The pandemic highlighted the critical role that diagnostic testing plays in healthcare.

As the virus spread around the world, there was unprecedented demand for tests to identify infections and monitor their spread.

One company that benefited greatly from this was QuidelOrtho (QDEL). It is a leading manufacturer of diagnostic healthcare products.

During the peak of the pandemic in 2020, the company ramped up production of COVID-19 tests to meet surging global demand.

This included molecular diagnostic tests, antigen tests, and other solutions that helped clinicians identify and manage COVID-19 cases. The large testing volumes powered strong financial results for QuidelOrtho during this period.

While the normalization of COVID-19 testing post-pandemic impacted revenues last year, the company still managed to achieve 25% Uniform return on assets ”ROA” and 22% asset growth.

This is the result of QuidelOrtho’s expanding into new areas like molecular diagnostics and immunoassay technologies. This diversification positions the company to capitalize on emerging healthcare needs beyond the pandemic response.

The company’s R&D efforts have yielded a robust pipeline of products in development. This includes tests for other infectious diseases as well as clinical areas like cardiac and thyroid disorders.

Furthermore, stepping into his role in May 2024, CEO Brian Blaser made it clear that he plans to improve operational efficiency and expand the company’s product offerings beyond COVID-19.

Blaser’s first major move was to implement a $100 million cost-saving initiative, which included reducing the global workforce by 7%. This was a difficult but necessary step to streamline operations and improve margins.

Innovation is another critical piece of QuidelOrtho’s strategy. The company’s R&D spending has been declining as a percentage of revenue, which has raised concerns about its ability to stay competitive.

To address this, Blaser has refocused R&D efforts on a few key programs that have the potential to drive significant growth.

One of these programs is the Savanna platform, a molecular diagnostics system. The platform is designed to offer quick, accurate testing for various conditions, including respiratory infections and sexually transmitted diseases.

Despite being late to market, Blaser believes that Savanna has the potential to be a game-changer in the Molecular Point-of-Care market.

The company is pushing to complete clinical trials and launch the product in 2025, alongside other new assays for the Sofia platform.

Due to the market’s concerns over post-pandemic demand, QuidelOrtho’s stock currently trades at a 15x Uniform P/E.

However, continued diversification and an innovative pipeline may alleviate these concerns over time. If new products are successfully commercialized, there remains equity upside potential for shareholders.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

This portfolio analysis highlights the same insights we share with our FA Alpha Members. To find out more, visit our website.