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QuidelOrtho China Lab Business Rises 6 Percent, US Launch of Savanna MDx System on Track for 2024


NEW YORK – While many firms in the diagnostics space have been hit hard by headwinds from China, QuidelOrtho late on Wednesday reported 6 percent year-over-year growth in its laboratory business in that country and an overall expectation for 25 percent growth in 2023.

"This may be a surprise to some investors, but it isn't to us," President and CEO Douglas Bryant said on a call with investors to review the firm's third quarter earnings.

On the call, Bryant also asserted a strong long-term outlook for respiratory infectious disease testing and outlined strategies to commercialize the Savanna molecular diagnostic instrument and syndromic panels in the US market.

During the current third quarter earnings announcements, diagnostics and life science companies such as Danaher, Thermo Fisher Scientific, and Bio-Rad Laboratories have expounded on their recent struggles in the China market, which have driven revenue shortfalls and guidance resets. On the QuidelOrtho call, however, Bryant said, "All companies in healthcare in China are not the same, and neither are all diagnostic companies with businesses in China. QuidelOrtho has challenges, of course, but our challenges are not the same as all others."

QuidelOrtho's business in China consists primarily of its Vitros clinical chemistry systems placed in medium-volume stat labs, Bryant said, adding that the system uses "dry slide technology" that has been differently impacted by regulations in China.

The extensive COVID-19 closures in that country impacted the 2022 sales there, but "when the Shanghai and Beijing lockdowns ended, the volumes returned quickly to normal levels driven by people who are ill and in need of immediate care," Bryant said.

He said that the firm expects a 25 percent year-over-year increase in the China business in Q4, while QuidelOrtho CFO Joseph Busky added on the call that he expects that the firm's "business, excluding respiratory, will grow in the high teens for the full year 2023" in China.

"We remain bullish on our business there, today and into the future," Bryant said.

Furthermore, QuidelOrtho is likely to compete in China for an upcoming volume-based procurement (VBP) tender for hormones, infectious disease tests, and HCG testing, Bryant said.

The firm participated in a VBP tender with its clinical chemistry system two years ago, he said, and found that, "while it is a threat to price, sometimes it gives you greater access to the volume that's out there that we might not ordinarily have had access to so easily."

QuidelOrtho's total revenues in Q3 were $744.0 million, down 5 percent compared to $783.8 million a year ago, but at the upper end of the firm's preliminary Q3 estimates of between $738 million to $744 million, and above analysts' average estimate of $723.2 million.

Of note, total revenues in molecular diagnostics were down 64 percent year over year to $5.6 million from $15.4 million, while revenues in the point-of-care business were down 14 percent to $233.1 million from $270.5 million.

Respiratory revenues more than doubled sequentially due to an earlier-than-usual respiratory illness season and increased demand for the firm's combination tests for COVID-19, influenza, and respiratory syncytial virus, QuidelOrtho said. They were down 21 percent year over year, however, to $185.4 million from $236.1 million in Q3 2022.

Regarding respiratory diagnostics, Bryant asserted that the market is likely to remain strong for the long term. He cited the low rates of uptake for the most recent COVID-19 and influenza vaccines, stating these factors are "a stark reminder that while the medical technology to severely slow the spread and severity of these diseases exist, COVID-19, along with the flu and other respiratory viruses we test for, will remain present in the general population for decades to come."

Similarly, regarding the firm's A1C, renal testing, and cardiac testing businesses, Bryant said the increasing availability of GLP-1 weight loss drugs is unlikely to significantly impact sales because not enough people have access to the drugs, and physicians still need to order testing to establish baseline levels and track patient progress. 

Bryant also offered updates on the firm's Savanna molecular diagnostics system, which has been in development since approximately 2011.

"With public awareness of syndromic panels increasing and the rise of multiple circulating viruses, the need for fast, accurate multiplex syndromic testing solutions like Savanna is critical," Bryant said.

The instrument and a four-target syndromic respiratory virus panel called RVP4 is CE marked in Europe. Quidel has manufactured instrument inventory in anticipation of a US launch after US Food and Drug Administration 510(k) is secured, but the submission is still under review.

"I am confident we will receive Savanna instrument clearance by the end of this year and launched commercially in the US very quickly thereafter," Bryant said.

In terms of the assay menu for Savanna, Bryant said the firm has added syphilis to its sexually transmitted infections syndromic panel test, in part due to a surge of neonatal syphilis transmissions in the US since the pandemic.

Bryant said the firm is "in good shape from a menu development perspective," and expects that a series of planned clinical trials in 2024 will drive success.

"We will attempt to be in market with at least four or five different panels before the end of 2024," he said, also noting that the firm will pursue CLIA waiver on the system following 510(k) clearance.

The firm posted a net loss of $12.7 million, or a $.19 loss per share, in Q3 2023 compared to a net profit of $19.2 million, or $.28 per share, in Q3 2022. Adjusted EPS was $.90, above analysts' average estimate of $.60.

The company had $149.2 million in cash and cash equivalents and $43.9 million in marketable securities at the end of Q3.

Busky reaffirmed its 2023 full-year guidance for between $2.88 billion to $3.08 billion in revenues, with non-respiratory revenue growth of 5 percent to 6.5 percent on a constant currency basis to $2.27 billion to $2.31 billion. He also reaffirmed the prior guidance for adjusted diluted EPS in the range of $4.85 to $5.30.

Shares of QuidelOrtho were up approximately 2 percent to $61.30 in Thursday morning trading on the Nasdaq.