15 minute read
Karleen Oberton, Hologic
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Karleen Oberton
CFO Hologic
How Hologic made a major pandemic pivot
Hologic CFO KARLEEN OBERTON refl ects on key decisions and turning points of the COVID-19 pandemic.
BY JIM HAMMERAND MANAGING EDITOR
Hologic's fi scal year closes in September, but Chief Financial Offi cer Karleen Oberton had seen enough by late July to call it: 2021 would be the best fi nancial year ever.
Oberton and the women's-healthfocused company have come a long way since sketching out doomsday scenarios in March 2020. "We quickly went from counting every penny to these exponential sales on the COVID testing," Oberton said in an interview with Medical Design &
Outsourcing.
She shared the company's path through the pandemic, ramping up its diagnostics business to support and grow its surgical and breast health lines for the post-pandemic future.
"While already a strong leader, Karleen became an even stronger partner to me and the entire Hologic leadership team through her quick actions, clear communication and thoughtful ideas and actions early on and throughout the pandemic," CEO Steve MacMillan told MDO. "Karleen made moves to preserve cash and retain our fi nancial fl exibility, [enabling] Hologic to make a signifi cant impact in addressing the global crisis. … Karleen and the team effi ciently redeployed the strong cash fl ow we generated from sales of our COVID assays, buying back our own stock and making several acquisitions to accelerate our growth and ensure that we to come out of this pandemic a stronger company."
It's a story that starts well before COVID-19, back in December 2013 when MacMillan came on as CEO. "He was the third CEO in six months. ... I was brushing off my resume," Oberton said. "[But] he was focused on commercial excellence, he was focused on accountability and he expected more of fi nance."
In his fi rst 14 months, MacMillan ousted every executive who was on board when he joined except for Oberton. She met with MacMillan as he prepared to bring in a new CFO, sharing her perspective on the company and offering
to draw up plans to support the new fi nance chief.
MacMillan gave her a call the next day "in Steve fashion," she said, telling her the two executives between her and the CFO were out. "He's like, 'Hey, those two guys are gone. It's all yours. Don't do homework, just do the work.'"
MacMillan promoted Oberton to chief accounting offi cer in 2014 and CFO in 2018.
The fi rst test
Marlborough, Massachusetts–based Hologic has approximately 2,700 of its Panther diagnostic machines testing for COVID-19 across the globe, including 1,000 boxes deployed throughout the pandemic.
In the early months of the pandemic, the fi rst wave of machines went to large reference labs running Hologic's older Tigris system, which only has four approved assays versus the Panther's 19. "It was a really unique opportunity to essentially recapitalize our biggest customers with our latest instrumentation," Oberton said. "... Once the pandemic wanes, they'll port those legacy assays over to the new instrumentation, which creates not only opportunity for us, but effi ciencies as well to only have one instrument in the fi eld that we're supporting."
Manufacturing partner Stratec made about 160 Panthers per year before the pandemic, and Hologic wanted to ship Panthers to smaller, regional hospital labs as it became clear that COVID testing would be decentralized. "We took Panthers out of our research labs to give it to customers," Oberton said. "We were fi nding Panthers that needed to be refurbished ... to get capacity out to our customers."
The third wave of Panthers went overseas, increasing the share of machines outside the U.S. from 30% to 45% percent, mainly in Western Europe.
A critical decision came after Hologic's diagnostics team developed their fi rst SARS-CoV-2 test to run on Panthers with a PCR-capable Fusion accessory. "It was the realization that this is much bigger than we ever thought, and we need to get a TMA test on our legacy Panther so we have a test that can be run on that entire footprint, not just the 15% that have Fusion capability," she said.
Hologic and its suppliers scaled test production from around 21 million per quarter to 75 million. That increased capacity will let Hologic offer more molecular tests to Panther customers new and old — not just tests for COVID-19, but also other respiratory viruses, cancers and sexually transmitted infections. "We were very focused on making sure that we had discussions with those customers about commitments beyond COVID," Oberton said. "When COVID testing wanes, what other assays are they going to agree to? >>
Hologic CFO Karleen
Oberton at the Nasdaq MarketSite in New York City on Oct. 4, 2021, for Hologic’s ringing of the Nasdaq opening bell to mark Breast Cancer Awareness Month.
Photo by Nasdaq
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HOLOGIC'S PROJECT HEALTH EQUALITY AND GLOBAL WOMEN'S HEALTH INDEX
Hologic launched two key women's health initiatives this year, starting with the $20 million Project Health Equality initiative that launched in May to improve health care for Black and Hispanic women in the U.S.
Then in September, Hologic debuted its Global Women's Health Index, surveying women and girls through the Gallup World Poll to measure action and attitudes about women's health, focusing on preventive care, opinions of health and safety, emotional health, individual health and basic needs.
Those five factors explain more than 80% of women’s average life expectancy at birth and are used in the index to rank countries and territories. For example, heart disease is the leading cause of death globally, but only about one in three women are estimated to have had their blood pressure tested in the last 12 months.
“Preventive measures are a crucial first step to combating diseases and infections affecting life expectancy and fertility in women,” Hologic Vice President of Global Medical Affairs Susan Harvey said in a news release. “Failing to ensure women get routine testing for cancers, sexually transmitted diseases and infections, and cardiometabolic diseases can lead to larger complications that would otherwise be preventable if monitored or treated early.”
An estimated 1.5 billion women have not been tested in the past year for critical diseases, based on the survey results. The worldwide average of the Global Women’s Health Index was a score of 54 out of 100, with preventative care (19 out of 100) trailing well behind the other four factors, which ranked from 68 to 75.
Among all 116 countries and territories ranked in the index, Taiwan performed best with a score of 69, while Peru ranked last with a score of 36. The United States ranked 26th with an index score of 61. You can find a link to the full report at www.bit.ly/3AkYWvQ.
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KARLEEN OBERTON (continued)
One of the things we use to measure that is something called a test of record — we call it a TOR. The value of a test of record is the estimated one year's revenue of a newly validated assay on the Panther system. Prior to 2020, our highest year of TORs was $20 million. We did $35 million in 2020. And then we have done another $35 million through the fi rst three quarters of 2021. … We believe that we will be able to considerably increase molecular sales given the explosion of the Panther footprint."
COVID cash
With the diagnostic business gearing up for record sales, Oberton and the team wanted that free-fl owing cash to fuel long-term success in all three business lines. So they reactivated their full-time R&D operations and sent their business development teams searching for M&A opportunities. "Business development sits in the divisions — it doesn't sit at corporate, per se — and the divisions are out there identifying assets, cultivating relationships, always with the intent of fi nding those assets that we feel that we're the rightful owners of, meaning we have a point of leverage, we are an expert in the area and believe that fundamentally, that asset will do better as part of Hologic versus on a standalone basis," Oberton said.
Hologic's fi rst pandemic acquisition was in August 2020, when the surgical business bought Acessa Health for $80 million. Hologic already had a laparoscopic treatment for smaller fi broids, and Acessa similarly treats larger fi broids.
In January 2021, Hologic announced its $64 million purchase of Somatex Medical Technologies, which develops minimally invasive devices for tumor diagnostics, biopsy and interventional specialties.
Diagnostics — which had not made an acquisition since 2012 — followed with three deals, "deploying all of this, what we call our COVID cash that we had generated, in acquiring things that prior to the pandemic we probably couldn't afford to actually buy," Oberton said.
The day after announcing the Somatex deal, Hologic revealed another: its $230 million purchase of Biotheranostics, maker of a molecular oncology test that can tell a woman
"This company is making some very smart moves to optimize its newly enlarged installed base." whether endocrine therapy after breast cancer treatment will help enough to justify its side effects. The next deal was the $159 million acquisition of Diagenode, a PCR assay manufacturer that developed assays for Hologic and will offer more Panther test options. Hologic's latest and largest deal was its $808 million purchase of Mobidiag, a Finnish-French developer of molecular low-plex and high-plex testing. Hologic, which closed the deal in June, had long wanted in on that near-patient, acute care space but couldn't fi nd a way past high per-unit testing costs. "Mobidiag solved that issue in that they designed a simplifi ed cartridge with a low number of parts and more simple parts that allow not only a cheaper per-cartridge cost, but also allows better and more effi cient scalability of the manufacturing of the test," Oberton said. "A lot of companies set out with that goal, but during the course of development kind of stray from that simplifi ed cartridge. They stuck to it."
The road ahead
Hologic is still on the hunt for deals, though executives seem to have a smaller appetite following their $1.65 billion acquisition of Cynosure in 2017. Hologic sold that underperforming medical aesthetics business for about $205 million in November 2020. "We're looking for ... those assets that are close adjacencies, where we're experts, we have a point of leverage," Oberton said. "I'll give an example. Surgical is our smallest division, basically three products, but our largest sales force. Our sales force there is focused on the OB-GYN. So what else can we put in the bag of that sales force that the OB-GYN is already buying or would like to buy? What we're trying to do is fi nd those points of leverage and high confi dence in the revenue growth rate across all of the portfolios." Morningstar analyst Debbie Wang started following Hologic before MacMillan’s tenure and said she sees the recent acquisitions as more strategically sound than the Cynosure chapter. >>
Debbie Wang
Analyst Morningstar
DESIGN NOTES
The Hologic Panther diagnostic device is a fully automated high throughput, random access testing machine. "Random access means you can load the sample as it comes in," Hologic CFO Karleen Oberton said. "Most of the machines, like a Roche Cobas, are a batch system, so you have to wait to have a bolus of samples before you can run them through the machine. Our low hands-on time for the techs really makes it desirable, as well as the size. The size of a Panther is probably the footprint of an offi ce photocopier, but a little taller, so it can fi t in a hospital lab. It can fi t in a smaller regional lab versus some of these other machines. And even with our legacy Tigris machine, sometimes you have to take down walls to get it into a lab. … We've also done Panther scalable solutions where we can link several Panthers together and run them through one kind of central operating station to create more effi ciency in a larger lab setting."
Photo courtesy of Hologic
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KARLEEN OBERTON (continued)
"This company is making some very smart moves to optimize its newly enlarged installed base. … Can they expand the test menu quickly enough that they can get adoption of those tests going to offset the pressure that they're going to feel on the COVID-19 tests as demand for that starts to dial down?" she said. "I will be watching very carefully what happens in Europe. Hologic has historically not had a very robust presence in Europe, even though I think that a lot of the company’s technologies are actually a very good fit for Europe, [where] smaller labs and their needs would be a really good match for what Panther can do: smaller numbers of specimens run, but versatility in the different types of tasks and flexibility in the timing of it. … Can they ramp up usage of those machines?"
Wang said she’s always been puzzled by the mid-sized medtech’s “mish-mash of businesses” and how they will work together in the long term.
“What does Hologic want to grow up to be? This pandemic has offered a real opportunity and clear prioritization to put a lot of resources behind the in vitro diagnostics (IVD) business and grow molecular diagnostics,” she said. “A lot of times, it's hard for management to make very tough decisions about where are resources going to go. In this particular case, the pandemic has made it clear that this company needs to bolster its presence and really invest in the IVD business and make that the priority. Just from an organizational standpoint, I always think it's good to have that kind of clarity.”
For the first time, all three of Hologic's business lines expect annual growth of 5–7%. The company has more of its diagnostic machines in labs across the world than ever before, and it's all because the business moved quickly to fight one of the deadliest pandemics of the modern age. "Heading into fiscal 2022, it feels like the company has never been stronger," Oberton said. "For me as a CFO, enabling the company to take advantage of that opportunity (was) a oncein-a-lifetime experience — hopefully."