QuidelOrtho Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question and answer session. If anyone has difficulty hearing the conference, please press star zero for operator assistance. I would now like to turn the call over to Mr. Ruben Argueta, Fidel's Director of Investor Relations. Please go ahead.

Ruben Argueta Thank you, operator. Good afternoon, everyone, and thank you for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant, our Chief Executive Officer, Randy Stewart, and our Vice President of Finance, Kristen Kaltreiter. Our second quarter 2021 earnings release is now available on ir.quidel.com, our investor relations website. We will also post our prepared remarks on the presentations tab of our IR website following the conclusion of this call on August 5th for a period of 24 hours. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. Forward-looking statements by their nature involve material risk assumptions and uncertainties. In particular, our expectations and assumptions around the COVID-19 pandemic impact and response on our business, results of operations, and financial condition, and that of our suppliers, customers, and other business partners are highly uncertain, continuously evolving, and unpredictable. Many possible events or factors could affect our future financial results and performance. such that our actual results and performance may differ materially from those in the forward-looking statements. For a discussion of such factors, please review QDEL's most recent annual report on Form 10-K, including the section titled Risk Factors, Registration Statements, and subsequent quarterly reports on Form 10-Q as filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 2021. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. Today, Quidel released financial results for the three and six months ended June 30, 2021. If you have not received our news release, or if you would like to be added to the company's distribution list, please contact me at 858-646-8023. Following Doug's comments, Randy will briefly discuss our financial results, then we'll open the call to take your questions. I'll now hand the call over to Doug for his comments.

Thank you, Reuben, and welcome to everyone on the call. We really appreciate your time and interest in Quidel. I understand that several of our analysts actually are covering multiple names today. So again, we appreciate you being on this call. And obviously, we'll try to be respectful of your time and be as succinct as possible. I want to start by recognizing the entire Quidel team for their tireless dedication and skill. The past 18 months have been a grueling test of all of our systems and teams, from our R&D and clinical teams, of course, to our production floors, to supply chain, and all other functions, including HR, finance, regulatory affairs, sales and marketing, legal, business development, and international, of course. Not only have they met the pandemic test, they aced it. Our product platforms and offerings have never been more robust. Our productivity is up across the board, and our market penetration is deeper and wider than ever before. From high-complexity labs to healthcare facilities, point-of-care locations, and direct-to-consumers at retail and online, the Quidel name, our branded assays and analyzers, are accessible and sought after. The net effect has been transformational for our company and positions us exceptionally well for long-term revenue and earnings growth. So to all my colleagues at Quidel, I say again, thank you. Turning to the second quarter of 2021, you'll see from the press release that while revenue is down 12% versus the prior quarter, the pace of our business remains impressive with revenues of nearly $177 million. We'll unpack all the numbers in a moment, but what stands out to me as the leading indicators of the quarter relative to our longer-term strategy are the following. We delivered solid 24% growth in our core business. We further broadened our installed base of Sophia analyzers. Demand for our SARS products continued with Quidel shipping over 8 million tests in the quarter across all platforms. And we established a strong beachhead for COVID testing in the retail segment. The implications of each will extend well beyond a single quarter. Please recall that in Q2 of last year, we saw a significant rise in COVID-19 and influenza revenue that largely resulted from the onset of positive COVID-19 cases in North America, the emergence of testing for COVID-19, and the introduction of our Lyra and Sophia COVID-19 testing products. We were early to market with molecular testing and the first to market attention test. Demand was high and competition was limited. By contrast, in 2021, there was essentially no flu season, and the market for SARS antigen testing has become much more competitive. As a result, while demand for COVID-19 tests in Q2 of this year was still present and perhaps stabilized, revenue was lower when compared to the surge orders that we saw in 2020. But if you drill down a bit further, you'll see that the top line numbers assure the underlying strength of our rapid immunoassay business. In Q2 of this year, we sold 6.6 million SARS antigen tests as compared to 3.1 million tests in the second quarter of last year. We saw a significant shift in product demand. We shipped fewer Sophia SARS antigen assays to the professional market and saw significant demand for our QuickView SARS antigen tests, about 4.8 million tests, which weren't available in Q2 2020. Of course, our QuickView tests are priced lower, coming in during the quarter at an average of just under $6 per test, which explains the resulting lower revenue for the category. Quite frankly, we'll accept that gladly because over the course of a year, we've succeeded in democratizing testing and pushing the boundaries of access beyond the professional point of care setting to include retail and at-home testing. We're quite proud of that achievement and believe it's the forward edge of a broader home testing trend that will continue to drive earnings over the long haul. Now let's look at a core business. excluding COVID-19 and influenza assay products. We were up 24%, as I mentioned before, to nearly $92 million as compared to $74 million in the second quarter of 2020 as we began to see a return to normal testing for cardiovascular, strep A, and our microtiter businesses. Growth of our core business is important going forward as we strive to to maximize the utilization of our SOFIA instrument placements, adding new assays, such as our suite of gastrointestinal assays, and expanding into new segments within diagnostics. We envision leveraging our rapidly expanding platforms to broaden our footprint and create a demand funnel for a wide variety of future tests and diagnostic products that can be employed in numerous settings, including hospitals, physicians, offices, urgent care centers, pharmacies, retail, and other institutions. One recent success of note is that we received EUA for our miniaturized artificial intelligence-enabled Sophia Q device. Sophia Q will make access to our Sophia tests easier and more affordable for professional point-of-care customers. Longer term, it could create a retail pathway for our full portfolio of SOFIA tests for influenza, RSV, strep, Lyme disease, and other conditions. So the combination of our expanded installed base and continued demand for our SOFIA and SOFIA II instruments with the expected adoption curve of SOFIA Q positions us favorably to be the brand of choice for addressing future flu, strep, and respiratory disease seasons and whatever else comes along. At the start of the call, I noted the terrific work of our R&D operations and clinical teams. During the quarter, they continue to advance Savannah, our multiplex molecular diagnostic analyzer, which we believe will be our next flagship product. We recently received the CE mark. We are building out our instrument and cartridge manufacturing and expect to launch in Europe in the fall. with U.S. clinical trials expected to begin toward the end of this year. Once approved, Savannah will enable professional customers to analyze up to 12 pathogens plus controls in a single assay run in fewer than 25 minutes. This makes Savannah for testing in hospitals, moderate complexity labs, physician offices, urgent care clinics, and other locations. As I've said before, Customer feedback is fantastic, and I am confident Savannah will be a big part of our quarterly discussions in the future. Let's turn now to the subject that has been a big part of our discussions over the previous five quarters, COVID-19. While we are actively working to expand our diagnostic platforms and product mix in other areas, COVID-19 testing remains a significant near-term opportunity. You've probably seen our announcement with the state of Delaware to provide testing to students and faculty. It is a testing as a service model that we have replicated in other states as well. We also are pursuing a variety of other opportunities with schools, employer groups, selling in select U.S. and ex-U.S. markets, and evaluating other nontraditional markets. While we expect to close more accounts with employers and have several promising partnerships in the pipeline, They involve a good deal of blocking and tackling and are very hard to predict or value, especially when guidance from CDC and the landscape of COVID testing seem to evolve daily. Recently, the warning from public health officials that vaccinated people can become infected and spread the highly transmissible Delta variant of COVID-19 appears to be a near-term driver for more masking and testing. especially as schools and offices look to reopen in the fall. Regarding the Delta variant, I can report that preliminary studies confirm that Quidel's rapid antigen tests are effective in detecting the Delta variant. We're continuously monitoring the COVID-19 situation as well as monitoring other circulating strains as the global pandemic continues to evolve. While our ability to pick up the Delta variant positions us to capture market demand for symptomatic, asymptomatic, and at-home testing, at the same time, any uptick in testing to detect the Delta variant will likely be tempered by continued competition and pricing volatility. So I can't give you much guidance on where all of this could go beyond what I've shared in the past, and that is, for the moment, we expect to achieve revenue of $20 to $25 million per month for our SARS-related rapid antigen and molecular diagnostics business. But if there's market upside for testing, I should point out that we do have a premier portfolio of testing solutions and a highly capable sales and distribution team. We are certainly well positioned to compete for whatever opportunity presents itself. Last week, we announced that we are transitioning our Beckman B&P business to Beckman Coulter, concluding the ongoing litigation that followed our purchase of the business from Allure in October of 2017. This agreement is a major step forward for both companies. For Quidel, it eliminates an uncertainty, locks in the economic benefit for the duration of the contract, and lets us focus on expanding our core businesses and executing on our longer-term strategy. It eliminates market risk and creates a stable cash flow stream for the remainder the existing BMP supply agreement term. As a reminder, we purchased the asset for $280 million in 2017 to be paid over six years and have now secured annual payments, which effectively are EBITDA, of between $70 to $75 million per year through 2029. So we are quite happy with the outcome and the ROI. It's a win-win for both Quidel and Beckman. Lastly, I'd like to talk about M&A. I can't reiterate enough that with respect to acquisitions, strategic fit is very important to us. We continue to actively look at opportunities within our funnel, or as I said before, tongue in cheek, we're kissing a lot of frogs. The headline here is that our cash position remains strong. We're looking and staying ready to deploy capital to further strengthen our product portfolio should the right opportunity present. So to wrap up, the second quarter of 2021 proved to be another very solid quarter and an important step forward in our long-term game plan. We have fielded a mix of products and partnerships and are benefiting from the tail ends of macroeconomic trends. When we add in the talents and spirit of our team, it gives us every confidence that Quayle will deliver continued growth and success as we advance diagnostics to improve human health. Randy?