QuidelOrtho: Robust Pipeline Of Labs Products Ahead (NASDAQ:QDEL)

In this analysis of QuidelOrtho Corporation (NASDAQ:QDEL), we covered the company following its Q3 2022 revenue which increased by 10% YoY. We compared its performance against the top 15 healthcare equipment industry companies and guidance to examine how it fared compared to competitors. Moreover, we analyzed the company’s updated revenue breakdown following its acquisition of Ortho in Q2 2022. We further analyzed its revenue breakdown by immunoassay and clinical chemistry for its Labs segment to examine its growth opportunities. We then examined the company’s TAM for each of its segments, to determine how much of the market it has penetrated, in comparison to management’s estimated growth and market CAGR.

Based on the chart above which shows the company’s project pipeline and stages of completion:

• The company’s Labs segment has the greatest number of projects (38) followed by Point of Care (25) and Molecular Diagnostics (17).
• Most of the company’s Lab segment projects (13 out of 38) are at the design optimization stage.

• The Labs segment has the highest number of projects in Phase 4 (11) which is the regulatory review phase and is the last phase before launch, followed by Point of Care (4), Molecular Diagnostics (2), and Transfusion Medicine (1).
• The majority of the company’s projects for all segments are assays (80) followed by software (7) and instruments (5)
• The company’s Transfusion Medicine segment has the lowest number of projects (12)

Quidel Outperformed Healthcare Equipment Competitors

Company	Q3 2022 Revenue ($ mln) (‘TTM’)	Q3 2022 Growth %	Analyst Consensus Difference %	Revenue Guidance Q4 2022	Stock Price Change % (Q4 2022)
Abbott Laboratories (ABT)	45,030	-1.1%	7.88%	-7.0%	13.5%
Medtronic (MDT)	30,806	-0.8%	-1.43%	5.5%	-3.8%
Becton, Dickinson and Company (BDX)	18,870	-6.0%	0.85%	5.8%	14.1%
Stryker Corporation (SYK)	17,948	1.8%	0.45%	8.8%	20.7%
Koninklijke Philips N.V. (PHG)	17,001	-5.6%	-0.93%	-5.0%	-2.6%
Baxter International Inc. (BAX)	14,740	3.9%	0.00%	17.5%	-5.4%
Boston Scientific Corporation (BSX)	12,567	1.9%	0.96%	9.0%	19.5%
Zimmer Biomet Holdings, Inc. (ZBH)	7,901	-0.2%	1.83%	0.5%	22.0%
Intuitive Surgical, Inc. (ISRG)	6,118	2.6%	2.63%	16.0%	41.6%
Edwards Lifesciences Corporation (EW)	5,364	0.2%	-0.75%	1.0%	-9.7%
Hologic, Inc. (HOLX)	4,863	-7.0%	10.61%	-15.4%	16.0%
Smith & Nephew plc (SNN)	5,213	0.0%	0.00%	N/A	15.8%
STERIS plc (STE)	4,777	0.1%	-1.64%	2.5%	11.1%
ResMed Inc. (RMD)	3,624	1.3%	0.36%	N/A	-4.7%
QuidelOrtho Corporation	3,036	9.9%	8.92%	8.0%	19.9%
Average	17,634	-0.3%	1.98%	5.2%	11.19%

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Source: Company Data, Khaveen Investments

Based on the table above, the top 15 Healthcare Equipment companies had negative average growth in Q3 2022 of -0.3%. The company with the highest revenue growth was QuidelOrtho with 9.9% revenue growth and the lowest was Hologic which saw its revenues decline by 7%.

Furthermore, 5 companies’ stock prices declined in Q4 while the average stock price change was up 11.2%. Additionally, the average revenue guidance for Q4 2022 for the top 15 healthcare companies is 5.2%, with only 3 companies guiding negative growth.

Thus, we believe this highlights Quidel’s superior performance relative to other healthcare equipment competitors with its highest growth rate in the period which surpassed analyst estimates and revenue guidance for Q4 2022 above the average of the top 15 companies.

Labs Segment Focused on Fast-Growing Immunoassay Opportunity

QuidelOrtho Revenue ($ mln)	3Q 2022	% Of Revenue	Estimated Segment % of Immunoassay
Labs	334.8	42.7%	42%
Transfusion Medicine	163.1	20.8%	0%
Point-of-Care	270.5	34.5%	10%
Molecular Diagnostics	15.4	2.0%	0%
Total	783.8	100.0%

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Source: Quidel, Khaveen Investments

Following the acquisition of Ortho in Q2 2022, the company updated its revenue breakdown by Labs, Transfusion Medicine, Point of Care and Molecular Diagnostics. The company’s Labs segment represented its largest segment at 42.7% of total revenue in Q3 2022. Furthermore, the Labs segment has the highest percentage of revenue from immunoassay. Based on the company’s project pipeline chart above, the Labs segment had the highest number of projects compared to its other segments.

According to Quidel, the Labs segment breakdown consists of immunoassay and clinical chemistry revenues. For Quidel, its clinical chemistry revenue represented the largest contributor to the segment revenue at 58% followed by immunoassay. In comparison, the market breakdown for the immunoassay is larger at 68% compared to 32% for clinical chemistry. According to Quidel, the immunoassay segment is projected to grow faster at a CAGR of 7% compared to 4% for clinical chemistry.

Furthermore, the company highlighted its plan to expand its IA Menu with “20-25 New/Refreshed Assays” lower-cost platforms for emerging markets. Additionally, the company highlighted its “China localization requirements” strategy after the company announced its joint venture with Runda Medical, a vitro diagnostic (IVD) company in China serving more than 4,000 public medical institutions. The company stated the partnership is to manufacture immunoassay products under its VITROS platform for the Chinese market. Also, we believe this partnership could benefit Quidel as the company and Runda Medical has a relationship for almost 2 decades.

Large TAM Opportunity for Labs Segment

Based on Quidel’s investor presentation, the company highlighted the TAM opportunity for its Point of Care, Labs, Molecular Diagnostics and Transfusion Medicine segments. Based on the chart, the TAM for its Labs segment is the highest at $28 bln, followed by Molecular Diagnostics ($9.3 bln), Point of Care ($8.1bln) while its Transfusion Medicine is the smallest ($2.3 bln). In terms of the growth rate, the Molecular Diagnostics segment has the highest CAGR with a midpoint of 9% followed by Point of Care (7%), Labs (5.5%) and Transfusion Medicine (3%).

Quidel Segments	TTM Revenue ($ mln)	TAM ($ bln)	% TAM Captured	Company Estimated CAGR	Market CAGR
Labs	1,345	28	4.8%	5.5%	6%
Transfusion Medicine	675.3	2.3	29.4%	3.0%	6%
Point-of-Care	463.1	8.1	5.7%	7.0%	6%
Molecular Diagnostics	20.7	9.3	0.2%	9.0%	6%

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Source: Quidel, Fortune Business Insights, Khaveen Investments

Based on the company’s TTM revenue, we divided its segment revenue by its TAM to calculate the revenue as a % of TAM which is the TAM captured by the company. Also, we compiled the company’s estimated CAGR from the investor presentation and compared it with the IVD market CAGR by Fortune Business Insights of 6%. We believe the company’s estimated CAGR are reasonable as they fall in line with the market CAGR.

As seen in the table, its Transfusion Medicine segment has the highest % of TAM (29.4%) but has the lowest CAGR. On the other hand, Molecular Diagnostics has the lowest % of TAM but the highest CAGR.

Though, we believe that its Lab segment presents the highest opportunity for the company as it has the highest TAM of $28 bln with a % of TAM of 4.8%, the second lowest. Furthermore, while the segment’s CAGR is lower than Point-of-Care and Molecular Diagnostics, it is still higher than Transfusion Medicine.

Risk: Regulatory Review

We believe that its Labs segment presents a large opportunity to the company with its highest number of projects in Phase 4, (11 out of 38 or 29% of projects). Phase 4 is when regulatory approval takes place. However, we believe that the company’s growth outlook could be impacted if it fails to obtain regulatory approval for its products.

Verdict

All in all, we believe this highlights Quidel’s superior performance relative to other healthcare equipment competitors with its highest growth rate in the period which surpassed analyst estimates and revenue guidance for Q4 2022 above the average. Moreover, we believe the company’s Labs Segment could benefit from its focus on the faster-growing immunoassay segment as it highlighted its planned product launches and partnership in China. Moreover, we believe the Labs segment has the greatest opportunity for growth for the company based on its TAM which is the largest among its segments and has a low revenue as a % of TAM relative to other segments. Based on our previous analysis of Quidel, we obtained a price target of $330.66 which is an upside of 284%, thus maintaining our Strong Buy rating.