NEW YORK – As Danaher has expanded its manufacturing capacity throughout its entire portfolio of businesses during 2021, demand for Cepheid's respiratory tests continues to grow and take advantage of that capacity.
During a conference call to discuss the firm's third quarter financial results, Danaher CEO Rainer Blair said the firm expects to invest $1.5 billion in total capital expenditures in 2021, including ramping manufacturing capacity as a result of COVID-19 demand.
Some of that capacity has gone to its businesses focused on bioprocessing, such as Cytiva and Pall, but Cepheid has been the main beneficiary of the capacity on the firm's diagnostic side.
"Near term, these investments are supporting existing customer demand and driving meaningful share gain, but they're equally important to support the long-term growth of these businesses where we see significant runway ahead given the underlying structural growth drivers in the sectors they serve," Blair said.
Throughout the third quarter, Cepheid shipped 16 million cartridges — 80 percent of them being the firm's COVID-19-only test and 20 percent the 4-in-1 combination test for influenza A/B, SARS-CoV-2, and respiratory syncytial virus, Blair said. He added that Cepheid expects to ship 55 million respiratory tests in 2021, beating prior expectations of 50 million for the year.
Cepheid also received CE marking and Emergency Use Authorization from the US Food and Drug Administration during the quarter for its expanded combo test, the Xpert Xpress CoV-2/Flu/RSV plus test. The new version adds a third gene target for SARS-CoV-2 detection to ensure it continues to detect mutations in the virus.
While there has also been growth in Cepheid's core non-respiratory test segment, including in sexual health, virology, and hospital-acquired infection testing, respiratory testing-related revenues have been a boon for Cepheid — and Danaher — throughout the pandemic.
Non-COVID-19 testing levels are mostly back to normal, as patients have returned to doctors' offices and hospitals, Blair added. Patient volumes are "nearly at full pre-pandemic rates, if you will, in nearly every geography," he said.
Blair noted that system placements of Cepheid's GeneXpert systems have continued to exceed pre-pandemic rates. Now that many of the labs and healthcare facilities in the US have returned to on-site activity, sales teams have been able to access the facilities.
On the life sciences side, Blair said Danaher is seeing "robust activity," more normalized productivity levels, and additional installations.
In the molecular diagnostics arena, Blair said there has been "strong demand" for Cepheid's point-of-care respiratory testing, partially due to lower vaccination rates in many regions that have upped the demand for testing.
Blair said customers expect the upcoming flu season to be a "much more active" respiratory virus season where the preference will largely be for the 4-in-1 combination test, partially due to more RSV outbreaks. He added that the firm is "seeing an uptick in demand" for the combo test and that the fourth quarter will likely have a 50/50 split between the combo and COVID-only tests.
That demand "still exceeds our ability to supply," and the company is "always working to increase capacity," Blair said. The company is currently forecasting 45 million respiratory tests sold in 2022.
Despite a return to some pre-pandemic operations, Blair said that the firm is mindful of potential variants, outbreaks, and selected lockdowns that could impact the facilities. He said that although Cepheid, and Danaher as a whole, is seeing some supply chain restraints, the firm is working to mitigate any potential negative impact on manufacturing capacity.
Mostly, Cepheid has seen only modest supply chain pressures, and there has been no material impact on the firm's ability to meet demand.
Additionally, it has seen modest inflationary pressures, particularly with labor shortages and logistics delays. However, the constraints are an "opportunity for ourselves to differentiate" Danaher from other companies, Blair said.
The company is building safety stocks and qualifying additional suppliers, hoping to gain additional share since it will hopefully be more prepared than other companies to weather any shortages.
Blair said Danaher is investing in its manufacturing network around the world and in research and development to "drive proprietary innovation in the short and long term." The R&D investments have largely been directed at increases in labor and testing equipment, he added.
Beyond the US, core sales in high-growth markets, led by China, increased nearly 25 percent during the third quarter and represented about 32 percent of the firm's total sales in Q3, Danaher wrote in its Form 10-Q filed with the US Securities and Exchange Commission.
When asked about the market in China, particularly for diagnostics, Blair said there is a need for improved diagnostics solutions in the country and that he thinks Danaher is "ideally positioned here to meet the needs of where China is going."
He added that the company has been investing in China to localize production and that its good positioning in China will "continue to be the case going forward as our businesses continue to gain scale there."