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

Good morning, and good afternoon to those of you joining us from Europe. My name is Peter Welford. I'm the European pharma and biotech and life sciences analyst at Jefferies in London. It's my great pleasure to introduce the next company in this track, which is QIAGEN. And it's our great pleasure to have here to join us today the CEO, Thierry Bernard. He's going to talk us through a few brief moments of introduction, and then we'll go straight into the fireside chat. And with that, I'll pass over to Thierry, and thank you very much for joining us. Thank you.

No, thanks for having me, Peter, and good morning, good afternoon to everybody on the line, and thanks for the interest in QIAGEN. Just in a few words, you have seen our earnings calls a couple of weeks ago. So what is of deep satisfaction for us as management of QIAGEN is that, first of all, for the 6 times in a row, we have met or exceeded our guidance, both top line and EPS, and we showed again a very strong quarter 1. What is even more interesting for us is that we showed a very strong -- perhaps the strongest base business, the non-COVID business growth of the industry at 16% with some key highlights like QuantiFERON growing at 22%. the DNA part of our sample tech at 22%; our next-generation chemistry -- next-generation sequencing chemistry at more than double-digit as well. So very encouraging, sequentially improving as we have said, by the way, quarter after quarter. And based on those elements, we have guided for 20% top line growth in Q2, and we have reaffirmed our guidance, 18% to 20%, and its associated EPS for the full year. And that's where we are focusing at the moment. As you know, QIAGEN, since I took over, is an obsession around focusing and executing. And this is what we are trying to do.

Yes. That's a good place to start. So perhaps if you could just start with following, obviously, the Thermo Fisher proposed acquisition and then that stopping. Can you just talk a little bit about how you think you've changed QIAGEN since then? And how -- you said QIAGEN stronger. What are the key sort of elements you've introduced to QIAGEN in terms of the management since then over the last 12 months?

Yes. I mean this is a fair question. First of all, we need to go back a bit in history. I think the moment of the Thermo Fisher proposed acquisition of QIAGEN was very specific. I mean if you remember, we are -- at the end of 2019, where the company had missed 2 quarters in a row, our CEO of more than 15 years, our CEO had left the company. The company decided, which was a good decision, by the way, to drop a massive investment program into instrumentation of next-generation sequencing. And basically, I was asked to take over as CEO but as interim CEO at that time. I mean everything was reunited, I would say, better, as conditioned to have strategic companies potentially coming and proposing an acquisition. And this is what happened. And what changed since then? First of all, Let's not hide that the COVID-19 pandemic -- I mean, beyond creating a tailwind for QIAGEN, because this is not what is important, the tailwind is very short term. The pandemic 19 (sic) [ COVID-19 ], proved, first of all, the extreme relevance of testing in the health care value chain. And perhaps more importantly, for a company like QIAGEN, the crucial relevance of molecular testing, which is exactly what QIAGEN is doing. We are a molecular technique companies, both for life science or for clinical diagnostics. And so it proved the relevance of our activities. And it showed in our numbers starting immediately in Q2 of 2020 with 19% growth, which at that time was the highest growth in the business and then confirmed by also significant growth in Q3 and Q4. Second, the agility of the company. We were the first company in less than a month to launch a syndromic testing for COVID and respiratory issues, first test approved by the FDA, massive ramp-up of manufacturing capacities for some references, especially manual areas in sample tech, more than 50x increase of manufacturing capacity in a very limited time. And then as we were moving into the summer of last year, we did send various signals to Thermo Fisher to say that the proposed acquisition price was not the right one. We negotiated a new round. We extracted EUR 4 more per share. But I also let some clear message that, in my view, it was probably not good enough. And then our investors sent a clear signal in August. Already before that, I was trying to prepare, as a kind of scenario, what would be the QIAGEN post tentative of Thermo Fisher. And for me, what was very important and proven by the pandemic, again, is because we are a mid-cap company, we have really a crucial obligation to focus on where we can take between the #1 and #3 position on the market. And this is the concept of the 5 pillars of growth. That doesn't mean that we do not have other businesses, but QIAGEN is definitely investing most of our R&D expenses into those 5 pillars of growth, which are: sample tech, where we are already the #1 in the world; QIAstat and syndromic testing; NeuMoDx and PCR centralized testing; digital PCR; and QuantiFERON. And you see that in numbers, Peter. The expenses related to those 5 pillars of growth in 2021 are 60% already of our total portfolio of expenses, and I want this to grow. And it's doubled than what we are doing -- we were doing in 2019, doubled. Second, we have launched also 3, what I consider, major initiatives. One is cultural, but nonetheless, very important is a massive movement of empowering our QIAGEN. And what I mean by this is that QIAGEN was, for me, a far too centralized company. And I want to bring autonomy and decision-making power much closer to the customers. I'm not a top-down manager. It's not in my DNA. I believe in bottom-up and top-down discussions to agree on one number, which should be a realistic ambition. I always can. If you remember my first communication to the market at the end of '19 with this expression of realistic ambition. I want this company to grow, but I will always prefer to come back to the market with potential upside to our guidance rather than, obviously, won it. Because we need to take into account, obviously, our market environment. Second big initiative for me, a massive program around installed base accuracy. The main asset of a diagnostic company, if it's instruments, is its installed base on the market. Being able to monitor day by day what's the profitability and the consumption is key. Too few companies in diagnostics are doing it. We have launched this initiative as well. And third, I want also customer service, which is more like a kind of cost center at QIAGEN to become a profit center because I believe that we can invoice more activities, service base to our customers. So I would summarize it like this, we emerged from this pandemic stronger in our portfolio. The portfolio, the pandemic has allowed us to create more product that are not depending on the pandemic that could have application beyond the pandemic. With a much more focused, with an energy which is, I think, incomparable with the past, we have not lost any significant QIAGENer -- despite the uncertainty of a potential M&A with Thermo Fisher not lost any significant QIAGENer. So the energy is very high, focused, strong portfolio. And now obviously, coming back to our 2 obsessions, executing quarter after quarter and investing around the long run for the company.

Perhaps we should just talk a little bit about COVID before we go on to the 5 pillars. Can you just talk a little bit about how you see the future of COVID testing and relevant to QIAGEN and how you think this space could evolve over the long term? Because I think we've heard differing views from some different companies and, obviously, Abbott, yesterday, more of a decline in use. Can you just put in context how you see this sort of panning out in the second half of this year and the longer term?

You have heard indeed different views, and I understand the need for having more and more data point, but the least we can say is that QIAGEN has been always pretty coherent on this. First of all, starting summer of last year, we started to not only give numbers for 2021, the first company on the market to do that, but also to say, clearly, we are COVID-relevant, but we are not COVID-dependent. We can come back to that. But we always said as well, the way we see it is that the demand for COVID will continue probably until Q2 of 2021. And then starting in the summer, this -- starting with the summer, depending on geographies, start to plateau and go down. And we have seen that. Clearly, what is happening, true in some geographies, it went down quicker than expected. But in other geographies, it stayed pretty stable longer than expected. For example, the U.S. has seen a sharper decline, quicker decline than expected. We'll see how long it will last because we start to see some time surge of demand in some specific areas in the U.S. Europe is still quite strong in COVID testing demand. And the emerging countries are also still quite strong. So the way we see it for the future, we confirm that summer coming vaccination program being implemented, this is plateauing and going down. Is it going to kill any kind of COVID testing? We don't believe so. We still repeat that essentially, especially with the winter season coming back around, say, September, October, we are pretty convinced that many labs, anytime you will go to the hospital with a fever already knows they will test you for flu and COVID. Clear. So it's not going to kill any kind of testing, but it will go down. What is important for us is that when you think about QIAGEN, Peter, don't consider that I'm complacent or arrogant. But I believe we have indeed built the most comprehensive portfolio of testing for any kind of need that are COVID-correlated. You are a lab doing laboratory developed test. You want to use sample tech technology to do COVID. We have it. You are allowed doing PCR testing. We have it. You want monoplex, we have it; short-plex, we have it; multiplex, we have it. You want to test for antibody, we have it. You want to test for antigen, you have it. You say you are the government, I need to do surveillance testing with NGS, we have it. You want to do surveillance with water testing like digital PCR, we have it. And if you are thinking about, say, what your immune response post vaccination, we have it with the QuantiFERON COVID. So basically, we can answer if tomorrow there is a surge somewhere or with a specific demand with all those kinds of products. Yet, as we have said already in December during the QIAGEN deal back then, we are not managing QIAGEN with COVID. We have been post COVID in our management for many months already. We have proven that we had a set of solutions; so be it. They are relevant. But expense-wise, we always said we are going to manage our OpEx extremely carefully, not to load the company with fixed expenses that we would not be able to stand once the testing is going to go down. We are on that. And managing post COVID means that we are giving more priority, more time to QuantiFERON, to digital PCR, to the non-COVID part of the sample tech, to the non-COVID part of NeuMoDx, to QIAstat, to the oncology business. This is where we are putting currently the pressure. So this is how I see it. Going down, obviously, we sometimes pockets of surge. Think about Taiwan, Peter. No COVID cases for 253 days and then, boom. Think about Singapore, an example, going back to lockdown 10 days ago. You will have that. The importance is we have the solution, and let's not be obsessed by that because this is just now another part of the QIAGEN portfolio. Nothing more and nothing less.

I was hoping we could go through and talk about some of the different 5 pillars. Let's start off with maybe digital PCR. There's been a lot here in the U.K. where I am about water testing and its effectiveness to see potential surge testing and that. And could you just talk a little bit about how you see digital PCR and how that's been used during the pandemic?

So I think we clearly gave some numbers here, Peter. We said that for us, our digital PCR strategy is absolutely not driven by COVID, absolutely not. But we showed again agility and flexibility, because when we saw the relevance of waste water testing, we came up with a solution, which is now used in some countries. I mean if I'm not wrong, a competitor of ours qualified or quantified this market as being up to potentially $200 million to $300 million. I think it's an efficient way of surveying because you basically need very small data for a large number of population. So we have the offer. But once again, we also said to the market, because I think you also noticed around 2020, that we have made an extra effort of transparency on the way we show our numbers and we disclose our performance. We clearly said probably 10% of our digital PCR performance is driven currently by wastewater. And that's it for me. You see, I mean, if tomorrow, we have more demands because we have been talking with every public health lab in the U.S., for example, if we have more interested, we will be able -- more interest, we will be able to answer. But again, for me, the strategy of digital PCR is not COVID-related. The strategy of digital PCR is a life science strategy that we are bringing, as we said on December 8, to the IVD world because we are going to bring that solution to the FDA. And we said that it would be done by 2023. And at the same time, we want also to bring in it to our pharma partners for companion diagnostic. That's the situation.