Becton, Dickinson and Company
Q1 2021 Earnings Call Transcript

Published: 4 Feb 2021

[Operator:]

Hello, and welcome to BD’s First Fiscal Quarter 2021 Earnings Call. At the request of BD, today’s call is being recorded. It will be available for replay through February 11, 2021, on the Investors page of the bd.com website or by phone at [phone] for domestic calls and area code [phone] for international calls using confirmation number 6993448.

[Kristen Stewart:]

Thanks, Stephanie, and welcome to BD’s review of our first fiscal quarter results. Joining me today, we have Tom Polen, Chief Executive Officer and President; Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer. During the Q&A portion of the call, we will have our three segment presidents joining us as well

[Thomas Polen:]

Thank you, Kristen, and good morning, everyone, and thank you for joining us. We are very pleased with our Q1 results, which were ahead of our expectations, reflecting the tremendous efforts and execution of BD’s 70,000 associates. The essential role of our products and solutions and healthcare and a greater resiliency of the health care system in treating both COVID and non-COVID patients.

[Christopher Reidy:]

Thanks, Tom, and good morning, everyone, and thanks for joining us today. We are very pleased with our fiscal first quarter revenue and adjusted earnings per share performance, both of which exceeded our expectations. Total revenues were over $5.3billion, in line with our January 12 pre-announcement. Revenues increased 25.8% on a reported basis and 24.3% on an FX-neutral basis. COVID-19 diagnostic revenues accounted for 20.3 percentage points of growth. The better than expected performance came from three areas

[Kristen Stewart:]

Thanks so much, everybody. And with that, I’m going to open it up to the operator, Stephanie. Stephanie, could you please read the instruction?

[Operator:]

Our first question is coming from David Lewis from Morgan Stanley.

[David Lewis:]

Well good morning and thank you for taking the question and congrats on a nice start to the year. Just two for me, team. So first, just earnings reconciliation, Chris, obviously, beat by more than $1.50, raised by $0.30. And I know you gave some parameters there. But we had pricing reductions in our model. We had 20% reinvestment of that upside in the model, even when you make those kind of adjustments as well as stocking, it is still a little hard to reconcile the upside in the quarter relative to the guide. So I appreciate it is a less visible environment. But is there anything else? Is that investment going higher or anything else we may not be thinking about that would explain why we are not getting this sort of that pull-through in the second, third quarter? Because I think that is going to be the key question this morning of the call.

[Christopher Reidy:]

Sure, David. Thanks for the question. And I would say, first of all, it is early in the year, obviously. So we are raising - but some of the factors that you mentioned we do see playing out in the remainder of the year. So we had a few things going on. Obviously, we mentioned that Veritor, we would expect that revenue to come down in the remainder of the year and moderate, as we talked about. We also had timing in the base business that we would expect to moderate. And to your point, we do expect the investment spending both in the Veritor reinvestment program that we have discussed as well as R&D and quality to ramp. So we started those programs in Q1. We watch that spending with some prudence as we looked at the pandemic playing out. And so we got started, but the ramp really comes in the second, third and fourth quarter. And so when you put all of that into context, you also have to take into consideration a little bit of impact from the resurgence that we saw that we mentioned we have playing out in Q2. So with all of those factors coming into play, we felt that it was prudent to think about the guidance that we gave as appropriate at this point.

[Thomas Polen:]

Dave, this is Tom. Thanks for the comment. Just to reiterate what Chris mentioned, that other topic is that we still are in the middle of a pandemic. We want to be prudent, right. We did see some increases on impacts in procedure volumes in this late December and throughout January. It was certainly less than what we had seen earlier in the pandemic. But there are new strains underway, et cetera. And when we gave guidance at the beginning of the year, we said it excluded, right, the impact of a resurgence. Well, there has been a resurgence. And we have been navigating that very well and actually are raising our outlook in the middle of a resurgence. So we will continue to evaluate as things go forward, but we are certainly pleased with how we started the year.

[David Lewis:]

Okay. So the state of factors you have mentioned, but we are not missing anything, it doesn’t sound like. Okay. The second question for you, maybe Tom, more strategic. This is obviously going to be very good year. We will see significant upside. The balance sheet is obviously in dramatically better shape now than it was a year ago. As you think about 2022, Tom, how are you thinking about the durability of COVID testing? I know it is a challenging question. And then the ability to sort of manage through what is likely going to be sort of a volatile or void driven earnings period as you head into 2022? How are you thinking about sort of 2022 and beyond COVID-wise and sort of managing the earnings process? Thanks so much.

[Thomas Polen:]

Yes, I will start on that, and then I will turn it to Chris as well to share some comments. Let me maybe focus on specifically COVID testing, and then Chris can make some broader comments on the broader business. And we have shared, by the way, in the past, we still remain very confident and expect our revenues, excluding COVID diagnostic testing, and Alaris pump revenues to grow in those mid-single digits on an FX-neutral basis for 2022, and that remains our aim and our expectation. In terms of COVID testing as we go into 2022, certainly, as I had shared before, as we got into COVID rapid testing in last July, obviously, we didn’t have a high expectation that there would be much testing in 2022. And as kind of each quarter has passed since that launch, in July, we have said we are feeling more confident there is going to be some level of testing in FY 2022 and that certainly remains the case. I think one of the ways to think about, as our capacity has gone up in the space, as we recognize the new strains coming in the market, as antigen testing continues to increase in its receptivity and people understand now the value in increasing ways of getting a test result in 15 minutes, you saw us take some actions this quarter to get pricing in that low to mid-teen level, which we think will be more - actually position us well to, as I said, to maintain a leadership position for whatever market continues to evolve going into FY 2022, right. That is part of the thinking. Where the actual market ends up in 2022? I don’t know at this point in time. I think there definitely should be some level of testing. And our aim is to make sure that we are positioned to be a leader in however that testing evolves. And other things that we are investing in as well, be it our combination assay, which is progressing well in our pipeline, the flu COVID assay for our exploration of home testing are all aimed with that thought in mind as well. So maybe, Chris, just maybe some broader comments on FY 2022.

[Christopher Reidy:]

So yes, obviously, we are not going to go through 2022 with any level of precision, but I think it is important to give some high-level comments on it. And as Tom mentioned, the level of COVID testing is a variable that will have a big impact on 2022. We do see the sustainability of testing, but at what level, it is really hard to guess at this point. In addition, there is a lot of other uncertainty around COVID in general, the resurgences, mutations, the uptake of the vaccines. And in our business, obviously, Alaris and when that comes back in 2022 will have an impact. I would remind you that on our November call we said we expected our revenues, excluding COVID diagnostic testing and the Alaris pump revenues, to grow in mid-single digits on an FX-neutral basis. And we continue to see that as a reasonable assumption. We can’t predict when the FDA clearance for Alaris and our focus on making a comprehensive filing to support a timely approval is there, but we would expect some clearance sometime in fiscal 2022. We would also not look at the second half of 2021 as a proxy of what to expect in 2022 because both the gross and operating margins are impacted by several factors. Our operating margin in fiscal 2021 reflects these incremental investments we are making as part of the investment program of Veritor that really helps drive durable growth aligned with our 2025 strategy. And we don’t expect those investments to continue into 2022, so exiting 2021, they’ll roll off and that should help margins going into 2022. The other thing I would point out is that Q1 fiscal 2022 will obviously be the most difficult comp from a margin perspective, given the very strong quarter we just reported. For example, most likely face the most difficult comparison with COVID revenues as well as from the impact of the timing and stocking that we talked about. So we would expect our operating margin to compress year-over-year from the 31.6% that we just achieved. So we will update you more on our thoughts on 2022 as we progress through the year, but we just thought it is important to provide some of those highlights.

[Thomas Polen:]

Yes. And as you mentioned, Dave, we feel really good about the progress of our strategy overall and the underlying business momentum that we continue to build upon.

[David Lewis:]

Thanks so much for the detail.

[Thomas Polen:]

Thank you.

[Operator:]

Your next question comes from Robbie Marcus with JPMorgan.

[Robert Marcus:]

Great. Congrats on a good quarter also and thanks for taking the question. I wanted to touch on one of the slides in the back you have that the underlying basis ex-COVID grew 4% in the quarter, which was a really healthy rate. How are you thinking about that base business ex-COVID growth through the cadence of the year here? That is a pretty healthy start in what was a tough quarter. How should we think about that component of the business throughout fiscal 2021?

[Thomas Polen:]

Okay. Thanks, Robbie. I will let Chris answer that.

[Christopher Reidy:]

Yes. I think one way to think about that is what I mentioned about 2022 is that we expect the base business to be ramping at a mid-single digits. So that is consistent with that. So I think that we feel the underlying business is solidly in that kind of perspective and as we talked about the base business, we expect to be kind of in that low to mid-single-digit level for the full year. And so there is some pressures in the second half of the year on a business-by-business basis. As you think about MMS, there will be some issues. It is going to be lumpy in the remaining quarters. MMS had a significant amount of revenue in the third quarter during the pandemic last year. Other parts of the business will ramp nicely. China, for example, as we lap the COVID impact that really was in Q2 there in China, so we will start seeing some revenue growth from that. But again, that is more of a compare. It is not an indication of the underlying business. But the underlying business really is in that low to mid-single-digit basis. We have some general issues with compared to the - based on the Alaris ship hold. Some of that has been negated by medical necessity. So there is a number of factors going on. But the bottom line of it all is think about the base business, for the remainder of this year in that low to mid-single-digits and exiting into 2022 in the mid-single-digit basis.

[Robert Marcus:]

Great. Maybe just a quick follow-up. You are generating a pretty significant amount of cash here. You got the balance sheet in a great spot last year when things were looking pretty down for COVID, and now things are looking up. So how are you approaching the uses of this cash, particularly as we go into next year? And to follow-up on the last question, there is a question mark about how to bridge some of the earnings. What are you thinking about uses of cash, M&A opportunities across the business? And how much of that might get returned to shareholders?

[Thomas Polen:]

Robbie, I will start with it and turn it over to Chris for some further details. Obviously, you see us investing behind our growth strategy. You see us making investments in capacity, for example, capacity investments in rapid testing, capacity investments in helping the vaccination campaigns, whether or not that is with needles and syringes or the $1.2 billion investment you saw us announced last quarter related to our pharmaceutical systems, pre-fillable devices. We are going to continue to invest in growth. Part of that investing for growth is also our tuck-in M&A strategy, and you saw us begin to accelerate our efforts in that. Last quarter, you are seeing that continue into this fiscal year. And you heard me mention, we have a robust funnel to continue that. We remain very focused with an emphasis on tuck-in M&A as I have been iterating since transitioning into the role that I’m in today. As we think about more broad deployment of capital to create shareholder value, maybe Chris, comment on that?

[Christopher Reidy:]

Sure. Absolutely. And I would just say a few things first. We were very proud of the fact that we really focused on cash during the pandemic. And if you look back, in fact, at the third quarter of last year, our cash flow actually increased year-over-year despite the fact that the revenues were suppressed from COVID. And that was the result of a number of actions that we took in the business around inventories, receivables, payables. And so we are very proud of that. We are really focused on cash. As we mentioned at your conference last month, Robbie, we paid down $265 million of debt. That kind of gets us down to the target. So we see the leverage ratio floating down naturally without the need to pay down debt, which really says that the $5 billion-ish that we have paid down debt over the last couple of years, that strong cash flow that we are generating will be available to allocate to other value enhancements. So we have talked about primarily the tuck-in M&A and share repurchase. And as we get through this pandemic and as that safety net of cash that we have had to ride out the pandemic isn’t as necessary, we will have the ability towards the end of this year. And you have seen our tuck-in M&A ramping up, the pipeline is good. We continue to look at a number of opportunities. And by the end of this year, I think we will be also talking about giving that cash back to shareholders. Because once we get through this period, we don’t see the need to build up cash on the balance sheet. And so we would be returning that to shareholders after a certain amount of tuck-in M&As. So this puts us in a very good position. We have got great cash flow generation and better than ever, and that puts us in a great position to allocate that appropriately.

[Thomas Polen:]

And we continue, just as Chris mentioned, these are all programs with momentum. We have a cash committee that meets basically every week, and we continue to have teams dedicated to that work. So I appreciate the recognition there, Robbie, an d we are going to continue that work.

[Christopher Reidy:]

I think that recognition also came from Moody’s. We felt really good about the fact that they upgraded us to investment grade. In fact, not only did they upgrade us, but they kept the positive outlook, which we really appreciated as well. And so that puts us full investment grade across all three rating agencies, and we fully intend to stay that way Kristen Stewart Thanks for the question. Operator.

[Operator:]

Our next question comes from the line of Vijay Kumar with Evercore ISI.

[Vijay Kumar:]

Good morning guys and congrats on a solid . So maybe I will limit to one question, perhaps a two parter. On the revenue guidance, Tom, did anything change outside of the Veritor coming in at the high end? And the reason I ask is, you guys just did 6 80 in Q1. The guide of 1.5 implies a pretty drastic fall off in Veritor revenues in the back half. And Chris, the margins here, I think, would imply a sub-25% op margins for 2Q to 4Q to get to the guide. That is below your pre-pandemic levels. I’m curious if there are any incremental expenses in the back half.

[Thomas Polen:]

Hey Vijay, a nice approach with the two part one question. So on the revenue side on Veritor, so I think the key thing to talk about there is the pricing comment that I made is one big piece that drives that, right. We said we were above 20% in the last quarter. And as we think about looking forward, we talked about modeling low to mid-teens. So that is the number one adjustment there. And again, that is not new news at all the fact that we have been talking about that we expect pricing to head in that level as our capacity comes online and we are in a better cost position, et cetera. And as more capacity is coming into the marketplace, and so we have taken actions as planned. And that is why we gave guidance. It said expect the revenues to be highly weighted to the first half of the year, and we have said that from day one. I think there remains uncertainty around the effectiveness and timing of the vaccines, especially with additional variants that are out there, et cetera. But we can’t predict what is going to happen there on the second half of the year. And so we remain projecting that there will be very strong demand for antigen testing in the first half of the year and that the second half of the year is less certain. Obviously, if demand stays very high and depending on the dynamics with capacity and demand and how those curves cross over, maybe there could be an opportunity in the back half of the year, but it is way too early for us to think about that as - because it is far from certain or able to be confirmed. So our aim is to position ourselves to be a leader in the space however it ends up evolving. And as we go forward, there will be more clarity there, but certainly a very dynamic environment. Maybe, Chris, on part two.

[Christopher Reidy:]

Sure. On margins, Vijay, Q1 margins were obviously very, very strong. And that was a function of a very, very strong. And that was a function of a number of things. First, the COVID testing, obviously. But the base business was very, very strong as well. And we drove some synergy and continuous improvement kind of margin improvements as well. So all things were positive in Q1. As we think about the rest of the year, you would year, you would expect that COVID testing to moderate as you model expect that COVID testing to moderate as you model that out, obviously. And then don’t forget you also have the unwind of the timing that we saw of the $100 million in Q1. That unwinds in the remainder of the year. But the most important thing is the ramping of investments that we have discussed. So we are investing in R&D. We are investing in quality. We are investing in the Veritor reinvestment program. And all of those things kind of ramp in Q2, Q3 and Q4. And so don’t think about that as an indication of our pre-pandemic margins. It is just completely different. And then those investments go away into 2022. The beauty of it is they begin to drive improvements in growth, in revenue generation, in margin expansion, and those things will kick in towards the latter half of FY 2022. So you get the pickup in margins by them going away and then the benefit of those investments in driving revenue growth and margin improvement going forward. So you can’t look at that as - those are different than pre-pandemic margins. So that is the way to think benefit of those investments in driving revenue benefit of those investments in driving revenue about 2021 as it plays out.

[Vijay Kumar:]

Thanks guys.

[Operator:]

Your next question is from Bob Hopkins with Bank of America.

[Robert Hopkins:]

Well thanks for taking the question and good morning. I will just stick to one topic, especially, Tom, since you mentioned it is still your number one priority. On Alaris refiling, are you guys just waiting on FDA at this point or is there more work that BD needs to do? And if there is more work, what still needs to be done? I’m just looking for a little bit more detailed update there. Thank you.

[Thomas Polen:]

Sure. And thanks, Bob, and good to connect. So as I mentioned, we remain on-track for the submission in late fiscal Q2 or early Q3. And we are not waiting on anything specific from the FDA. These are very comprehensive submissions, right, think 1,000 plus page filings that take time to prepare and have a lot of comprehensive data in them. And so, we have always said from the start, our focus isn’t in rushing into a submission, but it is around ensuring a comprehensive submission that is going to achieve our ultimate goal, which is a timely FDA review an d clearance. And so that remains our focus from that perspective. Obviously, Q2, Q3 is coming up upon us here. The teams are making great progress, and we continue to iterate that time line. We will continue, as we have in the past, as we get to those dates, we will provide updates at public conferences or as appropriate.

[Robert Hopkins:]

Okay. So not that everything is into the agency and you are just waiting to hear back from them? You guys are still putting the package together to submit?

[Thomas Polen:]

Correct. You can expect that, once we are still putting submit, we will communicate that in appropriate form, but we are preparing to submit in the time line that I mentioned.

[Robert Hopkins:]

Great. Thanks very much.

[Operator:]

Your next question is from Richard Newitter with SVB Leerink.

[Richard Newitter:]

Thank you very much. Just given that you are clearly accelerating tuck-in M&A from the capital deployment standpoint, which makes a ton of sense, especially with the COVID windfall and your free cash flow generation, should we be thinking about the contribution for what you might do on a more aggressive kind of M&A front going forward as maybe bringing you more towards kind of upper mid-single-digit kind of growth profile or even maybe high single digits? I’m just trying to think through the shift in the reprioritization here, clearly, more aggressive, more on offense. Is that where we are headed once we return to a more normalized environment?

[Thomas Polen:]

Okay. Thanks for your question. Obviously, our number one focus is on durable mid-single-digit revenue growth, and that is our aim here. And so we really see - we often refer to it inside as inorganic innovation. We look at our pipeline. We look at the market spaces that we participate in. I walked through three of our three key areas of innovation focus earlier in the call, and we evaluate constantly what products and initiatives we can fund organically and drive in-house to advance that strategy and create shareholder value and value for patients and providers. And we also are constantly looking at the external landscape as well to see what may be out there that could get to market sooner than we could or maybe has some great talent that create some really exciting innovations outside of BD that we can bring in-house. And so we are going to continue to do that, but it is all in line with, I would say, a more holistic approach to driving that durable mid-single-digit revenue growth profile that people really have come to appreciate form BD. Thanks for the question.

[Operator:]

Your next question comes from the line of Brian Weinstein with William Blair.

[Brian Weinstein:]

Hey guys, good morning. Thanks for taking the questions. Just some things on Veritor. Can you just talk about your capacity now? And you mentioned that you are making additional investments in testing, so where would that you know capacity there where would that get you and just how to reconcile the capacity expansion that you are going through with the thoughts on the slowdown in demand? How do I reconcile this? Is this also about building for at-home testing and you tee some thoughts on exploration there? Can you just tell me what that means? Thanks.

[Thomas Polen:]

Sure, Brian, and good to connect, as always. So the capacity is, as we have communicated in the past, right, that we are at going to 12 million tests in March is what we communicated on our last earnings call. And we are on-track for that. And we are also on-track for the MAX capacity expansion that we had described before. I don’t think it is a fair thing to say that we continue to sell all of that capacity as we look forward. That is not known to us, particularly in the back half of the year. But we are positioned. This is a global pandemic that is going on in the world. As we think about opening up businesses and schools and other things, people are going to look at what different types of testing technology they can use, and our aim is to make sure that things are available to health care systems as needed. So we are doing that. And we have also shared, right, we are actually depreciating those assets within the year. So that as things unfold in 2022 and 2023, those assets won’t be burdened on our P&L because we are able to fund that within the profits that are generated within this fiscal year. So that is our approach. Nothing more than that. At this point, we probably don’t want to comment more on the home space other than to mention that we are actively exploring that, has been our practice as we advance our work in that and the combination assays that we have shared that are in development. We will really end up sharing more about those as we actually gain EUA and head towards launch if those occur. So I think that is it. Maybe we do have Dave Hickey on the phone. I can pause. And Dave, I don’t know if there is any other comments to add from you.

[Dave Hickey:]

No. I mean, Tom, you have captured it eloquently. I think capacity, we moved to 12 million tests per month from next month. You mentioned MAX. So MAX, actually, we did increase capacity to 1.9 million tests per month for the molecular assay from last month actually. And there are a variety of additional topics like the claims, home testing, OTC that we are exploring right now as well as additional menu to leverage the 70,000 plus Veritors that are going to be out there. And as those decisions take place, we will share more details as we get those decisions.

[Thomas Polen:]

Yes. And those markets still are not well defined today, as you know, Brian. So thanks for the question.

[Brian Weinstein:]

Thanks.

[Operator:]

Your next question comes from Larry Biegelsen with Wells Fargo.

[Lawrence Biegelsen:]

Good morning, thanks for taking the question. Just one for me on. You have the BTK panel coming up on February 17th. As you guys know, that tends to get outsized attention by investors. So it sounds like you guys requested the panel. What do you think the hot topics or key issues are going to be? Every panel has them. Do you expect FDA and the panel to debate whether it Should be six-month efficacy, that is the focus or 12-month data? Your level of confidence in the outcome? And do you still see this as kind of a $150 million opportunity, which is kind of what Bard thought it was before the acquisition.

[Thomas Polen:]

Thanks, Larry, and great question. Let me maybe make a short comment here, and then we have Simon Campion on the phone, and we will turn it over to him, who is deeply versed in this. So first off, just as a reminder, we have nothing in our forward-looking plan for BTK approval, right. It is not in our 2021 plan. It is in no forward-looking outlook that we have as we think about how we model things within the company. Today, Lutonix revenues are less than 1% of our overall BD revenue. And this indication, specifically, again, is not included in our forecast. As we go into the panel, and Simon will share more detail on this, the one thing that we have is we know this is a highly underserved market, and we know that our clinical trial data shows very strongly that it is safe, that Lutonix is safe in this patient population. I think it is the first product that is gone through a trial in the U.S. that has the ability to do that. Now the question is, are the clinical outcomes that were shown in our trial sufficient enough for it to be warranted for an approval. And so Simon, let me turn it over to you to talk a little bit more about that.

[Simon Campion:]

Yes. Thanks, Tom. So as Tom just reiterated, the safety profile of DCBs and the BTK in particular has been, I think, has been well discussed. And the data that we are providing is demonstrating continued safety of the Lutonix product. We did request the panel meeting, as you know, below the knee patients with critical limb ischemia are in a very bad way. It is the most serious from of peripheral arterial disease. They have multiple comorbidities. And some of the most important things for this patient population are

[Lawrence Biegelsen:]

Thank you.

[Thomas Polen:]

Great. Thanks for the question.

[Operator:]

Your next question is from Larry Keusch with Raymond James.

[Lawrence Keusch:]

Good morning everyone. So Tom, I wanted to just touch on the investment spend that you guys talked a lot about. And certainly, you have really amped up the conversation around that over the past couple of quarters. And I guess I’m really focused in on the R&D side of things. I feel like I have heard this story in the past here at BD, and there is been some challenges with innovation and really getting products out onto the market that were considered to be more than just evolutionary. So I get the sense that things are probably different this time around, but I’m just trying to understand if there is a new approach or are you investing differently or anything that you can kind of speak to help us get comfortable that these investments hopefully can lead to visible new product introductions.

[Thomas Polen:]

Truly. Yes. Good and fair question. So let me start with just over all R&D effectiveness, and I can give a little bit of color on the types of initiatives that we are investing in here and also how we think about our overall innovation system. So as you know, John DeFord joined us as our Chief Technology Officer about three years ago. And really, under his leadership, there is been tremendous progress within the organization and with the segment teams, the business teams in advancing our ability to drive innovation. Actually, over that time period, we have gone from kind of the midpoint of not being where we wanted in terms of on-time milestone delivery or on-time launches to being as we benchmark ourselves to being in the top quartile within the industry of hitting our milestones and, most importantly, hitting our launches, right. Our launches are now about 80 plus percent of our launches are on time, which is up very notably over the last three years, up over 30 percentage points or around 30 percentage points, in fact. So we see the progress being made. And that is the result of a lot of system improvements, new capabilities brought in, taking some of the best practices actually from Bard and the acquisition and applying those across the company. So that is something we are going to continue to build upon. As we think about the innovations that we are investing in, as we look at those, there is a few, as I think about them, kind of new to world innovations that are in our pipeline. I mean, one is some of the ones we have already talked about, right, non-COVID menu expansion on Veritor and MAX to capitalize on our expanded footprint. We have a strong track record of developing new assays on MAX and Veritor, right. It is just examples of that. Other initiatives are accelerating programs that we already had in our pipeline and allowing them to come to market a year or two earlier than we originally projected. That is an area of investment that we are making, and there are a number of areas in each of the segments which we are accelerating new products into the pipeline, but they are all very much in line with our strategy and areas that we are confident that we have internal capabilities in. Of course, what we are also doing that is complementing that is that tuck-in M&A strategy that I mentioned before. And we do think about often, and we will have those discussions internally, if technologies are better developed in-house or that we should be going outside because we don’t have those capabilities in-house. And we will either look at do they exist today in someone else’s pipeline and is that an opportunity for tuck-in M&A? Or do we need to be doing collaborations with outside groups. There is many R&D programs that we have today, I think probably a record level of R&D programs where we have external partnership s in place. Actually, the BD COR would be one that I mentioned before. We have very strong external partnerships with the robotics because that is a very advanced automation system. And so we brought in robotic experts that helped us with that launch, and it is going really well in Europe. And we will bring it to the U.S. here, but that is one that we probably wouldn’t have been able to develop in the same way if we had tried to do it on our own, but we are seeing successes with that approach, and we are seeing it in many other areas as well. So that is kind of maybe just a little bit of color, Larry, in how we think about it overall. But with that progress that we have made and the way that we have thought through making these investments and how we also think about where it is smarter for us to do tuck-in M&A, we are confident in those investments.

[Lawrence Keusch:]

Okay. very good. Thank you for that.

[Operator:]

Your next question comes from Matt Taylor with UBS.

[Matthew Taylor:]

Hi thank you for taking the questions. So I just wanted to ask about the Veritor pricing from the standpoint of how that came about. I usually would think about it as being more of a competitive dynamic, but it seems like, for your comments, you are being a little bit more proactive to lower price to make it a better value proposition for stakeholders. And so I wanted to understand

[Thomas Polen:]

Yes. Good question, Matt. So yes, you are right. It is a combination of - we have always said that we believe the pricing would head in this direction. Our capacity is increasing, and we want to be proactive in maintaining that leadership position. But there is additional capacity coming in the industry now as well, too. And there will be further capacity coming in. We are not the only company who is adding in capacity. And so we think about that holistically and where pricing as a result of that is going today and where we best position our products to remain a leader in that, and that is how we develop it, and we spend a lot of time thinking those things through as to when and how we optimize our pricing, again, to also serve what is a continued evolving customer base as more nontraditional areas of health care wanting to do antigen testing and making sure that it is appropriately priced to enable the broadest access to the product while we are still in the middle of a pandemic. And so we have gotten very positive receptivity so the pricing. We have already started to roll that out a couple of weeks ago last month. And so good question. Thank you, Matt.

[Matthew Taylor:]

Thank you.

[Operator:]

Your next question is from Josh Jennings with Cowen.

[Joshua Jennings:]

Hi, good morning. Thanks for taking the question. Just one quick one on Veritor, just with the U.K. and South African variants. I think the U.K. ran some studies on rapid antigen testing and confirmed that there was no change in sensitivity or specificity. If we think about the South African variant and the U.K. variant and future variants, what is back in doing to just monitor those variants and ensure that the sensitivity and specificity aren’t altered by some of the mutations in the virus and then the subsequent antigens that you guys are testing for? Thanks.

[Thomas Polen:]

Good question, Josh. And that is certainly something that our teams are all over. Let me turn it over to Dave Hicky, who we have got on the line, the President of our Life Science segment.

[Dave Hickey:]

Thank you, Tom. And Josh, great question. So to your point, there have been obviously several newly identified variants reported recently, and there could well be others, right, recognizing that this is an RNA virus, very much like influenza and HIV that are known to mutate. And for us, we have got two different types of platforms, right. So we have obviously got the BD Veritor antigen test. We have got the BD MAX and molecular PC assays. So let me take MAX first. So for BD Max and for the assays that we have on the MAX, we have already completed an in-silico analysis, which is a computer model based on sequencing. And to look at those mutations. And from everything that we can see around those mutations and the lineage of the sequence, we have no impact on the BD MAX assays. For BD Veritor, which is obviously more a minor assay based on the top of the protein, based on early analysis again there, we have no evidence to show that the U.K., South African and, indeed, Brazilian variant will have an impact on the test. But we continue to take actions to look at that, further confirm and monitor the performance. And again, we have done that for the ones that are already out there and any potential new emerging strains. And this is a critical topic for us because I think the thing to remember here is as these variants come online and come out, which are reportedly more transmissible, it makes the importance of rapid testing and access to testing as important, if not more important, than ever. Thanks for the question Josh.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the floor back over to Tom Polen for closing remarks.

[Thomas Polen:]

Okay. Well, thank you, and thanks, obviously, to everyone for your questions. Just before we sign off, I would be remiss if I did not thank BD’s 70,000 associates around the globe who every day rally around our purpose of advancing the world of health. Your efforts and achievements this quarter were noticed. You continue to work tirelessly to make sure that our needed products reach the frontline to combat this pandemic while executing on our strategic agenda. I’m proud of how we have started our fiscal 2021, and I’m looking forward to continuing to deliver on our goals of developing innovative devices and making meaningful health impacts to people around the world. On behalf of the entire executive team, thank you for your efforts and sacrifices. Onward we go together. And like you, I’m proud to be BD. Thank you for listening today, and we look forward to connecting at in future investor meetings with everyone who is joined the call. And until then, I hope everyone stays safe and healthy. Thank you.

[Christopher Reidy:]

Thanks, everyone.

[Kristen Stewart:]

Thank you.

[Operator:]

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time, and have a wonderful day.