Dive Brief:

• Hologic's update Friday that its organic year-over-year revenue growth may reach 60% this quarter, at least $250 million above Wall Street consensus, impressed sell-side analysts, many of whom see the company's capitalization in the COVID-19 environment being sustainable.
• The medtech could be "an intriguing 'COVID Hedge' where the company stands to benefit on both sides of COVID," SVB Leerink analysts wrote Friday. That is, its medical device businesses could improve in the face of healthcare system recovery, while diagnostics will see sustained demand in the event of a second wave of infections.
• Separately, on Monday the company initiated a private $950 million offering of senior notes due 2029. Hologic also announced its HIV-1 assay received designation through the World Health Organization prequalification program for testing dried blood spot samples of people with the infection to monitor viral load and disease progression.

Dive Insight:

In the year before COVID-19 upended healthcare, Hologic was gradually finding its footing. While 2019 saw growth in its breast health and diagnostics businesses, its Cynosure medical aesthetics business continued to drag on performance. Hologic ultimately sold Cynosure for $205 million at the end of the year, a fraction of the $1.6 billion it spent to acquire the company in 2017.

Fast forward to July 2020: the company's fiscal third quarter report featured a nearly 170% jump in molecular diagnostics revenue and management claimed that it had provided at least a quarter of U.S. coronavirus test results. Hologic projected fourth quarter revenues between $925 million and $1.025 billion.

While sales in the company's breast, skeletal health and surgical businesses are improving as health systems recover, Hologic largely attributed its revised quarterly revenue estimate — raised to a range of $1.225 billion and $1.275 billion on Friday — to continued momentum in COVID-19 testing.

Cowen analysts calculated that Hologic is on track to produce up to 30 million COVID-19 tests during the full quarter, about 40% higher than the firm's previous forecast, for an average of roughly 2 million tests per week, above Hologic's expected 1.5 million. "We continue to expect [Hologic] to sell as many tests as it can produce through at least the next flu season," the analysts wrote.

With the updated numbers from Hologic, analysts at Jefferies now believe Hologic's share accounts for as much as 40% of the U.S. COVID-19 testing market. And despite the fact that it's not competing in the growing antigen testing market tapped into by Abbott, BD and Quidel, "molecular testing will remain the gold standard for diagnosis," the analysts predict.

Analysts at William Blair estimate the company could end fiscal year 2021 with approximately $2.5 billion in cash, a big jump from the $600 million it had at the end of fiscal 2019 and the $800 million in March of this year.

"How it decides to use this cash (debt paydown, more aggressive M&A, buybacks, etc.) is a debate we believe will heat up in the coming months and, along with the placement of many more instruments in the field, could end up being the lasting legacy of the COVID-19 windfall that the team is experiencing." Hologic ast month announced the $80 million buyout of benign uterine fibroid treatment maker Acessa, which it will add to its women's health business.

William Blair analysts acknowledged potential risks such as supply chain disruptions or an overall decline in COVID-19 lab testing once a vaccine, therapeutic or testing innovations outside of labs become widely available.

"Yes, we know that this kind of insatiable demand will not last forever," the analysts wrote, but, "whether or not this demand is with us for one, two, or four-plus quarters, all diagnostic companies playing in COVID-19 should be set up for big upside to what has generally been conservative guidance."