Q4 2021 Quidel Corp Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Adult Corporation fourth quarter and full year 2021 earnings conference call. At this time all participants are in a listen only mode. Later instructions will be given for the question and answer.
If anyone has difficulty hearing the conference. Please press star zero for operator assistance I'm now I'd now like to turn the call over to Mr. Ruben Argueta Padel.
Director of Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining today's call with me today is our president and Chief Executive Officer, Doug Bryant, Our Chief Financial Officer, Randy Stewart.
Also on the call are Chris Smith, Ortho is chairman and Chief Executive Officer, and Joe Buskey Ortho as Chief Financial Officer.
Our fiscal fourth quarter and full year 2021 earnings release is now available on IR docs quite <unk> Dot com, our Investor Relations website we.
We will also post prepared remarks on the presentations tab of our IR website.
Please note that.
Some of the information we provide during todays conference call will include forward looking statements, including but not limited to the types of statements identified as forward looking in our annual report on Form 10-K that we will file later today, which will be available on our IR website.
Actual results may differ materially from those projected any forward looking statements.
For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in our forward looking statements as well as risks related to our business and the proposed business combination with ortho clinical diagnostics. Please.
Please see our annual report on Form 10-K , and subsequent periodic reports and registration statements filed with the SEC.
Furthermore, This conference call contains time sensitive information that is accurate only as of today.
Except as required by law, we undertake no obligation to update these forward looking statements or time sensitive information, which speak only as of today.
Today <unk> released financial results for the three and 12 months ended December 31 2021.
If you have not received our earnings release or if you would like to be added to the Companys distribution list. Please contact me at 85864680 to three <unk>.
Following doug's comments, Randy will briefly discuss our financial results then we'll open the call to take your questions.
I'll now hand, the call over to Doug for his comments.
Thanks drew and good afternoon, everyone and thanks for joining us.
2021 marked another truly outstanding and transformational year for quite out.
Seemingly everything we did was big.
We opened our largest immunoassay manufacturing facility in just nine months Bruce.
Boosted output tenfold to help meet demand.
The retail and at home testing markets would put you at home OTC COVID-19 assay.
<unk> strategic partnerships with Cvs Walgreens by Catherine the NIH and others.
And entered into a 12 month agreement with the U S government estimated at over $500 million.
Much of what we did is bolt continuing to ramp production of <unk> and Sofia rapid immunoassay when competitors were retrenching.
Overcoming.
Supply chain challenges and production interruptions caused by positive COVID-19 cases within our workforce.
Launching a revolutionary savanna molecular diagnostic.
Instrumented system outside the United States.
And signing a definitive agreement to acquire ortho clinical diagnostics.
Transaction that we expect will double our size and more than double our addressable global market and then some of what we did was breathtaking.
Investing in manufacturing.
Supplied our scope and scale positioning us for long term sustainable growth.
Our performance was exceptional across the board from our research labs to our facilities and operations to our finance and functional departments.
21 was the highest revenue year in quite else history, surpassing our high growth 2020 revenue number.
We dramatically broadened the range of patients partners and providers we serve.
And we emerged from a challenging year with the strongest portfolio of physical financial and intellectual assets in our history.
The combination of <unk> and ortho is expected to create an end to end diagnostics solutions portfolio.
That spans from the high volume high complexity hospitals and labs to the farthest reaches a point of care and the vast untapped channels of retail OTC and Teluk diagnostics.
To sum up our markets are significant.
Finally, as long and as I will lay out further on this call. We have the team the strategic roadmap and the can do culture that we call the quite Dell way to make the most of the opportunities we see ahead.
Let's turn quickly to the numbers revenue for the fourth quarter was $637 million.
We experienced a shift in product mix from Sofia products delivered through the professional market. Two quick few products that have taken off in the retail pharmacy and employer testing markets.
On a full year basis revenue increased 2%, primarily supported by strong demand for COVID-19, rapid immunoassay products for both Sofia and quick here.
Growth in rapid immunoassay supported our performance for the year with <unk> sales increasing exponentially.
We entered strategic partnerships with major retail names like Cvs or Walgreens to further expand into the retail and online entry points for the consumer at home testing market.
The uptake in both sales and brand recognition is building solid inroads for us to serve the retail sector, which we hope to participate in but a longer term basis, our acceleration of assay development and production has also served to broaden our footprint at the point of care, helping drive introduction of our full.
<unk> portfolio to new groups of highly engaged patients and providers. For example, there continues to be a vast opportunity to capture demand in emerging markets through both telehealth technology and digital health capabilities, expanding patient access to a broad range of point of care and OTC diagnostic products in this space.
We have both Sofia Q as well as a recently launched self test mobile application that we call <unk> business to help address enterprise and employee health use cases and have a consumer version of the App in development as well.
As part of our focus on democratizing access to testing.
We take considerable considerable pride in the fact that we supported financially or donated a portion of our COVID-19 testing production to charitable organizations, such as the United way.
Jets foundations University of Arizona.
Chicago Federation of San Diego, and the Blackhawks Foundation through our academic government and Sports League partners. Our charitable partnerships help serve some of the communities hit hardest by COVID-19, and we are proud to have played a part in increasing equitable access to diagnostic testing.
In January we saw incredibly strong demand for our Sofia COVID-19 antigen test in the professional market as well as demand for our quick to you at home product as a result of elevated COVID-19.
Case counts.
As we move closer to the end of February we are seeing demand moderate and the professional and retail markets commensurate with lower COVID-19 positive cases cases.
But bolstered by the continued fulfillment of state in the U S government orders.
COVID-19 shifts from a pandemic to what some scientists anticipate.
Endemic phase.
Unless the government changes direction we.
We would expect that demand will continue through the second quarter.
We won't speak at this time about full year 2022 revenue expectations. What we will say confidently is that Q1 2022 will be our largest quarter in terms of revenue in the history of quite out.
During 2021, we also announced the transition of the Beckman BNP business to Beckman Coulter, concluding the litigation that had been ongoing since the purchase of the business in October 2017. This.
This agreement is a major step forward for both quite ill and Beckman. It enables us to focus on expanding our core businesses and executing on our longer term strategy. While also establishing for quite a stable cash flow stream through 2029.
The remainder of the term of the existing BNP supply agreement.
And as long as we're on the subject of future cash flow streams I'd also like to address the progress we.
Made with our revolutionary savanna platform.
What lies in store for us as we prepare for its U S. Launch later this year.
The savanna platform will be our next flagship product and we are incredibly proud of the progress made to date Savannah allows for PCR testing of up to 12 pathogens plus controls from a single sample.
The amplification time, it's a very fast with total turnaround time for our RVP Palace and approximately 20 minutes.
The savanna platform is fully integrated very easy to use and we will have both direct swab and liquid sample of compatibility there.
The agent is stable at room temperature, which is a huge deal, particularly in hospital labs.
As I mentioned at the outset, we've already launched in the EU, where end market in a limited launch with our respiratory viral panel for rich.
Our respiratory panel and have received very positive customer feedback to date, including request for additional instruments.
We expect 2022 to be a busy year for Savannah, as we work towards EUA for RVP, four and five 10-K submission for our RVP 11 assay as well as for our HSV.
STI and gastrointestinal palace.
We also plan on automating, our manufacturing line, thereby substantially increasing our production capacity for our Savannah cartridges.
<unk> launched in the U S. We are targeting revenues of over $300 million per year within three years much of that will be determined by our ability to manufacture instruments and fully automate.
Cartridge manufacturing lines.
If we've demonstrated anything during this pandemic.
It's that we can scale rapidly, which bodes well for a flawless successful launch.
Aside from our team's extraordinary execution and scaling our operations to help meet demand for COVID-19 testing.
Our biggest highlight came at the very end of the year with the announcement of our agreement to acquire ortho.
Ortho clinical diagnostics, we believe this transformative acquisition will position <unk> as a global leader in diagnostics substantially diversifying our product pipeline, while widening our global reach and scale.
Our agreement to acquire or sell for a combination of cash and newly issued shares and the combined company.
As expected to make us one of the larger pure play diagnostic companies in the industry.
Bringing our two leading companies together will give us the ability to leverage complementary expertise and an unparalleled range of capabilities to drive growth into new markets.
The highly complementary nature of quite Els and or those product portfolios is expected to create ample cross selling opportunities across a diverse customer and channel mix, enabling us to maximize the value of existing platforms and drive worldwide growth.
The future revenue synergies are particularly attractive as savannah, given or those deep roots among laboratory customers and extensive global commercial reach driving global commercial execution.
Savannah will be achieved priority for us in 2022 and beyond.
Planned ortho acquisition is expected to more than double our global market opportunity.
Estimated to be worth over $50 billion between the point of care clinical chemistry, and transfusion medicine categories.
Financially it allows us to maintain 9% to 11% topline growth post COVID-19 .
And generate 30% or more.
EBITDA margins.
And substantial operating cash flow.
Creating a pathway for strong value creation over the long term.
Culturally quite on ortho are an excellent fit which was a key factor in our decision to move forward with the acquisition both companies share a passion for advancing innovation and enhancing the wellbeing of the customers patients and communities we serve.
Of course, we are already hard at work setting the stage for a smooth integration.
With our proven experience in successfully integrating acquired businesses into our operations. We are confident we have the right processes in place and with the help of the great people at Ortho, we believe that we will achieve the milestones we set for ourselves once integration plans can be implemented post closing.
For a bit of background, our integration approach will be similar to the process. We used to integrate the alere assets a transaction that doubled the size of our organization at the time.
In some ways that acquisition presented a more technically challenging integration. It was a carve out asset purchase that did not include international entities and required a lengthy staged deferred closing process throughout the world over a number of years. We also spent a significant amount of time understanding dealer culture.
Kind of triage product.
Was manufactured and sold and the ins and outs of the Beckman BNP business. So we devoted a lot of energy to finding the right integration structure and working collaboratively with our new colleagues and third party integrations specialists to plan for a successful integration it was essential for us to get it right and then.
And we harvest is about $20 million in synergies from a $250 million set of businesses and a little over two years and significantly de levered from over four times leverage to under one times.
We also improved the company morale, which had been under prior under prioritized in our view given.
Given this experience and outcome. We believe we have a good system in place that is thoughtful effective and reproducible or if it was a great company with very talented employees strong processes and a positive customer centered culture.
We believe that both ortho and quite how can learn from each other and are taking a truly collaborative approach we.
We've appointed integration planning leaders on both the quite ill and ortho sides.
Kristen call at Ryder and Bob.
Who are aided by a select team of employees focused on the integration and third party integrations specialists. Our approach is currently broken down into three parts first is integration strategy and day. One planning second is day, one readiness and execution and third is the post execution phase.
We plan to identify and utilize the best of what makes both company's exceptional philosophically our guiding principles for the post closing integration involves six points.
Ensure continued momentum and preserve the core across both businesses empower our leaders with the right tools and information to make decisions to drive continued growth.
Energize and retain team members at quite ill and ortho with proactive communication and retention incentives throughout the integration cap.
Capture projected cost synergies by leveraging the combined scale of the two businesses enhance our go to market model to maximize commercial benefit and capture projected revenue synergies and optimize R&D priorities to match future strategy across U S and ex U S.
We've identified $90 million in expected cost synergies that we think are achievable by the end of the year.
By the end of the third year excuse me. These cost synergies are driven by operational efficiencies supply chain optimization and shared administrative functions, including duplicative public company costs. Further we've identified $100 million in expected revenue synergies by 2025 with approximately 80% to come from cross selling.
<unk> opportunities and our expanded geographical footprint to sell Savannah, and other products and ex U S markets. Our integration teams are working well together and planning the integration.
And I believe that shortly after closing we will begin harvesting synergies paying down debt.
Growing both businesses and bringing together two remarkable organizations. In addition, as you saw in ortho as 8-K yesterday Chris.
Chris Smith, <unk>, CEO , and chairman, who will be joining me as a special advisor since 2019, Chris and his team have rejuvenated their company and I think it would be short sighted to not avail myself of his experience and expertise to assist me in thinking through things that we know that we will need to address as well.
Those that are unknown at this time.
Based on our current expectations, we anticipate holding a special meeting for stockholders to vote on the acquisition in late April and expect the acquisition to close in the first half of the year. The completion of the acquisition is conditioned upon among other things the early termination or expiration of any applicable awaiting peer.
Would under the HSR Act. The good news is that effective at 11 59 PM Eastern on February nine.
The waiting period under the HSR Act expired with respect to the acquisition. However, the completion of the acquisition remains subject to other closing conditions post closing, we anticipate the integration will be complete within approximately two years.
In closing.
I'm enormously proud of our accomplishments in 2021 and I want to thank our entire quiet Dow team for the courage creativity and resilience they should personally and collectively in driving our business forward I meant all of the challenge of challenges of a second <unk> year.
Our steadfast commitment to our mission of advancing diagnostics to improve human health is responsible for our success as a company and as an impactful corporate citizen when our contributions mattered. Most we look forward to driving further operational excellence in 2022 through strong execution.
Against our growth roadmap as we work to support our customers partners and patients beyond the threat of COVID-19, we see great opportunities that lie ahead for quite a while to grow our core business.
And advance our diagnostics portfolio to improve the quality of health care and health outcome.
Across the globe.
With the U S launch of Savannah, and the planned ortho acquisition, we have many great opportunities to continue accelerating the growth throughout 2022.
And beyond I am excited to see our company further transform into a leading diagnostics player as we execute on those opportunities too.
To enhance our competitive positioning and create long term shareholder value.
Randy.
Thank you Doug and.
And good afternoon, everyone.
2021 was a significant year in <unk> history, we continue the great momentum from 2020, and 2022 is off to a very strong start as well to reiterate doug's comments I'd also like to thank all of our employees.
Demonstrated great resolve and dedication.
Overcome many challenges we faced this past year, we accomplished much including achieving the highest revenue year in quite else history.
During my tenure here at <unk> incredible culture has been a cornerstone of our continued growth and ability to drive improved outcomes for our patients and customers.
Truly proud to be a part of what we have achieved it quite well.
As reported and as Doug commented total revenues for the fourth quarter were $636 9 million.
During the period, we experienced a shift in demand from Sofia COVID-19 products to quickly of COVID-19 products.
So to your combo revenue was lower than the prior year period by approximately $250 million.
Foreign currency had a positive impact of $2 million in the quarter.
Total COVID-19 revenue was $511 $8 million with 400.
<unk> hundred $66 $7 million coming from our rapid immunoassay products.
And $45 $1 million coming from our molecular products, mostly driven by our <unk> COVID-19 product.
Within our product categories rapid immunoassay revenues were $521 million within this category Sofia products were $92 8 million.
Avoids let's see as far as antigen product sales were $47 2 million.
Influenza, which includes our combo test Ams dropped revenue made up the majority of the balance of the Sofia revenue.
Quickly product revenues were $427 million driven by strong sales of our quick view of COVID-19 tests, which were $419 5 million.
We sold over $65 million quick few tests in the quarter broken out between approximately $13 million quick feel professional service task and approximately $52 million at home OTC Covid tests in the quarter.
All the quit for you at home OTC test volume, our retail channel consisted of 44% of the total volume the majority of which flowed through our pharmacy partners.
Additional distribution channel shifting into mostly e-commerce , and independent pharmacies and other employer groups form 21% of the volume with 29% going to the government agencies.
Included in the government numbers was $3 5 million tests ship to the U S. Federal government as part of the $108 million task order and.
In January we started increasing our shipments to the government and now anticipate completing that order by the end of the second quarter.
In addition, we are continuing dialogue with various government agencies around the potential to purchase more tests as part of warm manufacturing programs.
Pandemic preparedness.
For the cardio metabolic immunoassay business revenue was $52 $8 million.
Other than the prior year quarter as a result of the agreement we entered into with Beckman Coulter in July of last year. The agreement states that in connection with transitioning the Beckman BNP business to Beckman Coulter.
<unk> will receive annual cash payments of between $70 million $75 million per year through 2029, and a prorated payment in 2021.
In the fourth quarter, we recorded revenue of $17 $9 million associated with this agreement.
The triage business generated revenue of $34 9 million versus $36 $4 million on the fourth quarter of last year, we saw strong growth in China offset by weakness in the U S.
Our molecular diagnostic solutions revenue was $50 9 million.
The decrease versus fourth quarter of last year was due to the later as far as called out state revenue as additional competitive COVID-19 products came into the market.
<unk> revenue was $37 $2 million in the quarter and Salon at Colgate revenue was $7 9 million.
We are very pleased with the performance of this business in the fourth quarter as well as for the full year.
In the quarter total influenza revenue was $40 $5 million.
Influenza revenue included Sofia flu revenue of $11 $5 million and the Sofia Sars combo test revenue was $24 $6 million.
And plan to ramp.
Made low due to our low prevalence of influenza in the U S.
Gross profit in the fourth quarter was 22021 was $489 $3 million and the gross profit margin was 77%. We continue to realize good product margins for our Covid test while margins are lower than last year due to a shift in product mix from high from the higher margin Sophie.
Forest products to the quick for Ya Kotalik products as well as targeted price reductions.
Our significant investment in R&D continued in the fourth quarter as we focused on expanding our robust pipeline of proprietary assays across our quick view Sophia Sofia, <unk> and savanna platforms as well as ramping up our investment in our next generation platform.
Such as project leapfrog.
From a sales and marketing perspective, we will continue to invest in people and resources to expand our reach as well as increase our spending in marketing product promotions and corporate partnerships in support of the at home testing market.
As it relates to the annual provision for income taxes.
We recorded income tax expense of $196 $1 million for the full year, which represents an effective tax rate of approximately 22% stake.
State tax obligations increased our rate above the statutory rate of 21% at the federal level offset by tax benefits from excess stock based compensation.
And foreign derived intangible income and research credits.
We realized another excellent year of positive cash flow for the company generating over $800 million of cash flow from operations we.
We utilized some of that cash to significantly.
<unk> our production for both our Sofia and quick to your product lines.
Maintaining minimal debt on our balance sheet and only have two remaining deferred consideration annual payments to Abbott for the Alere assets purchased back in October of 2017.
Remaining balance owed to outfit is $888 million.
Of which $48 million will be paid in April of this year.
As of February 11th we had approximately $925 million of cash cash equivalents and marketable securities on the balance sheet and we are estimating this balance to be over $1 $2 billion by the end of the first quarter.
We anticipate utilizing majority of this cash towards the <unk> acquisition, which we anticipate closing in the first half of this year.
In 2022, we're expecting to spend approximately $150 million in capital expenditures, mostly relating to savanna cartridge automation savanna instrument and the expansion of our new Carlsbad manufacturing facility.
And with that we conclude our formal comments for today.
Operator, we're now ready to open the call for questions.
Alright can lean.
I'd like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like a question. Please press star followed by team again to ask a question. Please press star one.
If you are using speaker.
Speaker phone, please remember to pick up your handset.
To your question, we will pause briefly to allow questions to generate in Q.
The first question is from the line of Tycho Peterson with Jpmorgan. Please go ahead.
Hey, good afternoon can you guys, maybe just give a little more color on how you're thinking about 2002, I know you said first quarter will be the largest revenue quarter in history.
Can you maybe just talk about how you're thinking about the remainder of the government contract flowing through the remainder of the 100 tests.
Is that mostly going to be in the first quarter or that.
Persist beyond that any other color you can provide and how you think about the year would be great.
First hi, Tycho Thanks for the question.
We actually shipped very little in the fourth quarter should the government contract rehab shift shift a bit.
More in the first quarter and we're still increasing as we go throughout the remainder of this year, we couldn't finish the entirety of the agreement.
With them by the end of the second quarter I believe but it's.
Entirely possible that given things that are out there now that that could persist.
And to the third quarter as well.
Okay are you able to say anything about kind of baseline level of COVID-19 expectations.
On the base ex Covid.
Just.
Curious, if you're willing to give any more color.
Sure as cocoa debate here.
Bill as demand ex U S and we've been engaged with a number of organizations.
Would be interested in helping folks outside the U S with products. So I can't say for sure what will happen in terms of disease here.
In the U S of course.
It's positive cases because of some other variance.
Biggs.
To climb again, and we will obviously, we will pivot back to to the professional segment in a more meaningful way in <unk>.
The retail segment also.
Be stimulated similarly, so but it's really.
You can tell Jojo I hate trying to forecast this thing.
It's just.
And we're doing our best to add.
Anticipating.
Managing various skus across different channels segments.
There's more interest on the part of states now than there was before there's more interest in some employers segments.
But it's really hard to predict and Thats why its just said simply Q.
Q1, we're pretty darn confident.
We'll be Wi Fi the largest quarter in the history of the company.
Second quarter obviously.
Pretty good so far too.
Question is what happens in 2023 really.
Yes, no no no. This is all hard to kind of model out maybe curious on manufacturing and committing to kind of languish, even 'twenty one Cynthia tests per month on the manufacturing side.
I'm, sorry could you repeat that Tycho didn't quite pick that up.
Gary.
Just kind of.
Manufacturing.
Quick below $20 billion per month, or you're tapering back manufacturing.
Oh no a good question no we're thinking that we're going to build a safety stock one way or another I hope that we're able to do that here.
As this situation of pace.
And we certainly want to be ready in the event that that.
We have some.
Unusual increase in demand like we saw with both Delta and <unk>.
And then obviously very encouraging discussion with the government with regard to.
Participating in sort of a warm or manufacturing program.
And also participating in their stockpiling efforts.
Okay, and then just lastly on the deal.
It's obviously been a lot of volatility in the market any risk in your view on the deal vote and then how are you thinking about.
Yes, the cash stock split now.
Now as it stands given given where things have moved around since your deal was announced.
The second part was the cash question.
We have an interesting cash stock.
Split can.
Can you give us some of the volatility since the deal was announced.
Oh no no.
We havent considered that.
Okay.
All right I'll leave it at that thank you.
Okay. Thanks Tycho.
Mr Peterson.
The next question comes from the line of Brian Weinstein with William Blair.
May proceed.
Okay.
Hey, guys good afternoon.
Hey, Brian you, guys and Chris and Joe Good to talk to you guys as well.
I just wanted to kind of go through.
The key assumptions.
Both sets of management teams had while I have you both on the line here on the various products that sort of make up those export numbers.
If we should kind of take those is the factor guidance for 'twenty, two and 'twenty three it looks to have about $3 $1 billion in revenue and $1 billion in EBITDA in 'twenty. Two if you kind of assume a full year in something like $3 three of three four in revenue and EBITDA.
Over $1 billion in 'twenty three again for the S. Four so I'm just trying to understand is that kind of de facto guidance can you talk about what drove the.
<unk> that were baked into that.
Well notwithstanding the COVID-19 volumes.
I would say that the.
The S. Four it does reflect with both companies.
Randy when you make a comment and then I'll ask Joe to comment as well on.
Within the 2022 numbers, yes sure.
We are assuming.
<unk> environment.
Todd.
As we have communicated previously so we see an ongoing revenue stream.
With Covid, we are anticipating more of a normalized flu season, as we get into the back half of the year.
We're anticipating.
Good.
Introduction for Savannah, So we do see a pretty strong savannah growth in 2023.
Probably the main drivers plus we are we have over 75000 Sofia instruments in the market. So we certainly believe that we will.
Kind of see post COVID-19 the revenue trend, we saw with that instrument system to continue here in.
In the 'twenty three as well. So those are we are assuming also that the high <unk> component will be launched in the 2023 time period, but thats not.
The biggest driver, but certainly that's one of the.
Additional new products that we plan on launching.
I don't know Joe do you have further thoughts from your side.
Hey, Randy, Yes, Hey, Brian good to talk to you.
Ortho numbers are as we've been saying and we said yesterday on our earnings call fairly stable predictable with 93% recurring revenue.
And so yes, you can you can take those numbers in the S. Four is pretty predictive of what we're going to do in 2022.
That mid single digit topline growth.
The Covid assay revenue for us is a lot lower than what the Codell guys haven't we talked yesterday on our call, we guided to 25% to $35 million of Covid assay revenue in 2020 to feel pretty good. So it's a fairly tight tight range and.
Fairly fairly small amount considering you've got a base of $2 billion.
The other sort.
<unk>.
Variable could be FX, where we have half of our business outside the U S.
FX does impact us a little bit so.
If rates move.
In such a way that the dollar appreciates that could.
The numbers from a currency perspective, but again at this point as we said on the call yesterday, we expect the top line currency impact to be about 50 to 100 basis points.
<unk> versus 'twenty, one so not right now we don't think it's going to be a huge impact. So so yes, I think our numbers in the S. Four.
A pretty representative of what we think we're going to do in 2002.
Hey, Thanks, guys and then if I can add.
Yes got it.
Oh, no I was just starting with the <unk>.
Nice thing about that proxy CDL rfps from both companies and how both companies reviewed the others Rfps I think you probably know we brought in a large.
<unk> group in China, really validated the categories and what the rollout would be in the synergies. So I think people feel pretty good with the.
Numbers that are there have been really triangulated looked at stapling.
Thanks, Chris Thanks, Joe.
Okay.
Can I get one more in here.
As we think about the integration itself.
I'd love to hear from both things about kind of what you guys see as the biggest challenge to be integration.
You outlined kind of what your steps we're.
In pretty good detail from from kind of a categorization standpoint, but but.
What's the biggest challenge that you see to bringing these two companies together.
I think its just timing more than anything both sides have assembled teams that know what to do.
We're being guided by a third party that also knows what to do so.
Both teams.
Very detailed plans.
Various work streams I outlined six major things, but.
I'm pretty confident that everything that we need to do is actionable no question in my mind, Brian is just.
Just the timeline.
Makes sense can we get it all done.
We sit in under two years, but.
Can I put forward even further.
And I would now.
And the nicest possible way, helping nudging the team to do that.
Okay, well good luck with the nudging and thanks for taking the questions guys.
Sure Brian .
Thank you Mr Weinstein.
The next question comes from the line of Alex Nowak with Craig Hallum. You May proceed.
Hey, good afternoon, everyone, Doug I think everyone likes a baseline here and just kind of going back to tack. Those original question you back in the spring 2021 time frame you gave this 20% to $25 million per month at the floor appropriate revenue I think this time, it's different with the government demand.
You've got breakthrough variants.
Is that a still a floor to think about or whats the new Ford number we could potentially use and think about modeling in.
Yes, that's a great question Alex Thank you.
We're going to have to come up with a different floor.
Curiously I mean, I can't say more than that other than the 25 million is no longer applicable.
It's a good question, let us noodle on that and over time come back.
It was something that makes sense based on science and forecasting.
And what we're manufacturing and who's asking for what.
Over what time.
Sure.
There's a number of factors.
We would want to consider.
And all of that and certainly with the government is going to do.
<unk> is a big part of it.
But just.
I would say certainly from your commentary it seems like it's going to be higher than that just to be correct.
Okay.
Yes.
Thanks.
If I was clear on that.
Thanks.
Great.
The startup initiatives alone just clarity Alex.
Alright.
But just with the stockpiling and initiative alone.
You can come up with some pretty big numbers.
Okay.
Totally get it.
And then before Covid before.
So there was this big push to expand the menu on <unk>. So just curious any update there and then what about expanding the at home.
Yes.
Yes, <unk> at home menu, we will look at over time, obviously, there are regulatory hurdles to to achieve.
That's up to overcome.
Here in the U S.
<unk>.
But when you look at our portfolio the portfolio of Sofia products.
That are in development has never been larger.
And.
The guys that are working on those projects havent taken their eye off the ball obviously in the last.
A couple of years now.
Then.
Sort of nudge to if you will.
Into discussions about code all the time.
And our next analyst day, I think it would be appropriate that you.
Ruben that we sure we got in the pipeline as too many things to discuss on a call like this.
We're now managing over 50 R&D projects pre Covid, we were at about clients.
But that gives you.
Feeling for what the R&D teams are doing that.
Okay.
Okay.
No. It certainly does and then just lastly, just going back to the ortho clinical Darryl deal here I mean investors have seen the stock price.
<unk> since that deal was announced I mean, I think the strategic skill set of the combined company. It looks very impressive the earnings accretion certainly very impressive what do you think the current market is messing here.
I'm not sure the market's missing anything.
I do see.
A number of reasons why a number of companies in our space would have lower valuations at the moment.
What I can say for sure Alex is that we're going to get this thing put together, we're going to complete the integration, we're going to keep marching down the path that we're on and we see nothing that would cause our decision making.
What we're doing or how we're doing it to change as a result of what's happening with our share price.
I don't want to be naive and say, we don't really watch our share price because that would be untrue.
And we care about it but we can surely do but my job and the job of the executive team at this stage.
As to communicate our plan and then too so that you all understand what we're doing and then to execute against that plan and I have to say.
I don't want to sound Braggadocious, but generally speaking, we've been pretty well and achieving what we said we were going to do.
Hey, Alex it's totally agree I appreciate it.
Ed.
Yes, Chris Thanks.
Look I was just going to say from the ortho I think to Doug's point I mean, I think some of it was done around the holidays that was done at a time with Covid was starting to get out Roadshow I think part of it is it's one of the stories that needs to be told and it may be a story that needs to be told a couple of times for people to really understand it but I think on paper you probably couldn't come up with a better.
Deal I think.
Seen investors challenged if you love quite <unk> story in the past high growth no debt.
Primarily the U S. Focus then you might not have loved orthosis, if you loved or those which was mid single digit growth, 93% reoccurring revenue, but high debt lots of debt.
So there are two very different companies and I think part of it is understanding really what youre going to see from a value perspective over the next couple of years not over the next couple of weeks or months and I think investors just because of whats going on haven't really been able to digest that and it's something that I think the team has to get out and share more regularly.
On how amazing is still really is for patients customers teammates and shareholders.
Great. Thanks, Thanks for the update thank you.
Thanks, Alex.
Thank you Mr. Miller.
The next question comes from the line of Andrew Cooper with Raymond James You May proceed.
Hey, everybody thanks for the questions.
Maybe first just one on savanna and sort of the timelines here.
Doug you rattled off a couple of days.
Right.
But maybe starting with <unk>.
The FDA has kind of process for respiratory.
Are you in terms of getting the financial district.
Good luck.
Breakfast, where we have obviously not a lot or.
Not a lot of some of these other things floating around.
Are you done with enrollment with the flu season.
The season, largely behind us or sort of where do you sit in that office.
That's a great question. Thank you.
We're okay in terms of samples both bank and.
And those who were collecting lives.
We don't have a sample issue for the things that we're working on at the moment.
It's a very good question, though.
Just to round out a couple of guys I've asked this question about trying to.
Figure out what's going to happen moving forward throughout the rest of the year. So.
Maybe.
A little bit more detail might be useful because I mentioned, a couple of different times about the government being involved is changed the base level.
As an example in Q2.
We would expect to ship another $36 million to $40 million tests to the government just in that quarter alone.
Okay that helps I understand.
Hi.
The original flora.
So.
I wouldn't say it was.
I thought it was a pretty good forecast at the time, given what we know, but obviously changed.
There is not over the counter there is now recovering.
Brands to provide product to underserved communities we've got.
States that are involved and so the landscape has changed pretty dramatically based on just the products that are out there.
Great. Thanks.
Appreciate that clarification, maybe just on sort of the longer term when we think about OTC I think maybe.
Maybe part of what we've seen when you look at some of the professional products.
Using an OTC product and then maybe Sanjay.
Im not going into the clinical settings. So when we think about the longer term how do you think about the need for <unk>.
OTC flu and Theres additional.
Additional assays for the OTC.
Revenge dash.
Cannibalization.
The clinical market.
Okay. Thanks, that's a great question before Covid, we would have said that there is a market already or there is demand on the part of moms and caregivers.
Caregivers.
To acquire tests that would be useful over the counter whether it's strep I think strengthen our and our survey was probably the highest volume demand.
Fluids in that category too, but not nearly as big as strep.
So before Covid, we had already determined that there is a potential market. There since then I think the.
Throughout the globe here in the United States in particular people are preconditions to understand the value.
Knowing yesterday now do I have it.
And I think it can be a very useful part of an overall physician assistant.
The health care system.
And I see that evolving that way.
A lot of people might be worried about the FDA in these.
Hi standards that they require in terms of product performance.
The other hand, I think it's our job to make sure that we can.
Through technology.
<unk> advances that we can actually achieve those levels and when we do IC protection from from the rest of the World, where you have some pretty low performing products out there I see that being an important aspect of an OTC program, but I wouldn't want it to for example is half the bar lowered.
And then we have a myriad of people from and Im not going to name a specific country, but.
You can probably.
Guess, who in particular I'm thinking about.
These lower performing products.
If those overall to come in.
<unk> space, we would not be as attractive that's for sure.
But I do think theres demand and I think it's changed I think People's mindset has changed I don't think we'd have to create.
Create a.
Demand for the notion of being you'll have the store going to Walgreens, Cvs and picking up the test and test yourself.
The flu.
Or whatever COVID-19 variance circulating at this time.
Okay. That's very helpful. And then maybe just one last one if I could sneak it in maybe.
Maybe for the folks we have on the <unk>.
We hear you guys talk about that.
You capture program and that's something.
Historically, a very quite ill talk about <unk>, so maybe just outside of sort of the.
The cost synergies you've talked about.
For both teams do you think that is.
Playbook, you can sort of quarter over from the ortho business, Despite Allen vice versa.
Cash a little bit more beyond just what I would define as sort of a true synergy.
Yes.
Good questions.
<unk>.
Go ahead, yes, I think it's culturally yes, I was going to say I think cost you also make a comment then on Joseph bank to be down a bit, but look I think culturally being a private equity back over seven <unk> levered culturally it became ingrained in the business all throughout was to drive operating efficiency.
Season to targeted minimum of $25 million a year, so I think on the ortho side.
You see it from a culture and it's something that's managed and measured.
Continuously.
I do think it's something that I think ultimately I think.
Theres going be a great partnership with with Doug and Joe and then Randy as.
As well being able to look across the two businesses, but knowing that there is some culture already on the ortho side.
That's a continuous process, but Joe I don't know if you want to get more specific on how you guys look at it every year and how we set the target because it used to be more than 25, I think it was 200 and something since the carve out.
Joe Yes, yes of course, we've.
Yes, we have.
With captured over $200 million of savings since the carve out and I think that's.
It's a good way to put it is that we are seven years out the carve out now from J&J, and we're still going around and realize $25 million of value capture savings we did in 2021.
And so that is very ingrained in the culture as we get these companies pulled together, it's definitely something that Doug and I on the management team will talk about whether we can continue it or expanded or moving into into the into.
Into the Codell world as well.
It's a good thought for sure.
So those are good guys.
Andrew Youre also talking about at the customer level right.
Okay.
Really across kind of all the.
All of the basic I suppose that I actually was thinking more along with what they answered but in terms of commercial excellence.
A question as well.
Perfect Perfect I think thats. Good then.
There is opportunities.
Within the customer base as well.
To leverage both companies.
Positions, which I think are really for the most part very good.
Across multiple segments and on our side you are right, we don't spend as much time squeezing because.
Our margins are already quite high.
So we think about it a little bit differently, but.
There is something to be learned on both sides for sure and I do look forward to seeing what manufacturing synergies and managing the same supply chain organization could do for us.
Maybe just a little bit more specific in that regard.
Great I appreciate.
Thank you Mr Cooper.
Your last question is from the line of Jack Meehan with Nephron Research you May proceed.
Thank you and good afternoon.
Doug I was hoping you could elaborate a little bit more on the government contracts and just talk about discussions underway. You mentioned stockpiling just any long term purchasing support what's the government talking about sort of ensure capacity stays online for testing.
Okay.
So really.
Good good question Jack.
We talked to to several different people, including the FDA liaison and others within the government HHS.
Times, a week actually now and and so we've got a pretty good feeling for.
Things that are going on that wouldn't even necessarily be announced.
To answer that question I'm going to turn it over to Rob <unk>, who is our chief operating officer, and who does most of the work with the government.
Hey, Jack.
So really here I'm talking about.
What we're talking about with warm manufacturing is some measure of consistent.
Supply of consistent volume commitment over a series of many months so whether thats.
Through the end of the year, whether Thats, a 24 month period, whether thats, a 36 month period.
Here is we've made significantly significant investments as has the government and making sure that we can increase our capacity and we saw what happens when last year when demand falls off and there's no place to put product right. We saw what happened to our competition as well right. So.
We made that commitment to continue to build and continue to ramp and invest and so those are the conversations that are happening what's the right level of our continued commitment so that.
We as a country are not caught off guard right and so those are conversations that have been happening for some time. They continue to happen. So as Doug mentioned, when we think about even to tyco's question.
In terms of how we're thinking about Q2.
The real idea here is in conversations with the government and states, which is where a lot of the demand has shifted too.
We've got strong U S manufacturing, we've got the capacity built up in the United States and we want to make sure that we can keep that warm. So if you think about Q2.
Doug mentioned, we have about another 40 million tests or so scheduled for Q2.
So tycho that could go pretty quick in Q2, but we do expect that would be that would round out that initial purchase order and then we.
We look to continue.
We hope to be able to continue some amount of warm manufacturing as well for a much longer period of time. The question. Jack is how long that we just don't know.
Does that makes sense, yes, that's helpful.
Yes, Sir.
To follow up on the decline.
Im sorry, Jack I was just going to round out the answer.
We presume also for Ed.
When the government stockpiles are going to be interested in U S made product.
Yes.
I had a question to kind of that.
Leads into that is just talk about the competitive environment for quick view so over the last few months.
Stoma Kron, the FDA approved a number of new tests.
Not from the U S. But now they're here. So just curious how you are seeing this play out in the market.
What do you think is a good quick view pricing assumption for 2022.
Yes.
Our pricing assumption at least for now Hasnt really changed Jack our government pricing is public and so I think that so we haven't really changed the pricing assumption, we do anticipate though that with with the demand falling off with case counts dropping that there will be more supply and youre right you have more supply coming in from.
From outside the United States.
There'll be some pricing pressure, but we're I think we're comfortable with it.
Certainly with the idea again that we'd have some amount of steady demand with stockpiling et cetera, So, but we haven't made any adjustments at this point, we think we've got a competitive price at least that's how it lines up today.
Thats My thought on Doug I don't know if you want anything to that.
That's a solid answer thank you Rob.
No.
Thank you Mr Monahan.
That is all the time, we have today. Please proceed with any closing remarks.
That's great. Thanks, everybody for your support and your interest in quite Thanks also to Chris Smith, and Joe Buskey for participating with us.
I look forward to working with the entire ortho team, but these two guys are great.
We've accomplished a lot this year.
But theres also a lot of work to do and although we had a great 2021.
I think the key is that we're really well positioned for 2020, we believe that we're in good shape to achieve our growth objectives over the next few years everything that we said in our analyst day.
Ex COVID-19 .
On track with and we expect to deliver at a very high level those products now.
Even even further enhanced by this notion that the ortho commercial organization is really going to be helpful. So again, thanks again for being on the call appreciate it.
Take care.
Ladies and gentlemen, we thank you for your participation.
Please disconnect your lines Goodbye.