Qiagen N.V. (QGEN) Earnings Call Transcript & Summary

Okay. Good morning, I'm Tycho Peterson from the Life Science team. It's my pleasure to introduce our next company this morning, QIAGEN. Just a reminder for those that have questions to submit them through the website. And with that, I'll turn it over to Thierry.

Thank you so much, Tycho, and good morning, good afternoon, and good evening to all of you. Happy New Year on behalf for QIAGEN. So my name is Thierry Bernard, and my agenda today is to show you that we believe that QIAGEN emerged from 2020 as an independent, stronger and more focused company for the coming years, ready to execute on significant growth post-pandemic. Moving to Slide 3, let me remind you who we are in a nutshell. The 5,300 QIAGENers all over the world are developing for more than 20 years now, cutting-edge solutions in Molecular Biology, both for life science and clinical applications. At the last officially released numbers, September 2019 -- '20, we had the revenues of $1.3 billion, that is pretty well diversified for geographies as you can see here with 45% of our sales in Americas, 35% in Europe, Middle East and Africa and the rest 20% in more emerging countries with the exception, obviously, of Japan. Our company benefit as well from the typical IVD razor/razorblade business model with 86% of our sales in consumables and 14% in instrumentation. Moving to Slide 4. What happened to our company in 2020. The least we can say, I believe, is that it has been a pretty dynamic and happy year for QIAGEN. And I would like to highlight at least the 3 -- 5 key elements. First, obviously, the fact that our QIAGENers, the QIAGEN employees, really stepped up to the challenges of COVID-19 and I would say we stepped up both in manufacturing ramp-up and also in innovation. Manufacturing ramp-up is bringing most of our relevant sites to 365 days, 24/7 to face the incredible surge of demand for COVID-related product, but also significant acceleration of innovation. I remind you that QIAGEN was the first company to be EUA-approved for syndromic testing, including COVID-19 against other respiratory viruses on QIAstat. But beyond that, as you can see on the right side of this slide, we are talking about 10 innovations in sample prep, in PCR testing, in antigen and antibody testing, and also in NGS that are extremely relevant for COVID-19. This in less than a year. And I say relevant because they prove to be extremely useful against this pandemic. What I would like to highlight is that none of those solution are depending only on COVID-19. They have application far beyond this pandemic and obviously, for the future of QIAGEN. The third key event is the strategic realignment of our company, and I will come back to that around 5 pillars of growth, and it's a key change compared to the past. As you saw in quarter 3 of 2020, we finalized the acquisition of NeuMoDx, a company based in Ann Arbor, Michigan, which is becoming our flagship for centralized PCR testing, especially in clinical diagnostics. Last but not least, we finished the year launching a tremendously differentiated innovative solution for digital PCR. And in less than 4 months, we are way above, not 150 purchase orders as it's written on that slide, but now more than 200 purchasing orders. And this translates, moving to Slide 5, into a performance both top line but also EPS at the top percentage of the market. QIAGEN systematically exceeded its forecasted sales 2020. You see here on the right side the outlook that we gave for Q4, both sales-wise and EPS, 32% CER growth sales for Q4 of 2020 and an EPS between $0.54 to $0.65. We are not disclosing today our final numbers for Q4 and for the year 2020, but I can already tell you that we are on our way to achieve those objectives. I know that some of you, moving to Slide 6, are thinking, yes, but those are good results, but it's just because of the pandemic because you have a tailwind with COVID-19. I don't think like this. Of course, COVID-19 pandemic represents a tailwind for our result. But the way I see it, rather, is a fantastic accelerator for investment and business cases that were already factored in our projection. Acceleration, as I said, in innovation and new technology opportunities that are relevant for COVID, but not only for COVID, we will see this in a second. But fantastic also acceleration of our instrument placement, as you can see here, more than 3,300 new placement of instruments in 2020. This is an acceleration of key business cases, such as, for example, NeuMoDx, QIAstat, QIAsymphony. And so leveraging this acceleration how do we see 2021? As we disclosed, because QIAGEN was probably the only company in the market back in July of 2020 to already give outlook for 2021, our model assumes, first of all, that there will still be a significant demand for COVID-related testing during at least the first half of the year. At the same time, and you have been able to see it already in quarter 3, and I confirm that for quarter 4 of 2020, we see an acceleration of our non-COVID product, QuantiFERON, universal NGS oncology testing, for example. We see, as well, in 2020, the interesting emergence of new channels of distribution. Indeed, if COVID-19 is proving something key for QIAGEN, first of all, is the relevance and importance of diagnostic and testing in the healthcare value chain. And even more for QIAGEN is the proof of the superiority and relevance of molecular testing in the healthcare value chain, more accurate and quicker. And we see -- and we have seen new channels of distribution. Who could have thought at the beginning of 2020 that we would find some PCR solution from QIAGEN in airports, for example, for airport testing or in cruise companies or in some major sport clubs, for example. This is a trend, bringing solution closer to patients that will no doubt continue. And obviously, we also believe in the fantastic synergies between vaccines and test. And let me bring you back to Slide 7. I heard and I saw, many people trying to oppose the arrival of vaccines and the relevance of testing. I do not believe in this at all. QIAGEN obviously welcomes the arrival of efficient vaccines. But a vaccine doesn't mean the end of testing. Let me give you, for example, 2 examples, flu testing. Every year we are through flu seasons, there are flu vaccines every year. Yet every year, there is at least between 25 and 30 million U.S. tests molecular sold, for example, in the U.S. Another example is HPV where you have a vaccine and still a substantial amount of HPV testing. What is interesting also in this graphic that you are showing here, which is showing you a bit potentially what could be the life cycle of the pandemic, is that QIAGEN has developed solutions from sample prep to PCR testing to antigen and antibody testing, to T-cell testing and to NGS testing that could be relevant for every stage of this pandemic screening, obviously, but also testing for vaccine efficiency with T-cell testing, trying to trace and track mutation with NGS testing, for example, what we believe is that post-pandemic, there will be major trends such as increased demand for syndromic testing like QIAstat from QIAGEN, lower plex testing like the 4-plex available on NeuMoDx and also immunity testing. Now moving to slide 7 -- 8, I'm sorry. How do we look at the future? I do not think that QIAGEN was in need of a major strategic revamping. I believe that we have a sound strategy. What we have to change are 2 things: the what and the how. The what is where we focus. It is a very crucial necessity for a company like QIAGEN, a mid-cap, to invest only in fields where we can take between the #1 and the #3 position on the market. And this is why we are speaking about this unwavering focus into 5 pillars of growth, sample tech, digital PCR in QIAcuity, syndromic testing and QIAstat, PCR central lab and NeuMoDx and QuantiFERON. This is one of the major differences compared to the past, where we were trending to spread QIAGEN a bit to fill and not being able to deliver enough on most of our investment and has a clear transition already in 2021, 60% of our R&D is dedicated to those 5 pillars of growth, a number that is doubled what we did in 2019. Why did we choose those 5 pillars of growth? First of all, because together they represent the major bulk of the $11 billion market opportunity for the total QIAGEN. Those 5 pillars are already $6 billion market and all have healthy kind of growth profiles. Sample tech probably a mid-single-digit growth, but the others in double-digit profile. And for all of them, we have key differentiation that you can see in this slide and more importantly as well, all of them already contains organic development in our plans that will ensure waves of growth for the future. And the way I invite you to see it, I'm not going to follow the exact order of this slide, is like this. This slide is showing you the different launches and investments that are already factored in our plan and that will push our growth for the coming years. If you take sample technology and QuantiFERON where we are a clear market leader with golden standards for the market, the way I invite you to see it is invest to protect and extend. Investing sample tech in new application, like microbiome, for example, readjusting for the coming months, the split between RNA testing and DNA testing, but also thinking about the future and bringing updated automation for our instruments. Here I'm talking about QIAsymphony, for example, but all of our sample tech automation instrument are or did have or will have an upgraded solution, EZ1 or QIAcube, for example. QIAcube, the same. We were clear market leader -- we are a clear market leader, but we have made it extremely difficult to penetrate this market first with smart and agile partnership to automate our workflow. Front end with Hamilton and Tecan, but above all, back end testing with DiaSorin. Beyond that, we are the only company preparing a solution that will be dedicated to tuberculosis testing for very low resources, high burden countries, this is what we call QIAreach, and it's going to be launched in 2021. Beyond that, we applied the QuantiFERON technology to new untapped clinical needs, and this is the partnership with DiaSorin for Lyme disease which will be launched for Europe in 2021 summer and then for the U.S. in summer of 2022. If you look at QIAstat and NeuMoDx, here, I invite you to see it as complete to compete. Those are 2 systematically innovative and different solution compared to competition. But here, this is a menu play. Acceleration of the menu on QIAstat in 2021, GI, gastrointestinal diseases in the U.S. and meningitis for Europe, continuing the launch of new menu year after year, pneumonia, BCID and the arrival in '22 of a higher throughput system. NeuMoDx, already 13 assays available for Europe that we need now to bring to the American market with 510(k) and PMA approval. But never forget that NeuMoDx is a system that can allow you to run both LDT, laboratory developed tests, and regulated assays at the same time on the platform. So the system is already relevant for the U.S. market. Thanks to COVID, obviously, with the COVID test, monoplex and short-plex and also for the LDT. And the latest of our innovation, digital PCR QIAcuity, the way I see it is doubled down to ensure market leadership. As I said, we just launched a system tremendously differentiated faster, higher multiplexing, not 1 solution, but 3 solution launched at the same time, 3 boxes, 1 plate, 4 plates, 8 plates. Great launch, more than 200 purchase order at the moment after 4 months, but we already invest in new application, we will come back to you very quickly on one -- major one potentially for COVID-19 is wastewater testing, but we are already investing in 2021 to make it progressively an IVD system. And this is why in our Market Day in December 2020, Slide 11, we found that it would be extremely interesting for you to see our objective for those 5 pillars of growth. Sample tech, moving to $750 million revenues by 2021. This includes that we assume manual workflow to decrease in COVID testing, but automated solution to prevail. And here, we have launched a significant innovation with QIAprep&amp. QIAcuity, $10 million in less than 4 months in 2020, moving to $45 million; QIAstat moving from $50 million to $120 million next year -- this year; NeuMoDx from $50 million to $140 million and QuantiFERON coming back in '21 to the level we had in 2019 with a significant growth rate. More importantly, beyond the pandemic, those 5 pillars of growth have aggressive but realistic growth profile, double-digit for all of them except sample tech. Sample tech between mid-single-digit and high-single-digit. This is for the what, but we want it also to change the how and this is what I call the new QIAGEN business myself. My management journey is about empowering people and decentralizing the company. I do not believe in top-down decision, I believe in top-down decision and bottom-up discussions that are triggering realistic ambition. I very much believe in PREmortem analysis, this is becoming a standard now of stage-gating of all our development project at QIAGEN. I believe in bringing decision-making closer to the customers at the country level, region level, site level to make sure that all of those managers are managing a kind of local P&L, obviously, in the framework of our company. I also strongly believe in the power of diversity, not only gender diversity where QIAGEN is probably one of the only company with clear quantified target for improvement every year but also geographic diversity because the balance of power is shifting in the world and our management should reflect that. To achieve those ambitions, we will continue our very disciplined capital allocation. 2021 is a year where we benefit, we leverage the better-than-expected financial results of '20 to invest -- to fuel the growth of our 5 pillars of growth, and that was the right decision. At the same time, as we have done in the past, we will be ready whenever necessary to proceed with, for example, share repurchase programs. On M&A, I would like to highlight that this remains a key attention for QIAGEN, but I strongly believe at the same time that the market being slightly over evaluated for the moment, I really believe that we have enough to execute on with our organic development. Obviously, if any opportunity arises, QIAGEN will look at it. This brings me to Slide 14 and the outlook objectives that we highlighted for 2021. I'm not going to speak about '20 and Q4. Just going to focus, we confirm a sales objective CRR of 18% to 20% for '21, with an objective of EPS between $2.42 to $2.46. What does it mean? Is that we fueled the growth by investment to reach between 18% and 20%, a balanced investment between obviously continuing to support and address the pandemic, but also preparing the recovery of the non-COVID product in our portfolio and obviously an EPS that is showing our investment in the development of those 5 pillars of growth. As a conclusion, I would invite you to keep 4 takeaway messages. We did step up to the challenges of COVID-19, but COVID-19 is first and foremost, an accelerator of existing business plan at QIAGEN. Acceleration of installed base, acceleration of menu, we are COVID relevant. We are not COVID dependent. We move into the future with an unwavering focus on 5 pillars of growth: sample tech, digital PCR, syndrome testing, PCR testing, QuantiFERON. We want to achieve those results by embarking our QIAGENers into this journey of decentralized empowerment. And last but not least, we will execute this strategy, continuing with our disciplined capital allocation, targeting 18% to 20% sales growth in 2021, with a significant growth as well of our EPS to $2.42 to $2.46. Thank you, and thank you for your attention. Thank you.

All right. Thanks, Thierry. We'll jump into Q&A. I want to start with actually something you brought up at the Analyst Day back in December, you talked about the pandemic being a conduit to place a lot of instruments, and then obviously, you'll benefit from the menu you built out on the back end. But if we look across the portfolio, where has been the most significant impact in terms of instrument placements during the pandemic? And then a second part of it, looking ahead, if I look at the 18% to 21% guidance for this year, how much of that is dependent on the new products versus just a natural recovery in the base business?

So I go to your question first on what did we benefit from the tailwind the most. It depends on geography. NeuMoDx, obviously, was accelerated, for example, in Europe. But as you remember yourself, a year ago, NeuMoDx was not even a player on the American market, and now they have -- we have an already interesting install base. The COVID-19 also significantly accelerated the placement of QIAstat compared to what we were doing pre-pandemic. We also clearly accelerated in the placement of QIAsymphony. Normally, QIAsymphony is around 200 placements per year. With 2020, we will probably be much higher than that. First question. Your second question is around the profile of next year. Obviously, as you have seen in those numbers, the 5 pillars of growth are significantly fueling the 18% to 20% CR. But at the same time, we strongly believe that activities, for example, like UNGS, universal testing with NGS chemistry, will come back to a double-digit profile. Oncology is accelerating as well, obviously. And other activities such as CbQ, Custom by QIAGEN and insight testing, will also come back to a healthier growth rate for next year.

And then a question on -- I know you're not dependent on COVID, but if we think about kind of the durability of the tailwinds, you have the QIAstat, syndromic panel, you've got NeuMoDx automated PCR test, you've got the QIAreach antigen test. Can you just talk about 2 things: one, durability of each of these testing modalities? And then two, from a manufacturing perspective, do you expect to sell-out effectively everything you can make?

To address, first of all, your first question very quickly on the manufacturing capability -- capacity, I will say that, for sample prep, we are well covered now even if there is a new surge of COVID-19 on manual workflow -- [indiscernible] manual workflow, we are still ramping up our automated capacity. QIAstat and NeuMoDx will remain below market demand during the life of the pandemic. In other words, every strategy, every instruments or produce manufactured for QIAstat or NeuMoDx will be sold, clearly. At the same time, Tycho, we believe that with the investments we did CapEx-wise especially in 2020, the bulk of it is in 2020, we won't have to invest against such significant resources for another ramp-up of production. Now the life cycle of those investment. As you have understood, Tycho, when you take QIAstat and NeuMoDx, those are menu plays. As soon as the pandemic subside, there will be other menus to replace or compensate for the lack of demand for COVID. On QIAstat, with new launches like GI in the U.S., meningitis for Europe. On NeuMoDx, obviously, the rest of the 13 assays available in Europe already and the ones that we are preparing to launch in the U.S. So none of those life cycle are depending on COVID. Once COVID subside, sample tech will be reallocated to what is our core business, which is DNA testing. I spoke about NeuMoDx and QIAstat. QuantiFERON, obviously, has been directed -- directly impacted by COVID this year, so is independent from COVID. And QIAcuity and digital PCR is also completely independent from COVID. So...

Got it. And are you able to just touch on what your manufacturing capacity will be around the COVID tests?

I mean, as we said in 2020, we invested especially in sample tech to be able theoretically to go until 20 million tests. We do not need to use this, as we speak. We are, as we said, already reallocating investment in 42-DNA. Do not forget, Tycho, that DNA is the core business, that's the right thing to do, not just focus on COVID, but prepare the recovery of other testing such as oncology and so on. For QIAstat, we confirm that we have doubled in Q4 the production capacity that we had at the beginning of 2020, we want to double it again by Q2 of 2021. And for NeuMoDx, it's a constant increase of manufacturing ramp-up for investment or with investment that we already did in 2020.

Maybe jumping into the 5 pillars of growth, I'll start with QuantiFERON and really 2 questions here. How are you feeling about the recovery in the TB market heading into '21? Are you still tracking toward fiscal '19 pre-COVID levels? And then obviously, your competitor, Oxford, is in the process of being acquired by PerkinElmer. Does that change anything from your perspective in terms of the market dynamics?

Thank you, Tycho. I think addressing the last part of your question immediately, Oxford Immunotec in PerkinElmer. As I said many times before, and it's not a figure of styles, Tycho, I really welcome the arrival of new competitors for latent TB testing for one significant reason. Those companies, they will help us increasing the awareness around the usage of latent TB in healthcare and against tuberculosis testing. They will make the pie bigger, I would say. Second, when you look at QuantiFERON, it's probably one of the clear example of a company, clearly number one, but not being complacent because of this. And if you remember, since 2016, Tycho, we have prepared the arrival of potentially new competitors by the alliances with DiaSorin and also with Hamilton, Tecan. So we have made it extremely difficult to penetrate the market. Our partnership -- automation partnership with DiaSorin is operational in Europe for 2 years already and for 1 year in the U.S. and it's working pretty well. So welcome competition, all the best, but we believe that we are very well positioned. On the growth trajectory, you know that in the pandemic period, Tycho, there are many pillars of QuantiFERON growth that are not existing anymore. You don't have immigration testing because there is no immigration. You don't have students or community testing because not a lot of students are back to school. We believe that this will come back. We also trace the sales and shipment of our daily -- on a daily basis for QuantiFERON, and you remember, quarter 2 for QuantiFERON in 2022 -- '20, I'm sorry, was minus 50% growth. Quarter 3 was minus 27%. We said that quarter 4 would confirm that recovery. We will confirm that in the coming weeks. This was -- we believe that for '21, we will come back at the 2019 level. And beyond 2021, QuantiFERON has a low double-digit growth profile, 12% to 13% per year. On the franchise of more than $250 million, it's already realistically ambitious again.

It's good to hear. Maybe shifting over to NeuMoDx, I'm just wondering if you could touch a little bit on the U.S. rollout, automation seems to be a key advantage here. Just talk to some of the types of customers you're penetrating at this point?

Well, first of all, in the U.S. or outside of the U.S., we tend to select customers that are not just willing to work with NeuMoDx or with us because of COVID. We want to have a long-term vision with those customers. So we select them on their vision to take more assays as soon as they are available on NeuMoDx, and we try to have pure renewal contract. It is clear that especially in the U.S., NeuMoDx ramp up -- NeuMoDx placement ramp up in '20 are basically favored by COVID. But remember, in the U.S., there is still a large proportion of labs using laboratory-developed test. They will have that capability on the NeuMoDx. Second, we have already a second assay available in the U.S., which is the 4-plex, which is the ability to test for Flu A and B, RSV and also COVID. This will be extremely relevant at the next flu season, and we will now bring the menu that we have already in Europe to the U.S. as well year after year. And this is why you see the investment we do in clinical trials in '21. So the growth profile for me, for NeuMoDx, is clearly a double-digit growth profile across geographies.

Great. And then maybe shifting to QIAcuity, you actually had good traction despite the pandemic last year placing over 150 systems. Early in the ramp, but how are you thinking about the trajectory there? And talk to why maybe traditional qPCR customers may upgrade?

Well, they may upgrade or they may complete. As I explained several times, Tycho, I do not believe in complete cannibalization of the market by one technology. You see, some years ago, many people were saying NGS will displace PCR, did not happen. Before, many people were saying Molecular Biology will kill culture, it did not happen either. Obviously, there might be some overlap, but the way I see it is that it ideally completes the range of solution for QIAGEN between PCR, chemistry for NGS, and now we have that digital PCR solution. The growth trajectory for us, Tycho, is clearly also double-digit. We have already-existing multiple life science application that we are bringing to the platform as we speak. And as you have understood, we already prepared the launch for IgG. It's going to be an oncology application at the beginning, first and foremost. But again, even post-pandemic -- if the post-pandemic happened at the end of 2021, we will still be in the infancy of the launch of that platform. What is clear is that in less than 4 months, 200 customers have already said yes to this innovative platform.

A couple that came in on email around capital deployment, 2 parts to it, I guess. The first is you talked about the market being overvalued yet, you're buying back stock. So maybe just talk to that dynamic. And then separately, how are you thinking about M&A? I mean, you talked about the 5 pillars of growth, are there acquisitions you could do to kind of complement that or should we think about things being organically focused over the next year?

I continue to highlight the fact that we have a lot to execute. And my ambition for the market, my commitment to the market together with the team with [indiscernible] is to execute quarter after quarter. At this stage, I believe that with what we presented and with the objective of '21, 18% to 20% sales growth and the improvement of EPS as well, we have a lot chew and deliver on already organically. That doesn't mean, Tycho, that I'm not going to look at potential opportunities. I have clear targets in mind for QIAGEN, but they need to make sense also financially. So when the time will be right, we'll see. The second thing that I would like to insist on is that we don't see M&A as another way to dilute QIAGEN focus, but it will be done only if it completes very well, and it fuels our 5 pillars of growth. If not, we don't want to do that. Focus, focus, focus. Is there a contradiction between a market slightly over evaluated and having share buyback? Share buyback have their utilities. Sometimes they also improve the confidence that we have in our company. We have done that in the past. We found it was a good thing at the end of 2020. At the same time, I still believe that the market is still a bit in a wait-and-see attitude with QIAGEN, Tycho. They want us to continue to deliver. I believe that part of the confidence and trust have been restored in 2020, but they want to see more. And this is why I think that QIAGEN continues to trade at a bit of a discounting value compared to some peers.

Maybe last one just on the margin outlook. You've been very clear on kind of the revenue kind of expectations, double-digit growth generally for the 5 pillars of growth. Beyond kind of volume leverage, can you maybe talk to margin drivers? Are there operational things you're doing to drive further levers?

The way we see it is, as we said in the presentation, we really wanted to take advantage of better-than-expected results financially to reinvest quickly into the 5 pillars of growth. Do not forget, Tycho, that part of the growth in 2021 will be fueled by new product where the ratio, volume and cost of good is not completely optimized. It is the case of QIAstat. It's the case of NeuMoDx. It's the case of QIAcuity. It's also the case to a certain extent of antigen testing because here it's a partnership where we are in the distribution position. We still have comfortable margin, but lower than the traditional margin -- gross margin of QIAGEN. This will be normalized year after year. I think our 2 main years of effort are '21 and '22 to make sure that we bring all the menu to the market, but basically, I see no reason starting '22 to see also a greater acceleration of EPS compared to our sales growth as well. Because little by little, most of our investments will be behind us.

Great. Thierry, we hit the end of the session. I want to thank you for taking the time. Enjoy the rest of the conference, and we'll talk to you soon.

Thanks for your attention. Thank you. Bye-bye.