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McIntyre Partnerships faced a challenging first quarter in 2026, reporting a significant gross loss of 19% and a net loss of 20%, starkly contrasting with the Russell 2000 Value's 5% gain. This performance was largely driven by a broad market downturn in life science tools and medical device sectors, exacerbated by specific issues impacting QuidelOrtho Corporation (QDEL), a substantial holding within the fund. Despite these setbacks, the fund manager expresses strong conviction in QDEL, viewing its current valuation as a compelling, infrequent opportunity. The strategy involves a highly concentrated position in QDEL, with protective put options in place to cap potential losses, drawing parallels to previous successful yet initially volatile concentrated investments.

The fund's core investment thesis for QDEL centers on the belief that the market is overlooking the company's robust underlying business health amidst a confluence of temporary, unrelated challenges. These include the post-pandemic decline in COVID-19 testing demand, initial struggles with ERP system implementation, the unpredictable nature of flu seasons, shifts in China's healthcare reimbursement policies, and the short-term financial drag from launching a new diagnostic product, LEX. By dissecting these multifaceted issues, the fund aims to demonstrate that QDEL's intrinsic value far exceeds its current market price, projecting substantial future free cash flow generation and advocating for a significant re-rating of its shares as these transient problems are resolved.

Navigating Market Headwinds: QDEL's Strategic Position and Performance

McIntyre Partnerships endured a challenging first quarter in 2026, with returns falling significantly below its benchmark, the Russell 2000 Value. This underperformance was predominantly attributed to a widespread decline across life science tools and medical device equities, along with specific operational hurdles encountered by QuidelOrtho Corporation (QDEL). Despite the immediate negative impact on the portfolio, the fund manager maintains a strong conviction that QDEL represents a rare and undervalued investment prospect. This belief is underscored by the decision to allocate a substantial portion of the fund's capital to QDEL, strategically mitigating risk through the acquisition of put options. This approach reflects a pattern observed in previous high-conviction investments that, despite initial volatility, ultimately yielded substantial gains, highlighting a long-term perspective on value creation even amidst short-term market fluctuations.

The fund's analysis posits that QDEL's current market valuation does not accurately reflect its fundamental strength, largely due to a series of distinct, yet largely temporary, issues. These challenges encompass the normalization of demand for COVID-19 diagnostics, initial operational disruptions from a new enterprise resource planning (ERP) system, the inherent unpredictability of influenza seasons affecting testing volumes, policy changes impacting reimbursement rates in the Chinese market, and the transitional costs associated with introducing the next-generation LEX product. Through a detailed examination of each factor, McIntyre Partnerships argues that these are manageable, transient hurdles. The firm anticipates that as these issues are systematically addressed and resolved, QDEL's robust core business will enable significant free cash flow generation, leading to a substantial upward adjustment in its share price. This strategic outlook emphasizes patience and a deep understanding of the underlying business dynamics beyond superficial market narratives.

Unpacking QDEL's Value: Addressing Challenges and Unlocking Potential

The core of McIntyre Partnerships' investment thesis for QDEL rests on the conviction that the company, despite recent market challenges, possesses a strong, predictable business model that is currently undervalued. This undervaluation is largely due to the convergence of several temporary issues. These include the expected decline in COVID-19 testing revenue post-pandemic, the transitional difficulties associated with a large-scale ERP system implementation, the inherent volatility of flu seasons impacting diagnostic sales, and shifts in China's healthcare reimbursement policies. Furthermore, the fund acknowledges the short-term financial drag caused by the launch of LEX, QDEL's innovative new molecular diagnostics platform. The fund believes that while these individual issues have collectively created a negative market perception, each is manageable and, in many cases, temporary, offering a clear path to recovery and growth.

McIntyre Partnerships highlights QDEL's core laboratory and immunohematology businesses, which constitute approximately 75% of its sales, as highly stable and recurring. These segments benefit from a "razor/razor blade" model characterized by high switching costs, long-term contracts, and a high customer renewal rate, ensuring predictable cash flows. Despite being moderately leveraged, QDEL's recent debt refinancing extends maturities well into the future, and the company retains substantial financial flexibility through potential asset sales or unwinding its capital-intensive leasing business. The market's perception of QDEL as unpredictable is seen as a misjudgment, creating a unique opportunity. With anticipated catalysts such as clarity on China's reimbursement policies, a return to positive free cash flow in the latter half of 2026, and a broader recovery in the life science tools sector, the fund projects a significant re-rating of QDEL shares, indicating a substantial potential return on investment within a reasonable timeframe, with robust downside protection measures in place.