Diagnostics and Genomics Giants Showcase Latest Updates at J.P. Morgan Healthcare Conference Day 2

Source: 360Dx

At the 42nd Annual J.P. Morgan Healthcare Conference, diagnostic and genomics tool companies presented their latest operational updates to investors.

The following is a brief report of each presentation at the conference. Reports from the first day of the conference can be accessed here.

Danaher CEO Rainer Blair said at the J.P. Morgan Healthcare Conference that the company's Q4 2023 performance exceeded expectations. The core revenue of its base business declined in the mid-single digits, but revenues across all segments were slightly higher than expected. Its subsidiary, Cepheid, generated over $600 million in respiratory testing revenue, also surpassing forecasts.

Blair Highlighted the Shift in the Respiratory Testing Market Since the COVID-19 Pandemic, with Cepheid’s Respiratory Testing Revenue Increasing from Approximately $250 Million Annually Pre-Pandemic to Over $1 Billion Annually. Since the Start of the Pandemic, Installations of Cepheid’s Molecular GeneXpert Systems Have More Than Doubled, and the Company’s Quadruple Combination Test for Influenza, Respiratory Syncytial Virus, and COVID-19 Is "Extremely Sticky, Highly Competitive, and We Believe Can Be Sustained Long-Term." Blair Estimates That 70% of Respiratory Testing Revenue Comes from the Quadruple Combination Test, While 30% Comes from Standalone COVID-19 Tests.

Blair predicts that Cepheid will continue to capture market share, and customers will keep consolidating point-of-care testing platforms. "This pandemic has been a form of advertisement for Cepheid. Customers have adopted assays beyond COVID-19 on the GeneXpert platform, and new assays released by Cepheid have also seen success, all of which are growth drivers for Cepheid."

The COVID-19 pandemic also provided Danaher with an "unexpected windfall" to make deals, which Blair attributed to Danaher's $5.7 billion acquisition of Abcam last year and its $9.6 billion acquisition of Aldevron in 2021. Danaher "is well-positioned … to further deploy capital in the future," with a strong and active pipeline of transactions.

Blair pointed out that 2024 will be a transitional year, especially for the bioprocessing business, which has been impacted by a significant downturn in the biopharmaceutical financing environment. Danaher anticipates improvement in its bioprocessing business in the second half of 2024. Bioprocessing customers are returning to more regular ordering patterns, and the company has seen consecutive performance improvements from the third quarter to the fourth quarter of 2023.

Danaher also expects the life science equipment market to eventually normalize in 2024, although Blair noted that this market accounts for less than 10% of sales in the company’s product portfolio. Part of the softness in the company’s life science instruments business is due to a loan subsidy program in China that pulled forward the acquisition of many life science research tools into the first half of this year, resulting in a 10% decline in orders in the fourth quarter of 2023. "We still have some time to navigate the various dynamics impacting China, particularly in the life sciences sector."

Moreover, large pharmaceutical clients are exercising more caution in capital expenditures, but Blair noted that this issue will gradually ease as R&D budgets grow. The procurement of life science tools has been impacted by the depletion of venture capital funding in the biotechnology market, but the market will normalize as funding improves. Some high-end equipment was not significantly affected in the fourth quarter, but these devices are "associated with longer delivery times" and thus do not "reflect the industry's capital expenditure sentiment."

Blair said, "We believe it will take some time before we see a decline in large capital expenditures, but in the meantime, we expect shorter-cycle life science equipment to pick up again."

Abbott CEO Robert Ford stated during his presentation at the 42nd Annual J.P. Morgan Healthcare Conference that the company's core foundational businesses have "once again become the growth driver for the company" following a significant decline in demand for COVID-19 testing. The year 2023 was a "pivotal year" for Abbott as it "successfully moved past the impacts of the pandemic, which temporarily distorted our results for a couple of years." Abbott anticipates maintaining the momentum achieved in the first nine months of 2023 into 2024.

Abbott Laboratories, headquartered in Abbott Park, Illinois, is scheduled to release its fourth-quarter earnings on January 24.

Abbott is "going to grow faster than we were pre-pandemic," Ford said, noting that the company's global business is a vital part of its operations. He pointed out that more than half of the company’s revenue comes from markets outside the U.S., with over a third derived from emerging markets.

Ford also discussed the company's M&A strategy, stating that Abbott is always looking for opportunities in capital allocation. With its existing product portfolio and pipeline, Abbott can maintain a high single-digit organic growth rate. Therefore, the company does not feel "the need to rely on acquisitions to sustain our growth model," and it can "be more selective and strategic." Abbott primarily focuses on diagnostics and medical devices as key areas for M&A. However, Ford mentioned that Abbott is open to opportunities in other business areas if they make sense.

"We will carry out transactions that make sense both strategically and financially."

Hologic CEO Stephen MacMillan highlighted the benefits that the COVID-19 pandemic brought to Hologic's business, as it increased the global deployment of Panther systems.

These initiatives have driven business growth beyond COVID-19 testing. MacMillan said that since 2019, the company's installed base of instruments has nearly doubled to about 3,260, also making Hologic stand out in the markets of many countries where it was previously a small player.

"In the next few years, what we need to do is to place more assays on this installed base. From 2019 to 2023, excluding COVID-19, the company's molecular diagnostics revenue grew by approximately 80%, and overall diagnostics revenue, excluding COVID-19, increased by over 40%."

Hologic CFO Karleen Oberton stated that the newly placed Panthers have shown strong stickiness since the pandemic. Since April 2020, over 90% of the placements have run at least one assay other than COVID-19, and more than 55% have run at least two other assays. During the pandemic, Panther devices were not under contract because the company couldn't meet everyone's needs, but with the addition of new assays, contracts of at least five years have now been signed.

She noted that customers have embraced other assays across the menu, led by the company’s bacterial vaginosis and candidiasis assays. In the first quarter of fiscal 2024, Hologic's BV/CV assay and respiratory test menu performed strongly, with a rise in respiratory testing at the end of the quarter correlating with an increase in respiratory diseases in the U.S.

MacMillan also introduced the upcoming Genius Cytology Digital Diagnostic System based on artificial intelligence, which is expected to receive approval from the U.S. Food and Drug Administration in early 2024. The system has already been launched in Europe and received CE certification in 2020.

He also explained the company’s M&A outlook for 2024 and 2025, noting that "there will still be a lot of good opportunities," including carve-outs of divisions from large companies and entire private and public companies potentially coming to market. MacMillan is "not sure if the valuation reset for private companies matches the public markets," but he believes there will be many other opportunities. In terms of deals, Hologic can "remain disciplined and patient."

Thermo Fisher Scientific President and CEO Marc Casper discussed the company's upcoming $3.1 billion acquisition of Olink, an affinity proteomics company, and noted that the company took advantage of the stock price decline to add what he described as "amazing complementarity to our mass spectrometry and life sciences solutions."

Casper said that Thermo Fisher Scientific has been keeping an eye on Olink "for a while," but for most of the time, Olink's valuation made it impossible to be an acquisition target.

Thermo Fisher Scientific announced plans to acquire Olink in October, but the deal was delayed due to a planned investigation by UK regulators into whether the transaction would reduce competition in the field.

Casper also forecasted a growth rate of approximately 1% for 2024, noting that the company anticipates the coming year to be a "mirror" of 2023, with a challenging first half and stronger growth in the second half.

He expressed optimism about Thermo Fisher Scientific's high-end products, particularly emphasizing the company's Orbitrap Astral mass spectrometer introduced at the American Society for Mass Spectrometry annual conference in June. This week, the company announced an agreement with liquid chromatography firm Evosep to combine the sale of Evosep’s sample separation products with Thermo Fisher Scientific’s mass spectrometry systems, including an end-to-end sample preparation workflow designed to work with the Orbitrap Astral.

The customer adoption rate of Orbitrap Astral has been "incredibly high," he added, "even in more challenging environments," the company has seen strong demand for the system.

Casper said, "My experience of over 25 years in the industry is that clients will find funding for high-end products regardless of the environment. When the environment is challenging, more conventional equipment will put pressure on you."

Revvity CEO Prahlad Singh Discusses the Impact of China's Market Slowdown in 2023, Affecting Many Diagnostic and Life Science CompaniesWhile 17% of Revvity’s revenue comes from China, the company saw only mid-single-digit revenue growth in the country in 2023. This is partly due to its differentiated product portfolio, with 10% of its revenue coming from diagnostics and 7% from life sciences. In diagnostics, the company continues to experience growth in autoimmune and allergy sectors. In life sciences, its equipment business faces pressure, with over 50% of revenue derived from reagents.

Although the company's prices in China saw a mid-single-digit percentage decline year over year, its focus is on bringing "differentiated testing to this market because we don't have as many competitors in this market, and there's a need for these products."

In 2024, Revvity's primary growth driver will be cross-company innovation, as the company leverages more than a dozen acquisitions made over the past two years. Singh noted that there is "much work to be done" in terms of acquisition integration, and the company will also focus on organic and inorganic investments as well as capital deployment. It will "continue to seek acquisition opportunities, looking for technologies or portfolios that can enhance our existing offerings or help fill any potential gaps."

Singh said, "As we integrate these acquisitions, we are only beginning to see the early fruits. 2023 was a year with higher deviations from the norm, but I am very confident that the market will turn around and return to a more normal growth phase."

Given the preliminary revenue released on Tuesday, Singh stated that all end markets performed slightly better than expected. The company anticipates revenue of at least $690 million for the fourth quarter of 2023, surpassing the analysts' consensus estimate of $669.5 million, but organic revenue from continuing operations will still decline by 8%. Excluding the impact of COVID-19-related businesses, organic revenue decreased by 4% year-over-year.

Singh said that the decline in applied genomics business was due to reduced spending by many clinical laboratories and budget tightening in the pharmaceutical industry, similar to what has been seen in the life sciences sector.

A swing factor for the company in 2024 is spending in the pharmaceuticals and biotechnology markets, which have been a headwind for several companies in the life sciences sector over the past year. Singh stated that the immunoassay business is also expected to achieve double-digit growth.

Agilent Technologies CEO Mike McMullen said at the 42nd Annual J.P. Morgan Healthcare Conference that the company expects 2024 to be a "transitional" recovery year, with growth expected to be below the company's long-term average growth rate of 5% to 7%. He also noted that despite volatility in prior years, the company is seeing signs of stabilization in instrument demand and revenue from China.

Agilent CFO Robert McMahon said in a speech that the company expects revenue to hit a low in the first quarter, followed by an increase and achieving growth by the end of the year. Agilent anticipates modest growth in revenue from its largest market — the pharmaceutical industry — with a slow recovery throughout the year.

In the diagnostic field, McMullen stated that the company is focusing its investments on cancer testing and therapy development. The growing demand for personalized therapies is driving the need for companion diagnostics with applications in pathology. "As we all know, unfortunately, the number of global cancer cases continues to rise, which is driving the demand for more testing."

Agilent also plans to increase investment in its cell analysis division, which has grown by an average of about 10% over the past four years and now represents a business scale of approximately $400 million. As part of a restructuring aimed at accelerating growth, Agilent recently integrated this division into its Diagnostics and Genomics Group.

McMullen said on Tuesday that the Cell Analysis division and the Diagnostics and Genomics division share many of the same customers, and this move aligns the company’s teams serving these customers while providing opportunities to connect workflows across products.

McMahon added that the company anticipates a slight decline in the growth rate of the Diagnostics and Genomics segment on an adjusted basis, shifting from low- to mid-single-digit revenue growth this fiscal year to low single-digit growth, with a mid- to high-single-digit decrease expected in the first quarter.

McMullen stated that Agilent's revenue from pharmaceutical customers declined overall in 2023, but the industry had maintained growth in previous years and remains a top priority for the company’s investments. He also noted that the company’s pharmaceutical industry revenue increased from $1.6 billion in fiscal year 2019 to $2.4 billion in fiscal year 2023, with most of the growth driven by biopharmaceutical revenue.

McMahon said that, meanwhile, revenue from China is expected to decline in the mid-single digits in fiscal year 2024, while other markets, including the Americas, are poised for recovery and growth. However, McMullen noted that Agilent has already seen early signs of stabilization in revenue from China, and he predicted that these revenues will return to growth, likely in 2025.

McMullen confirmed Agilent's previous guidance that Agilent expects revenue for the first quarter of fiscal 2024 to be between $1.56 billion and $1.61 billion, with non-GAAP earnings per share between $1.20 and $1.23, as well as the previous guidance that full-year revenue for fiscal 2024 is expected to be between $6.71 billion and $6.81 billion, with earnings per share between $5.44 and $5.55.

Adaptive Biotechnologies CEO Chad Robins said the company plans to make a decision on restructuring its minimal residual disease (MRD) and immune medicine businesses by the end of the first quarter of 2024.

Robins pointed out that these two businesses are at different stages of maturity and have different natural investor bases. On Tuesday this week, he stated that there are currently multiple options, including operating the two businesses independently. However, the company will almost certainly not maintain the status quo.

At the same time, Robins outlined some priorities for 2024 and beyond aimed at growing both businesses. For Adaptive's MRD business, the company aims to increase the proportion of hemoglobin MRD tests in blood from 39% to 50%; expand into new indications, particularly non-Hodgkin lymphoma; broaden patient use cases, including currently marketed indications and those coming to market; and continue integrating its tests into clinical workflows. Regarding the last priority, the company is working on EMR integration with Epic, having completed five installations to date, with plans to install an additional 15 to 20 in 2024.

Robins said that the company believes the business will become profitable in the second half of 2025 as it works to increase MRD test volumes and average selling prices while reducing costs.

In terms of immunotherapy, Adaptive Biotechnologies and its collaborator Genentech, a subsidiary of Roche, plan to advance a T-cell receptor (TCR)-based therapy into clinical trials this year. Robins also highlighted the company’s efforts in autoimmune diseases, noting that they have identified an antigen target in multiple sclerosis, which they believe could serve as a viable drug target for treating multiple sclerosis and other autoimmune conditions, including type 1 diabetes, rheumatoid arthritis, and inflammatory bowel disease.

"We are working on in vitro and in vivo models to further confirm this target."

CEO Steve Chapman further noted in Natera's preliminary Q4 and fiscal year 2023 earnings report, released Tuesday morning, that revenue growth was primarily driven by the Signatera minimal residual disease test, which has reached "near peak levels" in growth. The average selling price (ASP) of the test also showed significant upward momentum.

He pointed out that the company is also expected to achieve cash flow breakeven in 2024 and reduce annual cash burn by approximately $200 million in 2023.

Increasing reimbursement levels has always been a key focus for Natera, which has taken steps to raise the cost of its tests. Chapman said that the company has improved its billing operations to further increase the average selling price. "In terms of core business, without new guidelines, new Medicare coverage, or new commercial insurance coverage, we are receiving higher payment rates simply because we are operating more effectively."

Solomon Moshkevich, president of the company's clinical diagnostics division, said that the company has also submitted multiple applications to Medicare's MolDx program, hoping to expand Signatera to more cancer indications to increase reimbursement rates. "In these areas, we have conducted a large number of commercial tests; we just haven't charged as much as we would after receiving approval."

Chapman also discussed the upcoming clinical trial results in 2024. The company’s randomized trial, ALTAIR (ctDNA-guided treatment escalation arm) — part of the CIRCULATE Japan trial, which evaluates the utility of Signatera in colorectal cancer patients — is expected to release results in the first half of this year and could become a catalyst for the company’s growth. Moshkevich added that if the results are positive, they could also have a favorable impact on reimbursement.

Biomarker laws at the state level could also impact payment and reimbursement. Multiple states have enacted provisions mandating that if a biomarker test is covered under Medicare, commercial payers must cover the cost of the biomarker test. About 60% of Signatera’s business serves beneficiaries insured by commercial payers, but a significant portion of those tests currently go unreimbursed—a situation that will change under biomarker legislation. These changes could potentially double Signatera’s average selling price, though Natera’s model remains conservative since “we haven’t seen this before,” Chapman said.

Other potential catalysts include: commercial payor coverage for the Prospera test used in kidney transplant assessment; inclusion of its women’s health tests (potentially for 22q11.2 deletion or carrier screening) in guidelines; and product launches in both its core business and new areas.

Chapman emphasized the innovation of its non-invasive prenatal test (NIPT), Panorama, in screening for 22q11.2 deletion syndrome, which is also a key focus area for the company. Panorama uses SNP-based technology to target a very small region of the genome in cell-free DNA, allowing it to achieve over 25 times the reads in specific regions of interest compared to tests using massively parallel sequencing.

In the company's microdeletion and aneuploidy registry (SMART) trial, Panorama NIPT tested over 20,000 patients, among whom 12 fetuses were diagnosed with 22q11.2 deletion syndrome. Panorama detected 10 of these cases (with a sensitivity of 83.3%) and a positive predictive value close to 53%. The results were published in the American Journal of Obstetrics and Gynecology in 2022. By the end of 2022, the American College of Medical Genetics and Genomics conditionally recommended offering non-invasive prenatal screening for 22q11.2 deletion to all patients.

Chapman said that the company also expects to preliminarily read the performance data of its early cancer detection in 2024 and, based on the results, consider starting clinical trials in 2025 or 2026 to support submission to the U.S. Food and Drug Administration.

Chapman also briefly introduced Natera's patent infringement victories in 2023, including permanent injunctions against Invitae and ArcherDx, as well as a preliminary injunction against NeoGenomics. Obtaining injunctions is challenging, which highlights the strength of Natera's intellectual property.