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Bull of the Day: Quidel (QDEL)

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Quidel (QDEL - Free Report) is a $8 billion provider of point-of-care, rapid diagnostic tests for detection of medical conditions and illnesses and they have multiple new COVID-19 tests that have received FDA expedited emergency use authorization (EUA) in the past six weeks.
Combined with CEO Douglas Bryant buying 5,000 shares of his company on June 11th, all this good news saw QDEL jump 18% on June 15 and subsequently go on to new highs above $215. 
The insider buy transaction was worth a little over $800,000 implying a price in the low $160s. And other investors were happy to join him as EPS estimates have skyrocketed 150% in the last few weeks with the 2020 consensus going from $3.06 to $7.56.
And next year's EPS consensus launched from $3.40 to $8.68.
The Testing Battleground Against COVID-19
We'll look at all the good news driving this optimism in a moment. First, let's cover some of the basics of COVID-19 medicine...
There are two basic types of tests for the SARS-CoV-2 virus, diagnostic and antibody. The diagnostic tests, which determine active coronavirus infection, are primarily through the detection of the ribonucleic acid (RNA) of the virus via a polymerase chain reaction (PCR). This molecular test is complicated and time-consuming.
Another type of shorter diagnostic test to determine if someone has an infection is the antigen tests that detect specific proteins on the surface of the virus.
Antibody tests look for antibodies that are made by the immune system in response to a threat, such as a specific virus.  These tests are used to detect the markers of the virus after someone has already had an infection.
Note: I am summarizing information from the FDA and CDC websites. Please use those resources for the most accurate and complete knowledge.
Last month, the FDA issued the first emergency use authorization (EUA) for a new COVID-19 antigen test from Quidel.
Recapping the Good News
On May 8, Quidel announced it had received EUA from the FDA for a rapid antigen COVID-19 diagnostic assay. The EUA will allow Quidel to market its Sofia 2 SARS Antigen FIA, a rapid point-of-care test to be used with the Sofia 2 Fluorescent Immunoassay Analyzer for the rapid detection of SARS-CoV-2 in nasal or nasopharyngeal specimens from patients meeting the Centers for Disease Control and Prevention's criteria for suspected COVID-19 infection.
The company says the test offers positive results in 15 minutes. From the company press release...
"Sofia 2 is Quidel’s next-generation version of its best-selling Sofia instrumented system. Sofia 2 utilizes the original Sofia fluorescent chemistry design while improving upon the graphical user interface and optics system to provide an accurate, objective and automated result in 15 minutes. The next-generation Sofia 2 system also comes connected to Virena®, Quidel’s data management system, which provides aggregated, de-identified testing data in near real-time."
Then on May 18, Quidel received EUA for the Lyra® Direct SARS-CoV-2 Assay to allow direct sample processing. The innovation of the Lyra® Direct assay is that it removes an RNA extraction processing step, and test kit supply bottlenecks.
On June 11, Quidel received BARDA funding to develop point-of-care diagnostic assays. The funding from the Biomedical Advanced Research and Development Authority, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services, would support the development of a point-of-care diagnostic assay that potentially tests for four respiratory viruses: SARS-CoV-2, Influenza A, Influenza B, and Respiratory Syncytial Virus.
The respiratory virus panel would be developed to run on Quidel's Sofia 2 flagship instrument and would test for four viruses in 15 minutes or less. BARDA funding will directly support Quidel's development of the four-virus, point-of-care test. Funding began on May 29, 2020, and will run through April 2021, totaling approximately $635,000. The goal of the funding is to achieve an Emergency Use Authorization for the test by the U.S. FDA within the funding period.
COVID-19 Testing Is the Play This Year
In my Healthcare Innovators portfolio, we own Moderna (MRNA - Free Report) as a front-runner vaccine candidate, looking for a 3-to-1 payoff vs our risk sometime next year.
And QDEL is a novel diagnostic/testing play that had about a 2-1 reward/risk ratio before last week's surge. We missed that good entry along with the CEO but I'm watching closely for a new opportunity because if their science is as unique and pivotal as it sounds, it will be an M&A target under $10 billion.
Recently a report by investment bank Jefferies stated that the U.S. needs to increase its coronavirus testing capacity by 10 times or more with an estimate of at least 400 or 500 million tests required through the first COVID-19 season to contain the virus while reopening the economy.
At that scale, large MedTech companies involved in diagnostic testing are likely beneficiaries. Giants like Abbott, Danaher, Roche and Thermo Fisher Scientific might gain from a collective $16 billion boost the analysts suggest.
This is why I think QDEL could already be on the M&A shopping lists of the bigger players. I would look to be a buyer on pullbacks inside $180 to $200.
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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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