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Hologic Strategic Plan Points to Long-Term Revenue Growth Driven by MDx Platforms, Tests

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NEW YORK – Hologic released results of its annual strategic planning process on Wednesday, saying it anticipates future organic revenue growth of 5 percent to 7 percent per year through 2025, driven in part by placements of its molecular diagnostic instruments and tests.

Many aspects of its business point to strong growth including a burgeoning installed base of Panther and Panther Fusion molecular diagnostic instruments, an expanding menu of assays, the integration of newly acquired diagnostics companies, and the continuing strong recovery of all of its base businesses, according to its chairman, president, and CEO, Stephen MacMillan.

"Hologic is clearly emerging from the COVID-19 pandemic as a stronger, faster-growing company," he said on a conference call to discuss its financial results on Wednesday.

In the recently completed quarter, the company reported diagnostics revenues of $665.5 million, up 25 percent year over year, and molecular diagnostics revenues of $536.4 million, up 17 percent year over year. During Q3, the Marlborough, Massachusetts firm saw "a strong rebound in its base businesses and continued [its] contributions to fight the ongoing COVID pandemic," but saw lower demand for its two SARS-CoV-2 assays, MacMillan said.

In April during the firm's second quarter earnings call, MacMillan said the firm anticipated its long-term revenue growth will increase from pre-pandemic times, and on Wednesday, he characterized its new projections as "very different from where we've been."

Hologic's Panther and Panther Fusion instruments are important elements of its growth plan, MacMillan said on Wednesday. With 1,500 cumulative Panther instrument placements in the US and greater than 1,200 outside the country, the company expects its customers will increasingly consolidate testing from other laboratory test systems onto its highly automated platforms.

Though most recent new customers use its instruments for SARS-CoV-2 testing, "they've been qualifying and porting over other assays as COVID revenue has started to come down a bit," MacMillan said.

Laboratories that have invested heavily in systems during the pandemic are looking at a future with a tight supply of labor, MacMillan said, adding that in that environment, "the most highly automated instruments that provide the best level of tests" are likely to be in greatest demand.

Acquisitions are also an important part of its growth projections, and in the recent quarter, Hologic completed the acquisition of Finnish molecular diagnostics company Mobidiag, following a buying splurge that included purchases in March of Diagenode, a European developer and manufacturer of molecular diagnostic assays and epigenetics products; and in January of Biotheranostics, a San Diego-based developer of diagnostic, prognostic, and predictive cancer tests.

The diagnostics acquisitions together provide "new growth platforms that increase our top-line growth rate," MacMillan said, adding Biotheranostics "is off to an excellent start with about $13 million of revenue in the third quarter, more than 30 percent higher than their best quarter prior to the pandemic."

Hologic's fourth quarter 2021 guidance for revenues between $1.00 billion and $1.04 billion includes $35 million from the three diagnostics companies, as well as Acessa, a recent acquisition for its GYN surgical business.

The firm believes Mobidiag's Novodiag molecular diagnostic system — which combines real-time PCR and microarrays to provide high-level multiplexing that detects multiple pathogens in a single sample — will contribute significantly to its revenues around 2025, or before.

Novodiag "provides the right combination of ease-of-use, rapid turnaround, and low manufacturing cost to expand into smaller hospitals" and create a product line that brings in a few hundred million dollars per year in revenues over time, MacMillan said. Hologic is seeing near-term revenue growth from European placements of Mobidiag's systems and assays. However, US clearances for assays running on Novodiag are a few years away.

Overall, the assumptions underlying Hologic's growth projections are compelling, according to Evercore ISI analyst Vijay Kumar, who wrote in a research note on Wednesday that he "can't think of an example within [its] coverage universe" where a company issued a five-year plan on an earnings call. The outlook of 5 percent to 7 percent annual growth "was an upside surprise for us," Kumar said.

The forecasted annual revenue growth rates exclude sales from SARS-CoV-2 assays and related products, which Hologic expects will decline though it is not sure when.

More of Hologic's customers are using its instruments to run non-COVID assays. "This is a significant opportunity because today, about half our customers from the largest reference labs to smaller hospitals run three tests, or fewer, on the Panther instruments, even though we now have 19 total assays available," MacMillan said.

Women's health assays are seeing increasing use on its instruments. The firm's ThinPrep pap test, which helps healthcare providers detect the presence of abnormal cervical cells, as well as its chlamydia, gonorrhea, human papillomavirus, and trichomoniasis assays are already well positioned in US diagnostic testing markets, MacMillan noted.

Additionally, the company has "strong partnerships with many of our largest lab customers that enable us to educate physicians about testing guidelines issued by groups like the [Centers for Disease Control and Prevention]," he said, noting that last week the CDC endorsed an updated approach to screening that is "very positive for public health and for our business." Specifically, the guidelines state that providers may now consider universal screening for Chlamydia trachomatis and Neisseria gonorrhoea in adolescent and young adult women during routine clinical care.

Predicting COVID

Hologic expects both COVID and non-COVID testing revenues to translate to new business in the near term. The company recorded about $20 million in new revenues in its best year for such revenues before the pandemic, MacMillan said.

Last fiscal year, it recorded about $35 million of new business, and it is "on track to comfortably exceed that number in 2021," he said, adding that outside the US, "COVID has materially elevated our profile."

Overall, Hologic's COVID testing revenue declined during the recently completed quarter, but still exceeded the firm's expectations, Karleen Oberton, its CFO, said on the conference call. Subtracting revenues related to its SARS-CoV-2 testing products, the firm's molecular diagnostics revenue grew about 76 percent organically in the third quarter.

"The pandemic has also increased sales of collection kits, instruments, and ancillaries that are used with our COVID tests," she said. Hologic expects revenues from its SARS-CoV-2 assays to range from $150 million to $170 million in the fourth quarter, and related product revenues of approximately $30 million, down roughly $20 million from the current quarter.

"If new variants drive demand that exceeds our current expectations, we are well prepared to deliver for our customers and generate upside to our estimates," Oberton said. It is difficult to accurately predict future pandemic-related sales, but Hologic's SARS-CoV-2 assay revenues are likely to be at least $200 million next year, Oberton said, adding, "It's certainly possible that sales could be more than that, maybe as much as double."

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