IDEXX Highlights Diagnostics Growth Drivers, Cancer Testing at Morgan Stanley Conference

Key Points

• IDEXX reaffirmed its long-term growth outlook, targeting more than 10% organic growth and more than 15% EPS growth, supported by veterinary diagnostic demand, innovation, commercial investments and recurring revenue.
• Diagnostics utilization is helping offset an expected roughly 1.5% decline in veterinary visits during the second half. IDEXX sees significant expansion potential because blood work is included in only about one in five veterinary visits.
• The innovation pipeline is expanding with broader inVue Dx FNA availability and the rollout of Cancer Dx, which is expected to cover three major canine cancers by year-end and could support further reference-laboratory growth.

IDEXX Laboratories NASDAQ: IDXX executives reiterated the company’s long-term growth framework at the Morgan Stanley Global Healthcare Conference, citing demand for veterinary diagnostics, product innovation, commercial investments and recurring-revenue economics as key drivers.

Chief Executive Officer Mike Erickson said IDEXX had an “exceptional Q2” and a strong start to the year, prompting the company to raise its full-year guidance during its second-quarter report. He said growth has been supported by innovation across point-of-care diagnostics, reference laboratories and software, alongside commercial efforts intended to help veterinary practices adopt new products.

At its investor day, IDEXX reaffirmed targets for more than 10% organic growth and more than 15% earnings-per-share growth. Erickson said the company sees a global $45 billion total addressable market in diagnostics and believes diagnostics remain underpenetrated relative to their role in veterinary practice.

“Pets can’t speak,” Erickson said. “It’s diagnostics that give them a voice in the healthcare equation.”

Diagnostics Utilization Offsets Visit Headwinds

IDEXX acknowledged continued pressure on veterinary clinical visit growth, particularly on the wellness side of the market. The company’s guidance incorporates an expected approximately 1.5% decline in clinical visits during the second half, Chief Financial Officer Andrew Emerson said.

However, Erickson said the company is focused less on raw visit counts and more on the amount and quality of care delivered during each visit. He said IDEXX has observed a roughly 50-basis-point annual increase in blood-work inclusion, which translates into approximately 150 basis points of companion-animal-group diagnostic recurring-revenue growth for the company.

Erickson also cited a larger pet population, more medicalized pets, aging pandemic-era pets and changes in breed mix as factors supporting demand for more intensive veterinary care. He said pets older than five are showing positive wellness and non-wellness visit growth, while dogs and cats have added roughly 1.5 years to their lifespans over the past decade. According to Erickson, longer pet lifespans translate into a 16% or greater increase in diagnostic lifetime value.

Blood work is currently included in about one in five veterinary visits, Erickson said. In U.S. wellness visits, blood-work inclusion is about 13%, while international rates are approximately one-third of that level. IDEXX views those figures as a substantial expansion opportunity.

Innovation Pipeline Includes inVue Dx and Cancer Testing

IDEXX executives highlighted adoption of its inVue Dx platform, which is used for applications including blood morphology, ear cytology and fine-needle aspiration, or FNA. Erickson described inVue Dx as one of the company’s most successful product launches and said recurring revenue per instrument is already comfortably within the company’s previously stated $3,500 to $5,500 range.

The company is conducting a controlled launch of FNA on inVue Dx and remains on track for broader availability by year-end. Erickson said the company is taking a measured approach because each additional application requires customer training, workflow integration and service capabilities.

For FNA, used to evaluate lumps and bumps that may indicate cancer, Erickson said there are about 12 million procedures conducted globally today, representing 10% or less of the lumps and bumps that enter veterinary practices. He said customers using FNA through inVue Dx are performing twice as many assessments at an 85% lower cost.

IDEXX also plans to provide more details on its MultiQ Dx platform at a special event during the VMX veterinary conference in Orlando in January. Erickson said MultiQ Dx will address an important point-of-care diagnostics category and will be complementary to IDEXX’s existing VetLab suite, but did not provide further details.

Cancer Dx Supports Reference-Lab Growth

Executives also emphasized the rollout of IDEXX Cancer Dx, which initially addresses lymphoma and is expected to become a multi-cancer panel by the end of the year with the addition of mast cell tumor and hemangiosarcoma testing. Erickson said the three cancers represent 40% of cancers in dogs.

IDEXX Cancer Dx is priced at $15 when paired with a blood-work panel in IDEXX reference laboratories. Erickson said the lymphoma test can identify cancer up to eight months before clinical signs appear, with more than 99% specificity and 79% sensitivity.

He said 20% of Cancer Dx customers had used another company as their primary reference laboratory, while 70% of Cancer Dx runs are being conducted alongside blood work in IDEXX’s reference labs. The company has seen a large corporate veterinary group in Australia include the test in senior-dog wellness programs, and Erickson said another large European corporate group has made a similar decision.

Commercial Investments and Margin Outlook

IDEXX is increasing commercial investment during the second half in Spain, France, South Korea and Canada, along with targeted additions in the United States. Erickson said the field organization helps practices incorporate diagnostics, pricing, workflow and software tools into their operating protocols.

Emerson said the company has expanded its commercial model about 16 times in the past five years and has generated what management considers reliable returns on those investments. He said the company’s current guidance calls for comparable operating margins above 32% this year and reiterated a longer-term objective of 50 to 100 basis points of average annual operating-margin improvement.

On capital deployment, Emerson said IDEXX evaluates external assets that fit its strategic themes but remains focused primarily on organic growth. Excess capital is generally returned to shareholders through share repurchases, he said.

About IDEXX Laboratories (NASDAQ:IDXX)

IDEXX Laboratories, Inc develops and provides diagnostic, information technology and veterinary practice-management products and services. The company primarily serves the companion animal, livestock and poultry, and water testing markets, helping customers detect, monitor and manage disease.

Its companion animal business includes in-house laboratory analyzers and consumables, reference laboratory services, diagnostic tests, veterinary software, digital imaging and related practice-management solutions.

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