Bio-Rad Laboratories, Inc. (BIO) Earnings Call Transcript & Summary

All right. Here we go. Good afternoon, everybody. Luke Sergott from Barclays. I cover the life science tools and diagnostics space. And with me, I have the pleasure of introducing the Bio-Rad management team, Norman Schwartz, Ilan Daskal and Andy Last. So if you guys want to give a quick kind of 2-minute update or a quick overview, that would be great, and then we can just dive right in.

Sure, Luke. Probably you can dive in. I mean to your questions, we are obviously glad to participate in the Barclays conference. And let's start with the questions, and we can dive in.

There we go. All right. So as you guys think about how your guidance, what you guys issued at the beginning of the year, and then we're already a full quarter in. Give us an update on how you see the puts and takes from COVID revenue, non-COVID revenue, base business recovery, how that's trending versus your original assumptions to start the year?

Yes. I'll start and probably, Norm and Andy will chime in, Luke. So yes. So when we ended 2020, obviously, with over $300 million of COVID-related sales and when you started to think, how does 2021 potentially will shape up? For us, most of the incremental revenue from the COVID sales was within our instruments, very small number was associated with testing. When we think about it, we believe that in 2021, the incremental sales from the instruments will start to tail off, specifically in the second half of the year. And that was the basis for our analysis when we guided. We generally believe that the market will normalize in the second half. We estimated about half of this $300-or-so million of 2020, we'll still have a benefit of the instruments in some testing in 2021, for the most part, in the first half. But when you think about the other verticals of the business, it will normalize when we think about the second half of the year.

Okay. That's helpful. And then when I think about -- so you're assuming that another $300 million in '21 and still roughly a similar business mix to what you had in 2020. As you get into the back half, what are some upside drivers and scenarios where those would come through from a better-than-expected COVID revenue line?

Yes. Just correct, it's about half of the $300 million that we believe for 2021, right?

Okay. Okay, yes. Sorry about that.

Yes. So I don't know, Andy, if you want to discuss kind of the dynamics there or you want me to chime in?

Well, I mean, upside relative to our guidance. I think the -- if there were to be upside relative to our guidance, I think it would be more driven by the assumptions around COVID on its resurgence, which would create potentially more upside and some on instrumentation and potentially for testing, but of course, would suppress the core diagnostics, the routine testing that we have around elective surgeries. So they'd probably be put -- a little bit of a put and a take there. So I think between the 2 guidance, I think, reflects the bumpy road that we think we're still on this year. And core business can come back faster if really this -- we do get a handle on the pandemic globally. So the uncertainty is kind of just there, and we're managing it.

Yes. It was just more of a question. I mean given that you guys have driven a lot of that, that COVID revenues come from instruments.

Yes.

It is more of a question of where that incremental placement opportunity would come from in the back half, given that you guys have placed, probably a lot of those among labs that require them.

Yes. In the back half for instrumentation for COVID, we're not really seeing -- we're not expecting -- we haven't made any assumption about significant demand in the back half. They may -- I know that there's probably a question that will likely come up later with Droplet Digital PCR and wastewater. There may be some -- that -- it depends how that plays out, and it's got the potential for being a more sustainable opportunity. But we can talk about that certainly later, if that question is relevant.

Yes. Why don't we just answer that one now? So it is a key topic, right?

Go on. Yes.

So when we think about being more logical and efficient with the testing modalities and screening asymptomatic populations. How does the wastewater treatment -- how does the wastewater testing option really fill in? And why digital versus just regular PCR for the technology?

Yes. I mean the driver for wastewater is really this early warning system surveillance because you can use the testing for community profiling for an early indication that there's a COVID outbreak and then take immediate action. And that's proving out to be very valuable and is proving to be consistently the case. So that's the driver, that's the rationale. And wastewater testing for pathogens is not necessarily new, but using it as a disease surveillance methodology like in a pandemic is much more -- it's very recent, right? It's just -- it's kind of come to the surface. So Droplet -- so regular PCR is used and it can provide results. Droplet Digital PCR has a performance superiority simply -- like wastewater is kind of mucky stuff, right? It's got a lot of contaminants, and these contaminants can impact the performance of the reagents. Droplet Digital PCR performs much better, I mean, noticeably better on these difficult samples that interfere with PCR types of reagents. And so you get a much higher performance. And that's -- CDC is kind of supporting that technology advantage and they've done work on the platforms. And so we're seeing a lot of publications that support that advantage right now.

Okay. And so from an adoption perspective on the wastewater opportunity, what are you seeing from a demand perspective? Do you guys already have some of those tests from a volume perspective? What can we expect?

Yes. There is, I would say, uncertainty about how the market might shape up. We are seeing demand. We're seeing people assessing the technology and the opportunities for implementation. I think over time, we think it could become established. I think it very much depends on public health funding and maybe federal-level support in the U.S. I mean U.S. is larger than the rest of the world in terms of demand as we see it. And so I think with public health budgets is that's really the determinant. And is there a federal push to get this surveillance methodology established across the country. If so, we believe there's up to a $200 million opportunity over the next 5 years.

Okay. That's a good sizing right there. And then so when you think about the base business recovery, what's really baked into guidance? I mean what was -- when you think about the various headwinds and tailwinds in 2020, what was the overall business trend coming back in the 4Q? And what are you seeing in the first half versus second half?

So obviously, look, we -- as I mentioned earlier, we're thinking about normalizing kind of -- normalizes kind of market, the end markets. Diagnostics, we believe, will normalize in the second half. When you think about the end markets of the diagnostics with elective surgeries that are big, clinic visits, et cetera, that was the basis for our kind of low double-digit growth that we guided for the Diagnostics business. When you think about the Life Science business, we see a similar trend. If you back out the COVID-related tailwinds, both in 2020 as well as in 2021, we see a nice year-over-year growth in many of the verticals, whether it's Droplet Digital PCR, whether it's the Process Media, whether it's the Food Safety. So we kind of see a nice kind of bounce in the second half across both business groups, and that was our basis for the guidance.

Okay. And what would be -- and so where would you say we are right now in the DAS customer base versus the clinical customer pertaining to the recovery aspect? Is there one leading the other? Or are they both kind of tied?

So your question is, is clinical or Life Science leading the recovery faster from...

Yes.

Oh, okay. Well, I mean, we're recording our COVID sales on the Life Science instrumentation, the bulk of our sales in the Life Science business. And so we still had some meaningful COVID revenues baked into that side of the business for the first half. And I would say that we're seeing what we expected right now. And I think we're seeing what we expected with clinical, which is a slow, slow recovery. As we came out of Q3, we were feeling that Clinical was improving broadly on a global basis. I think there was a kind of a small step back in Europe because of the pandemics resurgence. But it's a -- I would say, slow, but positive progress on the clinical front and still a strong COVID overlay in the Life Science business right now.

Okay. And so back to the digital PCR space. I mean this is a major growth driver for you. So as you guys think about additional opportunities, gene therapy, Clinical Diagnostics, give us an update as to the portfolio expansion here and some of the timing and catalysts we should expect.

Yes. So overall, our Droplet Digital PCR has continued to perform extremely well for us even through the pandemic year last year. So we experienced strong double digit, and we forecast strong double-digit growth. It's a very broad-based set of applications and end markets. And so we've got COVID-driven disease research, that's a pool for the technology. We've got strong pool in the BioPharma segment, which is the kind of primary driver areas there are obviously approaching therapeutics and then cell and gene therapy. And then we've got the applied market opportunities that we're seeing. And so we've got a broad-based series of end markets with strong demand. I think we're well positioned to capture that. And for the foreseeable future, we're continuing to remain very bullish on BD PCR and its opportunities. We are exploring our Clinical Diagnostics opportunities, and we think there's potential for the platform there in the coming years.

Okay. And as others like QIAGEN and a few others come to the market, mostly QIAGEN, what are you seeing from a competitive dynamic, from pricing, from your win rates? And any kind of color you can give there?

I mean we're -- obviously, we're aware QIAGEN was coming to the market. I would say we've not seen a material impact to our placements and growth rates. There are distinct differences in the platforms. I think we would say we're taking the performance high road on a relative basis between the droplet technology and the microwell technology that, that platform is based on. And we think that they'll find kind of niche opportunities that makes sense for their platform. And we're focusing on the core markets that have been driving our business for the last several years, which we are not really seeing a great deal of presence in from QIAGEN right now.

Okay. And then when I think about your Celsee acquisition with the single-cell expression profiling and the protein profiling that they can do, give us an update on how that acquisition is progressing from a technology development standpoint. And any timing from an actual commercialization?

Yes. So just as a quick reminder that the technology is a microwell-based single-cell platform. We closed the acquisition at the end of -- beginning of Q2 last year, with full knowledge that we had to put in development work on the platform. We're right in the middle of that. It is going well. It got a small delays just due to the pandemic, just like everything else. But we're catching up on that. So we have a series of products that we're working on, both on the assay front and then a rework of the platform to -- into an automated solution, which we believe is necessary to really have an impact in the single-cell application area. We will be introducing products on an ongoing basis, so in the next 12 to 24 months. And that will consist of assays, applications and instrumentation.

Okay. And any -- can you give us any direction on which will be those early applications and indications? Is it more just traditional research versus is there a translational opportunity there for you as well?

Yes. Yes. So we -- over time, we believe the platform can move from kind of single application or investigation opportunities to multiomics, right, to protein and genomic combination data. We're focusing initially on more single-cell sample prep for sequencing, which is a big demand area and where we believe the technology can demonstrate higher cell utilization, efficiencies over current methodologies and approaches and improved economics as well, improved economics on a per sample basis. So we've got -- that will be the first application area that we will focus on is in the single-cell sample prep for sequencing.

Okay. And then so when you talk about the improved economics, is that -- I mean, is that just from an increased efficiency standpoint where you can leverage more samples per instrument once you get it automated? Or is that also your thinking about lower just overall price per sample, right? So...

Price per sample, price of the sample, which is a combination of both. Cell utilization, you mean, more of your sample is getting used and they're valuable, right? These are highly valuable samples. And yes, leading to price per sample.

Yes. Okay. And just lower ASP on the kit. Okay.

Yes.

I got you. That's exactly what I wanted to know. And so what should we think about commercialization about that? Is that -- are you guys giving out time lines on that? Or is that to you?

We're saying within 12 to 24 months [ in series of talks ]. And I think that -- I think we're comfortable with that communication, right?

That's -- yes. Yes. I mean, especially when you still have technology to continue developing.

You're right. It's progressing well, small delay just due to COVID, but everything got delayed due to COVID, so...

Yes. That's fair, that's fair. And then lastly, and following up here, as I think about capital deployment, you guys had some decent pull-through on from the COVID revenue. Your balance sheet has always been pretty pristine. So as you think about further opportunities and getting into new markets, what's your appetite for further tuck-ins versus a little larger strategic deals?

Sure. Norman, do you want to start? You can start if you want.

Sure. Sure.

Yes. I got to get the man answer in here.

Yes. So yes, over the last few years, we've done a number of these tuck-in acquisitions and a number of these kind of technology plays, which we've been all in all pretty happy with. I think that as we've gotten through some of the kind of internal -- the internal improvements that we wanted to make around the systems and the organization. Now we've got the capacity and the appetite to do something larger and more significant. I would say that we are looking at opportunities. We are looking at opportunities that are effectively complementary to what we do, not looking to add a third leg, so to speak. And as you look for those larger things, they are fewer and far between. So not as plentiful as the tuck-in. So -- but we're continuing to pursue those. And we hope to do something. Time frame is not really that -- it's not as estimatable as the research time frames.

Yes. Makes sense. It makes sense. But it sounds like you guys are willing to take a little bigger bite of the apple than what you've done in the past?

Right.

Okay. That's great. Well, that's all the time we have for today. Thank you again for making time with us. And again, looking forward to connecting with you guys soon.

Appreciate it.

Thank you, Luke, for hosting us.

Thank you.

All right. Bye.

Thank you.