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

Okay. Thanks, everyone, for joining us this morning. I'm Vijay Kumar. I cover Life Science Tools and MedTech at Evercore. Pleasure to have with us at QIAGEN. We have with us Roland Sackers, the CFO. I think I might have John Gilardi as well on. There he is. I could see John waving out there. It's always -- QIAGEN has been near and dear, it was for a variety of reasons over the years. It's -- unfortunately, we couldn't be part of the story for the last couple of years, but it's certainly been exciting for you guys.

From a far, Roland, when I think about the story, what the debate was 3 years ago versus now, it's changed. So I do want to dive in some of these things. But before I ask on the fundamentals, what's changed, maybe perhaps a lot of questions, can diagnostic companies detect a new Omicron variant? So maybe talk about whether your test offerings can detect the new variant?

Yes, sure. And of course, Vijay, it's always a pleasure to be here. And again, thanks for having us today. Yes, I think as you said correctly, QIAGEN went clearly through a quite a significant transformation since 2019 when we stopped the development of our own next-generation sequencing platform. And of course, we did the right thing at that point of time and hindsight always looks very smart, but we're clearly pushing and developing the PCR platform, which is QIAcuity, QIAstat, and NeuMoDx, of course, not knowing that there is a pandemic situation coming up which is like a significant tailwind for our overall business. The good news for us is, of course, that overall, the pandemic business was just tailwind and also as of today, we can confirm that all new variants, including Omicron is detected by our PCR solutions. We really looked at it under different panels, also different solution we're providing, same results for Omicron as far as any other kind of variant. So I think that's good news for our customers as well.

Fantastic. With that, I'm sure we all feel a little bit safer knowing that the diagnostic test can detect the new variant. Maybe talking about Q4 on the near term, there's been some chatter about restrictions, lockdowns in Europe. Should that impact your base business? Or how are you thinking about Q4? And obviously, COVID should be an upside surprise, but maybe talk about base versus COVID trends for Q4?

I'm not sure if it's any surprise anymore, if [indiscernible] but I would probably frame it in a slightly different way. It's quite obvious that COVID provides a lot of volatility into the diagnostic markets and we are seeing moving in 2 directions by those directions. And therefore, we decided mid of this year, clearly, we will take that volatility out of our guidance and put what we would probably call, at the time, a realistic conservative assumption forward. It's quite obvious that in the meantime, of course, COVID turned in significant parts of the world, again quite active. Therefore, a peak in the third quarter actually was driven by both, by a better non-COVID business, but also, of course, by a better COVID business. Nevertheless, we haven't changed our, call it, guidance philosophy for the fourth quarter, meaning while we still assume a good non-COVID business in the fourth quarter and also moving forward, we kept the assumption for the COVID-related business quite low. So I think the current assumption baked into our guidance for Q4 was that the COVID-related business goes down year-over-year on about 30%. You clearly can argue that it's the right assumption, time will tell. But it clearly also assumes that the non-COVID business is continue still quite strongly. And it's -- and I think there is one thing that really has changed compared to, let's say, 12 or 18 months before, 12 months before, if COVID went up, non-COVID went down. That is what we are not seeing right now. I would say, that it's particularly true in the Western world, also in Europe, we haven't seen any larger impact. I would say, the 1 exemption I would make is probably China because China as you might know clearly has a larger number of also regional lockdowns, which clearly has an impact. Nevertheless, I would expect China also to grow double digit, but probably driven by different factors than the rest of the world.

Understood. And maybe that segues us into the meet of the conversation, which is the transformation that QIAGEN has undergone. I really do love your new earnings presentation where everything is broken out. It's clear. Maybe starting with some of the drivers here, QIAstat and NeuMoDx, jumped out at me. This point-of-care multiplex market is interesting for you guys for a variety of reasons. Can you maybe start with your multiplex respiratory assay? What does your 4 Plex panel of getting a CE Mark mean from a near-term perspective?

It's clearly a nice add-on for our customers because it clearly specifically address the actual situation with now moving into the winter season, [indiscernible] large parts of the world and clearly, a differentiation between flu and COVID is probably one that is where by definition has increased demand. I think it fits also overall into this decentralization trend. It's quite clear that further all, people want to go closer to the patient. Patients don't want to wait a day or whatever for results, they want to have a quick turnaround of, 25 or 26 minutes. And of course, at the same time, also doctors' offices want to get a share also of the overall value. Why should I say that we can make my -- when I can make both, provide better service to the customers because of better turnaround time, but also I make extra dollars with that. So I think it's a market which is still developing, probably also something that we believe is going to post COVID still a market with an overall low penetration. I do think that as of today, we are a solid #2. It's quite clear that there's 1 player doing a good job in that market and building it. But over the last 12 months, we're catching up quite nicely. And unfortunately, we had some supply issues, as you know, earlier with COVID really over winding all our capacities. That is now less an issue as we were building it up quite nicely and that should be helpful.

It's an interesting point you bringing up, Roland, and catching up quite nicely with the market leader. Are there some comparative or technological differences on your product versus your main competitor that's allowing you to close that -- narrow that gap?

I think it's clearly an advantage we have because we don't have [indiscernible] we are using cartridge instead of plastic. There's no technology within the cartridge. So it's clearly something for the customers, easy to handle. It doesn't spill. It's little bit like, what we call, like a printer cartridge which is easy to change, very clean. And again, the turnaround time is very good. From our perspective, the nice thing is, as we have now [indiscernible] 4 Plex, it's up to us how many of these different channels we have filling, right? I think we have 22 or 24 different channels within that cartridge. So we can fill them all as we did early putting the true COVID trends into that, but also we can reduce it if there is a strong demand for that. So I think it's quite flexible, which is, I think, at end of the day, a win-win situation.

Understood. And I think when I think about your QIAstat year-to-date revenues of $53 million-ish, what is base versus COVID? Does it even make sense to think about base versus COVID? Because if everyone is doing multiplexed respiratory assay, do you count that as COVID or is that a base revenue?

That is actually a good question in terms of how we address it going forward. It's quite obvious right now, significant [indiscernible] is driven by [indiscernible]. But in all fairness, do we really know, it's close to winter time, close to the doctor because [indiscernible] is it not COVID or is it true? It is respiratory, right? So I think there's also a point of time when we probably just say, it's, as we do today, it's QIAstat, full stop. That's where QIAstat grows. And once we have a baseline, I think companies like we and other countries probably are going to stop to break out COVID because it becomes endemic, right? I think we all don't know what is a settling point. Is it 30% of the top? Is it 50%, is it 60%? Time is going to tell. And again, if you would ask me 12 months ago to -- that Q4 is -- or Q3 -- take actual numbers that Q3 is similar in COVID revenues than Q3 last year, I would have said, "Yes, nice try, but it's not going to happen." It's what happened, and let's see how Q4 pans out.

Understood. And then the other key product for you guys within the diagnostics franchise, NeuMoDx was something that came up year-to-date, again, similar kind of question. It's about $80 million-ish rounded. Now what is base versus COVID here? And how should we think about the growth opportunity here for NeuMoDx?

Probably I think this year it's, let's say, $100 million, again, that's probably the goal for the year. It's clearly also driven by COVID. But going forward, it probably has some regional differences because as you might recall, we have a very full menu ex U.S., where I think 14 panels are more or less marked. And therefore, I think there is a good situation to address the overall market even in a post-pandemic situation. Slightly different, post-U.S., U.S, it's very clear that we have a respiratory approved panel and that we have a great and important component, but we're clearly lacking other panels. That's also a reason why we have heavily invested in R&D efforts and continue to do so because that's clearly one thing we want to close. Right now, the majority also here is -- so it's COVID-related revenues. And it is also, I think, important to emphasize because there will be a period where the respiratory revenues will go down, and so the test will go up. It's hard to predict, it's just going to happen in 12 months and it will be rebalancing or is it rather going in a lower pace, and it takes 2 or 3 years. We will see. I think the good news is, we are well prepared to customers like that instrument because it has significantly higher turnaround times than competitors. We had 1 hour, where most others had at least 4 hours. Very flexible across state of the art, random access, continuous loading. The chemicals are very easy to ship because it can be all down on room temperature. So there's a lot of advantages which customers like about it, I would say.

Understood. No, that's helpful. QuantiFERON was -- this is something that I'm familiar with, certainly it was a meaningful product back in the -- a couple of years ago. But what surprised me when I was looking at some of the numbers is the way it's rebounded. I mean, we're growing off of pre-pandemic base, it's very, very strong. What's driven this resurgence growth in QuantiFERON? Like did QuantiFERON benefit from the pandemic in some way?

No. Not really. I think what is really helpful for us is that we used the time over the last couple of quarters to strengthen our partnership with DiaSorin. And I think part of the story is clearly that also DiaSorin had a successful 24 months in placing LIAISON platforms. So the install base is now north of 8,000. And what that means is if somebody wants to start with late TB test, he most likely doesn't have to do any capital investors because he has an existing platform on hand. So that is what we see, the greenfield opportunities really jumping up on that. On top of that, of course, it's fair to say that particularly in the third quarter, we had a very good back-to-school business, which wasn't there in the third quarter a year before. But it's also important to say that certain part of the business is not even back today, right, particularly immigration business, which probably in the pre-COVID days was, let's say, around 20%. We don't see immigration in this space. So there's market opportunities still coming up. So we're confident that it continues double digit. Again, it's clearly something where the partnership has been helpful. On top of that, as you know, which is not big now and probably lower 7-digit numbers for next year, so lot of opportunities. We got approved right now in Europe. U.S. is probably over the course later next year. So I think that it's also addressing a nice market opportunity. But again, I think here, it's fair to say, let's say what's coming in, take in mind the way we are addressing that market is, they have a weakness doing the sales because they have an existing product in the market, they actually is a market leader for labs. So it's great that we might as well get bundled with their solution in front of the customers. So it should give us a nice entry.

Understood. Understood. No, that's a helpful perspective. Maybe on the other 2 segments, the way you break out revenues now, Genomics and Sample Tech. Is there anything new within your NGS genomics portfolio? Is there any way QIAGEN levered to single cell or liquid biopsy and what should growth rates be for Genomics and Sample Tech for you guys?

We're clearly have not seen it as I think we were alluding to a couple of quarters with a nice good growth rate. Have in mind that the second quarter, I would say, one-off, a positive impact. So I think it was a little bit too up and was actually driven by that as well, but also, again, the third quarter was good, the first quarter was good. So it's clearly a good double-digit business. And I think it's driven by both. Again, people want to restart the underlying business. The overall funding situation is good. You see that one hand side, again, you know the actual discussions for next year is a significant growth opportunities. We see pharma companies wanting to go back to more or less the regular work, but all this COVID, COVID, COVID, but there's still oncologies, there's other areas. But of course, all to COVID is adding to that in this whole mutation business, which is now -- is already gone on who knows which other mutations coming up, showing that there isn't, I would say, a different layer of testing, which COVID stays as well. Again, I'm not going to predict on that level. But it's quite obvious that a genotyping or sequencing solution is a different price point than an antigen test. But I think it's also clear that, for example, antigen will have more and more challenges with higher vaccination levels, as we all know. So there is a certain PCR need which is probably getting supported.

Understood. Understood. And if I round out what we've discussed so far between QIAstat, NeuMoDx, QuantiFERON, Genomics and Sample Tech, what is -- how should we think about fiscal '22 growth for QIAGEN? Some of your peers in the life sciences side, their initial comments on fiscal '22 suggest comps should not be an issue. I'm curious how you guys are thinking about fiscal '22?

Probably I think it's a challenge we have as everybody in our industry has, we all don't know what COVID is going to do. As you know, we will most likely stick with our assumption that -- which is expecting a significant reduction in overall COVID testing. Again, we will give forward guidance most likely end of January, early February next year. I might be totally off by that day. So don't put me on video and replay it, but there is assumption as of today. I think the growth drivers as we went through them, we feel all quite confident. Have in mind that nevertheless that and [indiscernible] have to go to a rebalancing from COVID related to non-COVID related that doesn't make for certain periods life not easier, after that should continue double digit, others we discussed. But I think also other parts of the business like we haven't talked to like and other, which is now, I think, an $80-plus million business, good double-digit growth rate, also it's having benefits from the current overall environment, right? We're still in an environment where the lockdowns are not fully lifted, but again, a lot of companies struggle to get people not only back to offices, but also back to labs. If there's a sudden normalization, that should be helpful.

Understood. And then maybe in the last couple of minutes here, Roland, talk about any supply chain disruption in your pricing power, your ability to pass along pricing to customers. How should we think about it from a fiscal '22 perspective? And then I had 1 strategic question and follow-up after that.

No, very straightforward. I assume pricing in QIAGEN is known for having a strong brand name along with I would say, a solution around quality. So we clearly have a history of increasing our price every year with local inflation rates. We are also going to do so for next year, up with local inflation rates are higher in this environment and it was like 12 and 24 months ago. So you should expect once a year QIAGEN to push larger price increases forward. Typically, the recovery rate is quite good at QIAGEN giving some customers longer contracts where it takes some more time, but a lot of our products, as you know, are getting all to ship within 24 to 48 hours. So it becomes effective quite soon. On the supply side, I would say, in general, we deliver -- I would say, we went quite well through the last 12 months. I think we always have, as other companies, certain local disruptions. I think there's more to do out of this local lockdowns and then the airport gets shut down, and the harbor gets shut down, it's something that we try to address with more stock on hand. And I think from the outside, you will have not seen any larger disruption.

Got you. And then maybe the last quick 30-second, Roland. There's been a lot of chatter around the strategic front for QIAGEN. I'm more curious from your employee perspective, like has this been a distraction for management and employees or how are you handling that?

It's clearly not for employees. Of course, again, I think we are very focused on handling the overall COVID situation. And as you know, as we just talked, we heavily invested into production, scale up, which again is not COVID related, but rather overall in R&D, we scale up. We have more than 1,000 people, more on Board today than compared to 2019. So that's a significant investment. So I think that kept us busy. I would say also turnover rate is actually lower than it was pre-COVID, so I think we feel quite comfortable.

That's fantastic. I think with that we're at the end of the time. Roland and John, thank you for spending the time with us this morning.

Thanks for having us, Vijay.

Thanks, Vijay.