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QuidelOrtho Continues to See Supply Chain Impacts; Combined Q3 Revenues up 54 Percent


NEW YORK – In its first full quarter as a combined company, QuidelOrtho said on Wednesday that supply chain factors continue to impact manufacturing, though things are improving. The San Diego-based company also said it intends to modify its regulatory and commercial strategy for its Savanna molecular diagnostic instrument to focus on near-term sales to countries accepting the CE mark.

A global shortage of microprocessors continues to impact companies across the diagnostics industry, and on a call with investors to discuss QuidelOrtho's financial results for the third quarter, company CEO Douglas Bryant said the firm has addressed its supply chain challenge by bringing on more suppliers of semiconductor chips and growing its stock of such chips, and that the firm expects the challenges to ease in 2023.

"We believe that our ability to pivot quickly away from sole-source supplier agreements could be a competitive advantage, especially relative to smaller competitive entrants in our space," Bryant said.

Nevertheless, QuidelOrtho Chief Financial Officer Joseph Busky also said on the call that "global semiconductor chip availability continues to limit our ability to deliver instruments in our Labs business." The firm reported a backlog of 600 lab instrument orders that it expects to modestly increase in Q4, and gradually wind down next year. This backlog resulted in an instrument revenue decline of 20 percent year over year, Busky said.

Busky added that the supply chain challenge, "is a bit of a game of whack-a-mole sometimes, with other parts that come up short — our global supply chain team is doing a fantastic job on a day-to-day basis keeping those lines up and running."

Regarding its long-awaited Savanna instrument, Bryant said that the firm is now adjusting its regulatory and commercial strategies somewhat. The firm filed for Emergency Use Authorization from the US Food and Drug Administration in May 2021 for Savanna along with a small multiplex respiratory viral panel called RVP4 that detects SARS-CoV-2, flu A and B, and respiratory syncytial virus. The firm obtained the CE mark for the system and RVP4 in July of last year.

However, "in the US, there are signs that the expedited regulatory path for FDA Emergency Use Authorization is changing," Bryant said on the call. "We now believe that the surest pathway to full availability of Savanna instruments and panels is to include, immediately, 510(k) clearance and CLIA waivers."

QuidelOrtho is seeing demand for the Savanna system in Europe, the Middle East and Africa, Bryant said, so it will emphasize supplying instruments and assays to countries accepting the CE mark, although the firm still plans to direct 100 systems to the US in Q4 to gather initial data to support a US launch.

"We continue to focus on overcoming manufacturing and supply chain challenges as we ramp up production of both instruments and cartridges," Bryant said. The near-term focus of all commercial activities on EMEA is justified, he said, in order to capture Q1 2023 opportunities with those customers and also because of the limited opportunity that could be achieved if the firm were to launch Savanna in later stages of the current US respiratory season.

Bryant noted that the pivot does not affect the timeline of US launch in the fourth quarter of 2023, nor the projected $300 million in revenues on the system over three years. Bryant also said that QuidelOrtho is in conversations with the FDA around any additional data that may be needed for EUA, suggesting the firm will not retract its EUA application as it pursues 510(k). But, "because [EUA is] not 100 percent certain, we are shifting boxes that we had intended to ship early in the US, to Europe," he added.

To support commercial expansion in EMEA, QuidelOrtho has completed the setup and validation of a low-volume cartridge manufacturing line and expects a second to be brought online in Q4.

"We believe these two lines should be more than sufficient to meet pull-through demand given the number of instruments we expect to ship," Bryant said, adding, "Our two automated high-volume lines are expected to be up and running by mid-2023, ahead of our US commercial launch."

QuidelOrtho also reported its Q3 financial results on Wednesday. For the three months ended Oct. 2, the firm's total combined revenues grew 54 percent year over year to $783.8 million from $509.8 million in Q3 2021, above the average analyst estimate of $719.6 million. QuidelOrtho had previously issued preliminary revenues in the range of $782 million to $785 million.

Adjusted for the impacts of the Beckman Coulter Triage B-type Natriuretic Peptide (BNP) business transition and COVID-related sales, QuidelOrtho's total supplemental combined revenues were $613 million, an increase in the underlying base business of 6 percent at constant currency, Bryant said.

QuidelOrtho reported its Labs business declined 8 percent in the quarter to $334.8 million from $363.3 million in the year-ago period, while Transfusion Medicine declined 5 percent to $163.1 million from $170.7 million.

The firm's Point-of-Care sales fell 39 percent to $270.5 million from $443.5 million. Less COVID-19 related impacts, sales increased 67 percent, the firm said, attributing the growth to respiratory testing menu pull-through on its 83,000 cumulative Sofia immunoassay analyzer instrument placements. Bryant also commented that QuidelOrtho has advanced to the final stage in a US federal government program application to support purchase of more than 100 million home rapid tests from domestic manufacturers.

Molecular Diagnostics, meanwhile, dropped 72 percent to $15.4 million from $54.8 million. Excluding COVID-19 sales, Molecular Diagnostics declined 1 percent.

In Q3, influenza test revenue was higher than the firm had anticipated or seen in a non-flu quarter, Busky said. The firm now expects full year flu-related revenue to be $230 million to $270 million, up from an earlier estimate of $200 million to $260 million, including $176 million in the first three quarters. "At the midpoint, this assumes about a 40 percent sequential growth for flu and [flu A/B and COVID] combo from Q3 to Q4," he said.

QuidelOrtho's Q3 net income was $19.2 million, or $.28 per share, compared to a net income of $215.7 million, or $5.08 per share, in the prior-year quarter. On an adjusted basis, the company reported EPS of $1.85, above the consensus Wall Street estimate of $.74.

QuidelOrtho narrowed its full year 2022 revenue guidance — excluding COVID-related sales — to between 7 percent to 9 percent, from a prior 6 percent to 9 percent, with total revenues of $2.48 billion to $2.53 billion from a prior estimate of $2.49 billion to $2.57 billion due to currency headwinds. The firm also raised its COVID-related revenue guidance to $1.4 billion to $1.43 billion in 2022, from a prior guidance of $1.29 billion to $1.34 billion.

Adjusted diluted EPS guidance was raised to $13.20 to $13.80 from a prior $11.80 to $12.75, based on a full-year diluted weighted average share count of 67.8 million from the prior 68 million shares.

QuidelOrtho finished the third quarter with $212.2 million in cash and cash equivalents.

Shares of QuidelOrtho on the Nasdaq were up a fraction of a percent Thursday morning to $88.88.