Bruker Corporation (BRKR) Earnings Call Transcript & Summary

All right. Good morning, and thanks for joining us. Welcome to the Jefferies 2021 Virtual Global Healthcare Conference. I'm Brandon Couillard. I cover the life science tools in diagnostics sector here at the firm. It is my great pleasure to have Bruker with us at the conference again this year. Joining us from the company today, Chairman, President and CEO, Dr. Frank Laukien; as well as Juergen Srega, who heads up the Bruker CALID Group. I'll turn it over to Frank to make some opening remarks, and then we'll jump into Q&A. Frank?

Yes, Brandon, great to be back. And with Juergen again, almost every year, we do that. Normally, it's ASMS time around the time of the Jefferies Healthcare Conference. This year, the big Mass Spectrometry Conference was pushed to the fall, but we nevertheless launched some very important products for proteomics yesterday, and I'll talk about that in a moment. And of course, that's within Juergen's CALID business, so that's why he's joining today. Let me just briefly review a couple of other things. We had an 8-K this morning. As you know, we had a very good first quarter with nearly 24% organic growth year-over-year and excellent margin and EPS growth. We had predicted originally, given some color for Q2, that our organic growth would be north of 15%. We've updated that this morning that we're now expecting greater than 25% year-over-year organic growth in Q2 '21. We just see very strong demand for our Project Accelerate products, but also very -- I think, very good macro conditions at this point in nearly all areas and geographies that we operate in. So it's just getting stronger. Because of that, we also briefly updated. We didn't do a full guidance review. We'll do that presumably on -- at our Investor Day on June 17. That's just around the corner, but we updated our full year non-GAAP organic growth guidance, which we had -- in early May, had said would be 11% to 13% organic growth. We updated that to 13% to 15% year-over-year organic growth. So this year looks good. And a fuller update coming then in -- at our Investor Day. And of course, when we report, Q2 in early August. Since we mostly wanted to do Q&A today, I'll just follow -- maybe Miroslava, if you could take me to the 2 product introductions, I'll just highlight those real quick. Of course, I don't want to steal Juergen's thunder because, obviously, that's mainly his business. But I'll actually start with the timsTOF Pro 2, for a second. That is the -- if you recall, 3 -- a little bit more than 3 years ago, we launched the original timsTOF. It really made -- become -- became a second contender. It took a -- the sensitivity of what people usually can do in proteomics up by an order of magnitude to -- we now routinely work with 200-nanogram of digest from HeLa cell line We do that in 90 minutes instead of many, many hours. And with this new instrument, we're now going another order of magnitude. We're now specifying it at even lesser amounts. I don't want to bore you with the technical numbers, but they are suitable, for instance, for doing -- looking at post translational modifications or the epiproteomics, as we call it, so important in cancer and in cell biology in general from fine-needle aspirate. So another order of magnitude, lower amounts that are needed. And we're going another factor of -- we're now doing it in 30-minute gradient. So a lot of this is technical improvements, but much more important is what new areas does it open up? And particularly, this timsTOF Pro 2 that we're shipping and launching immediately is also going to be -- play a big role in plasma proteomics. There's 2 different flavors. One can do the high throughput plasma proteomics like this gentleman, Roman Fischer, at Oxford University. They do 60 to 100 samples per day. And that's really unprecedented in proteomics, that type of throughput. But that's what's required to get to that inflection point along with specificity, speed and sensitivity to really fulfill the promise of proteomics, which, of course, has lagged by 1.5 decade compared to genome mix or one can do deep plasma proteomics and see more than 1,500 protein groups now, for instance, with the Seer Proteograph front and coupled to our instruments. This is very important for cancer, liquid biopsy multiomic biomarker discovery because I think the progress that has been made with grey epigenetics or transcriptomics, in cancer stage I and II sensitivity and positive predictive value is important progress, but it is also nowhere close to what one would like for multi-cancer early detection. And I think really that it will require multiomic approaches. Epigenetics transcriptomics with NGS, we don't do that. But also proteomics and epiproteomics. It's very important to look at phosphorylation, ubiquitination, all these PTMs, it's another omics world that needs to be coupled for higher positive predictive values and higher sensitivity in cancer and in many, many other approaches. And of course, the unbiased deep proteomics by mass spectrometry is really key here. You can't do all of that with some aptamers or antibodies that just really goes into a new realm. The second instrument, which was really on the earlier slide, is truly revolutionary. It's a major step forward. Miroslava, if you can take me to the new instrument, the new timsTOF trueSCP, which stand for single cell proteomics. It was presented yesterday by Professor Matthias Mann, who also gave the quote here and was -- whose group was key in collaboration and in publishing early results. We had accelerated that branding. We were supposed to launch that early next year, but we made an incredibly hard push in Juergen's team and now launching this already. We already have 4 orders. We're going to ship that at the end of Q3. So we've moved that up essentially by half the year. That's $1 million more expensive system. But really, really focused on, for the first time, quantitative, single cell biology. In fact, it's much more quantitative than RNAseq, which after a -- after all for single cell work was the method of the year last year, but it turns out that the single cell unbiased proteomics is much more quantitative and functionally more important. If you want to move beyond having cell atlases and barcoding, then you come to the enzymes, then you come to the proteome. And being able to now do that truly at the single cell level is really revolutionary for biology. And for many fields of pathogenesis disease and probably not -- no one more important than cancer, particularly research on solid tumors. For instance, the tumor microenvironment, you really want to see the proteome and the epiproteome, for instance, like oscillation, not only of the multiclonal cancer cells in the tumor microenvironment, but also of the stroma and how that interacts with a cancer cell. And of course, immune cells, infiltrating immune cells and how they may be modulated by the cancer itself as it develops therapy resistance, for instance. And one very final point, and I'll stop here, is that because of the extreme sensitivity of this new instrument, this timsTOF trueSCP, it is also the premier instrument for research in immuno-oncology, where people are discovering peptide neoantigens that aren't genomically expressed that are modified by post translation modifications or that are sort of hybrid peptides that occur in cancer cells that can then be used for future personalized immuno-oncology or for future personalized cancer vaccines that are informed by the immunopeptidomics. Incredibly important breakthrough field in cancer, and here is the tool to really do an even more amazing job with this extreme sensitivity. I'll stop here because we mostly wanted to do Q&A, but it gives you a flavor for the importance of the products that we launched yesterday, Brandon.

Thanks, Frank. I definitely want to come back to those 2 very exciting new proteomics launches from yesterday, but just starting with the 2Q prerelease today, organic growth north of 25% in the second quarter, raising the full year by 2 points. You called out strong demand kind of across most end markets and geographies, but can you give a little more labor in terms of the key drivers of the upside in 2Q, what markets you kind of outperformed most significantly? And did you ship another gigahertz class NMR in the second quarter at all? Kind of unpack it for us.

Ship, yes. Revenue, no. So those -- those are going to revenue when accepted. So no, there isn't going to be any gigahertz class NMR in the second quarter revenue. That's not the source of the upside. It's pretty broad-based, Brandon. And from applied to, of course, biopharma to academic markets, also some strength now, at least anecdotally from the U.S. academic market where we're optimistic, but we said it was lagging behind China and Europe in terms of academic market recovery. So we're just picking up lots of good color from essentially all divisions, even BEST, which is independent indirectly of the MRI MedTech cycle. Those MRI -- large MRI companies who are our customers are more optimistic. So it's pretty broad-based. I mean there are exceptions. Japan is weak and India has other problems, right? But more and more, it's just getting even stronger than what we had anticipated even a month ago. So pretty broad-based. And in particular, our Project Accelerate initiatives in proteomics, spatial biology, still early days. Molecular diagnostics and PCR is a bit weaker, of course, because of COVID testing coming down, but we don't have that much exposure there. In fact, very little. And we have some cool new variant and quantitative tests in Europe that are rolling out right now, but more on that probably on the Investor Day, then these are just good incremental improvements. And yes, last but not least, the MALDI Biotyper business, which you're very familiar with, is doing quite well. That does well competitively, does really well in the U.S. After the Sepsityper FDA clearance just at the end of last year, there's a lot of demand on that new fast identification, your universal identification from positive blood cultures. And so our existing base is not adding, but also the new instrument business is picking up. So it's pretty broad-based.

The updated guidance would suggest that your second half outlook hasn't changed yet. Just to confirm that, that's a true statement. And then secondly, I think there's been some debate, especially for those with government and academic exposure that some of the recovery is more catch up in nature. How do you think about kind of what's happening in your end markets in terms of the sort of catch-up dynamic from folks going back to work versus what may be more durable in terms of structurally higher level of funding?

Very good questions, right? So in terms of -- there is an element of catch-up in it, we think, but we don't think it's stronger than that. So there is a just a very strong demand environment right now, plus our Project Accelerate initiatives, they're really playing in -- these are very high priorities, single cell, quantitative single cell biology, spatial biology, not only for U.S. NIH, but they're just very high funding priorities around the world. And so we are -- our Project Accelerate initiatives from biopharma to semiconductor, metrology and microelectronics to proteomic spatial biology and microbiology are all -- we're firing on many cylinders right now, I would say, and good macro. There's a little bit of catch-up, but really just our products just also very, very well targeted. And even our core products that we don't talk about so much, many of them are very well -- very good in their competitive positioning and probably gaining market share and also having better and better margins. So it does go hand-in-hand. We haven't -- for the -- we're really managing to the year, of course, in the first half of this year because of also the weaker comparison and probably a little bit of catch-up from last year. It has stronger growth rates than the second half, but we're managing to the year. We're trying to also set a baseline in a quarterly cadence, Brandon, that then is a sensible baseline for future comparisons, 2022 and '23 and so on, whereas last year, of course, was highly unusual.

I do want to give Juergen a chance to talk about some of the new products and kind of what you're doing broadly in the field of proteomics. I'd say that the 2 new instrument launches certainly seem like a big step function change in terms of the analytical capabilities, number of proteins that you can investigate on the systems. How much of the market do you see these 2 new systems opening up for you? And kind of how do you sort of frame the ultimate opportunity for timsTOF placements relative to the, I think, 250 or so systems that you've placed so far in the last [ 3 ] years. How do you sort of frame the opportunity for these 2 new instruments?

Thanks. Excellent question, Brandon. Nice meeting you. After a difficult year again, it's good to see you. And yes, answering to your question, I believe we have a lot of room to run. So we are in the start of the adoption of timsTOF Pros. I believe it's preferably well and known and described in the community. There are around 5,000 [indiscernible] in stores in proteomics. We've dominated the proteomics market space in the last 10, 15 years, so to say. So we have room to get up there, just to give you that number. And on top of that, we expect this number to grow significantly. So there will be end market growth, and Frank has in some other conferences explained his history of the proteomics market. And I share that over the next couple of years. The proteomics end market itself, we will see significant growth. It may double over the next couple of years even. And at the same time, we think we gained share plus. So we have plenty of room to grow. We are not worried. And that translates to what you see from us now, so we have stepped up our investment in a similar way. Our innovation -- we have a really good understanding, what I see that in the end market to create breakthroughs and [indiscernible] more solutions available in the market and instead of betting on a very long time plan around those products and the CP launch now, which is a little bit surprising to the community, we have been working in the last 12 months, with accelerated growth also. So we added scientific also now over the last 12 months to have us to accelerate the plans and we keep investing in a significant way in this acceleration of the life science in this portfolio.

Well, you offer an upgrade option for the existing timsTOF customers and $1 million ASP is pretty high for the analytical instrument. What is the theoretical kind of customer base or installed base opportunity for the instrument at that price point?

I'll just jump in for a second. Juergen, you need to come closer to the microphone. You're a little bit far from your microphone. We have trouble hearing you. Yes, we will make a difference in this industry and also offering upgrade options, Brandon, that has been criticized in proteomics that vendors always try to get everybody to spend another $0.75 million with some performance improvement. So by early next year, we'll be offering timsTOF Pro to timsTOF Pro 2 upgrade options that will typically be 20% or less than the original purchase price, depends a little bit of the vintage of the previous system and what version they have. The timsTOF Pro -- sorry, the timsTOF trueSCP is a different instrument. So that is not upgradable. By the way, we even for the timsTOF fleX, which has the MALDI imaging capability in addition. We see pretty good traction at that price point because it can do something incredibly unique. So we expect our timsTOF Pro 2 to be the bread and butter workhorse instrument and the volume instrument, if you like. We're not raising prices on that. It will be at the same pricing as the timsTOF Pro and yes, with an upgrade pathway. And now Juergen, back to you now that you're closer to the microphone. Yes.