QuidelOrtho Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Cordell Corporation third 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 followed by zero for operator assistance. I would now like to turn the call over to Mr. Ruben Argueda with Cordell Director of Investor Relations. Please go ahead.

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 Financial Officer, Randy Stewart, and our VP of Finance, Kristen Kaltreiter. Our third 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 November 4th, 2021 for a period of 24 hours. Please note that some of the information we provide today during today's conference call constitutes forward-looking statements. Forward-looking statements by their nature involve material risks, assumptions, and uncertainty. particular our expectations and assumptions around the impact of COVID-19 pandemic 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 actual results may differ materially from the forward-looking statements due to various important factors including the risk factors discussed in our most recent 10k and subsequent periodic reports and registration statements filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of today. Except as required by law, we undertake no obligation to update these forward-looking statements or time-sensitive information which speak only as of today. Today, Coidel released financial results for the three and nine months ended September 30, 2021. If you have not received our earnings 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, Ruben, and welcome to everyone on the call. We really appreciate your time. and your interest in Quidel. I want to start by recognizing the entire Quidel team for their commitment to their teammates and communities. We started the pandemic with both grave uncertainty and the label of essential workers. We've all been affected as well as bonded by it. Because of our culture, that pressure only motivated us to lead the industry's response to the pandemic, to develop new assays, drive discoveries on new platforms, manufacture at unprecedented scale, and keep that production going despite supply chain challenges and concerns over the rapidly changing environment. Our team did it all despite personal and family concerns and long hours day and night. Their efforts have been heroic, and their impact on this country has been lifesaving on a level that can never be fully charted. While others balked, we never wavered. But what our people have done for our company can be measured, at least in part, because what we are discussing today only boils down to the results from a single quarter. But step back for a moment and consider. The U.S. has weathered several COVID spikes. Our Quidel teams have been asked by our country to do and have done what was previously considered impossible, to go from zero to 60, in multiple categories of COVID diagnostics and take those innovations to scale at lightning speed. In the process, Quidel has transformed into an enterprise that is far more than essential. We are purposeful. We have delivered on our foundational purpose of advancing diagnostics to improve human health when it really counts. And that is a far more important metric to our Quidel family than any numbers we discussed today. Nevertheless, the numbers reflect the effort. We delivered solid 7% revenue growth from the third quarter of 2020, which was previously our strongest third quarter ever for revenue. We further broadened our installed base of SOFIA analyzers to just over 74,000 instruments in the field, expanding our base to support influenza A and B, RSV, strep, and of course COVID, as well as numerous other diagnostic assays in our portfolio. The year-on-year expansion is explosive and has long-term implications for our diversified business going forward. Demand for our SARS products continued, with Quidel shipping over 45 million SARS tests in the third quarter of 2021 across all platforms. And we strengthened our beachhead for COVID testing in the retail segment, partnering with Walgreens and CVS to grow our presence in pharmacies. When combined with our other major and independent retail partners, we are seeing strong demand and consumer awareness in the Quidel brand is rising with it. We are proud to have led the effort to decentralize and democratize COVID-19 rapid antigen testing into this new market. And I would add that we are proud to have devoted a portion of that production to support our charitable government and sports league partners to bring our advanced diagnostics to serve many of the minority and underserved communities hardest hit by COVID-19 infections. As noted in our earnings release, we are working to fulfill a federal government award originally estimated for 51 million quick-view at-home COVID-19 tests with a dollar value of approximately $284 million. A recent order suggests that purchases could grow to approximately 100 million quick-view tests. In any event, we believe the implications of these positive developments will extend well beyond a single quarter. While we are now thankfully seeing declining COVID infections, we still believe that symptomatic and asymptomatic diagnostic testing is crucial to keeping the disease and its variants at bay. We believe that there will be continued demand for COVID-19 rapid antigen testing for at least the next few quarters. But I would emphasize that the unpredictability of this pandemic makes everything fluid, and a firm baseline level of demand is still too early to call. Looking beyond our COVID categories, our non-seasonal core business is stable. In fact, the revenue for this business, excluding influenza and COVID-19 products, grew 2%. to $93.4 million as compared to $91.4 million in the third quarter of 2020. There has been no significant distribution stocking for influenza products, so we remain poised to meet the needs of the market should a normal flu season arrive. We expect our non-COVID business to strengthen further in the coming months as flu season kicks off. supported by our incremental Sophia placements and the opportunity to increase utilization of the platform, not to mention the launch of new Sophia gastrointestinal assays and the launch of Savannah, just to name a couple. But if we pull back to look at the big picture, due to manufacturing capacity constraints, we are primarily playing in the pharmacy segment of the OTC space and have made limited inroads beyond that. We have been cautious in partnering with more large players until we are able to fulfill their volume requirements in a timely manner. That said, we expect that once we get our Rutherford facility fully operational, we can sign on other large retail and corporate partners. Moreover, we believe this new OTC market will bode well for the rest of our point-of-care respiratory assays going forward. Another reason for the limited launch into retail is the large government contract We were awarded in the third quarter of 2021, which we originally estimated to be $284 million in revenues, as I mentioned. We have recently received their order for over $500 million in total and expect that it will take time to fulfill the order, likely into the third quarter of 2022. We have a good idea as to how this order will be broken up in terms of volume and revenue between the subsequent quarters, but a lot of it depends on how quickly we are able to validate and fully scale our manufacturing capacity at Rutherford and what new critical components and unknowns we will need to solve at those considerably larger volumes. We face the same supply chain challenges facing everyone from manufacturers to consumers, but I'm pleased to say that we've done quite well in resolving all of them so far. Speaking of our manufacturing capacity, Our manufacturing and operations teams really stepped up this past quarter, as they have been since the beginning of the global health crisis. Due to the extraordinary efforts of these teams, in the third quarter of 2021, we manufactured and shipped the largest volume of tests ever produced and shipped in any quarter in Quidel's history, and are also on track to reach our target run rate capacity of approximately 70 million rapid antigen tests per month by the end of the year. In the third quarter of 2021, we also were pleased to see continued strength of our Lyra PCR sales, given that the assay requires no proprietary instrument and there's a large number of competitors offering similar solutions. We believe our Lyra sales signal two important trends. First, a heightened brand reputation among PCR labs, and second, a strong longer-term underlying cohort of potential Savannah customers. as they see the value of adopting a system that is one of a kind in terms of speed, ease of use, assay menu, and price. I'll touch more on Savannah later. Taken all together, we believe the ebbs and flows of COVID-19 demand for Sophia, Quickview, and Lyra are a net positive for us in the short term and position us favorably for a world where either COVID-19 reaches the endemic stage or it completely abates. As I've said before, it's very difficult to provide a baseline COVID revenue number that I can confidently call for until we have completely fulfilled the government order, which we estimate to take place within the next few quarters, potentially by the third quarter of 2022. Let me turn now to the progress made on our product pipeline during the third quarter of 2021. On the COVID-19 side of the business, we are working on a quick-view combination test for flu A, flu B, and COVID-19 and hope to submit that test to the FDA within the next few weeks. We also have a few other tests in the works, and I plan to share more of those as they get closer to launch. On the non-COVID side, we have several SOFIA gastrointestinal assays that we believe can increase the clinical utility of the SOFIA instrument and provide additional placement opportunities within hospitals and other moderately complex medical settings. Admittedly, these assays have been taking a bit longer than we had hoped, but this delay is well worth the tradeoff that we made in tackling COVID-19. We expect to launch several of these assays next year. On the triage side, we initiated our clinical trial for our high-sensitivity troponin test early in the year and are hoping to complete it near the middle of next year. If we were able to realize the claims that are competitive with or better than large lab analyzers, we think this could be a nice growth driver for us. Behind that we have other, excuse me, behind that we have our test for placental health, PLGF, which could also be a meaningful contributor to growth in the U.S. market. Regarding our molecular business, we received CE mark for our Savannah instrument. an RVP4 respiratory cartridge in Q3, and are launching Savannah outside the U.S. Savannah is our multiplex molecular diagnostic analyzer, which will further extend our pipeline through integrated sample prep combined with rapid real-time PCR amplification and detection technologies, making it ideal for syndromic testing in hospitals and moderately complex labs, with the goal of eventually accessing physician offices, urgent care clinics, and other point of care locations. Like other manufacturers, we have been challenged by shortages and a critical component. We have since resolved this supply issue, but we expect supply chain challenges to persist off and on into 2022. We are planning to launch Savannah by the end of this year and select markets outside the US. We are very excited about the future of this product. Lastly, I'd like to talk about our capital allocation. Investing in the future growth of the business, either by funding R&D or increasing our manufacturing capacity, continues to be the biggest priority, followed by M&A. Regarding M&A, we continue to actively look at opportunities within our funnel, but highly value strategic fit. We want to stay in diagnostics and like businesses that can expand our international reach or products that can fit within our commercial channels. We aren't interested at this time in technologies that are far away from commercialization. So we have a set of criteria. We're looking and stand ready to deploy capital to further strengthen our product portfolio should the right opportunity present itself. To wrap up, the third quarter of 2021 proved to be another strong quarter and an important step forward in our long-term game plan. We were fortunate in that we stuck to the game plan all year and we're focused on increasing manufacturing capacity. 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. We believe we are well-positioned for the future. Our products are exceptional. We've continued to add customers, enter new markets, added incremental Sophia placements on multi-year contracts, and have made inroads toward establishing a brand name that is recognizable across multiple verticals. We have executed successfully against our core goals, and the business is stronger than it ever has been before. Now I'll turn the floor over to Randy to give you a deeper understanding of our third quarter 2021 financials. Randy?