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Bio-Rad Laboratories Q3 Impacted by Supply Chain; Firm Addresses M&A Rumors


This story has been updated to include additional comments from Bio-Rad Laboratories about the QX600 product launch.

NEW YORK – Supply chain challenges continue to impact Bio-Rad Laboratories' ability to deliver instruments. On a call to discuss third quarter results after the close of the market on Thursday, company executives said this has led to a significant order backlog that the firm sees resolving in the coming quarters.

Bio-Rad also addressed rumors about a potential merger on the call by noting that the firm's objectives for capital deployment include finding the best fit.

Overall, Bio-Rad is seeing its business shifting "back to normal" from the pandemic, Chief Operating Officer Andrew Last said. However, the Hercules, California-based firm continues to experience a significant order backlog due to the supply of electronic components limiting instrument production.

"As the year progressed, [the backlog] has built and we've built inventory," said Last, adding that this is "reflective of our demand waiting on those final components, which procurement is spending a lot of time on chasing."

Executives noted that customers are waiting up to several months for orders, and that the firm is seeing elevated logistics costs as it express ships finished products when they are ready.

Bio-Rad is also currently offsetting inflation and other headwinds through pricing increases, but this does not apply to prior orders. "As our backlog unwinds, we do expect to capture more of what we've put into our price increases," Last said.

Bio-Rad launched a six-color ddPCR instrument in the quarter called the QX600. Simon May, executive VP of the life science business at Bio-Rad, said that the supply chain challenge was felt by the ddPCR business "a little more prominently than some of the other product lines."

That said, "We're very happy with the launch of the QX600 and the initial pipeline that we're building," May added.

In a follow-up email, May noted that Bio-Rad is enacting an intentionally staged product launch for the QX600, making the parts constraint less of an issue and "not in and of itself rate limiting in our minds."

Ilan Daskal, Bio-Rad's CFO, reiterated that the firm is seeing "a strong order backlog for ddPCR instruments" as it continues to work through the supply chain challenges but added that ddPCR consumables "continue to post strong double-digit growth."

In terms of whether the order backlog is impacting the win rate for new ddPCR accounts, Last said that sales have demonstrated "customer loyalty to our product offerings."

Regarding a rumored merger with "a peer in the industry" — reported to be Qiagen — Norman Schwartz, Bio-Rad's CEO, said that the firm will adhere to capital deployment strategies it laid out during its investor day earlier this year. These include a focus on organic growth, share buyback, and inorganic opportunities. Schwartz said Bio-Rad "could acquire and absorb a larger and more transformational opportunity," but that such a merger must be a good "strategic, financial, and operational fit."

In the quarter, Bio-Rad completed the acquisition of Warsaw, Poland-based Curiosity Diagnostics — maker of a rapid point-of-care multiplex PCR system called PCR One — for $100 million in cash and up to $70 million in future milestone payments. 

Dara Wright, Bio-Rad's executive VP of clinical diagnostics, said on the call that the platform is "pre-commercial" and that there is "still quite a lot of work to do," but she added that the system has "differentiated features" that will make it attractive when it enters the market for syndromic infectious disease testing. Bio-Rad does not expect any material revenue contribution from the PCR One system in 2023, Wright noted.

For the quarter ended Sept. 30, Bio-Rad's revenues declined 9 percent to $680.8 million from $747.0 million in Q3 of 2021. The decline was primarily due to lower COVID-related sales as well as a $32 million settlement with 10x Genomics in the year-ago quarter.

Within its life science business, which includes digital PCR, revenues fell 15 percent to $317.9 million from $373.5 million.

On the call, Daskal said that, excluding COVID sales and last year's 10x settlement, core life science revenues grew 9 percent, led by western blotting, qPCR, process media, and antibody products.

Clinical diagnostics revenues, meanwhile, declined 3 percent to $361.9 million from $372.2 million a year ago. Excluding COVID-related sales, core clinical diagnostics revenues increased 4 percent, Daskal said.

"Despite the supply chain constraints impacting instrument placements, we experienced increased consumables volume for diagnostics driven by strong recovery in routine testing markets," he added.

The firm's net loss in Q3 was $164.2 million, or a loss of $5.52 per share, compared to net income of $3.93 billion, or $129.96 per share, a year ago. Bio-Rad noted that its net income and loss amounts for the third quarter of 2022 and 2021 were predominantly impacted by the recognition of changes in the fair market value of equity securities related to holdings of the company's investment in Sartorius AG.

On an adjusted basis, net income in Q3 was $2.60 per share versus $3.71 in Q3 2021.

Bio-Rad exited the quarter with $517.9 million in cash and cash equivalents and $1.34 billion in short-term investments.

Due to strong customer demand, Bio-Rad is now guiding for full-year currency-neutral revenue growth to be at the high end of the previously announced guidance range of 1 percent to 2 percent. The firm also anticipates COVID-related sales of about $105 million due to stronger than anticipated sales to date. 

Excluding COVID-related sales and the prior-year legal settlement, core revenue growth is now expected to be about 8 percent, with full-year core growth for the life science segment of approximately 15 percent and for clinical diagnostics of approximately 3 percent.

In Friday morning trading on the Nasdaq, shares of Bio-Rad were down 5 percent to $366.85.