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

Great. Thank you all for joining us at the Citi Healthcare Conference here. I'm Patrick Donnelly, the tools and diagnostics analyst at Citi. Excited to have Prahlad Singh, CEO of PerkinElmer with us today. We have about 40 minutes. If anyone has any questions, they want me to ask, feel free to e-mail them over, and I will try to get them in.

And Prahlad, maybe to open up kind of at a high level, you guys have done obviously a bunch of acquisitions, I think, 9 acquisitions in the last year or so. Can you just talk about the strategy behind these deals? And then more broadly, how you're shaping the company for the future since you became CEO a couple of years ago?

Thank you, Patrick. Good morning, good afternoon, good evening, everyone. When I came to PerkinElmer about 7 years ago, Patrick, as you know and you've covered this before, it was primarily known as a scientific tools company and more so on the analytical tools arena. But I think the intent really when I came in my role in diagnostics was how do we grow the company into higher-growth end markets and also expand our geographic presence. So just starting with diagnostics, we sort of took a business, which was around $450 million, and fast forward 5 years, it was about a $1.2 billion diagnostics business and going from mid-single-digit growth to high single-digit growth. And again, we established a lot of international presence with the EUROIMMUN acquisition in Germany, with the Tulip acquisition in India and with some acquisitions we did in China. So the idea really was that as the evolution of the company evolved over a period of time, our focus was to take the company into higher growth end markets of life sciences and diagnostics and also our geographic presence in key markets. So once we have sort of done that with diagnostics, the intent was how -- when I moved into the CEO role is the next opportunity was around in life sciences. Now we had a strong presence in small molecule, preclinical discovery and around imaging and detection. So the idea was how do we take that and build on that and create a more to sort of expand that market in our own biomolecules, cell and gene therapy, and sort of that led to a string of acquisitions in the life sciences arena, while we continued to bolster our presence in diagnostics, especially around infectious diseases with the acquisitions of Oxford and IDS in U.K. So I mean if you look at where the company was to where it is, now when I joined Instruments, we're about 40%, 42% of the business. Today, it is 25% or less, 80% of the company is around Life Sciences and Diagnostics and 2/3 of our revenue comes from consumables, reagents, software and services. So that's the portfolio transformation that has happened over the past 5 to 7 years, and we feel really good as to how we are positioned today.

No, that's great. That's helpful. And obviously, to your point, a lot of the deals have been more within the life science business. Can you just talk a little bit about how that fits into the strategy? And how we should think about that going forward as well?

Yes -- I mean, no. Historically, we've had a strong presence in preclinical discovery around small molecules. I think as we've seen, especially over the last 2 years, the evolution around the research side in biomolecules and large molecules, cell and gene therapy. And I think even though the approval processes for drugs and therapies in that space is going to take time, we strongly feel that a disproportionate amount of investment will go in the research in that arena. And we already have a captive audience to that market in pharma and biotech. So our focus is that how could we now build a portfolio and a value proposition around large molecules and cell and gene therapy. And that sort of led to the acquisition, starting with Horizon, SIRION, Nexcelom and BioLegend. And obviously, that's been one of the largest -- it is the largest acquisition in the history of the company. and we really feel good now how we started putting a portfolio together that sort of addresses the preclinical discovery space from target identification to target optimization and to a lead candidate around cell and gene therapy and biomolecules.

Okay. Makes sense. And then I know it's been a couple of years since you've got a meeting without talking about COVID. So maybe we can dive into that piece. Maybe just talk about, I guess, how you guys structured the COVID guidance? I think you're talking about at least $400 million of revs for this year. Is that just you have line of sight to a certain amount? I know you talked about kind of that, I think, $25 million a quarter when it becomes endemic. So maybe just give us kind of your holistic approach to how to guide on COVID? And again, what you have line of sight to, obviously, the tests have come down on a U.S. basis in the past couple of weeks. I assume that was what you guys expected, but maybe just talk through what you expected? What's happening? And how we should think about that piece?

Yes. Sure, Patrick. I think the way to look at how we guide around COVID is to go back and look at how we've done it over the past couple of years. We've generally tried to be very realistic and conservative in our approach because I think the one thing we are very sure of is that we don't have a clear crystal ball around how this pandemic is going to evolve over the next few weeks, days and months. And I think we've sort of -- our prediction around that has generally been true. So our focus, as we went into the year is what we had a very good line of sight was to the quarter and to the second quarter. But I think beyond that, given the cloudiness around what you expect with this pandemic, we've sort of said that in the second half of the year, it will be around a run rate of $25 million per quarter. And I think that sort of is where we are today. The thing that we are very confident of is the installed base that we have put in place and the performance of our PCR assay, for example. As this evolves from a pandemic to an endemic, then we have continuous use of that kit over the next several quarters and years. And I don't think that's going to evaporate or go away.

Yes. Maybe on that point, maybe you can expand a little bit in terms of the durability of the benefit, not just from COVID, but from the core business. Obviously, the cash speaks for itself to the deals that you've done, but maybe just on the business, to your point, what benefits do you see kind of lasting from what happened with COVID in terms of placements, et cetera, that you've seen over the past 2 years?

I think, Patrick, the #1 thing is that you should just look at the performance of our applied genomics portfolio outside of COVID. It grew 50-plus percent last year, and it continues to show very robust forecast as we look forward. And I think that is a direct impact of the brand awareness that our COVID performance created in the eyes of our customers on infectious diseases, molecular and on the NGS side of the portfolio. So explorer, as we've talked about it several times, is a product line where most of our customers are looking at us as to how can we put a workflow for them for non-COVID labs, whether it's around NGS or molecular testing. But I think that is a direct and a near-term impact that we've already seen, and we will continue to see. But even outside of that -- for example, if you look at the addition of Oxford to our portfolio, tuberculosis is the #2 cause of death from infectious diseases after COVID. And we are bringing Oxford Immunotec into the family being able to provide the automation components of our current portfolio with Oxford sort of helps now continue to build not just our presence in the infectious disease space but also enhance the value of our brand there.

Great. Yes. And along with the COVID revenue, obviously, it comes the margin impact that you guys are seeing quite a bit of margin accretion. You've given some pretty clear guidance over the next couple of years in terms of how we should think about that. And again, I think it's one of the biggest focus points for investors kind of trying to peel that COVID piece out. I guess how do you kind of construct that? What's the right way to think about the margin piece? Again, as COVID comes down, obviously, a lot of the acquisitions you've done are quite margin-accretive. So maybe just talk us through kind of that algorithm and the right way to think about the margin piece as we go through COVID becoming endemic here.

I think, Patrick, it should be looked upon as a very simple process, right? If you look at it for the last 2, 3 years, we had drawn a line in the sand that we would be at 23% in 2023. This was pre-acquisition or pre any of our acquisitions. And if we continued and we sort of laid out the path that we have done from an operational perspective around both to cash, around the logistics, freight and around the improvements for the applied business portfolio. And as the mix of our portfolio has changed, that 23%, the certainty of that has continued to increase. Now as you add -- I mean, all you've got to take now is BioLegend and add to that, and that gets you to the 26%. So it doesn't require a whole lot of engineering from a work perspective for us that needs to be done, but just that gets us to the 26%. And in fact, that gives us more of the confidence that over the next several years, 26% for us is just a milestone in our growth towards a 30% operating margin business over the next several years.

Right. Yes. And I know on the margin driver side, I mean, you've talked a lot about procurement, site optimizations, logistics, labor utilization, et cetera, maybe just talk about those different drivers, the impact of each and how confident, again, obviously, you sound quite confident, again, BioLegend speaks for itself, a big margin story. But maybe on that core Perkin talk a little bit about that. And then at the same time, I know a lot of companies during COVID felt like another $0.05 of EPS wasn't going to get rewarded. So why don't we spend on growth initiatives where we might not have before. Maybe talk through that piece as well, just as we think about the margin levers moving out of COVID and into the next couple of years?

Sure. I mean there's a lot in there to unpack. So let me just sort of take it piece by piece. One of the ways to think of it, right, that as we've sort of -- the last part of your question, there were a lot of onetime investments that we made over the past couple of years, that's not going to repeat. For example, we gave a onetime bonus the last 2 years in a row to our employees, and that sort of is not going to continue to repeat because you don't have the COVID margin benefit, as you pointed out. So there are several of those one-timers that I'm not going to repeat. So that sort of helped. The second piece is that we've also taken the time over the last 2 years to continue our -- continue to put focus on our continuous improvement projects, as you pointed out, around logistics as one, around freight, what do we do around SKUs, especially for the applied market business, launching of new NPIs with the LC and the new GC that is coming forth with the new IR that came out. And also, sort of how do we continue to focus on value engineering on that side of the business with these new NPIs, not just around the product portfolio but also around procurement initiatives and the efforts that we have put in. See, there's a whole list of items that we have had an opportunity to work on. Some of these have been low-hanging fruits, like, for example, logistics, but also to be fair, there have been some pressures over the last at least a few -- in a couple of quarters around trade, around supply chain issues, that sort of -- not only has it continued to help us, but it has also helped absorb some of these pressures that have come over the last couple of quarters.

Great. And you mentioned supply chain there, I mean, what are you guys seeing on that front. It seems like the issues are persisting across the space, but maybe they're not escalating. Is that -- is kind of the worst behind us and now it's just you manage through it and maybe there's light at the end of the tunnel. Just update us on what you're seeing on that front? And I guess the visibility into normalization if that's on the radar?

Yes. See, the thing is, if I knew clearly what the visibility to normalization would be, I know part of the bigger companies like the Fords and Apples would be banging at our door. But I think what we do know is how to live with it, how to manage it and how to ensure that we have clarity around what is needed. And I think that is probably the best way to describe it, Patrick, is that they are not -- they haven't gone away, but I think we've learned to work with it, manage it and then ensure that there is at least line of sight over the near future as to how we are going to address it.

Yes. But -- yes, and then -- and kind of...

They tend to stay for some time.

Right. Yes. hand-in-hand with that, you'll come to questions on inflation, wage inflation, et cetera. I guess can you just talk about your price increases, how aggressive you've been? Your ability to pass on some of what we're seeing on to customers again, kind of goes with the margin story?

Yes. So obviously, along with all our peers, we have seen the inflationary pressures and the attrition and the wage inflation that we have seen. So effectively, some of this, we are trying to be proactive and offsite with pricing initiatives. And so far, that has had good traction with our customers because they have also been understanding of the fact that they see the same pressures that we are. And I think it's something that our customers have been tolerant about and have accepted it.

Okay. Yes, maybe we can move on to some of the core business drivers. I mean, maybe we'll start with the Diagnostics business. I know last quarter kind of removing COVID, I think it was mid-teens growth. All the franchises grew quite well. I think Applied Genomics was the top. Can you just talk about, I guess, that core diagnostics portfolio, that recovery path out of COVID, again, nice growth recently, expectations going forward and again, kind of the key growth levers there for you guys.

Yes, sure. So I think if you look at Applied Genomics, that obviously has been the star in the portfolio last year. And I think a lot of that, as I talked earlier, has been because of the benefit that our -- the COVID benefit "on our portfolio." I think outside of -- if you take applied genomics, then the immunodiagnostics is one where I think EUROIMMUN is a major component of it, and they have had a very good performance over the past several years. And as I've talked earlier, autoimmune is an area where the incidence of detection of autoimmune disease continues to grow at double digits. And I think EUROIMMUN being a market leader in that space has continued to see the benefit of that, and that's not going to go away. Of course, the impact of COVID and the flare-up of COVID in certain parts of the world, especially in China, where they have a strong presence, you see that spikes up and down. But the consistency of that and the benefit of that, we saw especially in the last quarter, of course, they were coming off soft comps in the previous year. Reproductive health, I think we've talked about the birth rate challenges, and I think that's not unfortunately going to go away especially in China, but we've started to see some increase in birth rate, I should say, in some of the western parts of the world. So that's a good sign. But what we work towards is continued geographic expansion in that space and also the benefit of the launches of some of the new NPIs that we have brought [ further ] diseases out into the marketplace. The other component, obviously, for us is Vanadis. I think Vanadis as now as we are coming out of the COVID phase, it has started to see a great traction with our customer base and that is obviously going to help on the reproductive health side of the business. So that's the way sort of I would look at Applied Genomics, immunodiagnostic and reproductive health.

Yes. And Prahlad, you touched on China a bit. It's obviously a big focus area for investors as well. You guys have a bigger presence there in the diagnostics side probably than most tools companies. Can you just talk about, I guess, what you saw at the year-end, again, to your point, things like lockdowns probably impact you a little more than others given kind of that volume dependence. And again, birth rates, tenders, I mean, there's a lot going on in China. So it would be great if you could just talk through kind of those moving pieces and then again, expectations for '22 and kind of what you've been hearing in the field there?

Sure. So I think mid- to longer term, China will continue to be a very strategic marketplace for us in the diagnostics space, and that's not going away. I think if we go back and look at fourth quarter and as we see through the year, it's always going to be a high single-digit, double-digit growth for us. We don't play that much in the tender space, Patrick. So it doesn't really impact us. And also this volume-based pricing initiative that has been going on in some of the provinces hasn't impacted us yet, doesn't mean it's not going to impact us because the reproductive health business is a very different channel, very different customer base and newborn screening is done differently. So the immunodiagnostic component, right now, the EUROIMMUN has the technological edge in the marketplace and that sort of helps it. But over a period of time, even if it does see the pricing impact, I think it's only going to help increase the size and the scope of it because your volume increases will help gain more market share. And I think that's the way we look at it in the portfolio because we don't play in the -- and what I would say run-of-the-mill diagnostics there with the portfolio that we have. We tend to be still very niche player in specialized diagnostics, whether [ it's not ] immune reproductive health.

Yes. Okay. And then immunodiagnostics kind of ex-COVID, has been highlighted as a kind of area of recent strength as you kind of called out the comps are relatively easy, but you're getting back to more normalized testing levels. Can you just talk about, I guess, where we are in that pathway? And then again, maybe highlight some of the key products, you have Superflex, Excentis, some of the placements there. It seems like there's some big opportunities for you guys. I would love to dive into that a little bit.

Sure. I mean, obviously, as I said, EUROIMMUN plays a very big role for us in immunodiagnostics. They have a very strong portfolio. And as I said, the rate of incidence of detection of autoimmune diseases continues to increase, and that's the benefit that they will see. I think as you look forward, Patrick, one of the challenges for the EUROIMMUN business was the availability of a large full of automated random access platforms. And obviously, Excentis was one where they have been working on. Excentis is to be -- just to make sure that we are all on the same page, Excentis will be launched towards the end of this year. It hasn't been launched yet. There are some of them that are out in beta site testing. But also, that is where the acquisition of IBS plays a key role because they already have to see random access platforms with a bunch of [indiscernible] assays already approved in several marketplaces. So now if you think of it, if you look at the whole workflow that I recently talked about at another investor conference, starting from a tabletop with Superflex all the way to Excentis, which is a large, automated platform, we are able to offer a series of options for our customers for smaller community care settings to all the way by reference laboratories. I think that's where with immunodiagnostics, it will help us play a big role in that space. The idea really is now that it has been established, we just need to churn out more and more assays that can go on that platform, in addition to what IDS and EUROIMMUN brings to the table. So that is where, as you look forward, a lot of the organic investment will also go forward.

Okay. And EUROIMMUN, I know even when you -- going back to the time when you guys bought it, it was always kind of viewed as a big opportunity to expand into the U.S. I'm sure COVID kind of put a wrinkle into plans and slowed things down a little bit. Can you talk about where we are in that progression? It seems like U.S. remains underpenetrated for you guys for that, given particularly Perkin's presence should be able to leverage that. Can you maybe talk about that strategy, where we are and again, kind of the remaining opportunity on that front?

Yes. I mean, if you recall, as I've said that earlier, EUROIMMUN is probably our biggest success story in terms of an acquisition. It's a team of great talent. It's today a $500 million business that has consistently grown double digits over the last 4, 5 years since 2017, whenever the acquisition was. And I think we foresee that to continue into the future. With regards to the U.S., you're absolutely right. I think COVID, obviously, threw a wrinkle in that. But at the same time, they've had 2 EUAs on COVID in the U.S., and they've had a significant -- with the antibody assay that focuses on protein. They have their own PCR assay that they had approval on. So they had a good chunk of revenue coming out of COVID from the U.S. market. So sort of while the other products sort of took a back seat, the COVID revenue came through. And the focus is back now on how do we ensure that Excentis comes back into the market and the other approval comes back. They come off a small base of $50 million, $75 million in the U.S., Patrick, but that continues to grow at a very high rate. And I think that's just a matter of how we continue to get more and more assays approved into the U.S. through the FDA and grow that business.

Okay. And maybe last one on the diagnostics and then jump over to DAS. Just in reproductive health, I know you've highlighted a few times NIPT. You've got expanded insurance coverage in U.S., more opportunities ex U.S. Maybe just talk through the opportunity set there. Again, I think COVID clouded that story. I mean it was a big focus before COVID. I guess, as we emerge from it, maybe just talk about that business a little bit? And what your presence is currently? It seems like a big opportunity for you guys.

Sure. And the answer is yes. In short, it's a very big opportunity for us because today, our presence in the U.S. marketplace is very minimal. And I think especially with the ACOG guidelines that only helps the story that we've been trying to tell around Vanadis is that majority of the OB/GYN's focus is around 13, 21 and 18. And I think very few of OB/GYNs focus around things in our like microdeletions given the sense and spec challenges that, that has. And I think the ACOG guideline continues to endorse that sort of thought process. And if anything, that is going to be very helpful for Vanadis because as we've talked about, Vanadis' focus is a fully automated, easy to run workflow that focuses around providing low no-call and high 13, 21 and 18, sense and spec and I think that value proposition is going to continue to see traction. And given what we've seen in the pipeline in terms of demand for Vanadis, we feel really good about it.

Great. maybe we can hop over to DAS. I think on the recent earnings call, you talked about the backlog growth, I think, doubled year-over-year and maybe even tripled since 2020. So maybe just talk about what you're seeing there? What's driving that backlog growth? Any metrics you can throw out in terms of visibility, always appreciated. I know those are pretty scarce across tools, but how are you thinking about that backlog? And again, the components of that growth, I guess, I'd be curious about.

Sure. So I just want to make sure there is clarity around that. That when Jamey said that in his prepared remarks around the doubling, tripling of our backlog that was specific to the Life Sciences business. However, overall, our backlog has gone up over 50%. So that's not that -- just not double the number that's been cited. I think in terms of the component of the backlog, obviously, a larger impact of that is on the instrument side of the business because the reagent side of the business is the faster flow-through business, right? And that doesn't get -- that doesn't have sort of such a larger role to play into the backlog. But on the instrument side of our business, it is close to 25% or less for our overall component of the company. So you sort of have to put that in perspective of that. Some of the backlog, obviously, was related to supply chain issues or logjam related to that, but I would say that was only about 100 bps of the impact that we saw from fourth quarter to the first quarter. The rest of it was long -- was a lot because of very good strength in the end markets where we play in. And I think that was what the impact we saw. I mean that hasn't sort of, I would say, in no way, I would say that has slowed down or it's gone down or anything. That strength we continue to see in the marketplace.

Okay. That's helpful clarity on the backlog as well. I guess speaking of the Life Science business, I mean, it's obviously put up nice growth, discovery, informatics have put up good growth over the past couple of years. Maybe just talk about those growth drivers, what's driving that kind of nice double-digit type growth? How sustainable it is? And again, maybe the key drivers going forward?

I think the way we've sort of brought our workflow together, Patrick, with the addition of Cisbio now, I think, 2 years, 2.5 years ago. And as we've continued to add to that portfolio, and the launches that we have had from our -- from imaging and detection side, I think we've done around preclinical discovery what we had with reproductive health, newborn screening. I think that's the way I would equate it, right? We've put together a workflow for our customers that sort of makes a lot of sense and gives them validated but flexible workflow to use our product line. And I think as we move forward in the organic investment and also the inorganic investment will continue to go to fill any portfolio gaps that might be there. I think what we don't want to be is a one who provides everything for everyone in every space, right? I think we've sort of tried to put a ring fence around where we have our strength. And at the same time, if you look at the informatics side of the business, that continues to do very well, especially as the evolution of that business model moves from on-prem to cloud, and SaaS becomes such an important player. And we've -- I think we have got the top 20 pharma and biotech as our key customers on the informatics side of our portfolio. That continues to grow. So I think if you look at that, the combination of both the Life Sciences side around preclinical discovery and Informatics, it's one of our strongest growth drivers for the company in several years to come, and then we'll continue to add to this both organically and inorganically.

Yes. Yes. And you mentioned kind of some of the software pieces. I know that's a big focus for you guys. It's also, I think, quite margin accretive. I know DAS is viewed as a margin opportunities. Can you just talk about, I guess, the opportunities for margin expansion, DAS specifically? Again, I know software is a big one that you touched on?

On the DAS side, one, is naturally as the mix of the DAS business portfolio has changed. With all the acquisitions that we have made I think the natural mix and the product offering that we have, now Life Sciences and Informatics become a dominant portion of our DAS business, that itself results in the margin improvement opportunities -- margin improvement that we see. Secondly, now as you look at what we've pointed out around the initiatives that we've taken over the last several years on continuous improvement, the impact of that we will see. And as the informatics business grows, then obviously is very margin accretive not just to our informatics business as such but even to our enterprise business if you look at that, right? As we continue to provide more offerings to our customers around value-added products from SaaS perspective or from a lab perspective, that helps to improve the margin. So it's not any one shot at the goal, Patrick, but there are several opportunities that allow us to feel confident that the margin improvement initiatives will take hold.

Okay. Makes sense. And I know we're inside 10 minutes, so I do want to spend some time on some of the recent deals. BioLegend, obviously, to your point, kind of the biggest one you guys have done, I think you did $80 million in 4Q, plans for $400 million this year. Maybe just talk about the expectations for that business. Short term, again, that $400 million; long term, I know you've laid out some growth targets. And then how the integration has gone since it's closed relative to your expectations? And then maybe we can talk a little bit about some of the cost side, but let's start with the growth in revenue.

Sure. And I think the number was $380 million, just to be clear.

$380 million? Sorry. No rounding. Sorry about that.

For 2022. But I think -- let me start by this. Number one thing that has blown me away with the BioLegend acquisition has been the talent. Not just under leadership, but several runs down of the leadership you go. BioLegend, is a -- it's a warehouse of top talent in the industry. I think that is really reflective on what you see from how they have continued to grow and continued to see market share gains over the past several years. And I think again, piecing it out into 2 other pieces of your question. One is around the integration, it's going well. We've -- as I mentioned earlier, during the earnings call, we've put out -- we had an IPO office, integration transformation office that has sort of got a very structured process by which we are ensuring that the pipes are connected and we dot all lines and cross all the piece of the integration opportunities, leverage our presence in markets in the emerging markets, especially where they don't have a direct presence. So the low-hanging fruit work has already started. On the mid- to longer-term opportunity, we had a week-long summit there at the end of November. And the idea really, as you know, is to focus around 3 verticals: 1 around life sciences, Discovery, 2 around cell and gene therapy and 3 around diagnostics, close to 40 initiatives have come out from there that the teams are working on. And I'll give you a few examples. How will we leverage the antibodies that BioLegend produces for Oxford Immunotec? How do you leverage it for neurodegenerative diseases for EUROIMMUN? How do you leverage it for the research portfolio that Cisbio manufactures? So these are, again, some short-term opportunities. It's not find this guy that we will take years or several hundred millions of dollars of investment to achieve. This is something near term. And that's why I think the confidence that we have around -- I think in 2026, we have put a number of $100 million in terms of synergistic opportunities that will come out of it. And again, it's not going to be [ $25 million, $25 million, $25 million, $25 million ], it's going to be a scale. But I think we are already on the path of that and have started seeing the benefits coming out of the integration of BioLegend into PerkinElmer.

Yes. And I guess now that you've kind of gotten behind the curtain a little bit. A lot of times with these growth acquisitions, one of the big plays for a bigger company taking it over is kind of investing and whether it's capacity or new verticals. How do you think about the growth opportunities here, the investments required from your side? Why do you feel like it's in pretty good shape?

I mean if you recall, when we did the EUROIMMUN acquisition, over the first 2, 3 years, there was a significant amount of capital investment that was required to ramp EUROIMMUN up to a level that would meet its capacity. BioLegend is the total opposite of that. They have such a -- I mean, literally, it's like going -- when you go around their operations facilities, it's like going into a fully automated Amazon warehouse. There are iBots everywhere. It's a very automated process that they have in place. They will require investment, but it will be more from a space perspective or just to make sure that you've got other alternative facilities in other parts of the world. As their market presence expands, leveraging our geographic presence, say, in far east Asia, maybe having a manufacturing presence in that part of the world might be needed over the next couple of years. But given the fact that we already have 50,000 square meters of manufacturing facilities in China between Beijing and Shanghai, we would leverage those operations rather than try and go and build something brand new. So that is the thought process that the teams are going through.

Okay. And then maybe just on obviously the balance sheet, maybe kind of beyond BioLegend, again, COVID has created a nice cash flow for you guys, obviously, allowed you to do some of these larger deals. Leverage isn't too high even after the deal, given, again, the cash flow. So how do you think about your view of leverage currently, priorities on the cash side, when we should expect you guys to be active again? And then maybe I can ask some questions about some potential deals after that.

Sure. So I think the way to look at it is as the COVID revenue [ brings ] down, our idea really is to how do we take the debt to adjusted EBITDA down to 3, and I think that's where our focus will be. I think we've paid off the revolver and there are some short-term loans that we will pay off in this quarter and the next quarter. Because in the short term, our focus is how do we get our debt to net adjusted EBITDA leverage down to 3. Once we've got to that point, then we'll start thinking about the bigger acquisitions. We'll continue to do bolt-on acquisitions in the meantime, but there will be more around certain technologies or certain product lines that we might need to bring in but nothing of scale in the short term.

Okay. And I guess in terms of areas of focus, I know even at the Investor Day, you mentioned cell and gene therapy, decentralized point of care testing, single cell. Maybe just talk about what interests you? Where do you think there are gaps in the portfolio, if any? Where we should expect you guys to be active kind of, I assume it's kind of growth, but maybe just talk about what you're looking for out there in the market parameters that you kind of keep yourself to?

Sure, Patrick. And I think our investment will go both inorganically and organically into that side of the portfolio. And then I think the areas that you pointed out, they'll continue to be an area of focus for us, especially around cell and gene therapy. I mean, we just -- we've talked -- I've talked about Honeycomb in the past several meetings. And then I think that's a product that we've brought where it started as a minority investment, and now we've sort of brought it to commercialization, and it's currently in the launch process. So there will be always opportunities such as this that we will be looking for to continue to enhance our offering to our customers and plugging gaps in our value proposition for customers, especially around cell and gene therapy, around single cell analysis, single-cell storage because we've added a lot of pieces to that puzzle, but that doesn't mean that there won't be other enhancement to the portfolio. And I think that's probably the area where you'll see a large focus from us.

Okay. Prahlad, I think we'll have to leave it there. We're up on time. This was very helpful. Appreciate the time, and we'll talk soon.

Thank you, Patrick. Even though virtually, it's great to see you, and maybe next time.

Likewise. Thanks, Prahlad.