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UBS Downgrades QuidelOrtho to Sell

NEW YORK –Investment bank UBS downgraded QuidelOrtho to Sell on Monday, citing risks in the firm's guidance for respiratory test sales and in the launch of the Savanna point-of-care molecular diagnostics system. UBS also lowered its price target for QuidelOrtho to $42 from $71.

After QuidelOrtho's Q4 revenues missed expectations last month, UBS had initially maintained a Neutral rating. In a note to investors on Monday, UBS analyst John Sourbeer said his team's modeling now estimates a 6 percent decline in the valuation of QuidelOrtho, which he said could lead to further potential share price depreciation.

QuidelOrtho's full-year 2024 guidance for $610 million to $775 million in revenues for respiratory testing and $30 million to $50 million in sales of instruments and assays for the newly launched Savanna system is weighted toward the fourth quarter, Sourbeer wrote. QuidelOrtho executives specified on a call with investors in February that the 2024 Savanna sales guidance is based on the 510(k) clearance of a respiratory panel called RVP4 and a projected sale of 1,000 instruments, with each instrument running a total of 3,000 tests in the year. "The lack of near-term visibility presents downside risk to estimates, where we model 18 percent below consensus for the [full year]," Sourbeer said.

In the context of its own modeling for a sequential step-down in respiratory testing, UBS sees QuidelOrtho's termination of longtime CEO Douglas Bryant and postponement of its annual investment day as effectively removing "a potential near-term catalyst" that may have buffered some of the challenges UBS sees ahead in the respiratory testing space.

Sourbeer also noted that QuidelOrtho is experiencing sharper declines in COVID revenues compared to peers in the PCR space, specifically Danaher and Hologic.

In addition, the newly launched Savanna platform may not sell as many units as QuidelOrtho predicts in its guidance. "We see downside risk to [the] Savanna guidance after the COVID driven bolus of diagnostics instrument placements, cautiousness from channel checks, and a lack of menu after multiple delays," Sourbeer wrote.

Furthermore, the QuidelOrtho labs business is also facing challenges, with uncertainty related to volume-based pricing initiatives in China. The donor screening business, which QuidelOrtho said was slated to be shut down, is still in the guidance and a drag on growth, Sourbeer wrote.

QuidelOrtho stock was down 2 percent to $44.58 in Monday afternoon trading on the Nasdaq.