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Becton Dickinson Charts Ramp-Up, Transition of COVID-19 Diagnostics

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NEW YORK – After reporting $867 million in SARS-COV-2 diagnostics sales in its fiscal first quarter Thursday, Becton Dickson mapped out the continued manufacturing ramp-up for its molecular and antigen tests and investments in menu development with an eye toward redirecting pandemic efforts in the coming year.

On a call with investors following the Q1 earnings announcement, BD said it is actively exploring future home-use and over-the-counter testing indications, and that after having directed its COVID windfall toward debt repayment, it now plans to use accumulated cash for tuck-in mergers and acquisitions, and potentially return more to shareholders.

BD has been developing COVID-19 diagnostics in two domains: antigen tests using the Veritor immunoassay reader system, and molecular tests on its BD Max PCR platform.

The firm's SARS-CoV-2 antigen test provides results in 15 minutes on its BD Veritor Plus system, a portable analyzer device for immunoassays that BD describes as handheld. Tom Polen, BD's CEO, said on the call that antigen testing "continues to become more widely used in traditional and non-traditional settings."

The Veritor SARS-CoV-2 test received Emergency Use Authorization from the US Food and Drug Administration in July. BD subsequently received an order from the US Department of Health and Human Services to place 2,000 systems in nursing homes and a $24 million investment from HHS and the Department of Defense to support Veritor manufacturing scale up.

Polen said on the call that $688 million of BD's COVID-19 revenues came from Veritor sales. This was higher than expected, which Polen attributed to the firm's ability to scale manufacturing faster and to realizing higher pricing than anticipated.

Now, BD has tripled its installed base to more 70,000 Veritors globally and Polen guided 2021 Veritor revenue toward the high end of the previously guided range of between $1.0 billion and $1.5 billion, and to be more weighted to the first half of the fiscal year.

BD is reinvesting these revenues into developing an additional non-COVID menu for Veritor, Polen said. First launched in 2011, Veritor now runs FDA-cleared, CLIA-waived assays for influenza A/B, respiratory syncytial virus, and Group A Strep. On the call, BD executives mentioned a combined flu and COVID-19 antigen test in development, but did not specify other in-development menu items.

Dave Hickey, president of life sciences at BD, said on the call that the firm is currently on target to reach a previously announced Veritor assay manufacturing capacity of 12 million tests per month by March.

Projecting into 2022, Chief Financial Officer Chris Reidy said that BD sees "sustainability of testing," but noted the exact level is hard to guess. In general, he expects the Veritor R&D reinvestment will "drive durable growth," and added that the firm does not expect those investments to continue into next year.

In addition to developing a new menu for Veritor, the firm has reduced the pricing of the assays from more than $20 to the "low- to mid-teens" range, Polen said. This was a planned strategy as capacity increased and more antigen tests came into the market, he noted, and it also can allow the broadest patient access.

"We believe this price adjustment is in the best interest of our customers and patients around the world, as we've now ramped our manufacturing capacity, and there are emerging mutations that make [the virus] more transmissible," Polen said. In addition, the firm believes the lower price allows it to "maintain a leadership position in the point-of-care market."

Executives repeatedly mentioned exploring the potential for at-home and over-the-counter diagnostic testing on the call.

Specifically, Polen said the firm is exploring home testing on BD Veritor. Diagnostics developers like Quidel and OraSure have also been discussing advancing into the nascent OTC, at-home infectious disease testing market, but when pressed for specifics Polen noted that "those markets are still not well defined today."

On the molecular side, the BD Max RT-PCR test received EUA in April, and although it accounts for less sales, Hickey said the firm is also ramping production of these assays to 1.9 million per month.

In a slide accompanying the call on Thursday, BD also showed a pipeline of 10 life science products to be launched in 2021, including combined flu and COVID-19 tests for both Veritor and BD Max, a BD Veritor connectivity module, launch of the BD FACSDuet in the US, and a combined gonorrhea, chlamydia, and trichomonas test on the BD Max.

BD also expects to launch its high-throughput, molecular diagnostic BD Cor system along with a highly multiplexed Onclarity human papillomavirus assay for cervical cancer screening and HPV extended genotyping in the US this year. First described in 2018, the Cor is CE marked and was launched in Europe in 2019.

"With BD Cor, BD has entered the high-throughput, molecular testing market with a very unique, fully automated, sample-to-answer platform and a highly differentiated assay with unique claims," Polen said. The assay, which can improve risk stratification and support risk-based patient management for cervical cancer, has been "very well received" by customers in Europe, he said.

Polen noted that in addition to internal development and acquisitions, BD has invested in partnering for development, and that the robotics on the Cor is a good example. The high-throughput system uses a "very advanced automation system," he said, necessitating collaboration with robotics experts.

BD has now paid down $265 million in debt and plans to use the excess cash it is generating in part for reinvestment, and in part to accelerate tuck-in M&A. The firm made a diagnostics-related acquisition last year with isothermal molecular diagnostics developer NAT Dx, and has executed three tuck-ins in other business domains so far this year, Polen said.

"We continue to apply a disciplined financial and strategic evaluation process to these transactions, and have a robust funnel," Polen asserted.

The firm also noted that its business is rebounding from reduced sales seen early in the pandemic, and it increased its 2021 guidance, although CFO Reidy noted that this assumes no major systemwide shutdowns of elective procedures.

Indeed, BD saw pressure on its procedure-based products at the end of December as a SARS-CoV-2 resurgence picked up in the US, Reidy said, and the new guidance incorporates some impact of resurgence into the fiscal Q2 forecast.

BD also cautioned against extrapolating the Q1 results going forward due to the Veritor price decrease, a meaningful step-up of investment in R&D in Q2, and the effect of a recent stock-up of supplies by some customers.

There are also other unforeseeable variables. "We still are in the middle of a pandemic," Polen said. Questions about the effect of vaccination programs and new viral variants are obscuring the visibility somewhat, although Hickey noted that the firm has validated that its assays are not currently impacted by new variants, and added that the new, more transmissible variants make access to rapid testing more important than ever.

Overall, Polen said that BD projects very strong demand for antigen testing in the first half of the year, but that the second half of the year and beyond is less certain. "Our aim is to position ourselves to be a leader in the space, however it ends up evolving," he said.

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