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

Good morning. I'm Josh Jennings from the Cowen Medical Devices team, and we're continuing down our med devices track at the 42nd Annual Cowen Healthcare Conference. We are thrilled to have David Hickey, the Executive Vice President of Becton, Dickinson and President of the Life Sciences segment joining us here this morning to give us some access and some time to dig into his business unit and learn a little bit more about the IDS and Biosciences franchises. David, good morning, and thanks so much for joining us today.

Joshua, pleasure to be here. Thank you for having me. Looking forward to the discussion.

Excellent. So we learned a lot at the Investor Day and then your team did -- we felt did a great job kind of laying out the road map and the drivers of the 6% to 7% organic revenue target for the Life Sciences business. That's accretive to the [ LRP ] for corporate-wide being the organic revenue growth. And maybe to start, we could just get an update on the recent environment for both Biosciences and IDS units in calendar first quarter. Anything you can share on recent trends in COVID testing and core diagnostic testing, lab utilization for capital purchasing budgets? Our check suggest that environment has improved sequentially in February and early March relative to the Omicron experience in January, but I didn't know if there's anything you can share. I know we're into quarter, but I want to throw that out there to start.

No, for sure, Josh. Just before I dive in actually, just a quick reminder for all of us that as we go through the discussion, there are going to be some forward-looking statements. So obviously, I would encourage everybody to read the company's disclaimer disclosures that we have in the SEC filing. And of course, that's housed on our Investor Relations website. And I think 2 things as I listened to the question. One I'll sort of unpack and reinforce the key drivers of the 6% to 7% target for this segment overall. And then to your explicit question, Josh, talk about the calendar -- rec calendar quarter, recognizing we are into quarter. But I think things have changed quite a bit since the earnings call, so let me just unpack it a little bit. So I think this time last month, we were still very much focused on Omicron and the COVID today and for really good humanitarian reasons. We're seeing a real shift with life getting back to normal with a lot of those mandates and mass restrictions easing, which is great. It still remains fluid, I think, as we think about how that plays out. But of course, since we last talked, we've now obviously seen a very different hurdle with the Russian and Ukrainian conflict. This -- for us, for BD, not just Life Sciences, but for BD is something that we continue to actively monitor. Although we do believe the risk to our operations is low. As a reminder, our own revenue from Russia and Ukraine in '21 was immaterial to BD overall. We don't have any manufacturing facilities in those regions. And even for all the facilities that we have in Europe, they do not heavily rely on natural gas coming out of Russia. So it's a huge macroeconomic environment that we're just watching. I would say, coming back to COVID, we're very much focused on continued execution, and we're pleased in our overall progress for both the core business and COVID. And I know we're going to get into that. Just reinforcing the 6% to 7% growth target that we said for the segment for -- between '21 and '25, that was really driven by 3 major areas of focus for us. And for those who remember the Analyst Day, we always said that our growth was going to be ahead of our category's weighted average growth rate, which is good. And that's going to be driven by our ability to compete in attractive and highly growing areas. How do we capitalize on our molecular and point-of-care installed base, that was a big tailwind for us coming out of the pandemic. And then as you think about these transformative areas in health care that you've heard Tom and the executive leadership talk about before, sort of smart connected workflow, we've got really exciting innovation there with FACSDiscover, BD COR, BD Synapsis. Clearly, this migration to point-of-care is going to be critical for us in terms of point-of-care as we go to NewCo settings. And then in this area of chronic disease and becoming really relevant or more relevant in chronic disease, driven by our Onclarity HPV assay, the recent acquisition of Cytognos. On COVID specifically, as you saw in our first quarter, we came in ahead of revenue for the $185 million. And just a reminder to those watching the fireside, our COVID-only testing is that, that comprises of our BD Veritor stand-alone test and our BD MAX stand-alone test. Our combination of triplex tests for the Veritor and all the MAX are actually in our base business. So obviously, in Q1, we were absolutely bolstered by the variant. That began to peak for us in December and carried on into January. And then obviously, since our earnings call in early February, the number of cases has reported. And I think you've seen us be very consistent in the use of our prudency around the testing and that we were very much biased towards the first half, and we're seeing sort of all of that play out. On the base business, we're continuing to see very strong recovery in the base business utilization. That has been driven particularly in our Bioscience business by ongoing research needs for COVID-19 variants and the base immunology budgets overall. From a capital acquisition in IDS, we're actually seeing no real notable challenges from our clients' budgets. But one of the things that we're looking to do is really help our customers acquire capital. And we've got very innovative programs, whether it's operating lease, third-party lease, cost per reportable. So we're trying to make it as easy as possible for our customers to acquire capital, which is a significant part of our model. And then finally, you referenced it, Josh, on the whole supply chain, logistics and inflation. Clearly, there are challenges out there. But just given some of the things and BD's broader portfolio of diversification, we've put a lot of really good mitigating steps in place by focusing on the portfolio that really matters in terms of streamlining the portfolio. We've got that massive footprint around manufacturing and distribution, which has given us a lot of redundancy to mitigate some of those headwinds. And then finally, I would say that we're necessarily -- we've got really strong public private partnerships that we're able to leverage to get product to where it needs to be. So hopefully, that gives you some insight. I think overall, I would say we are expecting sustained backlog and disruptions, but we're doing an extremely good job of navigating through that environment and we just continue to monitor the situation.

Excellent. No, we appreciate those updates and understanding that it's intra-quarter, but those are important updates. So thanks for sharing. Maybe you mentioned about just leveraging the installed base of BD MAX and Veritor that grew very nicely during the pandemic and within the IDS franchise. Maybe you could just talk about the strategy here to introduce new assays and then drive higher utilization and revenue growth from that installed base. Any specific assays or venue expansion that we should be thinking about?

For sure, it's a great question, Josh. Thanks. And I think the 2 things that the COVID did, I mean, we already had significant and sizable installed bases. For competitive reasons, we tend not to disclose those individually. And actually, if I think about the BD Veritor and the BD MAX, not only has the pandemic sort of helped increase the velocity and the rate of that installed base growth, but it's also taken it into different global areas and globalization from where the installed base was potentially pre-pandemic. And I would say 2 things that have really happened. The first one is we were already committed to menu development on those platforms ahead of the pandemic. So MAX, for example, we were already sort of working on next-generation STI assays. We recently launched a multidrug-resistant TB assay. We were the first to market with a very unique microbiome-based assay for a female vaginal panel. So there was already really nice organic innovation that was in flight, and then when the pandemic hit, we've just sort of doubled down on our overall assay development. So obviously, you saw was released, the individual COVID assays on both the Veritor and the BD MAX. Then we actually sort of moved on and developed these triplex assays, so the combination assay of flu A, flu B and COVID in a single device. So they were launched. Now what you did hear Brooke say at the Investor Day back in November of last year, for MAX particularly, we have grown that installed base over 60%, which we are extremely proud of. And then as we move forward into sort of pipeline and extension, we will really just focus on -- our core is infectious disease right now. So we will work on pan-coronavirus assays. If you think about what we've already got with Veritor, [indiscernible]. So there's a very significant organic assay platform utilization. And that's going to be an important driver of not only revenue and margin for us because I think as most people know, in vitro diagnostics, we really are a razor, razor blade model. So the more content that we develop, the better instrument utilization that we're going to get.

Excellent. And it seems that -- I mean, you're not quantifying any tailwind, but you have multiple layers in place from to leverage that installed base and deliver a nice uplift and support that overall 6% to 7% organic revenue growth target.

Exactly. Yes, Exactly. We really would see this as -- when you look at what the [ 1 GAR ] is and our aspiration to drive growth higher than the [ 1 GAR ], this incremental menu is just a critical part or a critical enabler of that [ 1 GAR ] Of our own growth to 6% to 7%.

And maybe just a couple of specific questions on the Biosciences franchise. I mean you mentioned your -- the Cytognos acquisition, and you have a recent FACSSymphony launch. And just how well positioned BD is to -- with its complete suite of analyzers to capitalize on moving to flow cytometry from large labs into midsized independent labs?

Yes, it's a great question, Josh. Thank you. So if I take a step back a little bit, one of the things that we've always said is the value proposition for Life Sciences when you look across Biosciences and IDS is that we really wanted to bring a unique and compelling value proposition to both our research and our diagnostic customers where we have -- where we would have discovery through translational medicine into diagnostics. And a critical part of that discovery piece is the research that we have in flow cytometry. I mean, BD was the first company to commercialize flow cytometry years ago. We're a significant category of leader in this space. And one of the things that we've always wanted to do is be better than anybody else at providing a deeper understanding of the human immune system so that researchers and then, ultimately, diagnosticians can really help these sort of life-threatening diseases like HIV and cancer. One of the things that we want to do, which is why, to your point, that the breadth of the portfolio here is so important, is to really help our customers define an experiment that gets done by flow cytometry, run the experiment and analyze the experiment. So having that portfolio was critical for us. So it's not just about the instrument but what are the dyes or the reagents that the customers can use, how we help them through our software solutions and platforms like FlowJo to analyze that data. So the breadth and the integration across that continuum has been the real driver. And then with the 2 -- the FACs platforms, the FACSSymphony platforms that we launched last year, it then was about how do we create access and experimental power. So the FACSSymphony A1 was really a hugely innovative platform that went into the smaller type flow laboratories that really allowed customers at the low end of volume and scale to still have access to really good technology. And then the S5 brought just incremental experimental power with just a number of parameters that the customers could now use. So there was real deliberate intent around why we did A1 and A5 SE. And then on Cytognos, which, we actually announced literally just before the earnings call in February, is really another step in our sort of commitment to the chronic disease part of transformative solutions. Cytognos has got CE mark assays in Europe in cancer for minimal residual disease. So when you think about this value proposition we have, are from discovery translation to diagnostics and beyond, the Cytognos piece now really enables our customers potentially to sort of -- and through our portfolio expansion, to monitor chronic diseases and residual disease in cancer, which could really help with sort of post treatment and monitoring.

Excellent. And wanted to also ask about the Biosciences units e-commerce platform. It provided unquantified tailwind in the fiscal first quarter. I mean, how much of a differentiator is this for the Biosciences unit? I mean, how should we be thinking about in terms of supporting the growth trajectory?

Yes. It's -- I mean, so we launched the -- so that was what we -- what was known as and is known as Project Galaxy, so [ BD ] Galaxy. We announced the launch of Galaxy, so a brand-new BD e-commerce website in July of '21. And again, this was just a commitment that we had made to our users around the world as we roll out the sort of geographic road map for it to really offer ease of access, ease of doing business with BD. There's so many analogs when you look at the concept of online shopping around just this sort of full array and access to research reagents, clinical reagents, our multi-omic or our single cell multi-omic line sort of all housed in one online destination site. And it's not just the sort of the online presence of that, but the way we structured the website so that it could actually directly and seamlessly integrate into our customers' procurement buying systems so they can see their own pricing, they can sort of move forward with residual orders, et cetera, et cetera. We're seeing fantastic engagement honestly. So in terms of the -- we've not given specifics, but against the launch trajectory we had, the revenues are exceeding our expectations. The number of customer engagements and the number of customers signing up through the portal is very strong. And of course, what it's also then potentially become is an anchor platform for us to just build upon it because as I think about Life Sciences and my role in Life Sciences, there are other parts of our portfolio that would just be ideal to sort of leverage this type of e-commerce platform. And it was time that we launched it, when you think about it, during the pandemic because this was a challenge where salespeople weren't able to visit accounts and so on and so forth. So to be able to bring that sort of capability to our customers in a virtual fashion was just fantastic.

Excellent. And I wanted to ask a, call it a strategy question and then a follow-up. But Tom Polen, CEO of BD, has talked about investing in 3 irreversible forces that are going to shape health care in new ways: talking about one, smart connected care; two, shift to new care settings; and three, improving chronic disease outcomes. And how is the Life Sciences unit positioned in these growth channels? And where do you need to bolster the portfolio?

Yes. So it's something that -- if I think of Life Sciences as just being like a thumb driver of the bigger BDX, right? It's a critical part of something that in our own life science strategy, we're absolutely aligned to. I mean, I gave a couple of examples earlier on. So when I think about our organic innovation and growth drivers with the smart connected care, I think of BD KIESTRA Lab Automation for microbiology, the 510(k) for IdentifA that we've got towards the end of last calendar year, so quarter 1. NewCo settings is all about point-of-care. I think if COVID and the role of diagnostics did anything, it brought the awareness of diagnostic testing and point-of-care moving testing safely out to these decentralized settings. So for new care settings, for us, it is really all about the sort of Veritor, Veritor Home, and I'll talk about that in a second. And then with chronic diseases, again, we were very proud of the organic innovation we have with the BD COR and the Onclarity HPV assay that got approval in the United States late last year, but also now with the acquisition of Cytognos. It's an inorganic approach to minimal residual disease in something like cancer as a chronic disease. You saw we did the Scanwell acquisition just before the end of our quarter 1, which again bolsters are relevant in terms of taking ownership, of really bringing a digital connected infrastructure to point-of-care testing. So I think we've got a really nice balance of organic innovation that was already in flight in support of those 3 transformative forces as well as where we did have perceived gaps, the ability and the support of the leadership to go and acquire a Scanwell, go and acquire a Cytognos. And not forgetting, of course, that back in 2020 -- May of 2020, we actually acquired into the Life Science segment a molecular point-of-care company called NATDx. Because when you look at point-of-care and just the breadth of where point-of-care testing can take place, some of those assays, some of those testers will require molecular type sensitivity. Others will require immunoassay-type capability, like Veritor. And having both in our portfolio will enable us to play in all of those spaces.

Excellent. Maybe just a follow up on talking about the point-of-care segment, both molecular and antigen-based. I mean, how do you see the, I guess, the migration of some central lab tests to the point-of-care setting or non-centralized setting. And it sounds like you spent a good -- a nice section of time yourself at the Investor Day talking about the point-of-care franchise and how well positioned is BD in point-of-care after the NATDx acquisition?

Well, I think after NATDx and now after Scanwell and with the investment that we're putting into menu development either on the sort of the BD Scanwell platform as well as the Veritor analyzer itself, extremely well positioned. I think as we've said at the Investor Day, point of care was -- if you look at it in '21, was historically around a $2.8 billion market. We expect that market to grow, and for us, an incremental $200 million between '21 and '25, enabled by that -- by the innovation that we've just talked about. And when I think about it, the way I would encourage folks to think about point-of-care, and to your comment, Josh, what moves from the central lab, it's those types of tests that if it would drive better patient convenience, but also if you could have a result within 10 to 15 minutes so that it could inform a clinical decision, that's the type of testing and technology that will move to the point-of-care. And I think there are 3 segments of point-of-care. A lot of people think of point-of-care as just decentralized out of the lab, what testing is going to take place out of the lab. But what we know from COVID is there are really 3 distinct segments at the point-of-care. So one would be clearly at-home. One would be what we would call non-traditional point-of-care, so think about things like retail pharmacy, think about long-term care facilities, places where COVID testing was adopted. And then there is the sort of more traditional point of care, if you think sort of physician office labs and so on and so forth. So I think what we've -- so testing will take place in each of those areas, and the menu and the types of tests will be relevant to that type of setting. And then I think with Scanwell, with the menu that we've got, we're absolutely ideally positioned to play. What we shouldn't lose sight of is reporting of the results and being able to do testing in a very sort of safe, digitally reportable manner is clearly still important. And that was a critical driver for us in our strategy when we thought about Scanwell because how do you make testing safe, how do you make testing error-free, and how do you make it that when you or I have done a test at home, we're still able to share those results with physicians. And that was a big, big driver behind the Scanwell acquisition.

Excellent. Thanks for that download. And we -- let's just move on to the kind of margin questions and Project Recode. I think the margin expansion trajectory that's been corporate-wide for BD, that's been laid out. Investors are focused on that. And maybe from a high level, I know you don't break out margin profiles for the Life Sciences business specifically. Maybe just talk about some of the margin expansion opportunities that you see in the Life Sciences unit and help investors better understand your franchises contribution to this corporate-wide margin expansion effort.

Yes. No, good question, Josh. And honestly, as I think about Life Sciences' role here, again, it's just -- like the other 2 segments, Medical and Interventional, we're just an absolute sort of surrogate, if you like, for what BDX is looking at overall. And if I think about it specifically in Life Sciences, it is definitely an area where we are aligned to some of the pricing discipline and pricing rigor that you've heard both Tom and Chris talk about before. We obviously see that as one offsetting measure to try and tackle some of these headwinds. We're making a lot of investment in and have made investment in capital infrastructure, automating of our manufacturing capabilities, just sort of -- so from a cost to win perspective, a productivity perspective, manufacturing automation, predictability and reliability and just how we think about operating efficiency and equipment of our plants is another driver. So price, manufacturing automation. We have a very, very solid procurement team. So when we look at some of the headwinds right now that are at the -- in the sort of macroeconomic environment, BD has got a very, very strong procurement capability, whether that is in the negotiation of freight, rail, air freight, sea freight. We've put new processes in place to make sure that we don't do anything that is out of order. So for example, we now have senior managers looking at and improving sort of critical [ earth rate ]. And it is that balance between absolutely wanting to get product to our critical customers. That's the primary driver for us. But when you look at some of these rates and things that are out there in the marketplace, we've just -- we've been -- I would say we've increased our governance protocols to make sure that we do the right thing there. And again, consistent with BDX overall, we are -- you heard us talk about sort of leadership incentives from a gross profit, gross margin perspective is another lever. And then finally, Recode is a critical part of what we're doing from a life cycle perspective. And in fact, IDS was one of the early pilots for Recode when you look at the number of SKUs that we could sort of optimize. And again, just as a reminder for Recode, overall, I mean, it's a behavior and a capability that's absolutely a long-term focus for us, and through the end of '24, current strategy period, expected to drive $300 million of cumulative savings.

Great. I know we only have 1.5 minutes left, I think, here. But it does not leave enough room for this question, but I wanted to just recall one of the things that caught my eye in the Investor Day was just the transformative solution that BD has developed to support in the shift of blood collection from venipuncture to capillary acquisition, and it seems highly disruptive. Maybe just in a minute, if you can help us understand how big of a revenue opportunity this platform represents and when could you see early contributions to the Life Sciences unit's revenue growth.

Yes. So a couple of thoughts. So yes, so this is a major development program that's in flight for us. I think, as you know, BD is the category leader in blood collection around the world, over 70 years of experience in this space and actually very consistent with our themes of point-of-care and innovation in point-of-care. We do see a need where -- for certain types of tests that blood collection would get decentralized and use capillary device rather than a venipuncture device. There are clearly roles for both to play. We see this as a significantly high category as this product comes to market. We have -- it's got unique design elements around it to make both the patient experience and the perception of patient pain be as low as it can be. We announced a partnership with Babson on how we see that testing workflow to go. So we do see this as being just continuing our innovation commitment. We've not yet shared, Josh, individual contribution from that space. We do think it will be a category driver. And we've not been fully committed on the launch date, but we'll share more of that as it comes through.

Well, we'll be looking forward to that, Dave. And we did run up to the end of the half hour here. So just wanted to thank you again for spending time with us this morning, and hope you have a nice slug of meetings in front of you and good luck on the one-on-ones. And we're looking forward to following along Life Science business progress over the course of the year. Thanks so much.

Yes, Josh, thank you so much. Great conversation.

Thanks, Dave.