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

All right. Hi, everybody. Luke Sergott from Barclays. I cover life science tools diagnostics here. It is almost my true pleasure to have John Gilardi from QIAGEN with us. He seems to have mailed me all the weight he has lost. So with that, I'll let him kind of give an open introduction into the company and speak a little bit, and then we can dive into some questions.

Thanks, Luke. It's unfortunate that we can't be together in Miami, given that this would have been your first Barclays Conference in Miami, but it's still great to see you in the new seat, and thanks for having us here. As for QIAGEN, what I would say is that we're off to a strong start in 2021. You saw us end 2020, exceeding the goals that we had set for the year, driven by COVID testing demand as well as improving trends in the rest of our portfolio. We're looking for another year of strong growth in 2021, looking for 18% to 20% CER growth in sales and looking for about $2.42 to $2.45 at constant exchange rates in terms of adjusted EPS. We're expecting the year to start off very strong with a sales goal for about 45% CER growth in the first quarter and a very good profitability. And then for -- our plan had always been for a decline in demand for COVID testing to emerge during the year and for widespread vaccination. Vaccination, if I could speak English today, it would help by the middle of the year, and that's seems to be on track with where we are in the U.S. We'll have to wait and see what the Europeans, if they can get their act together in terms of vaccination. But what we're seeing here in Europe is clearly, clearly that they're far behind what we're seeing in the United States in terms of vaccination levels. Business continues to be very good, both in terms of COVID as well as from the rest of the portfolio. So operationally, we feel very good about where we are in the start to the year and feel good about 2021.

All right. That's a great lead off. So I mean as you think about how the year is progressing, and you called in the different vaccination trends on a regional basis. Kind of where are you seeing the trends shake out versus your expectations at the beginning of the year? And any upside/downside scenarios that you guys are seeing progress that you didn't really plan for?

It's playing out, I think, largely so far as we anticipated. If anything, Europe is behind the curve in terms of where vaccination -- remember that we have been talking about November, December that vaccines become available in January. And we actually saw a bit of a delay in terms of the availability of vaccines, in terms of we [ expected ] a month, 1.5 months in terms of where we are. We also saw a big surge, I would say, in the early part of this year in terms of cases. And I think that's going to be the big question that nobody can answer for us right now, is what's going to happen in the United States? We have Texas as a petri-dish in terms of what's happening there, in terms of the loosening of the standards. We have Florida as well in terms of spring break activity there. Is this going to cause a fourth wave in the United States? We have the same situation in Europe right now where we're seeing all the virus mutations circulating in Continental Europe. In Germany, for example, the bridge mutation is now easily 50% or more of all the new cases. We're not seeing a decline in the number of cases in Europe. We're seeing 2 waves come together in Europe. We're seeing the original variant coming down, but we're seeing the new variants take off in terms of new cases. And they're kind of offsetting each other, and that's why you're not seeing this kind of gradually decline. And in Germany, you're seeing around 10,000 cases a day. And so that's where, in general, things continue to play out as we had anticipated, but we're going to see what happens. Is there going to be a third wave in Europe? Is there going be a fourth wave in the United States? Where is vaccination going to start to level that out faster during the summer than in terms of what we anticipated? And that's right now, very hard to predict.

Okay. And I guess how are you guys positioned from a trend perspective is? Are you seeing a change where it's going from the high throughput, centralized testing to more point of care? Just give us an update on where you ultimately see that trend happening, given that scenario you just laid out?

We've been seeing that trend in general, moving from people like we talked about last year, moving from manual to automated sample prep. That continues to be a good business, but also we're trying to take care of our non-COVID sample prep business. And that's why you saw also in Q4, we had pretty decent sample prep sales for COVID testing, but we saw a nice increase year-over-year and also sequentially quarterly in our non-COVID business for like DNA testing or for those types of tests, as people start to go back to the doctor. People start going back to work in research labs as well. So in general, what we're seeing also is the demand for QIAstat, which is our syndromic testing machine, which can test up to 20 -- more than 20 different respiratory pathogens, including SARS-CoV-2 virus. And NeuMoDx, our integrated PCR platform for clinical labs. Demand is outpacing our ability to supply test for those machines right now. So we're seeing that. And then on top of that, we're seeing pretty decent demand for our QIAprep&amp kit, which is -- consolidates the sample prep and the PCR reagents in one step. You put the sample directly onto any PCR cycler. You can do up to, I think, 5,000 to 6,000 tests in an 8-hour shift on just 1 PCR cycler. That's going well -- that's doing well in terms of sales as well this quarter.

Okay. And so when I think about the NeuMoDx and the QIAstat, give us an update where -- I mean, how many new to QIAGEN customers are you guys placing in these boxes? Is this more of them just adding additional -- existing customers adding additional capacity.

No. These are actually customers who are new -- they may be QIAGEN customers for other products, but they're new to QIAstat, they're new to NeuMoDx. Remember, we're at over 2,000 for QIAstat, and we're over 150 now for NeuMoDx. We're starting to place the second, third machines at customers for NeuMoDx. And then obviously, you have customers who, on QIAstat, they will start with 1 and then they may buy 4 or then they'll go from 4 to 6 or 4 to 8 different modules and start to build out the modules and their capacity there. But there's still a lot of greenfield opportunities with that product, especially here in Europe.

Okay. And what are you guys seeing on a pull-through basis per instrument? Is that starting to pick up as they get more efficient?

It is getting better. But I would say, in general, right now, we've seen customers with new NeuMoDx, north of $400,000 a year on an annual pull-through. We'll have to see what that's like in a non-COVID environment. I honestly don't have a number for pull-through on the QIAstat-Dx, but you get an idea of the revenues. We're talking about $50 million of sales last year derived by around some 1,500, 1,600 machines, including some of that for sale, at capital sales, but it gives you an idea of where we are in terms of revenues.

Okay. And so when you think about NeuMoDx, you guys have a full portfolio -- I mean, the menu assay there. It's essentially -- is that going to replace the QIAsymphony?

We have the -- let's take that question apart. In Europe, we have the menu on that system. And we also have -- what's important on that machine is we have the ability to be able to process the laboratory developed tests, which are those customized [ by us ] created by a lab, and those tests can often make up 50%, 60% of the volumes in a lab where the work is being done. The question is, there is some cannibalization of the old QIAsymphony system because some QIAsymphony customers went from the QIAsymphony machine into our Rotor-Gene PCR cycler where we had assays that ran in Europe as CE-IVD for like HIV, hep C, hep B, those types of tests. There is some cannibalization there, but it's something that we can manage in a meaningful way. And we see upside by bringing them onto an integrated platform. That platform, I think, has a very nice differentiated portfolio and profile against the predecessor generation machines in this market, above all because of the ability to do laboratory developed test and the speed at which you get the results. I mean we can get results in that machine under an hour, where some of the competitors will need 3 to 4 hours to be able to generate the same result, and that means the machine is tied up, and it means less money for the lab, it means fewer samples that can be processed.

Okay. And so as you think competitive positioning here with NeuMoDx, is this in the midsized hospital? Or is this high throughput, the large hospital size and the...

There are 2 versions of the machine. And think of these as like an A340 and A320 in terms of having the same technology. How they operate is just a question of how much capacity you can put through the machines. They operate the same way. One is a -- the 96 version, which can do about 96 samples in an 8-hour shift. Then you have the 288 version, which can do over 200 -- nearly 300 samples in an 8-hour shift. So you have certain labs more, depending on the size of the lab or the capacity, they can choose between those 2 different models and what version they need to be able to operate. But once you train an operator to work on a 96 or a 288, it's the same graphic user interface. It's the same tests that run on both machines. It's the same chemistry.

Okay. So it's more of that smaller to midsized hospital, that's where you're still saying... [indiscernible]

Yes. You could also play some at -- large ones, where they may take 2 or 3 288s, but we're having that ability to drive that dissemination story with that system for labs that want to be able to bring testing in-house, be able to capture that revenue stream, be able to capture that cash flow.

Okay. That's helpful. And then you were talking a little bit about the PCR -- back to COVID here, but you're talking about the PCR solution where you guys have -- I think it's the 5,000 or 6,000 samples that you can run. Is that the genotyping PCR solution you're talking about? Or is that something different?

Not something different. This is called prep&amp, and this is a kit -- because you're seeing 2 issues with COVID testing that continue to be an issue at this very high level of testing that continues. One is the sheer volume of samples that have to be processed in the lab. The second one -- and that takes time. And the second one is the plastic supplies. These tests need tons of these kind of plastic strips. This is one of them for an easy 1 strip, and these all have to be stamped in plastic. And you need to build the presses and the workflows to be able to stamp out the plastic, it's not something that you can just flip a switch and build overnight. So with prep&amp, we have a system where you can load the samples from the collection tube straight into a 96-well PCR plate, inject, then you load in the chemistry from the prep&amp kit and the -- you don't have to do sample prep. The sample prep is done right on the PCR cycler. So that's where our test can give you results in under an hour. And again, you can do, I think, up to 8,000 -- 7,000, 8,000 samples in an 8-hour shift on a regular PCR cycler.

Okay. All right. That's helpful.

We're looking for a double-digit amount of -- million revenue from that product this year, and we're going to see how that helps labs to be able to scale up and handle the flow and make it more efficient.

Okay. And then a durability question on that product itself. I mean can you port other assays onto that?

We're working on versions where we would -- right now, for example, we work with a nasal swab or nasopharyngeal throat swap. We're also looking to move to be able to do saliva from out of that test. And then we're also looking at ways to be able to add influence or other respiratory diseases to create a small panel type test that you could do quickly on a prep&amp - prep&amp on a PCR cycler.

Okay. And then you guys also had antigen and antibody serology testing. Give us an update on where -- how you see those types of tests and modalities shake out? If -- I mean, is it metabody (sic) [ metabolically ] done?

Yes. The antibody has been submitted to the FDA. But right now, the FDA is not really pushing the antibody test through because there's not really a demand for them right now. Our antigen test that we developed with a loom, we withdrew the FDA submission there to review the chemistry and to make a modification on the chemistry. We were not satisfied with the results. And that will be submitted back to the FDA for EUA approval by the end of March. And we're looking for about a -- I think we were talking about 1 million tests per week that we could sell on that per month. And we'll see how that product ramps. We're looking also at other markets outside the United States for that product as the demand rises for antigen testing here.

Okay. And that 1 million tests per month, is that baked into your original guidance for the year?

Very little was baked in.

Okay. All right. So you gave yourself a cushion there.

Yes.

Okay. And so when you think about -- I mean, Thierry taking over just overall portfolio, 30,000-foot view here. You guys had 5 growth pillars that you were investing for. In a company of your size, something that training all of that R&D and all those investments into 2 or 3 markets would provide a better return. Give us an idea of why the 5 is kind of the best way for you to continue to drive growth?

Well, I think if you take a step back, one of the things that we learned on reflection, after we went through all the changes and all the events from '19 and '20 and also through COVID is, is that like you said, there's only so much that a mid-cap company can handle in terms of bandwidth. And we were stretched too thin, and we needed to be able to place more strategic bets on the table and focus on markets where we could take a strong leadership position and also in markets where we felt there was a dynamic opportunity. And that's where you saw us with the decision to stop NGS instrument development at the same time that we were trying to do PCR development, as we're trying to do other products. That was a lot to be taking on at once. And also in terms of the prioritization of the investments. And yes, the GeneReader program was actually the #1 investment area for QIAGEN. And so that's the thing that changed. And so if you look at where we are right now, there was the sample prep business, which is the bread and butter of QIAGEN. This is the core of QIAGEN. This is what the QIAGEN is known for. This is where we get 97 -- 90% plus unaided brand awareness, where people use our name as a verb. This is a market that's usually growing in this kind of 2%, 3%, 4% business-type trend area. And we feel good about the opportunities there, and it's a way to be able to sell downstream on the workflows. Then you move into QuantiFERON, which is a portfolio that's moving at a -- much further along in terms of the development base than where we are with QIAstat-Dx, NeuMoDx and QIAcuity, our digital PCR platforms. That's a product where we're cooperating and working closely with DiaSorin of Italy, where we have the test on liaison, their platforms, and make it available that way to improve the automation. That's important because we have competition coming with bioMérieux. And then obviously, you have PerkinElmer having scooped up Oxford in that market. But again, Oxford has been on the market for 8, 10 years. It's hard to imagine what's going to change, given that we've been competing for a very, very long time with customers there. So we see with that sample prep, a sustainable low to mid-single-digit CER growth. That's why I explained at our Deep Dive day back in December, you can still find it online in our Deep Dive site. Some great videos there. And then with where you are in QuantiFERON is also a sustainable low double-digit CER growth as that product comes off a base of $180 million, $190 million in 2020. Sorry, my phone may trying to talk -- my Apple Watch is talking to me. And you're then coming back up to about $230 million this year, which is where we were in 2019 and then starting to grow at a nice double-digit rate. I think part of that focus you see at QIAGEN is, for example, the decision with our Lyme disease test. We had talked to you about coming up with a Lyme disease test based on QuantiFERON technology. And instead of commercializing that ourselves, which was the original plan, we decided to go into a partnership with DiaSorin on that test. And we are going to sell the test to DiaSorin, who will then be responsible for commercialization. So when you move to the next 3 platforms, you have 3 PCR-based platforms with QIAstat-Dx, NeuMoDx at the clinical market and then QIAcuity, which is digital PCR, which is in the research markets. And those 3 together will then eventually -- and so QIAcuity will also be moving eventually over into the molecular diagnostics market. So you have a lot of common call points for customers. Digital PCR gives us a real step forward. So these things have a lot of commonality in these 3 platforms in terms of bringing them to the market. They're all in a very early stage of launch, and we're able to put the power behind these.

Okay. And I guess as you think about -- I mean, you brought up QuantiFERON, I mean the original target there was $350 million at the end of 2020, I think. And pre-COVID, it didn't look like you guys were going to hit that target. Give us an update as you call for low double-digit off of the -- what was it, the $230 million base of this year? Or at the end of this year, right? Is this mostly a tender business now? Or is this still a market penetration opportunity?

This is still a market penetration. Our goal has actually been updated to have around $400 million of sales by 2023. There could be a chance from the overall franchise to get back to that kind of number. Now when you look at us launching Lyme, we're also launching a low resource, high burden version of that test where you run the test on these kinds of battery-operated platforms, like this. This is also what we use for our antigen test and for our antibody test, the same work with a loom. But we'll see. In the U.S., which is about half the sales, you still have probably about 25% to 30% market penetration right now. As you're really working on health care worker screening, you're working on immigration testing, you're working on military accounts. You're working on congregated living, prisons, nursing homes, universities. Those remain the targets for that, plus public health TB testing in Europe. We're also seeing the same types of market opportunities there. When you move to some of the countries in Asia, that becomes more of a tender business such as South Korea, those types of markets where you have large tenders in terms of military screening. And -- but we still see 70 million skin tests being done on average, pre-COVID, on an annual basis in the global market is maybe 20% to 25% penetrated. So there's a lot of market conversion to go.

Okay, okay. Makes sense. And then I guess, as you think about the digital PCR is a pretty crowded market. You guys entered there through the acquisition. How is that trending? How the placements? Give us an idea of your win rates, pull-through as an opportunity in another market.

Well, in digital PCR, I think, is if you're looking for maybe the dark horse or the product that's kind of the -- I'm going to call it the ace up the sleeve, but it's a product that people are underestimating. It's clearly the QIAcuity, digital PCR solution here. We had acquired assets from a company called Formulatrix in Boston a couple of years ago. And then our teams worked to really rejuvenate and reinvigorate this system. And the first placements were made in October of 2020. We had over 200 orders by the end of the year. This was well ahead of our expectations. We expected about $10 million of sales last year. We got to about $8 million or $9 million. This year, we're looking for about $45 million, and we're looking for 3-digit sales in a year, 1.5 years in terms of the system starting to ramp. You see the incumbent in this market out there on the West Coast. And really, beyond them, it's hard to find a competitor in this market. And we see an opportunity here to convert a $2.5 billion market opportunity. So the market, similar to what we see with QuantiFERON, where you have $1 billion-plus annual testing market for latent TB, you have a $2.5 billion market in quantitative PCR in research -- primarily in that research area, that's right for conversion to a modern gold standard, and that's what we want to do with the QIAcuity system. What's really important with our offering is that we're not talking about a 6-digit figure to get into the -- to [ living less ] be able to use digital PCR. There are 3 versions of the machine. There's a 1 play for our plate in 8 plate versions. The 1 plate is priced competitively against a qPCR machine in the $20,000 to $30,000 range, so that labs can get their foot in the door, start to use digital PCR and then be able to ramp as they need and as they see greater adoption and greater utilization of those machines. These machines are fully automated, they're very fast. You can look at 5 molecular targets at the same time from a sample compared to maybe 1 or 2 at a time using qPCR. And these are, again, scalable systems with very rapid -- very high sensitivity. You're able to find needles in a haystack with absolute quantification using digital PCR, what you can't do with quantitative PCR. So this is a quantum leap forward. It's similar to -- the way I explain it in certain ways is it's going from the old Nokia mobile phones to having your own smartphone. It's a big change.

I'd like to go back. All right. That's really helpful, and it's all the time we have for today. John, with those headphones, it looks like you can go back to gaming. Your Call of Duty. So it's a pleasure to see you again, and I think...

It's better than being a Philadelphia Eagles coach these days, huh?

Well, I got to wait for it. It's been a pleasure.

Yes. Okay. Thank you.

All right. Talk to you soon.

Bye.