QuidelOrtho Corporation (QDEL) Earnings Call Transcript & Summary

Hi, good morning. My name is Brian Weinstein, and I am the group Head of Life Sciences here at William Blair. And as such, I am responsible for coverage of Quidel. Before jumping into our discussion, I am required to inform you that for a complete list of research disclosures or potential conflicts of interest to please visit our website at williamblair.com. Logistically, the format here is a fireside chat between us and the management team that will last for about 30 minutes. We do have a set of questions prepared, which we will try and get through. But if you have a question, you can try and submit it through the question box, and we'll do our best to keep an eye out for it. But being realistic given the time that's allowed and the amount of content that we have to get through, we may not be able to get to people's questions. With that, let's jump in. With us today is the company's CEO, Doug Bryant, and I believe CFO, Rockford Randy Steward is there as well. Welcome, guys. I appreciate you spending some time with us.

Thanks for having us, Brian. It's always good to be with you guys and just a terrific time of the year. Everybody is graduating school, we got all kind of parties going on and -- so really, it's a great time of life. Hopefully, everybody is celebrating whether your kids are graduating kindergarten or high school or college, congratulations.

Actually I've got a middle school graduation next week. So it's very exciting.

Yes. So take the time to celebrate all that. Do you want me just to jump in, Brian?

Yes. I mean I know you want to hit some extra 10 to 15 minutes or take the time you need to kind of review the company's positioning, give your thoughts, and then we'll come back with kind of 10 to 15 minutes of more specific questions for you, and we'll do it that way. So go ahead, jump in.

Sounds good. So next slide, we will be making some forward-looking statements. This is our safe harbor statement. Yes. We've been at the business of building a broader-based diagnostic company for the entire time I've been here, and we've done a number of things that we thought were pretty important. We acquired DHI. We acquired BioHelix. We developed a little analyzer called Sofia that's done quite well. And then we had the opportunity to acquire the cardiometabolic assets, formerly from Alere, as a consequence of Abbott's acquisition and divestiture of those assets. So that's turned out to be quite good for us as well. And then along the way, as we were developing all these capabilities, we ran into this thing called COVID, and we obviously lept into action. And I think we can be proud of the efforts that the team has made in terms of ramping up manufacturing of products that we developed, probably as well as anybody else in the market. We're known for making products that have pretty good accuracy, lower cost, quick turnaround time and ease of use. If you compare our product offerings just on the COVID side, you would see that, that's clearly our aim. We're not the biggest company in this space. We are a stand-alone IVD, pure-play IVD player, obviously, competing with some bigger companies. But we're sort of the David in the David and Goliath story, and we've been holding our own. Next slide. And as a consequence, we've done a few things since I've been here. And our revenues have grown nicely. Obviously, we had a huge benefit last year of COVID, which is now waning, as everybody has seen, and we can talk about that in some detail during the Q&A, Brian. Okay. We did respond as well as anybody else. We are actually the most prolific developer of products in this space, and we've had the most products cleared by the FDA with the EUAs. And we have other companies, one that starts with an A that likes to talk about how many they've gotten cleared, but we actually have more. And more is better. What we don't have is their massive scale. And although we tried to compete, and we still are competing, to be honest, they're bigger, and they can make more stuff. But at the end of the day, I think we make a lot of stuff, too, and it's pretty good. So we had a good year last year. Operating margins were silly, to be honest, and probably never to be reproduced. But we are in a position, we think, longer term to sustain something that's greater than 30% as a function -- EBITDA as a function of revenue. And I think we'll continue to move north because of increasing capacity, higher volumes. We did take a lot of share during the period of time that will be helpful to us with our Sofia platform for flu strip and other assays. So I do see our EBITDA not just staying at that higher than 30%, but I do see the opportunity to grow that. Early on, Randy and I used to debate that it was not possible to be over 40% EBITDA, but I think we do have a path that gets us there even past all this COVID exercise that we've been living through. Next slide. Okay. Quick view, OTC, retail. This is something we've been eyeing for a very long time. I think the regulatory climate is changing. I do think it's another segment that we can get to. I don't think it's going to detract from anything else that we're doing, but I do think that if we could create a market for influenza and strep over-the-counter, much like you see with pregnancy, that, that would be additive, it would not be a subtraction from the overall market size. And I think we would do it very well. In that regard, we have the QuickVue product line that we're obviously continuing to work on. Sofia Q is coming up. Ask me whatever you like there, Brian, on that product, but we're at the FDA with that product now. Savanna, a long time coming, but never been closer, Brian. And we're going to launch that thing here at the end of this year in Europe and in early 2022 here in the U.S. So a great product. We'll talk about some detail there as well. And happy to discuss it throughout the day as people have questions. I think Savanna is likely to be our next flagship product. I think it will be at least as successful as Sofia for a number of reasons, which I'll detail for you. We are going to be launching a serology test. It's a little late, I think, but it is, I think, potentially disruptive because of what it does. It does distinguish between people who were infected naturally and people who have been inoculated with a Messenger RNA virus. In other words, it detects antibiotics to both the spike proteins, semi quantitatively and to the nucleocapsid protein. So the ability to distinguish between those 2 things, we think will be interesting, and that's what we're hearing in the market. Let's just see how that goes for us. Strep 98, we've been talking about for a while, that product is at the FDA. The data looked awesome. And I think we could get a claim, that would be very helpful in terms of improving our position with that particular segment of the market. We did develop a suite of gastro assays. We're launching those. It's a little bit late. Obviously, we got interrupted by this thing called COVID, but we're very much back on track. We think we'll do well with C. diff and some of those other assays too. And then last but not least, we did start the clinical trial for high sensitive troponin. And we also submitted data on our placental growth factor assay to the FDA as well. But if we are successful in having a point of care, high sensor fronted assay, we do think that globally, that's about a $700 million opportunity for us. And we think here in the U.S., it would be north of $300 million. So very important product. And obviously, we will be keeping everybody up to speed as we progress through the clinical trial. So we gained 60% more customers than we had pre-COVID because of this exercise. Most of those customers were takeaways from Becton, Dickinson, but also pretty big concentration of customers we're taking from Abbott as well. So we come out of this thing much stronger operationally than when we entered into it. So even though the revenue is certainly not what it was in the fourth quarter, even though it's flattened, and we're still waiting to see about these new market opportunities, even if that doesn't materialize in any significant way, we're going to come out of 2021 very, very strong. We have increased manufacturing capacity, partly funded by the federal government through their NIH program, but we're also doing some of that on our own. So we've increased Sofia manufacturing, continuing to do that. We also obviously increased our QuickVue manufacturing and while we're doing all that, we're gearing up to manufacture Savanna instruments and cartridges as well. So from an operational perspective, much stronger company than pre-COVID. And the timing for these launches could not be better. Next slide. So this is pretty straightforward. I mean you wouldn't have to have an MBA to figure this out. We got a lot of assets out there. And we're going to figure out how to leverage those. So over 70,000 Sofias. The capacity to build a lot of Sofia Qs if we need to. But we're going to leverage that by developing menu and now that we have the manufacturing capacity to feed those instruments, we can do things like toxicology, allergy, inflammation markers and a number of things that we have in development right now for Sofia. So obviously, we're right in the middle of launching and scaling up a number of flagship products. And then we have to figure out what to do with all the cash. So I know that you want to talk about that. Hopefully, we can get to that too, Brian. Next slide. So this is basically where we compete, what we're aimed at, pretty big markets. We do quite well. Again, we're not the largest company in the space, but we definitely punch above our weight. We've only got 1,400 employees. You think you look at revenue per employee and margin per employee, we do pretty well. And so our business, we believe is scalable. We were able to demonstrate that through the COVID crisis. And so as we go out and after these new markets, I think we're going to do very, very well. So when you look at just near-term opportunities, if you just look at what we track, I try to keep track of about 20 projects in my head. That's about as much as a person my age can keep track of, but we have a few more than that. But I try to keep you guys down to 20. Otherwise, it's impossible for me to remember what we're working on. But we are full, and we're doing a lot. And so for the spend that we have -- what are we spending now, Randy, in R&D?

Close to about $100 million.

Just about $100 million. For the $100 million, which is not even -- it's not even a gnat in Abbott's R&D budget, frankly. But for $100 million, we get a lot of productivity. So you have to invest in this space. For those of you not familiar with what we do for a living, of course, we're out there, we try to be first. First to market is a huge thing. There's value in firstness is what we say around and in order to do that, you got to invest, and you got to have smart people, and they got to be working hard. We got to be efficient because, again, we're competing with people who have much larger budgets. But I think we do a fabulous job with the spend that we have. And I would say, toe-to-toe, my R&D guys are as good as anybody on the planet. We just don't have to add as many as the bigger players. Next slide. So I always like it when the arrow goes up. We obviously are projecting to continue to grow. That's the name of the game in our space. If you're not growing, you're not going to live. You're not going to survive. So we've got a number of things in the short-term that we're working on. We've got a number of things that are going to take us another 12 to 24 months to get done. And then longer term, we've got a pretty good game plan there. And on this slide, we don't mention the things that are, what I would call still an R, but we've got a couple of different technological leaps forward that we're going to bring to market within the next 24 months, and those are going to be helpful, too. We compete across a lot of different segments. This is probably a little bit more detailed than as needed for this particular presentation. We'll go to the next slide. Yes. If you're us, you have to be disruptive. So you have to have things that work better and a 10-minute assay that is far easier to run than our competitors and can be manufactured routinely at high-quality is a big thing. And I think we're doing a really good job competing against some pretty big players at this stage. Next. So there's Savanna. I don't know if that's the final form now. It's pretty close to it. I don't know how old this photo is, but we're manufacturing instruments now. Most of the instruments are being used to validate assays. We're going to be submitting data in June for the first panel. We're going to be CE marking the RVP panel. And we'll see what we can do with the European launch, in advance of what we're doing here. Our constraint here is not the cartridges or the performance. It's more manufacturing. How many instruments can I get out there and over what period of time. And then as I'm doing that, ramping up cartridge manufacturing. So we're back into that same exercise that we just lived through, but with a little bit more experience. Capital structure. Yes, we have cash. All right. Next slide.

No debt.

And no debt. So I get asked, Brian, every single day, "What are you doing with the cash?" So we can talk about that. Well, I was thinking about buying a yacht. What do you think about that? A company yacht.

I mean it depends what you name it, I guess.

Obviously joking. We'll talk about that in just a second. So -- but we are looking for things that fit. We're not going to do anything stupid. We have a good organic strategy. The money that we have on the balance sheet is not burning a hole in our pocket. We do have a couple of good ideas that we're working on. And we've been on the airplanes going to see people, and we've been doing a lot of due diligence, but nothing is immediately actionable. I would say that's the best way to say. Will it be actionable within 12 to 18 months? I would say it's -- there's a probability that we could get something done. But I just want to assure our shareholders that we're not going to do something that doesn't fit strategically, that doesn't look like a pretty good deal, like -- I mean I don't know if we're going to ever do a deal like we did with the Alere assets again, but does it look good? And can we execute? Can we actually do something with the asset? And can we grow it? So I'm not interested in something that is a fixer upper or something that's not growing. I'm also not interested in an R&D project. I've got plenty of R&D projects already. So I just want to assure our current and prospective shareholders that we do have cash, we do have access to capital. We are looking to do something in earnest and we'd like to. But we're also not going to do something stupid. All right, next slide. Goals? Well, I already said all this. Next slide. That's it.

All right. Lots there.

That's as fast as I can go, Brian. I'm from Oklahoma. So this is as fast as I can talk.