Hologic Inc. beat expectations for the third quarter of fiscal year 2020, posting net earnings of $137.9 million, or 53 cents a share, up 46.9% from the same period a year ago. Worldwide revenue declined 3.5% to $822.9 million, due to the divestiture of Cynosure Holdings Inc., but grew 7.7% organically (8.1% in constant currency), as demand for COVID-19 tests offset a slide in other businesses.
As BTIG’s Ryan Zimmerman noted, Hologic revenue and earnings per share (EPS) “surpassed Street estimates by ~33% and ~93%, respectively.” He predicted more good news as testing continues to build in the fall, and placements of the company’s Panther Fusion system edge toward 500 for the year.
“Not only is COVID testing ramping up faster than anticipated in the U.S. (now tracking to ~23 [million] total tests in June alone), but we think the need for sustained testing is becoming more apparent,” Zimmerman wrote. He rated the company “Buy.”
During a Wednesday afternoon earnings call, CEO Steve MacMillan called the last several months “the most challenging, tumultuous and unpredictable of my career,” but “unprecedented demand for our COVID tests on the Panther system, as well as quicker-than-expected strengthening of our surgical division” and a later-quarter surge in COVID testing helped to deliver the positive results.
Molecular diagnostics revenue increased 170.3% to $460.3 million in the quarter. The Marlborough, Mass.-based company shipped nearly 13 million COVID-19 tests during the period, for sales of $324 million. To scale up capacity, the company merged the supply chains for its Aptima COVID-19 assay and other legacy tests, which were seeing reduced demand during the pandemic, MacMillan said. “We essentially established a goal to achieve a 10-year expansion plan in about six months.”
The company also partnered with Stratec SE, of Birkenfeld, Germany, to double production of Panther instruments to run the tests. According to MacMillan, Hologic placed 208 systems in the third quarter alone, compared with a previous full-year average of 228.
While most COVID-19 assay sales were U.S.-based, the company has signed contracts in about a dozen countries worth roughly $500 million, including a $190 million contract with the U.K. Department of Health.
MacMillan said the company decided in March to double its capacity by the fall. “I think every single person [who] sneezes or coughs come September throughout the next [cold and flu] season is going to end up getting tested for COVID. And it’s not just U.S.; it’s globally.”
The prospect of a vaccine, when it comes, will not dampen testing immediately, he added. It will take time to get everybody vaccinated and testing still will be needed to help schools and businesses resume.
Asked about the prospect of pooled sampling on the Panther system, MacMillan said the company is working closely with the U.S. FDA and customers to explore this avenue, which could help to boost overall capacity. The agency recently authorized pooled sampling with tests by Quest Diagnostics Inc. and Laboratory Corp. of America Holdings Inc.
“We … think that we'll be certainly a player in that space,” he said, adding that the company also is looking at combination products for COVID-19 and other respiratory diseases.
Breast and surgical
Other business units were negatively affected by the pandemic, as elective and nonessential procedures were put on hold. Breast health revenue fell 30.9% to $224 million. Meanwhile, surgical sales declined 53.9% to $51.5 million, “better than our internal forecast as the business began to recover more rapidly than anticipated,” said CFO Karleen Oberton on the call. She noted weekly demand was down nearly 90% early in the quarter, but showed “steady, substantial improvement” in May and especially June.
The slump in non-COVID-19 segments did not dissuade Wall Street from giving Hologic a thumbs up for the quarter.
“It is beating targets, and we see a long runway for growth we had not dreamed possible for this business just a few months ago,” enthused William Blair’s Brian Weinstein, who used a lyric from Bruce Springsteen’s Born to Run in the title of his research note.
“The overall takeaway is that while we cannot predict how long this situation will last, we know Hologic is maximizing the opportunity it has been given from this pandemic,” he said.
As a result, William Blair raised its fiscal fourth-quarter and fiscal 2021 estimates for the company to $1 billion and just over $4 billion, respectively.
For its part, Hologic predicted fourth-quarter revenue in the $925 million to $1.025 billion range, and EPS of between $0.95 and $1.15. “In diagnostics, we expect that demand for our two COVID assays will continue to exceed supply in the fourth quarter of fiscal 2020,” Oberton said, adding that diagnostics revenue could be double or higher than the prior-year period.