Bruker Corporation (BRKR) Earnings Call Transcript & Summary

Okay. Great. Welcome, everyone. I'm Puneet Souda, SVB Leerink, tools and diagnostic analyst. And it's my pleasure to be hosting Bruker Corporation, CEO, Frank Laukien from Bruker joining us today. Frank, welcome, welcome to our conference.

Good morning, Puneet. Pleasure to be here.

Okay. Great. So just a housekeeping item as we go here through the session. Please submit to your questions in the chat or e-mail me, and I'll cover them during the conversation. Frank, I'll turn it over to you for some opening remarks, and then we'll jump into questions after.

Yes, looking forward to that. So you've all seen our Q4 results, and most of you have seen our Q4 and fiscal year results. So a nice sequential recovery, good order bookings, giving us good momentum going into 2021 after obviously, a difficult dip in our business in the first half of last year. We've used that year to invest really quite heavily into not only operational excellence and further productivity measures, some further cost measures, also capacity expansion for our growth initiatives. And then we've really expanded our 6 Project Accelerate high-growth, high-margin initiatives. We expanded them very, very considerably, particularly on the proteomics side. We're making a much bigger play and, in fact, a pretty broad play that will still -- more of that will come out during the beginning of the year in spatial biology, and we have, of course, expanding and continue to expand our infectious disease molecular diagnostics franchise. So with that, we were able to give, I think, a very solid guidance of 7% to 9% organic growth for the year. 2021, we expect to also improve our margins and profitability very nicely with north of 25% non-GAAP EPS growth. That's at least what we've guided to. And then maybe before I switch things over or welcome any Q&A, just wanted to point out that we are in the process of issuing a very important scientific press release on the Nature Communications publication that's really just come out a few days ago by Matthias Mann and the Fabian Theis groups on -- that really is, in many ways, the foundational, I think, will be a foundational or the foundational publication on what we call 4-dimensional or 4D unbiased, deep proteomics. And the fourth dimension is, and that's a bit technical, I apologize, these collision cross sections or ion mobility. That's how you measure collision cross sections. And so the punchline here without making this a science tutorial is that on several of our systems, our timsTOF platforms, the Mann group has measured over 360 runs on measuring over 1 million peptides, they actually measured over 2 million, but some they measured in duplicate. And they had excellent, excellent reproducibility and stability and better-than-1% measurement accuracy for these collision cross sections. And that really means it's not an experimental parameter, it's a fundamental parameter for each peptide. They use that to train a deep learning network, because when you have that many data points with such accurate, excellent data and robust data, they can now predict any peptide in any organism and, of course, also go to other general Bruker -- sorry, generally available non-Bruker libraries of proteins. And you look at the proteogenomic code for the peptides and predict the collision cross section. Has huge implications for the identification and quantification in 4D-Proteomics. This is the foundational paper that may switch the field from what traditionally has been 3D to 4D-Proteomics, including this additional fundamental parameter for each peptide, that can not only be measured very accurately, and that's very unique to our technology that we can do this at scale, but also predicted, which really opens up entirely new areas of proteomics, including human diagnostics. So thank you for the initial comments.

That's great, Frank. And since we started out on that topic, let me just start with proteomics overall. We are seeing significant momentum in proteomics, investment into proteomics from the investment community, and their expectations of new instrumentations, new workflows, new technologies. And so quite a bit of excitement around proteomics. So maybe just within that context, talk to us as to where the different portfolio -- where the portfolio for proteomics sits for Bruker and timsTOF and other products.

Yes. We are a proteomics and protein analysis company with quite a bit of revenue. So we have well north of EUR 200 million in proteomics and protein analysis revenue broadly. The largest and fastest growing part, of course, is the deep, unbiased proteomics, which we do by mass spectrometry, this 4D-Proteomics with the timsTOF technology that I've alluded to earlier. That is now getting into new fields where we're going to make a big push on fantastic results for plasma proteomics. We'll show that at the U.S. HUPO, the major U.S. proteomics meeting in the second week of March. Of course, a virtual meeting where we'll be presenting new workflows, new software and so on with a focus on plasma proteomics. When you say plasma proteomics that immediately allows you to go into proteomic biomarker discovery for liquid biopsies, i.e., for cancer, early detection or therapy monitoring or minimum residual disease monitoring, where I think proteomics will be very complementary to genomic or methylation or transcriptomic workflows in multiomics workflows that together, I believe, will have even higher sensitivity and clinical positive predictive value. Beyond that, we've also invested in an acquisition, the Canopy acquisition last September in targeted proteomics. While I think unbiased proteomics will be larger, targeted proteomics is very important, and we wanted to be in this broadly and be somewhat agnostic and not always have to force things into doing it all by mass spectrometry. If eventually, we do it on a microscopy immunoprofiling platform, that's fine. So we invested in that. And of course, in the functional structural biology and especially with high-field NMR, we are the world leader, and that is an important growing area as funding is coming back to that space because of its unique dynamic and functional and drug binding capabilities. There is more to that on the horizon for next year, and it's been published already as well, also by the Matthias Mann group about a few weeks ago. It went in Dubai Archive, is a first true quantitative single cell proteomics publication ever, and we're developing -- that was done on the prototype of our system, and we're developing a commercial, specialized high-end system for that, that we expect to launch next year, early next year.

Okay. That's exciting. So on -- and just following up on timsTOF. This is a product, correct me if I'm wrong on that, launched in 2017 and has been steadily driving adoption. Just walk us through what do you see as the trajectory for this instrumentation and given where proteomics stands today.

Yes, it's still very early days. We have now -- we have announced early in this year that we now have over 250 systems out there. And we have excellent customer satisfaction, so many key opinion leader labs have adopted it, are now beginning to publish with it. And I think the satisfaction with this new and complementary technology that can -- including not only its extreme sensitivity and depth of coverage, but the great robustness and reproducibility, which really are important as you go from basic research to translational clinical research and into large cohort studies, we are driving that. We're not only part of that inflection point in proteomics, but we're driving that. We're one of the drivers, I should say, of this inflection point in proteomics, which is now really where NGS probably was 13, 14 years ago. And I think at the end of the day, enzymes or proteomics are every bit as important or -- I mean, most diseases, much more important even functionally than NGS. Not to put down NGS, but it just speaks to the potential of proteomics now. And with that inflection point, I can really see it from here. It's going to be long and uphill and 10 years of development. But I think the number of labs will go from specialized proteomics to much more broadly, biology and multiomics labs, I think, which opens up the total addressable market for proteomics. I think there's something like 7,000 NGS labs out there. And I think I would predict that half of them will be multiomics, even if they've never done proteomics before, but I think the science will encourage or force them, so to speak, to really have both eyes open, the genomic eye and the proteomic eye. So it is exciting times. And that gives you a number -- that gives you sort of an idea. If eventually, there's like 3,000 or 4,000 labs that do proteomics rather than less than 1,000 today. And most of these labs as I visit them, they don't just have a single system. They tend to have -- I mean, some of them have 50 systems, but maybe on average, they have 5 to 7 systems, sometimes of different vintages, sometimes with different specializations. But that -- and so I said 250 system placements so far, growing very rapidly, growing the publications very rapidly. It's incredibly early days. And I mean, it seems like an endless runway for now, especially as I think that proteomics finally is coming of age. We will be one of the major players in that.

Okay. That's very helpful. On that point, I also wanted to cover a question that we get is improvement and -- a question both from KOLs and investors is improvements in software. And how do you -- if you could talk about that, Frank, and overall, across the enterprise, where are some of the major initiatives in terms of software because, obviously, this data has to be analyzed and turned into biological model space.

Absolutely. And we early on realized -- and quite honestly, this has been lauded by the community that we can't do it all or keep it all proprietary. So we've completely adopted this open proteomics attitude, open interfaces, make our data available. And we've really encouraged and gained the confidence and the active investment in R&D by quite a few of the proteomics software companies. Essentially, all of them over the last few years have made our technology -- have been able to adopt our systems, initially just made it available so they could process it. And now they're really leveraging it. Now they're leveraging this unique, this fourth dimension, this collision cross section, enable proteomics workflows that can do more than the traditional techniques. It's not just a me too, and gives you higher throughput and sensitivity, it can do extra things for you. That's being enabled. We did invest also, Puneet, in an acquisition of a spin-off from Scripps, from the John Yates group, really. If you are totally familiar with that, it's one of your KOLs on your proteomics speaker series. So we have our own tool that has a special kick-in doing, allowing real-time or run-and-done proteomics, as we call it. Most proteomics data analysis takes longer than the acquisition, and we now have something that can keep up with it. And even in real time, over time, we're developing new workflows, where even in real time, changes the acquisition strategy and focuses on not remeasuring data that you've measured already and going even deeper into the proteome. But that doesn't take away from our attitude of working really closely and very openly with many, many software partners. I think supporting that ecosystem and growing with your ecosystem rather than trying to make everything proprietary, I think, is the enlightened strategy. And certainly, the scientific community is applauding that and very, very supportive of that. They don't want to be locked in by a vendor on software in particular. And so I think we're being responsive to what the scientific proteomics community and then the broader multiomics community that needs to combine all of that data with their mutations or methylations or fusion genes in transcriptomics wants to have that combined information. So of course, they need access to our data as well.

That's great. Switching over to NMRs ultra-high frequency gigahertz NMRs. You obviously -- we have obviously seen a growth in that for the last few years. Maybe just give us a sense of, given your leadership position there, how should we expect this business to trend over the next few years now that you have been placing -- you talk about 4- to 5-gigahertz class installations in 2021. So is that a trend line that we should observe going forward for next few years?

Yes. So as you know, we've had sort of like an 8- or 10-year development project to really develop a new technology, which are these new gigahertz plus hybrid magnets that combine traditional superconductor technology with high-temperature superconductors for even higher fields. And that was, on the material side and on the magnet design side, an extraordinarily difficult problem that we solved, finally. It also means we're -- honestly, I think we're 5 years or more ahead of anyone else being able to replicate that success. So -- and 2020, was a breakthrough year for that. The proof in the pudding in getting 3 systems into 3 of the European labs that had ordered that previously, making them all work pretty quickly and smoothly and getting them into revenue and now ramping from 3 systems last year to 4 to 5 systems this year. Again, obviously, double-digit growth with good margins. And then we're really booked for the next 2.5 years. We have backlog, and that's mostly been coming from Europe. That's before the U.S. as Europe, for some reason, had funded this earlier, the various countries. And I think there's a lot of momentum now in the U.S. And of course, also in China and Japan, and countries like that, to get these scientific capabilities of looking at dynamics and functional and binding. The SARS-CoV-2 disease research shows again that you need that incredible specificity, resolution. All these parameters that you get from this gigahertz class technology and that you get functional and binding information, you understand disease better, you understand biomolecular condensates that spontaneously form in the cell, for instance. For the SARS-CoV-2 replication, without these condensates, the virus couldn't replicate in a host cell, but they also play many other disease roles in other diseases, cancer and so on. So you do not just need rigid structures from cryo-EM and crystallography. You need the functional context at neurophysiological conditions. That's what -- the power of NMR. And as that is now available technologically and the science is ready for that beyond just database is full of structures, let's understand biology and function and, of course, disease biology. So the timing for that is very good. We expect continued double-digit growth in that for the years to come. Okay, that's not a $1 billion opportunity, but that could eventually also be just, by itself, be $100 million niche that we probably technologically are the only ones that can really address it. And for now, it's just very fast growth in the next few years with very good margins. It fits our Project Accelerate initiatives, which are always high-growth but also sustainable, high growth and operating margins.

That's great. Very helpful. On -- continuing on Project Accelerate, microbiology. Maybe just talk to us overall, the position that you have in this market. Obviously, MALDI Biotyper, somewhat of a mature product, having a significant installed base out there, I think, more than 4,000. How should we think about the adoption of this product going forward and the outlook into 2021 and beyond?

I mean, I'll take issue just a little bit. There is over 4,000. I think it's close to 4,500 systems out there now. Last year, again, despite the crisis and it's not being for viral diagnostics, but for clinical microbiology for bacterial and fungal diagnostics, we again sold and placed well over -- sold really well over 400 systems. So it continues to grow. We've launched our third-generation MALDI Biotyper sirius system last year, in fact, in two versions: one, sort of the standard version; one, the expanded version that you'll understand this also can do negative ions and lipids. There are some colistin resistance, RUO methods that we're now launching in Europe later this year that can be used for certain specific resistance analysis that other traditional MALDI-TOFs could not be used for in microbiology. And very importantly, most importantly, commercially, this year, we got U.S. FDA clearance on Sunday, December 27, U.S. government works hard, for our U.S. Sepsityper claim on the MALDI Biotyper, which allows very fast and nearly universal identification in cases of sepsis in a positive -- from a positive blood culture. We think that will greatly stimulate U.S. placements of this third generation, MALDI Biotyper sirius, as we call it. And I think this will continue to propel our growth. And in the U.S., in particular, the installed base is still relatively small compared to -- it's half of that of Europe. So the U.S. I think, as you know, have all the traditional identification protocols, but now also the -- being able to identify from positive blood culture within less than an hour. And as you know, in sepsis diagnosis, correct identification with fast time to result will save -- I mean, will reduce ICU stays and reduce cost, then it will also improve outcomes. It will save some lives. And moreover, we have in the pipeline, this is probably going to go into clinical trials in the second half of this year in Europe first and the U.S. about a year later, some selected, very fast antibiotic susceptibility tests. So that platform is not -- is getting more and more and more capabilities that are very, very powerful. And in addition, as a partner product we brought on PCR from the Bruker-Hain acquisition a couple of years ago. And of course, we've grown to -- we're not a huge COVID testing business, but in Europe, we had about EUR 30 million of revenue. We expect that to grow further, and we have some very advanced PCR panels that are actually quite differentiated and are growing nicely, primarily in Europe.