Dive Brief:

• Quidel reported fourth-quarter revenue of nearly $637 million, in line with the company's preannouncement last month, fueled by strong demand for COVID-19 tests. Quidel's stock, which has declined by approximately a third over the past three months, was up more than 11% in Friday morning trading.
• COVID-19 tests generated roughly $512 million in the fourth quarter based on sales of approximately 65 million QuickVue antigen tests. Looking ahead to the first quarter of 2022, CEO Doug Bryant told investors on a Thursday earnings call that Quidel in January saw strong demand for its antigen tests as a result of the omicron surge. However, Bryant said the company in February is "seeing demand moderate in the professional and retail markets, commensurate with lower COVID-19 positive cases."
• Bryant expects that test demand will continue through the second quarter "bolstered by the continued fulfillment of state and U.S. government orders ... unless the government changes direction." While Quidel declined to provide full-year 2022 revenue guidance, Bryant said the first quarter of the year will result in the largest revenue in the company's history. Craig-Hallum analysts in a Friday note said Quidel's previously highest quarter generated revenue of $809 million in the fourth quarter of 2020.

Dive Insight:

The ebb and flow of coronavirus testing demand during the pandemic has made forecasting difficult for diagnostics companies including Abbott Laboratories, Becton Dickinson and Quidel. The most recent omicron variant surge provided a revenue boost to medtechs in the fourth quarter, but with COVID-19 cases in decline, the sustainability of the business in 2022 is in doubt.

Test makers have been bolstered, at least in the short term, by the Biden administration's announcement last month that the federal government will purchase an additional 500 million rapid COVID-19 tests to distribute free to Americans meant to meet the overwhelming demand for testing as the now-waning omicron variant surged across the U.S. The procurement brings the administration's total purchase to 1 billion at-home test kits.

Quidel executives told investors that the company estimates it will ship more than 40 million COVID-19 tests to the government in the first quarter and another 40 million kits in the second quarter, in fulfillment of the approximately 80 million unit order.

"We actually shipped very little in the fourth quarter to the government contract," Bryant said. "We have shipped a bit more in the first quarter, and we're still increasing as we go throughout the remainder of this year. We could 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 into the third quarter as well."

Craig-Hallum analysts noted that the federal government "was lenient during Q4 but now expects [Quidel] to commit to its agreed upon weekly shipments in Q1+."

The analysts wrote that Quidel "does not frankly know the future here, but cited it will be ready with supply and confirmed the previously mentioned (Spring 2021) COVID sales floor of $20-25M in an endemic phase is too low." Craig-Hallum is now modeling approximately $25 million per month of COVID-19 sales on an ongoing basis starting in the third quarter of 2022.

Since Quidel announced its $6 billion acquisition of Ortho Clinical Diagnostics in December, the company's stock price has declined by about a third. Asked during Thursday's earning call if there's something Wall Street is missing about the deal, Bryant said he's not sure the market is missing anything.

"I do see a number of reasons why a number of companies in our space would have lower valuations at the moment," Bryant added. "We're going to keep marching down the path that we're on. We see nothing that would cause our decision-making about what we're doing or how we're doing it to change as a result of what's happening with our share price."

The CEO contends that the Ortho acquisition, which is expected to close in the first half of 2022, will "position Quidel as a global leader in diagnostics, substantially diversifying our product pipeline while widening our global reach and scale," making it "one of the larger pure-play diagnostic companies in the industry."

Bryant also noted that $90 million in expected cost synergies between the two companies have been identified that "we think are achievable" by the end of the third year.  

Craig-Hallum analysts commented that Quidel's stock "drifting lower with a cash-rich, earnings-rich story has been nothing short of puzzling."

Bryant seemed unfazed, telling investors that while the company's leadership cares about the share price, "my job and the job of the executive team at this stage is to communicate our plan" and then execute against it.