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

Welcome to the next session here. I'm Matt Taylor, UBS' medical supplies and devices analyst, and I'm pleased to finally be talking about something I know something about. This is great. We thought this would be kind of a cool transition actually for the conference. Obviously, the first half is focused mainly on genomics and life science tools and tomorrow will be a lot of med tech, and we have Becton kind of in the middle. And to help us make that transition. We have leaders from the Life Sciences group, including Dave Hickey, who's EVP and President of Life Sciences; and Puneet Sarin, the President of Biosciences; and also Kristen Stewart, Head of Strategy and Investor Relations. And so for this session, we're going to have a short presentation, and then we'll do a fireside chat Q&A. And as always, if you want to ask questions, you can just key in with the instructions on your tables. So without further ado, let me introduce, well, Kristen first to do the disclosures, and then we'll have Dave come up and do the slides.

Great. Thanks, Matt. And thanks, everyone, for joining us here in the room live. It's very exciting to be back live doing some meetings here with you all and then, obviously, on the webcast as well. So without further ado, it is my pleasure to read the forward-looking statements. Just to remind you that actual results could differ from our expectations, risks, uncertainty and other factors that could cause such differences, can be found in our recent SEC filings, including our 2020 Form 10 and subsequent Form 10-Q filings. Statements made today are as of the date of today's events. We undertake no responsibility to update such statements. So today, again, we will be discussing some non-GAAP financial measures. And just to remind you, Dave, as Matt said, is the Segment President for our Life Sciences business, which as you can see here, represents a portion of our overall revenues. Last year, we had $17.1 billion in total revenues. We are very diverse in terms of our different business segments and also regionally by our revenue base. And just to give you a sense for the diversity and products that we sell, it is very wide. So without further ado, I'm going to turn it over to Dave. I did just want to highlight in case any of you did not see it today, we did make an announcement this morning on our CFO transition plans. We did announce that we hired Chris DelOrifice from J&J to succeed Chris Reidy, who we announced last week would be retiring. So we're very excited to be having Chris join as our next our CFO. So he'll be joining us in September. So with that, I'm going to turn it over to Dave and then Puneet to talk about our Life Sciences business. So Dave?

That's great. Thank you. Appreciate that. Got it. And actually, I think if it works, I'll stay and present from here, right? So great to be here. And just a bit of context, Dave Hickey, Head of the Life Science segment. I actually took over from the segment in January of this year. Prior to that, I was President of the Diagnostics business, or the IDS business, based in Baltimore, Maryland, although you can probably tell I'm not a native Baltimorean. But what I wanted to do was, really, before I hand over to Puneet, who will focus on Biosciences, is really just give a perspective on the high-level vision and strategy for the Life Science segment overall. So you'll get a sense of the journey that we're on, the technology that we're invested in and we'll continue to invest in, and the contribution to health care and health care delivery, particularly in clinical flow cytometry, clinical flow research, and diagnostics around infectious disease. So just to break the segment down a little bit. So you'll see that we are, based on 2020, over $4.6 billion in revenue. And the way this segment is split up is we actually have multiple operating business units within the segment. So there is obviously Biosciences that Puneet will talk to. But then within IDS, Integrated Diagnostic Solutions, we have 4 operating entities. We have specimen management, we have microbiology, molecular diagnostics, women's health and cancer and then point of care, which obviously for us was highly relevant as we went through the past COVID pandemic and continue to do so. Wide variety of customers, and you see the split of how the business revenue is made up based on fiscal '20. We will get into the areas of growth and the opportunities around growth and how we enhance the customer experience as we go through. I think the other point that I would make on this slide is when you look -- of the 6, 7 businesses that make up Life Sciences, we are a clear category leader in 4 of them. Capabilities for us is extremely important. So when I think about our areas of -- particularly in IDS, because Puneet will talk to Biosciences, why do we have the footprint and the growth and the category leadership that we do? So when I think around molecular diagnostics, I think about some of the leadership we have in blood culture and clearly specimen management. I think here in the U.S., significant category share for anybody that's had a blood test or a vacuum draw of blood. Most likely that would be absolutely a [ BD2 ]. And women's health and cancer. So we'll -- we're very big in liquid-based cytology, HPV and which we launched on our BD COR platform in Europe, waiting on the launch of that platform here in the U.S. And for many of you that have followed BD historically, and you've seen sort of prior to 2019, we had separate business units for what was then called Preanalytical Systems, which is now Specimen Management and Diagnostics. I took the conscious decision in 2019 to bring those 2 businesses together to create Integrated Diagnostic Solutions because of the synergy with our customer, the single call point but also the value of being able to own the diagnostic work stream from pre-analytical to analytical to post-analytical detection and diagnosis was a critical part. And this really is the vision and strategy and what drives our investment decisions, our portfolio decisions for -- both for IDS and for Biosciences, and it's around this concept of diagnostic stewardship. So if you think about it and if you sort of gravitate your eyes to the circle, the role and the purpose for IDS is through sample collection, through transport into the lab, through the analytical process in the lab and the timely reporting of those results back to our customers through automation, through informatics, how can we be the best we can be and help our customers be the best they can be at what we call diagnostic stewardship. So a diagnostic result to inform a diagnostic decision on a therapy or not in a very, very timely manner. So our goal strategically over time is to be extremely relevant in this continuum. There's a lot of organic capability that we have here today. And of course, where we would have any portfolio gaps that drives incremental R&D, that drives the potential M&A targets and technology. Last couple of slides for me would be when you think about our portfolio, and I think if there's a message that I would certainly want to leave you with from an IDS, Integrated Diagnostic Solutions' perspective, is we structure our business and our portfolio the way our customers are themselves setting up. So yes, we have a microbiology business. Yes, we have a molecular business. Yes, we have a point-of-care business. That's not really the key emphasis here, is when you look at diagnostic testing, diagnostic testing on a global basis is evolving into 3 core testing segments, very high-volume centralized testing for the nonurgent parameters and tests where the customers are looking for a highly automated, standardized environment, where they're really looking for efficiency, flexibility and operational performance. So here, that really drives our investment in our automation strategy, think BD COR, think BD Kiestra. Then there is an acute segment. So now we're thinking more in a hospital environment, where the turnaround time is important. Think of people going to surgery, think of people in intensive care, think of people sort of waiting for operating procedures. The tests now are a little bit more urgent because it's about managing the patient. And the labs still want clinical performance, but now it's clinical performance and where they can drive the optimal clinical outcome. So here, this is where our category leadership in blood culture, around bloodstream infections and sepsis management is important as well as molecular diagnostics with our BD MAX platform and looking at some of the acute parameters. And then finally, clearly, the emerging growth space and the growth area, growth potential of point of care. It is very clear that there are certain tests and certain parameters that are moving outside of the walls of the lab to have testing done. And that will be in point of care. And what is interesting as you look at the point of care arena now, there are even subsegments of point of care that are evolving in terms of acute testing that might be in the physician office lab, non-acute testing that might be in a retail environment. And as you've seen, particularly with COVID, the emergence and the intrigue around at-home diagnostic testing. And for us, having capabilities and wherever that testing might be done, it will require something as simple as a rapid antigen test, such as the BD Veritor, or it might require a molecular technology just to get to the sensitivity of the type of test that you're measuring. And that drove the acquisition for us of NATDx, and we're working towards commercialization of this molecular platform in the future. So for us, and particularly in IDS, it's really understanding the spaces of where testing will be done and then making sure that we drive, invest and grow the portfolio in an integrated portfolio to leverage each of those spaces and look forward to taking some of your questions on this as we move forward. Puneet?

Great. I'm going to go ahead and stand up. So good afternoon, everybody. It's great to be here with you. As I start with the Biosciences section, I'd just like to give a little bit of a preamble. I'm going to cover 3 things. The first is to kind of give you our vision about the Biosciences business, what is our aspiration and how we think about the business. The second piece, we're going to talk about where we play today, but where we see growth near to midterm as we think about the next 3 years about our business. And finally, the last piece I'd like to talk about a little bit is how do we think about our competitive position in the core markets we play in, hopefully give you a little bit flavor about the competitive mode as we think about our business. And welcome to take any questions after we get through the discussion. So the Biosciences, as many of you may know the business, we're primarily a flow cytometry company. We've also been called a cell analysis company. But we took a step back and asked really who we are. And the core of everything we do, we are an immunology company. And I think that is an important message to ground on. Because if you pivot on the fact that we are trying to unlock the power of the immune system to fight diseases like HIV and cancer, then flow becomes one of the tools in the toolbag, not the only tool in the toolbag. And that's an important message as we kind of think about the future. Now you take that vision and say, where do we play today? And if you anchor on this notion of immunology, where do we go forward? For Biosciences, this notion of discovery to diagnostic to beyond becomes very relevant in the space we play today. In the core markets we serve, we have a big franchise in the research side of the business where we are helping customers with experimental power, deeper insights, that's very core to what we do. We also have a clinical business where we play in areas like HIV, cancer where the, really, the name of the game for us is standardization and automation. But if you anchor on that immunology, there are emerging spaces that gives us a lot of growth as we project forward. A great example of that is the lines are being blurred in the research and the clinical setting coming together in the translational markets. This is where the customers are expecting experimental power but with more automated solutions, and we have new tools we're looking at both organically and otherwise overall in the space. And if you play that notion of cancer and how do we think about the business forward, it's not just about screening, diagnosis, but there is a huge unmet need in the cancer side of the business, where there is a second-line therapies, what works for the patients. And once the patients are treated with these therapies, it's monitoring of the patients that becomes increasingly important in this space, too. And flow is becoming a much relevant tool in that space as well. So when we kind of think about our business, how do we continue to grow, yes, the core markets like research and clinical are very, very critical, but the notion of getting into the translational space with high throughput devices, the notion of getting into therapeutics with areas like minimal residual diseases and other aspects of patient monitoring becomes a key aspect for us. So let me -- I talked about the future, let me bring it a little bit to the present and how do we think about our business in terms of competitive mode and how do we bring it to life. Now one of the unique things about BD Biosciences is we are a player in this space with 45-plus years of legacy, and we have all the parts of the portfolio to be an end-to-end service provider to the customers. We have instruments. We build our own reagents. We have our own informatic solutions. But if you think in life of a researcher, what they are doing is a high biology experiments. And if you oversimplify their world, it's really about designing the experiments, conducting the experiments and analyzing the experiment. Where the industry is a lot focused is that performing the experiments with instruments and reagents. And what we're going with is how do we play that complete workflow optimization. On the front end, the design of the experiments is one of the longest ticket items in that process. We're building tools like panel design, BD research cloud, other aspects that can streamline in how customers think about their reagents, how they think about the panel designs, how they get ready for the experiments. We're investing in new platforms, which is about conducting the experiments. And the advantage we have is if we build our own reagents that are already validated on our platforms, that's less QC time for the customers. And in the research world, time to insight is a premium. So if we can reduce that time to insight for our customers, that's a value add that we provide. And finally, as many of you may know, we acquired a company called FlowJo a few years back. Great adoption in the research industry and how we continue to build that ecosystem from front end all the way to analysis, that's the unique value proposition that we bring to our research community in providing that end-to-end solution. In the core markets we play in, we do realize the research instrument market is critical. Some of you may have seen the recent press releases, we are certainly very focused. As a matter of fact, one of the big themes we see in the flow is that democratization of flow is happening. Flow is moving from large labs to more midsized independent labs. And we have launched recently a product called Symphony A1, which allows us to give that benchtop applications, but we're also entering into the high parameter, as the science advances, into areas like spectral with some of our Symphony A5 products. So while some of the players in the industry are coming together with spectral-like solutions, we provide a complete suite of offerings from A1 to A5, that's the analyzer side, but in the sorter market, we're also on the third generation of our sorters with kind of serving all the segments from independent labs to midsize to the large academic and KOLs lab. Finally, as we kind of think about our business forward, One of the key aspects of our business is really innovation that provides us a sustainable competitive advantage. And the way we think about innovation in a more solutions-oriented way is how do we bolster our muscle in all aspects of instruments, reagent and analytics. We're designing a new platform that brings together first world -- first-time capabilities around this around imaging into the instruments, which allows you to see the morphology of the cells. We're bringing in new electronics and technologies into the instruments that allows better price to performance ratios. We're building in advanced AI capabilities into these instruments that allow better unmixing of the algorithms or spectral technologies into the instruments. So we're well on our way on that path. On the reagent side, we have a great business that is growing really well. To further continue our momentum in that arena, we're investing in the next generation of dyes and these dyes are going to be validated on our instruments, where we're also looking at new business models on how we integrate IT and analysis solutions into our total ecosystem. So hopefully, that gives you a flavor of how BD differentiates itself. And finally, I just want to leave you with this thought. In BD Biosciences, we have great momentum this year. We see recovery in all aspects of the market. Strong performance in the research reagent space where our category leadership position. We have strong presence in the clinical space with a flagship product around Lyric. And we also launched the Duet platform, which provides a total walkaway solution. And as we think about our innovation going forward, we're on the heels of a few product launches, which provides us a much confident look as we think about our business forward. So with that, Kris, I'm going to turn it over to you for any final comments, or we'll open it up for Q&A.

Yes.

Go to Matt, I think?

Yes. Summarized it really nicely. We're really excited on what's ahead. And I hope that you all will be able to join us either in person or on the webcast for our Investor Day, which will be coming up in November on the 12. So with that, I'll turn it over to Matt to kick us off for some Q&A.

Okay, very good. So we'll start with a few questions here for you, Dave. So I wanted to talk about the BD 2025 strategy, something that the management team talks about a lot. And so I think it would just be helpful for you to drill down and help us understand how Life Sciences fits into that. And specifically, as it relates to the growth goals, the margin goals, kind of the key components of that strategy.

For sure. So I think just to restate, if you look at the 2025 strategy overall, it's built around the 3 sort of anchor pillars of grow, simplify and empower. So there are initiatives within Life Sciences that touch all elements of those. Obviously, on the empower side, this is much more around our associate agenda diversity inclusion. Simplify, you've also heard the XLT talk about a project called Project Recode, which is really just looking at portfolio optimization, looking at SKU, optimization of SKUs. So that is very much part of that. That in itself, as it gets implemented, would be a contributor to margin expansion as we look at that. And then more importantly, on the grow side, as you see from some of the portfolio that I've shown with BD COR, BD Kiestra and NATDx acquisition Biosciences, the Life Science segment, and as you saw from Kristen's revenue contribution slide, contributes handsomely to the overall BDX growth agenda. What I would say is the Life Sciences has got a lot of portfolio within it in different platforms and different businesses. So it is important for us, as we think about our innovation, as we think about our R&D investment, we're putting it in those segments of the life science tools and application spaces that are at the high -- that have got the higher growth rates, right? So I think over time, so when things like molecular assays, point of care, the next-generation sorters come to market, was very focused and very targeted on sort of those ends of the market that have got the growth trajectory associated with them.

Got it. Got it. And just a follow-up on growth. We have an audience question related to this, too. How do we think about, with all those moving parts, the underlying growth that Life Sciences could drive over a longer term post COVID, over kind of a 5-year period? Would you hope to be accretive to the 5% that BD talks about?

So I mean I think I would come back to the fact that I think right now, when you look at BDX's overall top and bottom sort of declarations, we -- I mean we're just a significant contributor to that. I'll tell you the aspiration for the business is that we would always grow at or above the category markets that we play in. But there's -- because we play in a lot of categories there, they've got different growth rates. So obviously, if you look at things like molecular diagnostics, high single digit, low double digits; so if you look at point of care, high single digits; more base clinical microbiology, mid-single digit. So our goal is to make sure that we absolutely support the BDX goal overall and then optimize our Life Science investments to start to move into those higher growth areas.

Great.

Yes. And I would just say, we haven't really provided individual segment level growth profiles. At this point in time, we will have our Investor Day in November. So stay tuned for that day. One of the things that we did want to express today and something that I think you'll hear more firmly in November is that we feel really confident about all 3 of our businesses and the growth profile that we have across all 3. Clearly, you've been seeing this year the recovery across all 3 segments. And we've been really proud of -- particularly the growth that we've been seeing coming out of Biosciences and certainly all the contribution that Dave has had to with the contribution with COVID diagnostics and our ability to really use some of the proceeds there to reinvest back into the businesses. And then also the strength that we've been able to achieve with our cash flow profile to really reinvest back into our tuck-in M&A strategy and really enhance our internal innovations, too. And we feel really confident in really delivering that strong mid-single-digit growth profile next year in FY '22. And that would be excluding really contribution from COVID testing. We explained on our call last week, that would assume a more normalized contribution from things like our Veritor platform. So feel really good about more of the near-term profile of our story in FY '22, again, strong mid-single-digit growth and also about the longer-term profile of our businesses. And it's not just 1 smaller business unit, it's across the entire portfolio, and we'll get more into that in detail at our November 12 Investor Day.

Great. Is it solid mid-single digits or strong?

It is solid, it is strong, and I'll even think of another word to describe it later tonight.

Robust, yes.

Robust. Robust is equally a great adjective. Thanks, Matt.

Fantastic value-add over here. So I did want to ask you a couple more about innovation. Puneet, you covered a lot in your section. But maybe we could talk, Dave, with you about some of the more innovative parts of the portfolio in Life Sciences as one of the themes of the conference.

Yes. Yes. So I think for us, I mean, a lot of it starts, I mean, from customer outside in. So when we look at what we're seeing in the marketplace and picking up on this real clarity that we have around the divergence of testing into these segments. So for us, we're on the IDS side, and maybe Puneet can talk to B2B. But on the diagnostics side, particularly, we think the role of automation and the content that goes on the automated platforms is going to be really important. You think about even as hospitals and facilities come out of the pandemic, and there's a lot of acquisition in the hospital space, the demand and the need for automation just continues to grow. It's a double-digit growth space, so both on the molecular high-volume testing side and in clinical microbiology. So I think about the BD Kiestra platform, which, for us, is a modular scalable architecture. So there's a really nice road map there, how we would look to sort of fully automate the clinical microbiology. So right from the beginning of specimen collection, specimen inoculation all the way through to blood culture diagnosis and so on and so forth, there's a very compelling vision for Kiestra. Similarly on BD COR, at the very high end of molecular diagnostics now and high throughput screening for something like HPV, we have launched BD COR extremely successfully in Europe, initially with HPV. We're excited about the pending launch of BD COR in the U.S. to just continue that momentum. So there's a lot of work on automation and informatics to connect all those results as they come off. And then clearly, for us, a big part of our business is the content and the menu that goes on our platforms. So obviously, with COVID, we've seen significant installed base of BD Veritor. We went from 25,000 instruments pre-COVID to 100,000 now. You can imagine new menu, new content going on to that installed base. That's been enabled similarly with our BD MAX molecular platform. We've seen installed base growth there. So now for our customers, how can we give access to more testing. So I think automation and content would be too for IDS. And Puneet, at BB?

Yes. Thanks, Dave. I think as we take a look at innovation across the Biosciences business, I will break it down into 3 key areas as we kind of reimagine our world, if you will. The first is the go-to-market strategy and how we serve our customers. And the key aspect of innovation there is the e-commerce platform we recently launched. It's really reimagining and during COVID times, how do we get the right scientific content to the customers to make the decisions they need? So this is the journey that started during COVID. We prioritized our innovation road map, launched this platform, and we're seeing great adoption across the life sciences plays in the digital platform. We're kind of making similar bets on the service side around remote services, which are certain hygiene aspects of the business. The second piece around innovation is the portfolio play. And it's one thing to say we're investing in the new-to-the-world technology, but we're also taking a look at how we simplify our portfolio for us and our customers. So there is equally an aspect of simplification where we look at our SKUs, how do we make it easy for our customers to do business with, how do we drive lead times excellence around customer experience. So that's another big part of our strategy. And then the last piece is goes back to that end-to-end provider, whether it's a Duet platform I mentioned earlier with a complete walkaway solution, whether it's building a BD ecosystem around the research customers, that's how we kind of prioritize our innovation, asking ourselves, "Are we investing in the markets where we see high growth to continue maintaining a leadership position?" So that kind of summarizes it hopefully.

Very good, very good. Okay. So I have a couple I wanted to ask on point of care, and then we have some audience questions for Puneet on flow. So first on point of care, you mentioned the huge increase in the installed base, and now there's an opportunity to expand menu there to do other things. I saw the molecular point-of-care bit that you talked about in the slides, too. So the question really goes to -- I mean, you were among the COVID winners, but we've also seen Roche and others see large increases in their installed base. So how do you make sure that you get utilization out of your installed base and gain share? And what are some of the things that you can do to expand the menu there to get that?