On November 4th, Hologic announced its financial results for Q3 2020. Due to the companies reporting cycle this was its fourth fiscal quarter. The results show that Group sales revenue grew at an explosive pace during the quarter, driven by COVID-19 related demand from the diagnostics segments. Group sales reached $1,347m during the quarter, compared with $865.8m during Q3 2019, an increase of approximately +56% year-on-year. This propelled cumulative 2020 sales to $2.93bn, compared with $2.54bn during 2019, an increase of approximately +15% year-on-year.
The company has four reportable segments; diagnostics, breast health, surgical and skeletal health. The explosive sales growth was driven by the diagnostics segment which reported sales growth of +200%. This was partially offset by lower sales from the remaining segments.
Diagnostics
The diagnostics segment includes its Aptima family of assays, Panther solutions as well as its latest product, SARS-CoV-2 assays to diagnose Coronavirus disease. The sales growth during the quarter came in well ahead of expectations and the outperformance was driven by unprecedented global demand for our COVID tests on the Panther system. During the quarter, the company produced circa 50 million molecular diagnostics tests, of which circa 25 million were COVID tests. During the Q3 earnings call, Stephen MacMillan, Chairman, President and CEO describes how during the early stages of the pandemic, the diagnostics R&D team worked around the clock to develop a COVID test for the Panther Fusion System in about two months. As soon as this received emergency use authorisation, they began working on a second test to use on its older Panther systems. Stephen commented: “early on, in response to the massive public health need, we set a goal to double our overall Molecular Diagnostics production capacity from about 20 million to 40 million tests a quarter. A capacity expansion of this magnitude would normally happen over eight to 10 years, but we set out to make it happen in six months. As you can probably tell from our financial results this quarter, we have already exceeded this goal in terms of both size and speed.”
Breast Health
The breast health segment includes breast imaging and related products and accessories, including digital mammography systems, computer-aided detection (CAD) and breast biopsy guidance systems. Sales originating from the breast health segment also encompasses the companies stake in SuperSonic Imagine as well as breast-related products from its prior acquisitions of Focal Therapeutics and Faxitron Bioptics. The segment continued to be negatively impacted by the Coronavirus pandemic although sales performance significantly improved relative to the prior quarter. Total sales from the breast health segment reached $289.2m during the quarter, compared with $342.6m during Q3 2019, a decrease of approximately -16% year-on-year. This took cumulative 2020 sales from breast health to $821m, compared with $990m during 2019, a decrease of approximately -17% year-on-year. The sales result during the quarter was driven by lower demand for mammography equipment which was partially offset and “cushioned” by the consumables and services business which “essentially returned to their pre-COVID levels” – (Michael Watts,Vice President, Investor Relations and Corporate Communications, Q3 earnings call). Sales from the consumables business were flat, helped by the relaunch of the Brevera biopsy system late in the quarter. The service business grew marginally.
GYN Surgical
The GYN Surgical segment includes the NovaSure Endometrial Ablation System and MyoSure Hysteroscopic Tissue Removal System. Sales origination from the surgical segment reached $100.2m during the quarter, compared from $114.5m during Q3 2019, a decrease of approximately -12% year-on-year. This took cumulative 2020 sales to $257m compared with $329m during 2019, a decrease of approximately +22% year-on-year. The sales performance during the quarter continued to be negatively impacted by COVID-19, although the trends significantly improved relative to the prior quarter as patient volumes steadily increased toward normalised levels.
Group sales by geographic region
From a geographical perspective, the sales growth during the quarter was driven by explosive sales growth from customers based within the United States as well as Europe. Sales from these geographies were +52% and +154% higher year-on-year respectively. Growth from these geographies was partially offset by lower sales from Asia-Pacific and the rest of the world. The company is playing a crucial role in the diagnosis of COVID-19 within Europe and the company is on track to generate more than $1bn in total from Europe this year. Currently, around $600m of this is COVID related revenue. Over the previous 5-years, the company has developed it’s Europe business through hiring experienced senior leaders as well as changing it’s distribution model away from distributors and strengthened its direct commercial capabilities. The business was already seeing the benefits of this investment prior to the pandemic and when the pandemic hit, the company was already in an excellent position to contribute with its diagnostic solutions.
Expectations for Q2 2020
During the Q3 earnings call, Michael Watts commented:
“We forecast that Diagnostics revenue in the first quarter (calendar Q4 2020) could triple or more compared to the prior-year period. Underpinning this, we expect that demand for our two COVID assays will continue to exceed supply this quarter. As Steve said, we are further expanding production capacity for our molecular tests, but most of this capacity will come online later in 2021. Based on this timing, we forecast COVID assay sales to increase slightly in the first quarter compared to the fourth (calendar Q3 2020), commensurate with a small sequential increase in production. We also expect that our combination test for COVID and flu, which we submitted for a EUA last week, will be available later this quarter.
We anticipate sales in both Breast and Skeletal Health and Surgical to be down again in the first-quarter, although with slightly better percentage declines than in the fourth quarter. In Breast and Skeletal Health, let me remind you that first quarter sales often decline sequentially in absolute dollars compared to the fourth quarter due to seasonality around the holidays.
And in Surgical, we believe our customers are much better prepared than they were in the spring to manage through local increases in COVID prevalence. So while we do expect trends to continue improving, we will keep a close eye on whether increasing COVID cases have a negative effect on elective procedures. As you update your forecasts, let me remind you that macro uncertainty remains higher than normal due to the pandemic. While our visibility has improved compared to several months ago, we would still encourage you to model in the middle of our ranges, which incorporate both potential upsides and downsides.”
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