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

Okay. Great. Thank you for joining us. Excited to have Thierry Bernard, the CEO of QIAGEN with us for the next session here at the Citi conference. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. And Thierry, maybe I'll turn it over to you quickly just for a few minute intro, and then we'll dive into questions. If anyone has specific questions, I think there's an area on the screen to ask or feel free to e-mail me and I'll make sure to ask. But Thierry, maybe I'll turn it over to you for a quick intro.

Okay. Thanks, Patrick, and very pleased to be with you guys. Good afternoon, good morning, depending on where you are in the world, but potentially good evening for some of you here in Asia as well. So in a few words, if you remember, when I was asked to take over at the end of 2019, we came to you to -- with some commitments of increased transparency and focusing on executing quarter after quarter. I think in very short introduction, I would say that 2020 is proving that we have delivered on that. We are now with 5 quarters of execution of our target, sometimes beating those targets, both on the top line and on an EPS also perspective. We also took the commitment to increase our transparency and the simplicity of the way we report our performance. And I think you have seen that in the new way of presenting our results and numbers, it, I think, allows you to better trace our performance. The good thing also, especially in the second half of 2020 is to see that not only do we continue to be very relevant as a company in the fight against COVID-19, but we are not dependent on those COVID tailwinds because we see also the non-COVID business of QIAGEN recovering pretty well. And we continue to closely follow, obviously, the evolution of the market. We speak on a daily basis with our customers, with analysts to see how this pandemic is going to evolve. But basically, you know that we built our guidance for 2021 with basically the assumption that we will still have a strong demand for COVID-related products, especially in H1, and that at the same time, the non-COVID product, both in H1 and H2 will continue to recover. This being said, after beating our objectives for 2020, we reaffirm our guidance for '21, and we already obviously managed QIAGEN with a post pandemic vision, i.e., we are carefully, obviously pushing what we call our 5 pillars of growth. This is where we want to invest, while at the same time, making sure that we are not loading our company with fixed cost that could be detrimental, obviously, once the pandemic subside. Really, in a nutshell.

Great. Yes, it's a helpful intro. And maybe we'll start kind of on recent trends, and then we'll certainly get into some of the longer-term targets you guys laid out in December. But maybe just 4Q, COVID accelerated sequentially nicely. I think 3Q, there were some questions as to the manual versus automated sample prep, which we'll get into. But COVID accelerated nicely. The base business, it was roughly flat, kind of taking out those COVID tales. Could you maybe just talk through, I guess, how things trended throughout the quarter. And again, to your point, you reiterated '21, how you felt kind of exiting the quarter in terms of trends, both on COVID and then non-COVID as well?

So yes, you're perfectly right, Patrick, the first thing that I would like to insist on is that starting with non-COVID because let's not forget that non-COVID is the base of QIAGEN. I'm very happy to see that, as you said, Q4 was sequentially better than Q2 and Q3. And we said that at the end of Q2 already, when we said we see some normal QIAGEN growth drivers such as QuantiFERON, for example, such as UNGS, universal chemistry, especially in oncology, coming back. Let's take QuantiFERON. You remember in Q2 of 2020, we said QuantiFERON is impacted by COVID because of 3 things mainly: reallocation of testing and resources in many labs; second, two key drivers of QuantiFERON disappeared with COVID immigration testing and what we call community testing, such as university testing, school testing. But at the same time, end of Q2, we said we are strongly negative, close to minus 50% in Q2, but we see an acceleration. Q3 confirmed that acceleration. We went to minus 20%, a bit more than that growth rate for QuantiFERON. And then we said Q4 will show still a recovery. We will still finish 2020 negative for QuantiFERON, that you will see again an improvement in Q4. And this is what we did. In Q4, we were just slightly negative for QuantiFERON. We were even positive in some geographies, especially in North America, which is a very strong signal for us. And which is also pushing us to say, yes we will recover the QuantiFERON 2019 revenues by 2021. So let's see that we lost a year basically, but we are back on track. The UNGS business, mainly dedicated to oncology suffered as well from some tailwind, but we see it also recovering. I think that we are probably now back at -- in number of tests, a 70% to 80% in oncology, pre-COVID testing volume. This is why I strongly believe that, for example, universal chemistry for NGS should be growing at double-digit in 2021. If you look at the COVID now, so you know that we have different components of offer. We have the sample prep, we have the PCR test, and now we have new offers coming in, obviously. On the sample prep, there is something that potentially because of us, wrong communication, I don't know, but the market had basically a bad idea, I think, in the Q2 and Q3. Sample tech dedicated to COVID is only a very small part of our sample tech business. It's probably in a normal time, 20% to 25% of our total portfolio, which is RNA based, the rest, which is DNA based, which is extremely relevant, not only in infectious diseases but also in oncology is also recovering in the second half of the year. But what is interesting is that sample tech again, was proportionally sequentially better in Q4 than in Q3 and Q2 because we have launched a new product dedicated to COVID, what we call the QIAprep&amp, which is helping us coping with the needs in automation. And at the same time, as I said, the non-COVID part of the sample tech is accelerating as well. And on the PCR side, especially with NeuMoDx and QIAstat, as you have seen, we have confirmed a very strong Q2 and Q3, and we have placed a significant number of instrument, which gives us also a very good solid base for '21 growth of consumable, obviously.

Yes. That's helpful. And then maybe just kind of coming through the COVID piece, and we'll certainly spend a lot of time on non-COVID because I don't think that's the more important part. But I guess with COVID, you guys have talked about $800 million of COVID product sales in '21. Can you just talk through, I guess, the split or how you're feeling about kind of sample technologies, PCR and then the OEM kind of those 3 buckets. And then from there, maybe we can get into some of the upside drivers like the antigen test in the area?

Yes. Well, you have seen that in the publication of our results and the new transparency we give you to better again, assess the performance. The way we see it, and we disclosed that on December 8. If you look at 2021, sample technology, we expect it to be overall around basically $750 million and this takes into account in our mind, a decline of roughly $60 million of manual workflow for COVID, exactly what we have said in 2020. Again, we do compensate that decline in COVID manual workflow with new solution in our for automation solution, QIAsymphony, QIAcube or EZ1 and also that new product QIAprep&amp. Then you see, obviously, a strong push on our PCR assays and PCR solution. We have disclosed that we expect QIAstat to go to around $120 million sales in 2021, NeuMoDx to go to around $140 million next year. Obviously, this will be favored accelerated by COVID. But again, none of those 2 solutions are strictly COVID dependent. When the pandemic subsides, we have menu to offer on those 2 platforms. And then we disclosed also to you that 2 non-COVID of our 5 pillars the QIAcuity, our digital PCR and QuantiFERON, we gave you also very precise number. As I said before, QuantiFERON, we expect it to go back to the 2019 level at roughly $230 million. This is a very solid, more than double-digit -- double-digit growth, obviously. And we told you also that a solution, which is absolutely not driven by COVID, even if we have some COVID application for it, the digital PCR should go from roughly a bit more than $10 million end of 2020 to $45 million in 2021. So it gives you a pretty good image here of what we expect as growth drivers for next year.

Yes, that's helpful. And then I guess on the COVID side, can you talk through kind of U.S. versus OUS? Are you seeing manual sample prep pick up a little bit in less developed nations? I know that was a potential as we go into '21.

That's a good question, Patrick. And I think that the way you should see it is that in developed country, at this level of the pandemic as of today, the majority of testing is done in automated solution, QIAGEN or competition. And again, for QIAGEN, that means what we can provide on QIAsymphony, QIAcuity, EZ1 and our prep&amp solution, which is really ramping up very fast. You are right. In emerging countries, there is still demand for manual workflow. Where we are selective here is that QIAGEN, as you know, is not a price company. We sell quality products. So we select those geographies for manual workflow where we can sell the full value of our RNA manual offer. So we are selective here.

Okay. That's great. And then just on the antigen test, can you just talk through, I guess, your guys' offering us, you have the partnership with Ellume, maybe what the upside potential is, how we should be thinking about the regulatory bodies, upside scenarios? I think it's a big variable people maybe don't fully understand. So it would be great to hear on that.

Sure. Sure. So the first message for me here, Patrick, is that, first of all, that antigen development with Ellume is really in the right focus strategy that we hammer and hammer for the last now 12 months. We didn't develop an antigen project for -- product for COVID because we believe, okay, there is an opportunity. We had an established product and development with Ellume for latent TB that we introduced in our New York Investment Day, 2 years ago. We took advantage of that technology being able to pivot to other applications to say because of COVID, our offer with Ellume, what we call the QIAreach is very well adapted, and we quickly developed with Ellume that antigen solution and an antibody. I remind you that our solution with QIAreach is the only in the market which will enable you to run on the same reader, an antibody test or an antigen test. What happened with our antigen is that we started with good reception on the U.S. market because that was our focus from a pricing standpoint, we decided to focus on the U.S. market because this is where we were capturing the most value for our solution, but we started to notice end of December a higher rate than expected of false positive. Our customers told us we are used to that. It's worth continuing and we said, no, we cannot take that risk. We are going basically to withdraw temporarily, the product, fix the issue, go to the FDA, withdraw our submission, and we'll come back to the FDA. We have found the issue, we are fixing it, and we are ready now in the coming weeks, probably at the latest early match to resubmit to the FDA clearly. So we will be back. I insist on 2 things. First of all, the problem that we experienced on the antigen product doesn't impact our antibody and doesn't impact the Reader, except either. It's just the antigen. There will be demand for antigen product during the first part of the year, but also even after when the pandemic will be receding. Obviously, it will be a lower demand. So having this product in our portfolio will be still useful. We do not expect any revenues in our guidance of 45% for Q1, we didn't factor any antigen revenue. We expect to be back with some revenues for antigen starting Q2 and for the rest of the year.

Okay. Perfect. So then I guess, maybe we'll shift over to the base business a little bit here. Maybe start on QIAcuity, a lot of exciting things happening, 200 orders in 2020, can you just talk about the initial reception and then again, I expect it for '21 as we go through where do you see the big interest here?

So indeed, QIAcuity is one of our major satisfaction for 2020 for 2 reasons. One, we launched it in the context that was not easy to launch a new solution that had nothing to do with COVID at the beginning. And we had the objective in 4 months of launch of having 200 purchase orders. And we hit that. We hit in 4 months, those 200 POs, of which 75% have been installed before the end of 2020 and it continues. The second topic of satisfaction is that we were agile enough to understand that there was a growing need in COVID this time, involving digital PCR, it's wastewater of testing. One of our competitor recently said that it's potentially a market of around $200 million in the world, and we quickly developed a solution that we are launching as we speak. As a result, we believe because we are so differentiated from the main competitor on the market at the moment. And I remind you those 3 key differentiation. First of all, we don't launch -- we do not launch only 1 system. We do launch 3 systems at the same time. One plate, four plate, 10 plates. Second differentiation: We are the only solution fully integrated sampling result out. For competition, you need to piecemeal different components, much more complicated. Third, basically, we are much faster in processing our time to result. And so we are extremely confident. It's a life science play at the moment, so we have already in our portfolio, thousands of applications in oncology, Academia, as I just said now wastewater as well. And then we said we believe that we can hit $45 million in 2021 with that product? We believe that we can hit 600 placements of instrument. And obviously, we try everything to beat that expectation.

Yes, Thierry. And then the longer term, you guys have talked also about bringing it into the clinical setting. I think by 2023 or so, maybe just talk through that strategy, is it kind of replacing qPCR that's being used for molecular testing. What's kind of the strategy? And then, I guess, what can we look out for over the next few years as you progress towards that?

So your perfectly right, Patrick. I mean, you can see our expenses and OpEx progression for 2021 that we already take advantage of those good results to invest in bringing this QIAcuity digital PCR solution from life science to regulatory approval and make it fully fledged diagnostic instruments. For this, you need to have 2 major evolution and major expenses. One is basically software adjustment and second is starting clinical trials to bring it obviously to the FDA and to the European authorities, and obviously, Chinese authorities later and so on. We believe it's going to take 2 years. And we start to invest this year, to be on the market by 2022. We have decided strategically again that notion of focus that we will dedicate this clinical digital PCR, first and foremost, to oncology, and also to companion diagnostics. Now to the question of, is this cannibalizing qPCR? I don't really think so. There will be some small overlaps, but it's not major. I always give the same example, Patrick, some years ago, many people were thinking that molecular biology would kill culture, it never happened. Closer to us, some people were saying, NGS would kill PCR, it doesn't happen. Those are complementary technology depending on what do you want to address from a patient's standpoint? Are you basically -- what are you looking at more mutations just in oncology, for example. So it's much more complementary technology. And its effect complements what we do on qPCR and is the right time to say -- the right thing to do, especially from a companion diagnostic standpoint because in 2022 and '23, we will be able to offer to pharma company portfolios of companion diagnostic in PCR, where we are still leader. Companion diagnostic in NGS, where we are starting to penetrate the market with our first NGS-based companion diagnostics launched last year and also digital PCR solution. So it's quite of a unique position.

Absolutely. And maybe just bounce around the portfolio a little bit. QIAstat-Dx obviously had a big 2020 in terms of COVID kind of accelerating the adoption. Can you just talk about where we are in the capacity expansion, you guys are undertaking, both on the instrument and cartridge side. I guess where we are in terms of bringing more capacity online and where we stand versus a year ago. I mean, you guys have obviously expanded it quite significantly.

So you know that QIAGEN high indeed, a significant level of CapEx in 2020 and that we are going to have also a healthy level of CapEx in '21. Those are the right investments. We are investing in ramping up capacity, not only for QIAstat, but also for QIAstat. And for QIAstat, it has meant, first of all, doubling the capacity in our 2 sites Barcelona and Düsseldorf in 2020. And the objective in April of this year to double again this output capacity. And I'm talking here on the consumable. The way you should see it, Patrick for the coming months very clearly. We have no issue with instrument supply, no issue with instrument supply. On the consumables, we will be systematically below market demand during the duration of the pandemic, which translates into everything we manufacture and put out of our 2 factories is sold basically. And that will be like this during the duration of the pandemic. Once the pandemic subsides, you have 3 interesting development for QIAGEN. First of all, let's not forget that we are talking about a syndromic panel. And even if you have much lower rates of COVID-19, let's say, by Q4 of this year, you will be in the winter season. I am very much convinced that anybody going to a hospital next winter with a cough or fever will be not only tested for flu, but also for COVID-19. We will have the solution. Second, QIAstat was acquired way before COVID and was in our business model way beyond as well. So QIAstat is a menu play. And we will bring in 2021 the GI panel for the U.S. and the meningitis panel in Europe. And every year, in '22 and '23, we need to continue to bring 1 or 2 new panels per year, okay? In '22, you will have the pneumonia and the direct identification of positive blood culture. So again, of course, at the moment there will be a roll out of the consumption on purely COVID needs, but then it will be lifted by the non-COVID menu, but the execution challenge is that, indeed, every year, we need to launch those 2 panels. But we have proven in the past that we are able to launch panels every year. Third, good evolution. In fact, in 2022, '22 will see the launch of a higher throughput QIAstat where, at the moment, you have basically 1 cartridge per unit. You will have a higher throughput system that will allow us to address higher hospitals. So that's the story that allows us to be optimistic for a system which is well differentiated, which is playing on the big market. It's at least a $1.3 billion market, and this market is still growing at a double digit growth rate.

Yes. Thierry, you hit on a few things I want to dive into a little more. I guess, maybe to start, you kind of talked about the post-COVID world with STAT-Dx. How strategic have you guys been in terms of placing these instruments with people -- with accounts that will keep using it, right, and kind of see the menu coming and want to be involved in that versus just getting them out there for use today?

So being under market demand, Patrick is very frustrating, but gives you one key advantage. You can select, okay? And so the guidelines to our salespeople is, first of all, reward the customers that have been loyal to QIAGEN from the start. Make sure that we satisfy the installed base before taking a new customers that would be more opportunistic. Second, anytime we start the discussion with the customer, engage them already beyond COVID on the other part of the menu, GI in Europe, do you know that meningitis is coming, what are you doing on meningitis at the moment? What kind of technology are you using? What is your volume starting the -- and second give priority to customers that are ready to engage in a pre-annual contract 2, 3 or even more years. That's the strategy that we are implementing for QIAstat, but also by the way for NeuMoDx as well.

Yes. And then I guess on the menu expansion side, you touched on it a little bit. I think you're talking about having 80% of syndromic testing in the U.S. and Europe by the end of '21. I guess, how much visibility do you have in terms of all the necessary approvals and the regulatory bodies there? And what's the confidence level if we get to kind of critical mass on the menu within the next year or so?

Well, obviously, as we said, Patrick, it's a menu play, but let's not forget something pre-COVID, QIAGEN was placing an average of 300 QIAstat per quarter, which was pre-COVID already quite comparable to what BioFire was able to place per quarter, but BioFire with a much larger menu that proves you basically the interest on the system. Now as I said before, clearly, we need to execute on our plan. 1 to 2 panels per year from now to the coming at least foreseeable future. We have already had panels approved to the FDA or CE mark or to other regulatory authorities. So we are investing in those clinical trials. It's clear that at the moment, there are tensions on clinical trials, Patrick, because of the pandemic, so finding the patients, finding the samples. But at the moment, we are still on track, and we confirm that our objective is to get GI in the U.S. with the FDA in Q3 and to have meningitis also in Europe for the second half of the year. And so I see nothing at the moment contradicting those objectives. Pneumonia is already under development. BCID, the positive identification -- the direct identification of positive blood culture is also in the pipeline. So it's still, then after executing on the normal R&D development of your product, going to clinical trials and going to approval as well.