Revvity, Inc. (RVTY) Earnings Call Transcript & Summary

All right. I think we're ready to go. Good morning, everybody, Luke Sergott from Barclays. I cover life science tools and diagnostics here. It is my great pleasure to introduce Prahlad Singh from PerkinElmer. He had taken over during an easy time to take over a company right ahead of a pandemic. So with that, if you want to provide some -- a quick couple sentences background and overview, and then we can just dive right into questions, if that works for you.

Sounds good. Good morning. Thank you, Luke, for the opportunity. It's been an interesting 14 months now. When we began the year, obviously, our focus was we have put a lot of effort in reorganizing the company, combining our commercial teams, uniting -- unifying R&D and bringing it together, both the erstwhile DAS and DX segments from a commercial and a technology perspective. And going into 2020, we were very excited about the progress we would make. But obviously, the pandemic hit and things went pretty haywire. But for us, we were focused on ensuring that: a, our employee stayed safe; two, our customers were provided everything that they needed to deal with the pandemic; and three, and more importantly, we emerged from the crisis as a stronger company. And fortunately, all 3 of those have progressed pretty well. And as we look forward, right, we've established a global brand in molecular diagnostics. We've had done some key strategic acquisitions over the past several weeks. And hopefully, we will do a couple more this year. And more importantly, we've continued to evolve our portfolio and feel really good about the way we are set up for future success.

Okay. That's great. There's a little bit of feedback on my side. So great segue into really what I want to dive in here. And so when you were at Perkin before, you helped shape the diagnostics business to what it is today, right? And so as I look at that, it was -- you had -- you really brought a cohesive business portfolio around reproductive and women's health. So the commercial was every test from prenatal to postnatal, you guys touched, right? And that was a key selling point and as you think about a cohesion in a diagnostics portfolio, that was it. And now that you're under the helm of the entire business and really on this trying to do -- redo the same strategy here with DAS, give us an idea of where Horizon fits in. Is that a leg to the stool that you plan to build around? What are some areas and kind of the story that you're trying to tell here with DAS?

Sure. I mean, even the DAS portfolio, we've continued to evolve over a period. And I think you guys got a glimpse of some of it during the Life Sciences Analyst Day in December. But the way I would think on Horizon is there are a couple of ways to think about it, right? For us, it's a foundational strategic asset that enhances our leadership in the preclinical target market, especially around ID -- identification and optimization of targets. We've -- now we've had -- now we have both genotype and phenotype capabilities that support our customers' needs. Capabilities around customers' needs for services, for developing assay and having a full suite of products that helps enhance what's the work that they do in house. But more importantly, I think what it does for us is it expands our reach into attractive end markets such as base editing, gene and cell therapy. And cell lines for bioproduction. These, especially the gene and cell therapy market is something that's going to be on a growth trajectory for the next decade or more than that, especially as you look at research on that. And our -- while therapies will take time to come out, the activity around the research will continue to enhance here and now. And that is where Horizon gives us a foundational capability around which now we can start adding assets and capabilities to help our customers. At the end of the day, the area, I would look at Horizon is it gives us a platform around which now we can build end-to-end capabilities to support the gene and cell therapy markets. That's one way how I would encourage you to think of how Horizon fits in our portfolio.

Yes. I mean you're looking at from a CRISPR screening and from a development and discovery aspect, I mean, it is a huge leg to the stool and a hurdle to the industry in general. And so I see how that really gives you that foot in the door. Talk about how that is synergistic around the rest of the portfolio, and you can bring in a lot of Perkin's other capabilities in here and continue to build out the cell and gene therapy portfolio, from discovery all the way through manufacturing.

Yes. I mean, look, for us, it's highly synergistic because of, again, the genotypic and phenotypic screening are both quite intertwined, if you look at it from a customer's perspective. The basis that gives us for screening base editing is something we just didn't have it. Most of our focus to date was around small molecules. And now if we take that, add to -- take what Horizon gives to us, add the small molecule piece along with the imaging and detection piece, we now are sort of ring-fencing the whole value chain in the research scientists' land. For us, while base editing and gene editing might not be something that right away fits today. But it does give us a platform around which now we can start building and adding capabilities around gene and cell therapy and the arenas that we just talked about.

Okay. That's helpful. And as you think about the other acquisition, you guys have been quite busy. So Oxford just closed. That brings infectious diseases, TB testing. That doesn't really fit within the reproductive side of the business. So give us an idea of where that fits into the overall portfolio. And is this more of just building out on the EUROIMMUN side and continuing to expand upon infectious diseases, so that the diagnostics business, you'll have reproductive and then you'll have infectious diseases and then maybe a third leg to the stool.

Sure. So, I mean, if you think of it, right, and I have -- as I've shared earlier, right, when I came into PerkinElmer 6, 7 years ago, diagnostics was a specialty or a niche market player around reproductive held in $450 million business, high single -- mid-single-digit growth, 20%, 25% operating margin. Anyhow in circa 2019 end before 2020 came into play, we ended the year at around $1.1 billion, $1.2 billion in revenue. High single-digit growth and 30% operating margin. And what we tried to do is we continued to expand the addressable market for the Diagnostics business. We sort of -- while we continued to have reproductive health as our flagship franchise, we further enhanced it with autoimmune, allergy, and to some extent, emerging infectious diseases with the acquisition of EUROIMMUN and Tulip. We were now in malaria, dengue, chikungunya, Zika, more emerging infectious diseases. Oxford fits the bill right there. Tuberculosis after, in fact, COVID-19, the highest infectious disease in the world, and it gives us a very strong presence in that market. So I don't think we will become a infectious disease player for all à la Roche or Abbott, but our focus will be how do we become a specialized infectious disease player, and Oxford fits that very well. Again, what it does is it gives us an insight around which we can start building a portfolio.

Okay. That's helpful. And then I guess, as we think about COVID and going into some of that, can you just discuss what's going on with the California lab issues? And then -- and how that demand is trading in light of the testing shifts over there? And how that contracts are going over in California?

Yes. I mean, you look -- everything in California is out in the public domain. And there are obviously pluses with it, but along with it comes certain challenges that you have to deal with. And I think in the spirit of transparency, we wanted to make sure -- again, if you just go back and look at the time line, the lab was set up in 6 to 8 weeks. We hired more than 500 people in a matter of 2 months to get it up and running. And today, we have capability to do close to 100,000 samples per day. And that's where whatever growing pains were there, those have been addressed. The LFS report has been put out. And hopefully, it should come out by mid-March. And we feel very good where we stand from the aspects of the growing teething issues that we have had. In terms of testing, I think that's the one thing, Luke. I mean, in that it's not just us. I mean, you can -- it's all over that the rate of incidence of COVID's going down, and along with that, obviously, the testing is going to go down.

Yes. And so kind of level set here with what you guys have guided to and then how those shifts in the testing type really fit within your guidance for the year and then how that kind of plays out from a technology perspective of what you guys offer?

Sure. So I think again, if you look at it, we feel very good about Q1. We feel very good where we are with Q1 and what we have forecasted. We've got a good line of sight into Q2. But along -- after that, especially in the second half of the year, it gets hazy. And it's -- I would say it's not just for us, it's for all of -- it's for all of us. The thing that we have tried to do is we have continued to evolve. The recent announcement that we made around the rapid antigen test that we just got CE Marked for, that becomes another growth trajectory, hopefully, in the second half of the year when PCR testing might start coming down, but localized, simple and speedy testing will become more and more relevant, especially as schools start to reopen, airports, stadiums, those kinds of places. You want a test at that point of time, which is simple, does not require any instrumentation, provides a result, which is accurate, very quickly at a low cost. And that is what our rapid antigen test does. It's -- again, the thing that we really feel good about is, as we've talked about, right, when we say that we want to lead with science, we could have introduced a test similar to the other tests that were out there in the summer or fall. But we wanted to make sure that the sensitivity and specificity of the test that we bring to the market is really high and meets our internal quality threshold to be able to get to the market. And with what we've gotten out that we feel really good, Luke.

Okay. And that's a great segment. Next one, as I think about your antigen test. And so give us an idea of the advantages of your test over the other point-of-care antigen tests? And just adoption in general has been rather mixed because of the lower sensitivity and ultimately unreliability of making definitive clinical decisions and policy decisions on it. So give us a sense of how you see your test shaking out and the ultimate testing paradigm? Does it -- is it going to be additive to other point-of-care or molecular diagnosis? Or do you envision this being a stand-alone test for screening asymptomatics?

Yes. I mean, what I'm going to share with you is based on the data that we have in hand today and that I have talked about publicly, right? We've just recently launched it. We announced the CE Marking of it. And the data that we have, we feel really good about it that it provides a very high level of sense and spec, both in symptomatic, asymptomatic nasal, nasopharyngeal test for that cohort of population, 97% sensitivity and 100% specificity. I would feel very good about taking that test myself. And that's compared to what the others are out there. That's where we wanted to get to that -- it's something that I, our employees, our population would feel very good that this is a test that we would take and get it out in the marketplace. That's the level of sense and spec that it brings to the market. And again, it's like a rapid antigen test. It's a nasal swab. Put it in the buffer -- put the droplet. You have a control bar and you have a test bar. Doesn't require any instrumentation. And it's easy to do, provides a result in 15 minutes. And it's in $5 to $7 price range. So it just sort of meets all the key criteria that you would want to bring the test to market. Again, we haven't submitted it to the FDA yet. We plan to do that, both for testing under the guidance of a health care professional. And hopefully, we will also submit it, eventually, have enough data to submit it as a home test.

Okay. Wish you guys came out there a little bit early to be doing this in Miami. Yes. So you're going to submit that to the FDA. And then so probably when you think about time lines with that, that's more depending on, obviously, FDA review schedules and how that shakes out, but that's more of a back half of the year, maybe even '22 type of event?

Yes, definitely, definitely the back of the year at the earliest.

Okay. That's helpful as we think about things. And so as that -- that really answers...

But it does have CE Mark. So it gives us immediate access to 30, 40-plus countries.

Yes. Give us an idea of the early demand for that over in Europe, right? So as the -- as it has CE Mark, give us an idea of how that testing offering has really shaped or changed some of the overall paradigms so that we can...

Again, we just got CE Mark on it. We just got CE Mark on it. So we've seeded some customers. There's a strong interest, but it's too early to call as to -- other than providing that there is very strong interest across regions. It's too early to say what the sizing or putting our arms around what the opportunity would look like it. Other than the fact that all of it would be upside, we don't have anything in our forecast as to what we have provided for the year.

Yes, not necessarily on sizing. Just -- I was trying to get a sense of where the demand is coming from on a customer basis? Is it from the schools? Is it consumer-based? Is it from hospitals, health care workers? Or is it just broad-based everywhere?

Broad-based. Primarily from state governments, local counties, municipalities, schools, airlines, tourism places, as you could imagine, right, anywhere that you would envision something like that playing a role. It's pretty broad-based, I guess, is the way.

Okay. All right. And from that, you go into -- if I think about it, a lot of the places over here require a molecular 2 days before you go to an event, and then somehow when you get to the gate, you would queue up into a long line and wait 15 minutes to get your PerkinElmer antigen test, rapid antigen test before you're allowed into a certain venue. That's kind of the paradigm that's being set up or envisioned?

Yes. I mean, look, I think it's also in a flux as to how it would be implemented. And just the fact depending on what the approval is, right? If it was a take-home test, it would have a different paradigm. We don't have that at this point of time. So I would say it's the logistics and the implementation of that is still TBD, Luke.

Okay. That's helpful. And then last year, just last couple of minutes, as you think about the base business and the recovery, your guide overall is like 5% to 7% for the base business. As I think about the 2020 growth and the headwinds you guys faced, give us an idea of the assumptions behind the recovery and how that trends. Obviously, back half is going to be stronger facing an easier comp. But if you do the double-stack there, you're still below your average rate that you've been putting up the last couple of years. So give us an idea of the conservatives that's baked in?

Sure. I mean, I think, one, philosophically, as you've seen probably from what I've done over the past 6 -- 5, 6 quarters now is to ensure that we put a number out there that we feel very comfortable and confident about achieving or beating and providing high-quality earnings in terms of revenue, operating margin and cash flow. And we've done that, and we feel really good about it. Before I sort of start breaking it down -- maybe one thing to provide and -- unlike it is that we feel really good the way the year has started for us. The first couple of months have been very promising on both segments, DAS and DX. And even our assumption going into the year was both would be around 5% to 7%. Within diagnostics, core, our DX, immunodiagnostics and applied genomics, we had assumed around high single digits with reproductive heath more in the 3% to 5% range, both because of pressures around birth rates and as the market comes back. DAS, I think, life sciences would be mid-single digits with the discovery and informatics high-single digits. I think food and applied would be the one, which have the highest magnitude of out-performance, given the pressure that it had seen in 2020. So that's sort of the way I would look at the different business segments.

Okay. That's really helpful context. And so I remember when we came, I guess, this is the last one. But just thinking long-term here and your targets. So as you think about that mid-single-digit-plus growth, you have long-term targets, 5% to 7%. Give us an idea of how that will trend across the 2 businesses? It seems like as we started the conversation, diagnostics is a little further ahead of the curve than DAS. But layering on Oxford, is there a faster pickup that we should expect in DAS to hit that long-term range?

Yes. I think the way I would look at it, as you know, earlier in the year, at a health care conference, I did put out a $4 billion-plus number, right? And I think if you just see the way we have racked and stacked, the idea really is that we feel very comfortable with the path to getting to there, right? And obviously, there are several things that could provide significant opportunities for upside, especially with the additions that we have made to the portfolio. So maybe the take-home message, I would say, is both around margin and growth that the targets that we have put out there is a solid backing into that number that makes us feel very good as to getting to that number. With enough audience in the fire that we have put in to provide upsides to it.

Yes. No, it's clear. Well, again, thank you for making time. It's been a pleasure. I look forward to staying in contact and speaking to you guys soon.

Thanks, Luke. Thank you for the opportunity. Hopefully, we do it in person next time.

Me too. Talk to you soon.

Take care. Bye-bye.

Bye-bye.