categories.

Thermo Fisher also greatly expanded its clinical research business through the acquisition of PPD last December for $17.4 billion. In the first quarter, PPD's business contributed $1.7 billion of revenue, approximately 14% of total revenue. The company now offers a suite of services to streamline development all the way through production and believes this will be a very attractive value proposition to biotech and pharmaceutical clients.

Growth after COVID-19

As a supplier to healthcare research labs, Thermo Fisher gets an early view of biomedical research trends. Players within this field have started shifting their focus away from COVID-19 toward other areas. First-quarter sales of products related to COVID-19 testing decreased from $2.5 billion in 2021 to $1.7 billion in 2022.

Despite this, Thermo Fisher still increased its total quarterly sales from $9.9 billion to $11.8 billion, with 16% core organic growth. The company's upstream position in the development process means it is not dependent on any single disease.

Thermo Fisher's price-to-earnings ratio of 28 is not cheap, but it is in line with other competitors in the industry. This makes it an attractive option for an investor interested in healthcare stocks and avoids the ever-present worry about patent churn and pipeline strength of pharmaceutical and medical device companies.