Becton, Dickinson and Company (BDX) Earnings Call Transcript & Summary

Okay. Great. Good afternoon, everyone. I'm Matt Taylor, UBS' U.S. Medical Supplies and Devices analyst, and thanks for joining here for our Global Healthcare conference in the afternoon sessions of Day 1. Kicking off this afternoon, we're going to have management from Becton, Dickinson. And I'm really pleased to be joined by Tom Polen, Chairman, CEO and President; Chris Reidy, who's the EVP and CFO. And we also have Kristen Stewart, SVP of Strategy and Investor Relations. So it seems like there's some background noise going on there. I'm not sure what that is, but if somebody is on the line and not mute, could you please mute your mic.

We're in our Board room. It's not no here.

I've got like 3 doors locked on either side of me [indiscernible] we've had -- there's change in the background earlier today, children coming and going. So I'm in the fortress of solitude here. Well, good. Well, thanks so much for joining. I'm really pleased to have you all here for this Q&A session. And we're planning on a 45-minute fireside chat, of course, have some questions planned, but if folks are on the line, and they want to ask something specific, you can e-mail me or there's a chat function in the platform here where you can submit a question. But let me kick things off and get it started. Thinking bigger picture, why don't you talk a little bit about the BD 2025 plan and some of the key elements of that strategy that you're driving in terms of focusing on growth and simplifying the organization?

Sure, Matt. And again, thanks for having us today. We look forward to the discussion here over the next 45 minutes. So the BD 2025 strategy, it's a framework that I put in place when I became CEO, and it really focuses on 3 key pillars: growth, simplifying the organization and empowerment. And I'll talk most about growth and simplification as part of our strategy. But the empowerment is kind of an underpinning of all of those because we think about empowerment as empowering our growth agenda with digitalization of our portfolio and simplifying the organization through digitalizing our processes as well. Empowerment also has to do with evolving our culture from a growth mindset and a serving leadership perspective and about empowering and advancing our organization from a corporate responsibility perspective as well. But back to the -- to specifically grow and simplify, which is what you asked about, what you've seen us doing over the last 15 months or so is very purposely shifting into higher growth potential categories that could lift our weighted average market growth over time and provide durable long-term consistent growth to the company, to our shareholders, while adding significant value to patients and clinicians in the markets that we serve and near adjacent ones. So -- and you've seen us start pulling in multiple different levers to get after that goal of growth and driving more durable long-term growth for the company. First is R&D. You've seen us start to step up our R&D investments after roughly 6 years of flat R&D, of course, during the synergy periods of CareFusion and Bard, that's when R&D was flat, and we saw R&D as a percentage of sales go down into the mid-5s, we moved that back up to around 6% right away, as we started to fund a number of new R&D programs across the organization. You saw us do that through creating a centralized growth in Innovation fund, allocated those projects -- those dollars out to a number of really exciting projects, touching each of our 9 business units. And then you saw us double down on that, reinvesting part of the Veritor proceeds to even further fund the growth and innovation fund and we're excited about where that's heading. So the second thing you saw us do was accelerate tuck-in M&A. And so over the past 1.5 years, we've closed 11 transactions. That's, I think, more than nearly the 5 years prior to that period of time. And the deals that we've been executing, they bring -- certainly they've been accretive. They've been driving us deeper into categories leadership positions that we already have, expanding our moats. And in each and every case, they're moving us into higher-growth spaces. So if you think about BD historically playing in markets growing around 4%, our organic R&D portfolio is now positioned in markets growing around 6%. And the tuck-in M&As that we've been doing have been in markets well north of 6% growth, again, all as part of that agenda. You've also seen us very recently, place some very strategic and very selective early stage bets on more transformative opportunities that we'll continue to manage over the coming years. And then whether or not it's R&D or tuck-in acquisitions, we're focused on that long-term durable health care trends that we see we have a right to win in long term. And so we think about applying smart devices, robotics, analytics and artificial intelligence to help transform care processes. We're investing behind enabling new care settings, whether or not it's at home or long-term care facilities or ambulatory surgery centers, but new solutions for new care settings of the future and then improving the diagnosis and treatment of chronic disease. Pretty much all the investments, organic and inorganic that we're making are driving new solutions that align to one of those 3 durable trends. And so I just talked a little bit about growth but simplification is an important part of our strategy. And it's -- I often quoted inside saying that complexity gets in the way of growth. And so the reason that we're focused on simplification is we see it as an empowering strategy to our primary goal of growth. And as we think about that, what we're doing from a simplification agenda, is really driving a few things. One is we're driving business process improvement through digitalization. So we're digitizing processes, making them more efficient, freeing up funds to be able to reallocate to driving our growth agenda. We're simplifying our portfolio. We started with SKU rationalization, but you've seen us make some decisions most recently regarding the Diabetes Care Business. It simplifies our focus in those spaces that BD will be focused on long term and allows the diabetes business to focus on their space to optimize growth there, and I can talk about that later on. And then the third area of our simplification agenda is simplifying our architectural network, essentially our manufacturing footprint. And so we've already initiated a whole series of programs across the company with the goal to reduce our manufacturing footprint over the next couple of years. All of that is under the umbrella of our project ReCoDe, which we've committed to $300 million in savings through 2024 and all that's very much on track.

Great. So a lot going on basically and trying to move up the growth curve with a lot of focus on that. So we've seen some signs of that is working in this last period, the fiscal second quarter, your momentum in the core business continue to improve. And I was hoping you could talk about that trend and what you expect from the core business for the rest of the fiscal year. Maybe you could comment a little bit on recent trends and where you expect utilization to go?

Sure. So as we think about, we did see good momentum coming out of what was a peak in COVID resurgence over the winter, we saw April -- March, April continued to improve. And then we saw May also continue to rebound even beyond April. So we feel really good about the core business, as you said. Overall, from the data we see externally, and of course, we have some really unique insights from our HealthSight platform, where we see hundreds of hospitals data real time, literally on a daily basis, what their admission rates are, what the procedural volumes are, and that's something we monitor quite routinely. It matches a lot of the data that you're probably looking at. What we're seeing is U.S. hospital inpatient utilization in the first calendar quarter was around 90%, and outpatient trends were higher than that, that's as we think about versus pre-COVID levels. Europe was lower than the U.S., South America where COVID rates were higher. We also saw a bit of lower utilization rates there. And for the rest of the year, as we look ahead, we assume that utilization continues to trend higher, but does remain at a levels a bit below pre-COVID levels for all regions with the exception of China, which has recovered, and you saw that obviously in our strong growth last quarter in China.

Okay. Very good, very good. Of course, that recovery and some of the investments you're making, this all plays into margins. Maybe you could talk about the kind of margins that you expect for gross and operating margins in the second half of the year. And whether that is the right way to think about margins going forward? What are some of the moving pieces?

Sure, I'll let Chris take that.

Sure, Matt. So to frame the outlook for the second half of the year, let me just start with the second quarter margins [indiscernible] baseline. So you'll recall, in Q2, our gross margins were 53.8%. And just as a reminder, that included an uplift of 70 basis points from COVID testing, which was entirely offset by our COVID reinvestment program. And in addition, it included a 70 basis point drag from product quality spending. So what we've said is that we expect our second half gross margins to be sequentially lower than our Q2 gross margin 53.8%, and we've also said that -- as you look at our operating margin, it was 24.5%, and we said that we expect the second half operating margins to be in the low 20s. Now as you step back from that, the lift in margins that we were getting in the first half from COVID testing will decrease in the second half due to lower pricing environment. And we're continuing to make these very correct investments, we continue to see that spending in the second half. And that's across the P&L, including in gross margins as we take down inventory levels to improve our cash flow and that [indiscernible] the gross margin level. We continue to see the negative manufacturing variances. As Tom mentioned, we don't expect utilization to get back to pre-COVID levels in the second half. So that will continue to have manufacturing variances. And you'll see the raw materials and shipping costs going through our inventory, which put pressure on margins. And then lastly, we expect the FX headwind on gross and operating margins to be a headwind in Q3, but then that could stabilize in Q4. So as you think about the remainder of '21, we expect gross margins and operating margins to be lowest in Q3 and then to move a bit higher in Q4. Then as you think about FY '22, obviously, we haven't gone through our annual budgeting process and [ forecasting processes. ] So we're not providing any guidance today, but we have given some color. And the first thing that you should keep in mind is not to look at the second half of FY '21 as a baseline of what to expect in '22. The investments that we're making with regard to our profits that we've been very vocal about and some of the other quality-related and R&D-related spending, they're pressuring the margins in the second half of '21, and they will come out of the P&L in '22. In addition, we have continuous margin improvement initiatives. We would expect those manufacturing variances to start going away as volumes get back to pre-COVID level. And so that will stabilize a bit. And then as you think about Alaris coming back into the picture in '22, just keep in mind that it will take time for those margins to ramp, and we would expect a more meaningful contribution to margins in FY '23. And then lastly, Tom mentioned ReCoDe, we expect to get savings of $300 million by the end of FY '24, and that begins to kick in [indiscernible] as well, and giving some more flexibility to our margin structure.

Great. Well, thanks, Chris, a lot of good color there. Let me touch on -- you mentioned Veritor spending was one of the things that's pressuring margins this year. But obviously, a lot of good potential growth that could come out of those investments. Could you be more specific about where you're investing the $200 million from Veritor this year and talk about the kind of growth that could drive over time?

Sure, Matt. Happy to. So we're investing right behind our strategy, growth, simplification and empowerment. The smallest portion is going to empower, mostly what we're investing in there is around our next level of leadership development programs, less than 5% of the roughly $200 million of reinvestment is going there. But for example, we're training the top 5,000 leaders in the company starting this week actually on growth mindset and how to think from a growth mindset perspective, which means, there's things that -- things that we can't do, just things we haven't done yet and how to overcome barriers and really focus on solving very complex problems in independent teams across the organization. And so that's really what we're focused on, training our next-generation of leaders on. The vast majority, 95% plus of our funding is going to our growth and simplification agenda, though. And so I mentioned before, we have put some more money into our growth and -- into our growth and innovation fund that is fueling new R&D programs across the organization. We're funding -- enhancing our quality and risk management systems across the company, taking lessons learned from Alaris as well as scaling. Our compliance and quality systems to be operating a $20-plus billion company in the future. And then as we think about, obviously, accelerating ReCoDe overall is a big focus of ours as well. And so there's some opportunities that we see to pull forward some of those initiatives to get value a bit sooner. Part of that as well is driving our agenda. What I hadn't mentioned before on simplification, strengthening our balance sheet and cash flows was a goal that I made very clear when I took over the role. We put that as part of simplification. You've seen us, for example, make some really great strides in improving cash flows. Part of that is through our work on accounts receivable, accounts payable, but also inventory. And so we've been taking inventory down and utilize some of those Veritor proceeds to absorb the manufacturing negative variances that happen when you take inventory down. And so we won't have that as a headwind this time next year. Kind of those benefits of that spend will end up coming out. Obviously, the spend will come out next year, but we'll see the revenue impact. We would expect at the tail end of FY '22 and then will obviously benefit us for the next 3, 5-plus years as new R&D programs roll out, the accelerated impacts of Project ReCoDe come to fruition and of course, those cash flow benefits that we're able to get are going to be long-term durable benefits for us that we'll be able to allocate the other new opportunities to create value.

All right. Understood. Great. A lot of good stuff going on there, too. And you said on the last call that you had more confidence now in, call it, solid mid single-digit growth. So investors like to quantify everything. So I was wondering if you could remind us what solid mid-single-digit is? Is that a good baseline? And what would have to happen for you to grow above that?

I'll let Chris answer the technicality of solid mid single-digit growth.

Yes, sure. Before that, Matt, speaking of FY '22, that reminded me about our lovely forward-looking statements, which I neglected to read at the onset. So before we continue, let me just remind everybody that it's possible that all the results that we're talking about may differ from our expectations, and in particular there could be uncertainty about the duration and contemplated of impact of COVID-19 pandemic. Risks, uncertainties and other factors could cause such differences that can be found in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Q. Statements and other comments made in this presentation are made as of today's event. And we undertake no responsibility to update any such statements to reflect events or circumstances that occur after today's [ press ] date. So with that, I'll turn it over to Chris to answer what solid mid-single digit growth...

I would say, of course, you're seeing our core do very well this year, Matt. We feel very good about our core in the back half of this year, and we feel really good about our core going into FY '22. We feel like we're absolutely on the right direction, and we've got our innovation pipeline really starting to hit stride as well. And so Chris?

Yes. So let me just start with what is our base business. So the base case is all the revenues, excluding COVID testing and also excluding any revenues that we might get from the 510(k) clearance for Alaris. And so just as a reminder on the COVID piece, our revenues from COVID were $581 million in FY '20. And then as we look at fiscal 2021, we expect COVID diagnostic revenues to be in the range of $1.8 billion to $1.9 billion. And that includes the BD Veritor, BD MAX and then the swabs and transport that come along with that. So that just kind of gives you a baseline. So given that in November, we started out by saying that we expected the base business to be in that mid- single-digit growth range for fiscal 2022. And as Tom said, we're feeling really good about the momentum of the core business. And so on the Q2 call, we said that we had to work solid. So we think that it's going to be solidly within that mid- single-digit range, which moves it up in the range. So the way we feel about the momentum of the core business you've seen it building throughout this year, we'll see it building in the second half of this year. So we're going into '22 with great momentum in the core business.

Okay. So now we know what's solid means. So what would have to happen for grow above solid. So solid plus.

So where we would just focus, one of the things we've been saying is we're focused on delivering that mid-single-digit on a durable basis year in, year out. So at this point, I think the right way to think about it is that our base business will be solidly in that range next year. And sure, there's lots of puts and takes. But right now, given that it's May, we'll stick with the solid mid-single digits.

Okay. All right. Well, fair enough. All right. So you talked about [indiscernible] Alaris, maybe discuss how derisked you view that at this point in terms of the submission and that coming back to market in the time frame you've laid out, do you think the time frame is conservative? What could go wrong? Maybe just take us through that clearance?

Sure. Obviously, we're really proud of what the team's work to get -- it is an extremely comprehensive submission done within our time line as we communicated. Of course, we submitted that towards the end of April, as we said, end of Q2, early Q3. That's right within that time frame. And as I said, it's an extremely comprehensive submission, thousands of pages, near 10,000, with the upfront piece being basically 1,000, to bring the regulatory clearance for Alaris up to date. Of course, it also implements updated features, addresses open recall issues, includes a new version of the BD Alaris system software that also has enhancements that provide clinical, operational and cybersecurity updates. So as we mentioned on our earnings call, Matt, we are -- we submitted it. We've already started the dialogue with the FDA and getting -- we know that they're reviewing the file. We started the dialogue with them on that. In terms of time line for clearance, we can't predict the FDA's review time. Certainly, as that dialogue continues, hopefully, we'll get a better sense of that. But at this stage literally within 60 days essentially of the submission, what we can just say is that if we look at historical benchmarks, we know that 510(k) approvals on pumps have ranged from the earliest it's been is 5.5 months, the longest it's been to date has been 14 months. And so it would be somewhere within that range, and we recognize this is a comprehensive submission because it includes multiple different pumps, the central software, the interoperability and the number of other features in. And so if you take that into account, we recognize, let's think about towards the longer be prudent. And then that would put us at the second half of FY '22. And that's what we communicated on the earnings call, no change in that. As we continue to progress in the discussions with the FDA, and we can narrow down that range, we'll do so.

Got it. And that seems like a very reasonable way to approach it. So assuming that you do get clearance in the second half of next year, help us think about what the ramp looks like and also the impact that, that could have on margins?

Sure. So I think as we mentioned before, Matt, we did keep in place our sales and our service personnel during the ship hold, and that did have a drag on our margins, not only not having the products and revenue, but we kept the expense base [ it. ] Because we were confident that we would be getting Alaris back. Those are highly trained associates with really important relationships with our customers. Service, as a reminder, ends up in the GP line in most cases because that's associated with the installation and service agreements that we have there. So that will -- as we start to ship again against that, that will help improve our gross margin as we get absorption on that expense base that we've kept there. So it will take some time as we ramp up the revenue of Alaris. It's not going to FDA approval, and then we immediately get back on the run rate. It is -- has a sales cycle to it. We do have some pent-up demand and some agreements that are already in place, contracts in hand that we're waiting to ship against. But there will be some time, a couple of quarters, let's say, to get to the full run rate from before and start seeing those full absorption benefits of Alaris coming back in, but it will definitely be a lift to margins.

Got it. Okay. So I have a little bit of a complex question about margins, but there's a lot going on. So just trying to balance the ReCoDe savings, you've got $300 million there, positive contributions from new products, Alaris, but then you've got some headwinds like inflation, manufacturing variances, China pricing, how do we think about the underlying earnings power of the business and maybe relative to fiscal '19 when your earnings were close to $12?

Yes. So maybe let me start with how we feel about the underlying business, and then I can turn it to Chris to speak about margins. So of course, I've already talked about our strategy of growth and simplification strategy and all the actions that we're taking around our portfolio, around innovation, around simplification and margin optimization initiatives that we have underway. And all of those are making really tremendous progress. Could be more pleased with the progress that we've made on those, while we've been making a pretty big impact around the world and helping respond to a pandemic with what we've done on the diagnostic side, on the care side of patients in the hospitals now and of course helping literally billions of people get the vaccine around the world. And doing that while actually being ahead of where we originally expected on executing our strategy is something we're really proud of. So we feel very good about kind of the durable underlying performance of the business, again, delivering that durable mid single-digit revenue growth profile, we feel very strong about that over the next many, many years. As we think about the margin profile underneath of that, of course, one of the things that's bringing it down is Alaris. We now have that submitted. As that comes back, that will be lifting that back up, which was a key part of a '19 comparable includes Alaris in it. And so that -- we feel very much on track of getting that back into the equation that we had in '19. I think the other factor is, obviously, we're purposely investing portion of those COVID profits, which is holding down our gross and operating margin, and that will be coming -- turning into more of a tailwind on margins, gross and operating margins as we go into '22. Chris, other comments?

Yes. So I think [indiscernible] a number of them as it relates to how we expect margins. We will have the Veritor spending that we had this year that comes out next year. We talked about the manufacturing variances that we have from utilization, not being at pre-COVID levels, that should start to dissipate going into next year. And of course, we have continuous improvement initiatives. And then ultimately, Alaris comes back and over time that comes back to full margin performance. The one that we haven't mentioned again as we have done a lot to strengthen the balance sheet, as Tom mentioned earlier, our net leverage is now 2.4x. And so that gives us the opportunity to deploy capital differently than we have in the last few years. And so as we announced on the earnings call, we're committed to having a more balanced capital distribution strategy that would include a competitive dividend, tuck-in M&A, as we've been talking about, but also would be the restart of the share repurchase program. And all of that in the [ platforms ] of maintaining a full investment-grade rating. So we're feeling confident in that ability to sustain mid-single-digit revenue growth and ultimately the double-digit total shareholder return.

Great, great. Yes. So now that you've achieved that better leverage position. Let's talk a little bit about how you'll spend the money. So a couple of things that you mentioned before, you're really starting to invest in these more forward-looking areas, like planning robotics, AI, analytics to help improve workflow. These are things maybe people didn't think about with BD in the past. So how are these things being invested in? And how are they going to enable things like new care settings, reducing the burden of chronic disease, the big goals that you have as part of the 2025 plan. Can you give us a couple of examples of that?

Sure. It's easy to think of a lot more than just a couple of examples of that. And to your point, it's -- those areas we're really proud of the position that we put the company in over the last several years to be able to be at the forefront of helping to change healthcare in these ways. Because if you think back 6, 7 years ago, changing the world of healthcare from an AI robotics, informatics perspective and changing care process isn't something that was anonymous with the syringe and catheter part of the legacy BD, right, or even helping to transform from the acute care into the non-acute or being really a very relevant player in addressing long-term chronic disease, which we're very well positioned to address all of those very critical long-term trends today. So one of the facts that I think more folks are getting to know is we're one of the most connected medical technology companies. We're connected to 70% of all U.S. electronic medical records. We have over 2,000 software engineers and data scientists in the company today. There's not many, many peers if any, in that level of being a connected medical technology company. And you're seeing us leverage that, Matt, right? So we took our HealthSight platform, and we now made that a standard connectivity platform for all BD medical devices into our healthcare customers. And so you've seen us not only take the legacy BD products from CareFusion, Pyxis, Alaris, all the other software products around medication management connect through that. We've got Kiestra and our connected -- Veritor connecting in through that same portal. And now you see us taking BDI products and making them smart. Smart foley catheters, we just launched last quarter is a great example of that with our Sensica product, which is off to a great start, already strong orders coming in from that launch, just launched within the last month or 2, the temperature management connected product as well. And those are things that are difficult to duplicate, right? So if you're just selling a smart foley catheter solution and you don't already have that installed base, the cost to support that, the time to convince a healthcare institute, dedicated team to create interoperability with your device and then to maintain that, it's very difficult to justify versus you already have it installed. You're just plugging in another BD smart device into that ecosystem. You're going to see more and more smart devices coming out from us. Everyone of our businesses has smart devices and informatics programs now in their pipeline, which is up significantly. You can imagine businesses like Pharm Systems or UCC or PI, were not businesses that had PAS that had smart device programs just a couple of years ago. So that's an area you're going to continue to see innovation coming from us. On the enabling the care shift, so obviously, with products -- UCC has always had a strong home care business. Our point-of-care, pre-COVID was an important part of enabling the care outside of the hospital setting, but you're seeing us double down on that, right? So if you look at some of the acquisitions we've done recently, you've seen us inorganically pursue that strategy. In the last 6 months or so, we've done 2 acquisitions in medication management to take our leadership from the hospital into the non-acute setting, right? So we've acquired the leading medication management provider for the long-term care setting, who has a cloud-based system that we're now driving forward in the market. We just bought a U.S.-based retail pharmacy automation company in the last quarter or so. And we're continuing to drive that strategy also organically. So our PureWick product, which was a phenomenal success, now bigger than Lutonix, phenomenal success in the acute care market, we've launched now into the home setting, and it's doing really, really well helping to address urinary incontinence in the home. We've got other versions of that product now in the pipeline that will be helping to address urinary incontinence on an ambulatory basis. And so you can continue to see us moving those types of solutions, not only into the home but into people's daily lives. Across most of the businesses, right, we've challenged them, and we now have products in our pipeline, looking at that are very dedicated, to enabling the solutions that were traditionally delivered in a hospital setting to be enabled in the non acute. So we have solutions for drawing blood in retail settings or without phlebotomist, right, in our pipeline today. We have, as I mentioned, solutions such as what I described in UCC, we're helping to enable solutions looking at where dialysis treatment may be going as an example. And how we can help peripheral vascular patients better manage their own conditions from home. In point of care, of course, we're taking advantage of the much larger Veritor footprint, approaching 100,000 placements now, not just in the U.S. but around the world, to double down on our point-of-care menu. And we, of course, had acquired last year NATDx as a molecular point-of-care platform with a 10-minute turnaround, which is going to be one of the most rapid point-of-care molecular platforms as that comes to market. Again, that's helping to drive the shift of care to the new care settings. And then last, obviously, we do a ton of work. We have done a ton of work in BDI, in particular around helping to solve -- provide solutions for chronic diseases. You're going to continue to see new innovations coming out in BDI around that. But you're also seeing us get smarter in other areas. A great example of that is our new BD core product, which is under active FDA review right now. That's our high throughput molecular platform with our HPV genotyping assay, right, which is going to help screen, has a primary screening claim for cervical cancer and will be the first primary screening assay with a full automated genotyping as part of it to help triage risk stratify patients who are positive for HPV to help understand what would be the next best step in helping to set them up for proper treatment.

Great, great. You're right, more than a couple of examples. So a lot of good stuff going on in the pipeline. And so you've articulated this big focus on growth, all these investments, external, internal. And the mantra for BD has been mid-single leverage to double digit, right, consistently. But over time, hopefully, this will lead to more growth. Do you foresee a day down the road when all this shifting up your [indiscernible] could actually lead to strategic goals of growth higher than the mid single, low double-digit earnings growth?

As Chris mentioned, obviously, we're focused on consistent, durable, mid single-digit growth, solid mid single-digit growth, as we said, for FY '22 and double-digit total shareholder return. We think that's a great equation of creating tremendous value for our shareholders of doing that consistently and durably, and that's our commitment and that's our focus.

Okay. All right. Fair enough. So a few other ones kind of jumping around a little bit. Right now, there's a lot of focus on COVID testing. Could you talk about the outlook for COVID testing? And the confidence that you have in that $1.8 billion to $1.9 billion range that you talked about earlier for the year? And how durable do you expect this to be looking into FY '22?

That's a great crystal ball question, Matt, obviously. Let me start with the easy answer. Easy one to answer, which is we feel very confident in our COVID diagnostic number that we gave for this year, for FY '21. So as you said $1.8 billion to $1.9 billion of COVID testing, that includes -- we've already recorded $1.35 billion in COVID testing with just under $1 billion in Veritor testing. So we're well over halfway to that number as we pass the midpoint of the year. And that's very much aligned with what we've always said that we expect COVID testing to be first half weighted. And we have good visibility to contracts that we already have in hand, demand that we're going to be fulfilling for the next several months, which gives us the confidence in the $1.8 billion to $1.9 billion for this year. We feel very good about that. So that's not a difficult question for us to answer. The more challenging one, which no one knows the answer to is what's going to happen in '22, right? And so we, as everyone, continue to monitor factors like COVID variants, the rates of vaccination globally, we think about the use of testing for symptomatic patients versus for screening and what screening uptakes will be in different geographies around the world. We certainly recognize that pre-COVID, Veritor platform was $80 million to $100 million annually, and it's going to be, call it, $1.4 billion this year, a huge job. We don't see it going back to where it was before. Obviously, we have 4x the number of placements there as well, and we have our flu test. We do expect flu will be coming back. We have our flu COVID test already approved or cleared by the FDA, and then that will be launching this summer and available for the next flu season. We talked about other new assays that we're launching. We've got the OTC assay in development. And we have launched, we haven't talked much about it, but we have launched a visually read Veritor ex U.S., and we're actively fulfilling orders for that and shipping for visually read only version of Veritor, particularly in Europe and a few other geographies, just not in the U.S., where that's really just a product that's preferred. So we've diversified our portfolio. So whether or not they're looking for a visually read test, a digitally read test, we hope to be adding an OTC assay into the pipeline -- into our portfolio. And of course, now combination tests, flu and COVID. So a very diversified portfolio to meet customer needs and be very well positioned in however the market ends up evolving. I mean, it's too early to say what's the size of the market going to be in 2022. We'll get better insight as well the rest of the world as we get closer.

Right, right.

And we feel well positioned versus others.

One of the things you talked about was OTC, I'm curious if you had any thoughts on how big the home market or the OTC market could be? And then can you just remind us or frame up the impact of COVID testing on your margins and how that's changed with changes in pricing?

Yes. I'll let Chris answer on the margin side. I think for OTC, again, it's still an open question in terms of -- so as more and more people get vaccinated, the need for asymptomatic screening with OTC tests may vary depending on the settings in which they're entering into. If they're going into a setting, let's say, I talk to a lot of superintendents, for example, they're debating right now, are they going to mandate vaccinations for students as they go back-to-school. If those are mandated, maybe there's not as much need for screening before. The students go back if they're not mandated, they may still need to do more screening as they go back. And those are questions that I see a lot of people are looking to answer, probably by mid-summer. There's a lot of active dialogue going on around that. And a lot of people are asking the same types of questions around return to work, return to other different parts of life and what does a vaccine mean when it comes to the need for testing. And what is the power of that vaccine pass, get people. And I think that will have an influence. I think that's also the reason we've indicated that we're excited about our combination assay, not only on Veritor, but we've shared that once we get our initial COVID assay -- COVID-only assay, hopefully approved for OTC and get that launched, we will be proceeding in development with an assay that we've already begun, which is an aim to bring a combination flu COVID assay over the counter. And I think that will be a great durable assay, which will be better for symptomatic patients during the flu season, right? And so if you have some type of respiratory symptom, is it COVID? Is it the flu? let's test for both, not just one. Being able to offer that over the counter. I think that's probably the best assay over-the-counter long-term once you see widespread vaccination for symptomatic patients.

Okay. Yes. If you could make that in the 3 pack or my kids, that would be great.

[indiscernible].

And then to the second part of your question, Matt, as you step back and you think about pricing related to COVID, so first of all, MAX pricing has been relatively stable. The Veritor pricing is a little bit more dynamic. So as you think about the beginning of this year, we were saying that the price would be in that $20-plus kind of level. But we said eventually, that would evolve down to what would be close to the [indiscernible] pricing, which is in the [ 9 to 12 ] range. So as we went through the first quarter, we took actions to bring the price down to the low to mid-teens, which is where the ASP came out in the second quarter. And now as we think about going forward, we do see the price coming down to that [ 9 to 12 ] range that we have predicted [indiscernible]. And just as a reminder, what that does to margin in the second quarter, there was a 70 basis point lift to margins. And as pricing and volumes come down, we would think that, that would bring relatively minimal impact to margins in the second half of the year.

Great. Got it. Okay. That's really helpful. Well, look, I think we're almost out of time for this session. I want to be respectful of everyone's time. I know you've got other stuff to do here today. But thanks a lot for a very thoughtful discussion and a chance to go through all these key drivers in margins and hope the momentum continues in the business. We'll see mid-single-digit plus. And that's probably good news because things are recovering in kind of full swing here, and you've been doing a good job to invest behind that. So thanks a lot, and we look forward to tracking your progress.

Okay. Thanks, Matt. Great to see you.

You too.