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Becton Dickinson Says Diagnostics Uptake Remains Strong, Chinese Market Flourishing

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NEW YORK – Becton Dickinson said this week that it is seeing increasing uptake of  its new high-throughput molecular diagnostics instrument, the BD Cor, and assay for human papillomavirus genotyping, as well as of its original BD Max molecular instrument.

BD also said that it is experiencing sustained growth in China in general that it expects to continue despite shifting sands in US-China trade relations.

The Franklin Lakes, New Jersey-based medical device and diagnostics maker reported yesterday that its revenues grew 2 percent year-over-year, buoyed in part by molecular diagnostics sales and business in China.

BD makes the BD Viper LT system and the BD Max molecular diagnostics instrument, which has a menu of nine assays.

In contrast to other MDx makers, the firm strategically began developing small, targeted diagnostics panels. For example, rather than test for 20 or so pathogens, including bacteria, viruses, and fungi, BD wagered that customers would want small panel tests of only bacteria or only viruses. In the past few years the company has launched the BD Max CT/GC/TV assay, BD Max Vaginal Panel, an enteric bacterial panel, and a screening test for antibiotic-resistant carbapenemase-producing organisms.

In June, BD CE marked and launched the BD Cor – a fully automated high-throughput, real-time PCR testing system for core laboratories and other large centralized labs.

The firm launched the Cor in Europe with the BD Onclarity HPV assay, a test that detects and genotypes 14 high-risk human papillomaviruses. The system enables processing of HPV tests directly from liquid-based cytology tubes, replacing manual aliquot steps.

Recently, in a private demonstration of the BD Cor system at ASM Microbe, Nikos Pavlidis, VP of molecular diagnostics and women's health and cancer for BD Life Sciences, explained the system has an automated preanalytical module, a module that runs the Onclarity HPV genotyping assay, and a third module that has not yet launched which will be the equivalent of a few BD Max systems and will run molecular diagnostic assays ported from the BD Max. These modules will be configurable to some degree and are designed to be accessed from the front for easier servicing and limited footprint.

The preanalytical module also has the advantages of using inexpensive racks, not requiring any uncapping, and using a "hotel system" to store up to 2,000 samples, or 480 SurePath vials. Overall, the BD Cor system has on-board capacity for reagents and samples to provide six to eight hours of system processing without a user present.

In a conference call yesterday to discuss the firm's fiscal third quarter earnings, CFO Chris Reidy said that BD is seeing strength in molecular platforms and diagnostic systems, with continued double-digit growth in BD Max and in microbiology solutions for ID-AST. The latter includes the firm's Phoenix M50 ID-AST instrument along with its Phoenix panels and the recently launched CPO Detect assay.

Strong growth on the BD Max platform is supported by the commercial success of recently introduced assays, such as the BD Max vaginal panel and BD's suite of enteric panels, BD's Chairman and CEO Vincent Forlenza said on the call.

During the call, PiperJaffray investment analyst Bill Quirk inquired about the durability of the BD Max growth, which has been in the double digits for several quarters.

Patrick Kaltenbach, the firm's executive VP and president of life sciences, said that as in prior quarters, the growth was "north of 20 percent," and specified that it is being driven by panels. "We are pretty confident that this has a long runway, building out more panels on BD Max," Kaltenbach also said.

After the launch of BD Cor, the firm is "really happy with the initial demand we are seeing and interest we are seeing from our customers in Europe," Kaltenbach said.

He noted that it is "still early days," because BD has just one assay so far on the Cor, "but we are building out the [menu], and we think we have a very competitive platform on hand that will drive the future growth within our business."

In reply to a question about the proportion of the double-digit MDx growth that might be due to an underlying improvement in the market rather than BD taking market share, Kaltenbach also said the strong growth is not only driven by BD Max, although "it's probably one of the big contributors."

To Kaltenbach's mind, the growth "clearly indicates that we are taking some share right now."

China Outlook Remains Rosy

BD reported revenue growth in the US of 4 percent, totaling $2.44 billion for the quarter. Internationally, revenues were $1.91 billion, down 2 percent compared to the prior year period, but on a comparable, currency-neutral basis, revenues outside of the US increased approximately 7 percent over the prior-year period, driven by strong performance in China and the Europe, Middle East, and Africa region.

Specifically, Reidy said on the call that revenue growth in emerging markets was "driven by broad-based double-digit growth in China and EMEA," adding, "We expect to continue double-digit growth in China for the full fiscal year."

Forlenza also noted that the emerging markets growth will continue to be strong.

"I mentioned already that in China, we were double-digits, we expect to be double-digits for the rest of the year. We have a great business there, a great team there and a strong partnership with the Ministry of Health. That is all going extremely well. We don't expect this environment with tariffs on retail products and stuff to be impacting that business. We expect that to do double-digits for the entire year. And feel good about that. We feel good about the rest of Asia. And of course, EMEA, you saw, it was very strong this quarter. We expect that to continue too."

An analyst also noted concerns among investors about potential backlash in China against US products "given all the rhetoric here," and queried Forlenza on the source of BD's confidence.

"Our experience through this whole situation with what is going on with trade has been that they have been keeping very separate what is happening in healthcare versus what is happening on the trade side," Forlenza replied.

He opined that this reflects a "strategic priority to continue to develop the healthcare system" and added that BD has had conversations with the Ministry of Health in China over the past six months "where they have explicitly told us that."

In addition, Forlenza said the China healthcare system is now better funded than it was a year ago, or even three years ago.

Forlenza also said that BD is "really well positioned" with the portfolio and the organization that it has in China.

"It's not just the fact of our commercial organization, but it's what we do in terms of investing in China," he added, noting the company has four plants in China and continues to invest in them and in specific innovations for China.

Thomas Polen, the firm's COO, also chimed in that those investments have included localized, highly automated manufacturing, so that today "the majority of the high-volume disposable medical devices that we sell in China, we make in China locally," and the firm is "actually importing a relatively low percentage, particularly of our high-volume disposable devices where there can be local competition, we are actually behaving as a local in that. Employing local associates, acquiring raw materials locally, et cetera, and engaging in those local communities."

Indeed, Dave Hickey, worldwide president of BD Diagnostic Systems, also recently noted that the company is making its clinical microbiology solutions more scalable and automated to meet the needs of a greater variety of clinical labs and test volumes in China.

Forlenza further emphasized the point. "We have built a partnership over 25 years there, and so we do think that different aspects of the environment will be difficult, and we are ready for that, but we also expect that with what we have done to fully invest in China, and not just as a commercial organization, we are very, very well positioned there."

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