Hologic, Inc. (HOLX) Earnings Call Transcript & Summary

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Great. Well, hello, everybody. And thank you for joining us for the fireside chat today with Hologic. Joining us from the company are Mike Watts and Rich Lepke from Investor Relations. I'm Dan Leonard, the life science tools, services and diagnostics analyst with Wells Fargo. The format is fireside chat. If you have a question for management you could please raise your hand in the Zoom tool or email me and we'll try to address it. And with that I'll kick off the Q&A. Let's begin. Welcome, Mike. Welcome, Rich.

Thanks, Dan. Thanks for having us. We appreciate it.

So we've got 30 minutes here. There's a lot of ground to cover and no surprise, I'm sure it's -- we'd like to start off on COVID testing. So there are a lot of different aspects to the COVID testing outlook. I'm hoping to tackle them one by one here. So for starters, can you perhaps, Mike, elaborate on some of the sources of demand for COVID testing at Hologic from hospitals to reference labs to maybe some nontraditional settings?

Sure. Sure, Dan. And again thanks for having us and happy to kick off here with COVID. Let me just say upfront that demand for our COVID test, our 2 tests, remains enormous, I guess, would be the right word. Certainly, very proud of the impact that our team is making in the pandemic. If there's new folks on the call, we, as I alluded to, developed 2 tests, one is a test on our Fusion instrument, very quickly out of the chute; and then a second test, our Aptima test that runs on our Panther instrument that has a larger installed base. And we have more manufacturing capacity for that test. So demand has remained very, very high, as we talked about in our last quarterly results. We shipped about 13 million tests to the market last quarter, that was about $325 million of revenue, and demand has continued to be strong into this quarter. In terms of the sources of demand, we -- the biggest group, obviously, would be the private reference -- the private labs. Obviously, big reference labs would be at the top of that list. But also other smaller private labs, and those are quite numerous. And then also selling a significant number of tests to hospitals, I think one of the things that's great about the Panther in particular is the very broad installed base in midsize and in large hospitals, really around the world. So hospital customers are a significant segment. And then we also do sell to public health laboratories. So these would be state or local departments of health, although that would be by far the smallest segment of the market for us.

Okay. Any early signs of demand from nontraditional settings, whether it be existing customers offering back to life testing, school, work, et cetera, or even nontraditional customers taking that testing on themselves.

Yes. Certainly some, Dan. I mean I will tell you, though, once the test leaves our facility, we don't have great visibility to how our customers use it. Certainly, we've heard anecdotally, and some of this has been shared publicly about customers that are certainly tapping into that marketplace. We do think there will be a very significant opportunity for back-to-school testing for asymptomatic testing going forward. But we don't have perfect visibility of those numbers. I mean that's really something that our customers pursue.

Okay. And probably similar answer to this, but do you have any sense for how the test is being used between asymptomatic and symptomatic patient populations? And is there some effort underway to sort of segment the label accordingly? Or is that even required?

Yes, sure. Again, similar answer as before, we don't have great visibility to that. I would tell you that our sense is that the vast majority of testing today, maybe 2/3 or so, is being done for -- in symptomatic cases, although that would just be our estimate. But do think there's a very significant opportunity for that asymptomatic testing. And I think molecular, down the road, can certainly play a role in getting into that marketplace. Particularly with techniques like pooling that help us get more test results out of the similar number of tests. So I mean, really, for that kind of screening in low prevalence populations, what you really want to have is a -- is the highest sensitivity test, and we think that's going to be molecular over time. And nothing to report today, but that is an indication or a label that we would intend to pursue over time, and we do think that will be important.

Okay. And catch me up to speed on your pooling efforts. I think you were one of the earlier ones to put out some news on that front. Earlier vendors at least.

Yes. So we did issue a protocol that enables up to 5 samples to be essentially tested at once or pooled. And this is really helpful in certain circumstances. And I think the things that I would point out are: one, when supply of our test is so constrained, given how enormous the demand is. I mean I think we and a lot of companies, as you know, are basically selling everything that we can make and selling it right off the production line. So given that constraint and given the truly huge public health need, by pooling, in our case, you can get up to 5 results from a single test. So that helps with total volume of testing, but it also helps with turnaround times, which are much better now, but as you know, have been a challenge for some of the labs in the past. So very helpful, I think, in terms of dealing with the public health pandemic, but it works -- pooling works best when prevalence is low. If you start trying to pool in a higher prevalence population then you're just going to have to do a lot of retesting, and it is just not going to make a lot of sense for you. So in these unique times when demand is kind of outstripping supply and when you have a low prevalence, it can help deal with some of those turnaround time issues and total volume issues.

Okay. And regarding the supply being constrained, can you catch us all up to speed about your efforts to expand manufacturing capacity?

Sure, sure. I mean it's really been a -- really a herculean effort, honestly. And so proud of the team here, mainly in San Diego, but also in our Manchester facility, Manchester, U.K. We -- it's funny, when we developed our first COVID test, and that was our Fusion assay, I think at the time, we talked about manufacturing about 600,000 tests a month. And we thought that was a ton, and it was. It was about 12x what we had done for similar tests prior to COVID, but very quickly realized that we could do more and that we needed to do more, and that's what led us to develop that second test. We were able to quickly ramp up to about 1 million tests a week. And I think in our last call, we said that we were producing about 1.5 million tests a week on average or at least that level, I should say, going forward. So that's what we've communicated. And just to put that in perspective for you, what we're trying to do with our overall manufacturing diagnostics capacity, not just COVID, but everything for molecular is roughly doubling. In the first half of this year, we were producing roughly about 20 million molecular tests a quarter, and we set forth the goal to -- by the time we get into the fall, to roughly double that to 40 million tests per quarter between COVID and our in-line assays because we wanted to be prepared for what's happening now, which is demand for COVID is remaining very high, yet demand for the base businesses and those base tests are coming back and we wanted to be prepared for that. So set out that goal to roughly double molecular capacity in 6 months. I mean that's normally a process that would take 8, 9, 10 years that we're trying to complete in 10 months. So it's really been a herculean effort. Our facility here in San Diego, where you visited, I know in the past, is -- really looks like a construction zone now. A lot of new equipment being installed, rooms being renovated. A lot of construction workers in the hall and in the cafeteria. So really proud of what we've been able to accomplish toward that goal of roughly doubling capacity.

Okay. I'm already getting yelled at over e-mail to ask the question de jure. So antigen testing, rapid antigen testing. Can you walk us through how you're thinking about the impact of rapid antigen testing for COVID on the demand for PCR tests and test like yours on Panther?

Yes, sure, sure. Hopefully, folks weren't yelling actually too much. Yes. Look, I think what's been really interesting and unique and unprecedented about this COVID pandemic is that very rarely has the answer been either this or that. Very rarely has -- have we needed to choose between one thing or the other. And instead, what's really happened is the answer is usually both, right? And so in other words, we need core lab testing and we need point of care. We need molecular and we need antigen. We need pooling and we need sequencing or whatever the case may be. So we definitely think, number one, the market is absolutely huge today. I know a lot of investors track the COVID Tracking Project data, which comes out every day. And that, by the way, just traces molecular test. It does not, for the most part, cover antigen test, I think, as most of you know. But if you think about roughly 700,000 molecular tests being done today daily, at average pricing, that works out to a $5 billion or $6 billion market annually just for COVID testing. That's roughly the size of the entire molecular market pre-COVID. So said another way, COVID is roughly doubling the entire molecular diagnostics opportunity. There's never been anything like this this fast. And I would say that just comes from the United States. I mean that's just the U.S. data. We'll get into the OUS opportunities, which are huge. We've talked a little bit about this in our call a couple of months ago or a month or so ago. But just in the U.S., you're talking about a $5 billion or $6 billion market. In that context, there is more-than-enough room for both molecular and antigen testing to coexist. Because I think they do have largely different use cases. And if you hear what some of the antigen companies have said and what the government has said, I think certainly, at least the initial use there is mainly going to be for high-risk populations, more screening applications and things like nursing homes. And I think that makes some sense, right? It makes a lot of sense where you can repeatedly test a fairly defined population with a lower cost assay and to try to control spread and really for epidemiological, surveillance and population control purposes. On the other hand, if you think about confirming those tests and getting definitive diagnoses from them, molecular, we think, is going to remain the gold standard for confirming perhaps symptomatic patients who might be negative on antigen and even for confirming antigen positives, which, by the way, is very similar to what happens today with things like HIV, hepatitis C, et cetera, we get molecular confirmatory test even for flu. In addition, if you think about health care settings, so again, people who are sick, who are being admitted to a hospital because they're symptomatic, or potentially people who are getting a procedure done, a surgical, an unrelated surgical procedure that need to be tested for COVID beforehand. Absolutely, molecular will remain the gold standard in those kind of clinical applications, again, different from sort of the surveillance or epidemiological applications. And I think within molecular, we'd like to think that given the performance of our assays and given the automation of the Panther, that we will remain the gold standard within molecular, in the same way that we are for women's health testing today. Typically, it's the high-volume automated manufacturers that gain share in these markets, whether that's us or Roche, or some others. And we would expect that the same thing will hold true [ in COVID ] testing as the market matures over time. So kind of a long answer there, but certainly think there's absolutely a use case for antigen test. We know there's a very significant use case for molecular, and I think the market will continue to be very, very large.

And Mike, to circle back to your comment on the 700,000 tests per day. I think one of the things everybody has noticed, is that number is down from the peak. So can you speak to that trend? Are you seeing on a daily or weekly basis, a continued durable -- you mentioned enormous demand initially. But is that -- is there anything interesting happening on a week-to-week or period-to-period trend that is worth flagging?