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

All right. Good morning, and good afternoon, everybody. It's our pleasure to welcome Thierry Bernard from QIAGEN to the Cowen Conference. On the line, we also have from Investor Relations, Phoebe Loh and John Galardi. Thanks to all of you for being here. So Thierry brings extensive experience in molecular diagnostics, commercial operations, and international business to QIAGEN, prior to QIAGEN, as many of you know, he worked for bioMérieux for 15 years and led various business functions and units there. So thank you for being here today. Always a pleasure to catch up with you about all things, diagnostics and all things, QIAGEN. We have an ambitious agenda to get through over the next half hour. I think, Thierry, just correct me if I'm wrong, did you want to make some opening remarks before we got into it? Or do you want me to just start throwing some questions at you?

I think we can go directly, Doug. I mean it's your call basically and the call of your guests today. So...

All right. Well, yes, let's jump into it, and thank you again for being here. Listen, and I mean this, and this could be right as a negative or a positive. I actually mean it as a positive. I mean it's been a little bit of a roller coaster since you took the helm at QIAGEN. You started as interim CEO back in 2019, which seems like an eternity to go at this point. Then the deal was struck with Thermo, ultimately, that didn't go through, then you got the job permanently, which occurred just as the pandemic was getting going. Your previous roles in running molecular diagnostic businesses, I'm sure, have been helpful. But I mean, this has really been an unprecedented period, obviously, for the world. And of course, for QIAGEN, which has played a key role in addressing the needs of the pandemic. So as we sit here, 1 year, 1.5 years into it, can you speak to your assessment of QIAGEN as CEO? I'm sure it's been hard to kind of catch your breath and really think through things with everything that's going on. But anything you could share would be helpful. And then kind of building off of that, as we hopefully are starting to at least see some light at the end of the tunnel for the pandemic. What are the further actions that you'd like to implement to further position QIAGEN for long-term success?

Thanks, Doug, and indeed, I mean, you said it was bumpy. I would say it was bumpy and good at the same time. And the first part of your question is how do I assess or what -- or how do I see QIAGEN as CEO. For me, as I repeated in 2020, Doug, I don't think it's about changing the strategy of QIAGEN. I believe the positioning in its majority, focusing on molecular diagnostic, both for life science, our clinical application is the right one. I think the pandemic is proving the relevance of testing in the healthcare value chain. And more importantly for QIAGEN, it's proving the importance and the superiority of molecular testing in the healthcare value chain. But I never forget that QIAGEN is a mid-cap, which is very good for me because it means agility, creativity, but the mid-caps needs to focus. And I strongly believe that the QIAGEN of the past was a bit spread to fin diluting activities into too many areas where my thinking and vision is that in a mid-cap, you need to make sure that you invest to take between #3 -- #1 and #3 position in a given market. So this is why, as soon as we saw that the business combination agreement with Thermo Fisher will not go through. I came to my executive team and to the Board with these 5 pillars of growth focus, and I said at that time, ruthless, and I continue to say, focus on those 5 pillars of growth, sample take, where we are already a leader, digital PCR, where we are launching our QIAcuity system, syndromic testing with QIAstat, PCR core labs with NeuMoDx, and obviously, QuantiFERON. So that's something which is a major already evolution, just to give you numbers, in 2021, Doug, 60% of our R&D investment is going to those 5 pillars of growth. And it's more than doubling compared to 2019. The second big change that I'm pushing is much more cultural is what I'm calling the decentralization and the Empowering action plan QIAGEN. I strongly believe that our company was a bit too pyramidal or centralized that we were not allowing some key managers. And for me, those are country managers, region managers, site managers to have real decision-making power. And this is what I'm pushing my DNA from a management standpoint, it's not a top-down. It's a combination of top-down and bottom-up discussion to propose to the market realistic ambitious or realistic ambition. So these are what I'm focusing on. And the framework, obviously, as I started to say at the end of Q3 2019, Doug. Behind that is continue to focus on execution quarter after quarter. This is my obsession. I believe that the market needs to trust QIAGEN and take confidence in QIAGEN again, and this is what I'm trying to do for the last 5 quarters where we have exceeded expectation, first. And second, a new kind of transparency, I'm not afraid to say candor in the way we report, and we show our results. You have seen that on December 8 QIAGEN Day, and I believe that our new reporting, first of all, gives you more numbers to understand our business, but also a better way to monitor our performance.

That's a really helpful framework for us to work through as we have a little more time with you this morning. And yes, I mean, I will say as somebody who's been modeling and tracking and launching QIAGEN for years. Personally, I really appreciate the efforts that have been made and actually do think I personally find the new reporting structure. A lot more transparent and helpful, so far, so good.

Thank you.

Before we talk about some of the growth pillars, I do want to spend a little bit more time just talking about COVID-19, which will continue to be a growth pillar. But hopefully, for all of us for not too much longer. So the -- as you imagine, I'm sure it's the same with you and your team, COVID-19 permeates our conversations pretty consistently. And one of the things we're trying to focus on is what -- as we think about QIAGEN, what's durable? And in what instances is COVID, not just leading to increased demand for product in the near-term, but maybe pulling forward the placement of instruments that will be used for COVID, but for other purposes moving forward versus other things that are a little more transitory and at some point, will go away. COVID-related product sales, I think, compromised, and just correct me if I'm wrong, about 35% of QIAGEN revenue in the fourth quarter. If we use that as a way to maybe answer this durability versus not durability question, how do you think about it? And maybe to provide some help, we're modeling about a 12% drop in 2022 revenue related to COVID. Again, that may or may not be helpful because I may be actually kind of asking you to think a year forward. But for what it's worth, that's how we're modeling things in case it gives you a helpful data point to plan.

Well, if you allow me, Doug, I'm not going to comment on the modeling itself because I consider that we have given a significant number of numbers, especially on December 8, you have seen the growth expectation for Sample take for digital PCR, for NeuMoDx, QIAstat and QuantiFERON all this is very much quantified. We even disclosed that for sample take, which is such a growth driver in 2020 for the company, we were expecting as we have said in the second half of 2020, a progressive decline of our M&A manual workflow, which is used for COVID '19. This is not the only solution. We have automated workflow, but we said a manual part of this workflow would decline by roughly EUR 60 million. Look, I won't take commitments for 2022 because I prefer to talk about post-pandemic because nobody knows whether it's that post-pandemic. If you remember, Doug, we -- based our budget and our guidance 2021 on the following assumption. One, there will be a sustained demand for COVID project during H1 and then basically plateau in the summer and then progressively decreasing. And then at the same time, the non-COVID product of our portfolio would continue to recover as they have recovered already the region Q4 and Q3. I remind you that non-COVID, Q4 is sequentially better than Q3 and Q2, which is very encouraging. And we confirm that at the moment, what we have in hand is that those assumptions are still valid. A month ago, many of your colleagues were saying that the demand might probably last longer than H1. 2 weeks ago, for the last 10 days, there seems to be a kind of panic saying, oh, testing is flattering and because positivity rate is decreasing. For example, in the U.S., I think we need to remain rational and keep a cool head. What I highlight for QIAGEN. We launched 10 new products in 2020. None of them are only COVID dependent. They were, for some of them, most of them COVID relevant, none of them is COVID dependent. They will live after the pandemic crisis, first part. Second part, the non-COVID part of the business, as we said, started to grow to recover end of Q2, continued Q3 and Q4. A good example of this is QuantiFERON, close to minus 50% Q1 -- Q2, I'm sorry, minus 25%, Q3. And then even in some territories, positive in Q4, still negative for the rest of the year -- for the whole year. So I believe that this recovery in QuantiFERON in companion diagnostics in oncology in HIV will continue. Third, for me, what is important, whatever the remaining duration of the pandemic is to be able to continue to have a relevant solution for every life cycle of that pandemic. We had sample tech screening PCR in 2020. We now have obviously wastewater testing on our digital PCR that we just are launching now. People are talking about variants and the need to surveillance testing for epidemiology, we have an NGS assay ready also. People are talking about being able to monitor the efficiency of the vaccines. We have our antibody test with helium, and we have also a QuantiFERON Sasko test available. So not only are we absolutely not depending on the COVID crisis. But whatever the duration of the crisis, we have a solution that fits the different life cycle of this pandemic. And that's pretty unique about QIAGEN.

Yes. And it's -- I mean, now I'm kind of taking it to specific examples. But in the midst of that, you've been successfully rolling out QIAstat and NeuMoDx, and those are instances where maybe the use of those platforms evolves over time. But getting those boxes in the right places, a lot -- at least gives you an opportunity to drive higher-margin consumable sales through those platforms. So I think that's emblematic of where QIAGEN can be a winner in the near-term and the long-term. And then when it comes to these areas of more acute concern, as you put it a month or so ago, I think a lot of investors and analysts were thinking testing is going to be around for a while, all of a sudden, there's this panic that it's going to go away, which mind you less testing is probably a good leading indicator for everything else in the portfolio. But the molecular diagnostic panel we just did with a couple of KOLs where we focused largely on COVID-19 testing. Those folks indicated even though things are getting better as you think about the balance of this year and maybe moving from single analyte testing to panel testing for respiratory diseases. There may be a drop-off in testing volumes, but it may only be 15% to 20% over the balance of this year, which when you balance the things that could pick up, if I'm hearing you right, Thierry, net-net, even though there's going to be a little bit of inflection in terms of what's growing and what's not, QIAGEN is still well positioned.

I believe so. I -- like you have done my own investigation with some key opinion leaders and some epidemiologists. I think there is a kind of broad consensus around epidemiology that there will be new variants coming throughout the year. I have heard up to potentially 6 to 8 new variants beyond, obviously, the South African variants or the British variants are now the so-called California variants. This obviously will create a need for testing. I have always seen that I never see -- I have always said that I never see vaccine as a testing killer. There are many examples on the market proving that vaccination and testing go together, think about flu, every year, we have new vaccines for flu. And just for the U.S., there is at least 30 million PCR test for flu sold every winter. Look at HPV as well as there are vaccines for HPV. We are still selling HPV obvious tests like the rest of the industry. So this goes together. What is clear is that even when the current level of demand will go down, there will be no 0 demand for COVID, at least for this foreseeable future. And when I say that, I'm talking beyond also 2021. Why 2 things? First of all, because there will be, as we said before, emerging needs, we said wastewater, we said, obviously, antibody, once again, we said QuantiFERON to assess the efficiency of the vaccine, first of all, epidemiology testing for the variants. But second, because as you said, Doug, there are no -- there are also multiplex panels available, and you have that at QIAGEN, both with NeuMoDx and with QIAstat. And I believe that for the coming winters, anybody coming to a hospital with fever or coughing will be tested not only for flu, but also for COVID, clearly, at least for the foreseeable future. And the beauty of QIAGEN is that you can have a long plex with QIAstat with more than 20 pathogen respiratory in one sample or you have a shorter plex with NeuMoDx with 4 plex tested between respiratory flu A and B, RSV or COVID-19.

I want to talk more about QIAstat and NeuMoDx in the context of COVID, but beyond that, before we get to that, one last question on COVID-19 specifically. You mentioned a couple of times in response to my questions that we're all aware there's issues with emerging variants. You laid out your response to the new COVID-19 variance on the most recent earnings call. Specifically, I think you mentioned you were exploring the possibility of developing a genotyping PCR solution that could play an important role in reacting to emerging variance. Do you have any updates on how that effort is progressing?

Not precise update but giving you more where we are here. It's a challenging assay, PCR genotyping for COVID-19, first of all, because the discrimination of the genotypes is quite challenging. So we believe at the moment that with our current offer, we have what we need between PCR and sequencing to cover the needs, but it's still investigate -- under investigation at QIAGEN. We have meetings every week on that. It might be a slight adjustment to what we call our prep and assets, we are working on that. It's too early to give a timeline, but it won't probably be before the second half of the year.

Okay. All right. Let's talk through some of the other growth drivers. So QIAstat, you had a very successful year in 2020. You placed; I think it was around 600 boxes. I think you're targeting another 800 for this year. Just to start, how do you frame the overall market opportunity? And then building off of that, there are some other competitors out there. There's still a lot of greenfield to penetrate. But obviously, over time, those folks have penetrated a decent amount of the market, how do you envision differentiating?

Perfect. The market opportunity, first, as you know, Doug, it's quite a significant -- still -- market when we acquired STAT-Diagnostica, which obviously is the ancestor of QIAstat. We said the syndromic market was around $800 million, growing at double digit. It's now and probably consensus around $1.2 billion to $1.3 billion, still growing at double digits. So that's still a significant market to play with. Second, QIAstat was already efficient, pre-pandemic, pandemic more than just a tailwind is an accelerator of the market penetration. We gained probably 1 year of market penetration. And the good benchmark for me from a differentiation standpoint, Doug, is that pre-pandemic, we were placing an average of, let's say, 300 systems per quarter pre-pandemic, which is very comparable to what BioFire was placing as well when we have a menu still, which is much more limited than BioFire, which is proving the differentiation of the system. Now as you know, QIAstat is not a pending in play, it's a menu play. And so the execution objective is to continue to bring every year between 1 and 2 new panels. In 2021, bringing Gastroenterol to the U.S. and bringing meningitis to Europe. 2022, following with pneumonia and what we call direct identification of positive blood culture. So it's really a menu play. The systems still have significant differentiation compared to what is out there, fastest and simplest sample tech. You just take a swab, break swab into the cartridges, lot the cartridge, go. CT values, which is transforming basically that instrument into a semi-quantitative system, not just a yes, no answers. So if we execute on the release of those new panels per year, Doug, there is no reason QIAstat should not have a double-digit profile -- double-digit growth profile at QIAGEN.

Yes. And then in the U.S., I mean, you presumably done as well as in the U.S. as you have outside the U.S., at least starting from a different base, but you presumably had nice growth as a result of what's going on in the world. And we actually heard good things about the platform and our panel discussion earlier this morning. At the same time, it's been an environment where it's been hard for -- really for diagnostic labs to spend a lot of time evaluating anything other than COVID. So when you think about that, on one hand, you're placing a lot of boxes and you're pulling forward the placement of boxes. But do you think you're now also just getting to the point where maybe in the U.S. labs that haven't adopted QIAstat yet can now start to take a look at the platform as a solution or other testing needs, especially keeping in mind that budgets may be constrained coming out of this for new capital?

Sure. We have 2 obstacles for QIAstat in 2021, at least year-to-date. First of all, let's not forget, Doug, that we are still clearly below market demand. You see, which is basically meaning as well positively that everything we put out on the market is sold; and second, it gives us the possibility to segregate or to select a bit more of our customers. You see, what do we mean by selection? Is already now engaging them in discussions around their need for gastro, for example, for meningitis what are they doing now? What kind of methodology are they using, are they considering? And second, is to obviously select customers that are more able or open to do purely annual contract. And that's the situation, and that we are trying to do. We tend not to consider customers that are very just short-term minded and because they have a brutal need of COVID-19 testing. This is not our strategy because once again, the pandemic will be just a small event in the life of QIAstat, the menu is what counts really. And we still have customers to be very candid with you that are telling us, guys, I mean, I consider your solution interesting, but when you will have GI in the U.S. or when you will have meningitis, we'll talk again. And at the moment, I'm not closed with those yet.

So if you do your job well as a team, you're finding the customers that are going to have more durable demand for assays on your platform. And then you need to deliver the assays along the lines of what we talked about timeline-wise. And if you're successful doing that, the revenue -- the consumable revenue per instrument should be pretty stable at a minimum even post-pandemic.

This is our model indeed. This is our model, and this is why I insist all the time though that this is a menu play. This is not a pandemic play.

And then similarly, on NeuMoDx, and this is for folks who don't know a fully automated testing platform that utilizes QIAGEN's proprietary reagents. There's 2 instrument offerings, the 96, which is a medium-throughput instrument. And the 288, which is a high throughput instrument, and they're built for fully automated nucleic acid extraction, isolation, amplification, and target detection via fluorescent-based PCR. Hopefully, I did that okay. So the company was fully acquired in September 2020. The need for testing scale has brought automated high throughput solutions to spotlight as proven by high demand early on for this platform. You mentioned you're planning on doubling the installed base for 2021. Is it kind of the same model where you're in a position to be selective where these go? And if you do your job and you keep expanding menu, the same thing we talked about with QIAstat happens with NeuMoDx?

On NeuMoDx as well, we are below market demand, though we cannot cope with the current market demand. It is true that a lot of this demand is accelerated by COVID-19, clearly. But at the same time, you see between the 96 version of the NeuMoDx and the 288 version, we are talking about an investment of roughly between $150,000 to $250,000 in a hospital. So it's not a live decision, and you don't take a decision just for the sake of 1 asset. The second thing is that because you have such a demand, our ratio capital sales versus place system has completely changed in 2020. In other words, most of our placements are capital sales. So basically, it's not on our balance sheet, but it's on the hospitals, and they will have to make sure that this is used post-pandemic with the rest of the menu that we have. And we have there 2 very good arguments for the future, Doug. First of all, we have already a total of 14 assets, 4 NeuMoDx registered in Europe, we now need to execute in bringing those assays in the U.S., '21, '22, '23. In addition to that, let's not forget, if some of you believe that as long as we do not have the menu registered in the U.S., we cannot play, not at all. Because in the U.S., there is still a significant market for what we call laboratory-developed test as it is. And let's not forget that NeuMoDx is the only system out there, able to allow a laboratory to run randomly at any time both regulated assays or laboratory-developed test. So this is why we are fairly confident, and this is why we have also said that NeuMoDx is a double-digit growth pillar for our company, post-pandemic as well.

And in the U.S., pivoting back to the menu, I mean, one of the things we focused on is really your move into women's health. You already have GBS, I think the plan is to submit CT/NG this year. That's right. And is that something we -- I think that's right, at least the lead last update. So that -- I mean, to the extent that we're getting back to a normalized world where some of these women's health assays and STD assays are first and foremost in the minds of a new adopter, you're going to be able to fully playoff hence there is the same way everybody else does sound.

This is a strategy every year, bringing some of those assays to 510(k) and PMA and obviously continue to develop other assays. But we'll take the decision, for example, regarding CT/NG depending on the evolution of the pandemic, Doug. I mean, if we still have sustained demand for it, we will have to cope with that, first and foremost. But that's the objective in GBS.

So we're running out of time, and that's my fault. We're probably not going to have a lot of time to talk about QuantiFERON this morning. But I mean, we talked about the growth pillars. We talked about your assessment of the business. And how QIAGEN is using this as really a period not just to be helpful, but to really accelerate its evolution. As you think about things, again, in our prepared remarks, we talked about how you started in the midst of the Thermo acquisition. As you think about it today and your growth outlook, how do you think about balancing organic investment and driving with the assets you have versus going out there and inorganically adding to the portfolio. Maybe we'll close there.

Perfect. Thank you, Doug. First of all, we disclosed the strategy, which is really focusing on those 5 pillars of growth, which means that already organically, we have a lot on our plate to execute on. And that's the real daily obsession. But at the same time, QIAGEN is a deal-making company though. And therefore, we are, and we remain open to bolt-on acquisition with 1 condition. Is that it has to reinforce either the 5 pillars of growth or the core business. Going wide rather than going deep, just for the sake of adding new product is not the strategy. Now to finish on this, there are other ways also to work on capital deployment, one way that we are also considering seriously is also because we have done that in the past, and it shows the confidence we have in our company is to also consider share buyback program, for example, this is something that we clearly have in mind for this year as well.

That's great. All right. So much to talk about. We covered a lot. Obviously, we could have covered more, but this has been fantastic. We, as always, really appreciate the time. Thank you.

Thank you. Doug, thank you for your interest. Thank you, everyone.