This story has been updated to include additional information about Bio-Rad's Droplet Digital PCR initiatives.
NEW YORK – Executives at Bio-Rad Laboratories have maintained the firm's full-year revenue guidance issued last quarter despite a 25 percent sales decline in Q1 life science sales.
On a call with investors to review first quarter financial results, the firm said it anticipates performance in its clinical diagnostics business and gradual recovery of life sciences to ultimately offset the decline.
Bio-Rad's total revenue declined 10 percent in the quarter to $610.8 million from $676.8 million in the year-ago period due primarily to the drop in life science segment net sales. On average, analysts had estimated Q1 revenues of $619.1 million.
Andrew Last, Bio-Rad's chief operating officer, said on the call that the life sciences decline was related to lower sales in the firm's process chromatography resin business, partly due to the timing of a large order and "quarter-to-quarter lumpiness." Last also noted that the firm now expects this business, which supplies reagents used to separate biological materials, including antibodies, enzymes, and nucleic acids, to be softer than previously anticipated for the year.
"We're not seeing that we're losing customers; we're maintaining share. In fact, we still believe we are winning share," Last said, adding that the firm just has "a higher level of uncertainty" regarding the timing of its process chromatography projections. Bio-Rad is projecting a further decline in this business over the year yet remains positive on the long-term growth potential, Last said.
However, excluding process chromatography, the life sciences business declined "in the mid-teens in all regions," Bio-Rad's newly appointed CFO, Roop Lakkaraju, said on the call.
The decline was driven by lower sales of instruments, which Last said was a macroeconomic trend across the industry related to lower capital spend on equipment. Sales of consumables and reagents in the life science division were "essentially flat both sequentially and year over year," Last said.
Bio-Rad's Droplet Digital PCR franchise, meanwhile, experienced a "single-digit" decline in the quarter, Last said, partly related to strong sales in the prior-year quarter. In the ddPCR business, Bio-Rad recently announced a few new initiatives, but Last noted on the call that none of these are likely to lead to substantial revenues in the near term.
Specifically, on the call Last reviewed three ddPCR partnerships that could drive consumables sales in the short term and potentially instrument uptake in the long term, he said.
A partnership announced last month with Allegheny Health Network Cancer Institute is focused on gaining clinical insights into how ddPCR can be deployed to track minimal residual disease after solid tumor treatment, Last said. While the project has more limited tangible impacts, it can be regarded as "value creation through insight," he said.
A project supporting Oncocyte's VitaGraft kidney transplant test, on the other hand, could potentially yield tangible benefits. If the project is commercially successful, system placements and test sales in the long run for Oncocyte will in turn benefit Bio-Rad, Last said.
The VitaGraft test, which runs on the Bio-Rad QX600 ddPCR system, received coverage from Medicare in August, and Oncocyte announced in December that it will seek clearance for the laboratory-developed test from the US Food and Drug Administration. The test is expected to launch in Q2 2024 to select academic transplant centers in the US and EU and more broadly in the second half of 2024, Oncocyte said last month.
And, a partnership with Geneoscopy whereby that firm will develop its ColoSense colorectal cancer screening test on the Bio-Rad QXDx clinical system potentially creates a consumables and reagent stream for Bio-Rad, Last said, adding that a potential opportunity to take the solution into non-US markets could also add to the revenues.
"None of this is what I would call immediate near-term impact, but it's really solid long-term strategy," he said.
Furthermore, it is not lost on Bio-Rad that its "major competition" in the digital PCR space is "calling out some improvement in their year-over-year performance," Last noted. "We just want to reiterate that they're in a segment which we've not yet entered, which we'll be entering later this year," he said.
On a call in October, Last said some competitors are "playing more in the lower-end segments," which Bio-Rad also plans to target with the QX Continuum platform in 2024. The firm has been working on an instrument using continuous-flow digital PCR technology that it acquired with startup Dropworks.
Digital PCR instrument manufacturers like Qiagen, Roche, and Stilla Technologies, as well as assay developers like ChromaCode, have either recently pivoted or made their digital PCR market debut into the clinical diagnostics space.
Bio-Rad Laboratories branched into clinical IVD testing for its QXDx system when it was cleared along with a BCR-ABL %IS Kit in 2019, as previously reported. It is also developing digital PCR diagnostics for reproductive health, infectious disease, and transplant monitoring while also focusing on biopharma customers, the firm said in 2022.
Offsetting the slide in life sciences, Bio-Rad's diagnostics business experienced "solid mid-single-digit growth compared to a softer Q1 2023," Last said. Specifically, the firm saw a 5 percent uptick in clinical diagnostics sales for the quarter to $368.6 million from approximately $352 million, Lakkaraju said on the call.
A new manufacturing facility in Singapore is now fully operational, Last said, and the instrument supply for its clinical platform is now stabilized. Overall, Last said the clinical diagnostic results were due to "strong sales in quality controls, immunohematology, and diabetes" testing, with particular strength in Europe, the Middle East, and Africa, as well as in the Asia-Pacific region.
The firm is also seeing positive trends within the biopharma and biotech markets, with recent capital raises indicating the flow of funding is returning after a few quarters of depression. While this trend is a "prerequisite for second-half growth," and the firm is starting to have more positive conversations within the segment, Last said that it has not materialized as "hard and fast orders" as of yet.
Bio-Rad reaffirmed its full-year 2024 guidance for currency-neutral revenue growth of between 1 percent and 2.5 percent.
On the call, analysts queried the Bio-Rad executives regarding the ability to meet full-year guidance, given the steeper ramp in H2 revenues that may be needed.
"I do think that we need to see the encouraging signs turn into orders for the second half, which obviously will generate the ramp process," Last said, adding that the firm sees "good growth" in the clinical diagnostics business continuing throughout the year.
Bio-Rad CEO Norman Schwartz addressed concerns on the call about the impending departure of Last, as well as the departure of CFO Ilan Daskal in October and Simon May, head of life sciences, this month. Last plans to retire by early September, while Daskal and May have moved on to positions at Viavi Solutions and Agilent Technologies, respectively.
Shwartz said the firm is making good progress in its quest for a new COO. "As I think about it, each of these discrete departures is really centered around personal decisions either related to other opportunities or retirement. From my perspective, it's all part of a normal progression for these individuals and for the company," Schwartz said.
Schwartz also said that a company the size of Bio-Rad typically has a 5 to 10 percent turnover every year, but the departures have not precipitated any additional issues with employee retention.
"Overall, between life science and diagnostics, we do believe we're well positioned to drive long-term growth as we move through this dynamic period," Schwartz said.
Bio-Rad reported net income for the quarter of $383.9 million, or $13.45 per share, compared to net income of $69.0 million, or $2.32 per share, in the year-ago period. On an adjusted basis, net income was $65.2 million, or $2.29 per share, beating analysts' average EPS estimate of $2.15.
On the call, Lakkaraju said that the change in fair market value of equity security holdings, which are substantially related to Bio-Rad's ownership of Sartorius AG shares, added $422 million of income to the reported results during the quarter. Interest and other income resulted in net other income of $24 million compared to net other income of $40 million last year, he added.
"The primary driver of the year-over-year change is the lower Sartorius dividend, which declined to $18 million in Q1 of 2024 versus the quarter of 2023," Lakkaraju said. Meanwhile, "the effective tax rate for the first quarter of 2024 was 21.8 percent compared to 18.7 percent the same period in 2023 … primarily affected by the accounting treatment of our equity securities," he added.
In Wednesday morning trading on the Nasdaq, Bio-Rad stock was down around 2 percent at $273.18.