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

Good morning. Dan Brennan here. Day 2 of the Cowen Health Care Conference. I'm certainly thrilled to be here, having joined not too long ago and joined here on the virtual stage for this session with Thierry Bernard, the Chief Executive Officer of QIAGEN, who we hosted back in December and really enjoyed our meetings and I'm looking forward to this today. So first off, Thierry, welcome.

Thanks for having us.

You got it. So I thought I'd have a series of maybe top-down questions to kick it off, and then we'll get into the 5 pillars, and then we'll talk about profitability and maybe end on some strategy things. But maybe just from a high level to kick it off, Thierry, so your guidance this year calls for north of 10% core business growth, which is consistent with how you were framing it coming into, I believe, the fourth quarter print. And your long-term guide is in that 6% to 7% type of growth with the 5 pillars, certainly above that and then the base x 5 pillars below. Just maybe give us a sense of that 6% to 7%. If we were to think about over time, potentially upside to that number. I mean our models reflect a bit of upside. Is it from the 5 pillars? Is it from that base business doing better? Is it a combination of the 2? Just kind of walk us through that 6% to 7% and how we think about potential levers.

Yes. That's fair questions, Dan. Guess what, we did say, and I think we stick to it is the way we look at the future for QIAGEN is that we believe that a mid-single digit is a threshold for us, a lower threshold for us and that the objective of coming up with a strategy 2 years ago around the 5 pillars of growth was to sell because we are a mid-cap, we really want to focus. We cannot spread the company to fee. And to be very humble with you, Dan, I think I try not make a mistake at that time because I probably get the feeling from a communication standpoint. And when I was saying 5 pillars of growth, by definition, that meant that the core business was not growing, which is not the case. And so obviously, we bet on the 5 pillars of growth because we believe that the combined both very established leadership position that are still growing, obviously, Sample tech. Obviously, Sample tech is a more moderate growth, but given the market share that we have, it's a solid one at high margin. QuantiFERON, which is still obviously performing extremely well. We have seen it recovering as we said, by the way, in 2021 to the level of 2019 and that we believe because of the investment we did in the past, the DiaSorin partnership, the Hamilton taken partnership, the recent launch of QIAreach for the let's say less favored countries, high-burden countries. The fact that we are expanding also the potential of the interferon gamma technology beyond latent TB, we use, for example Lyme. We believe that we have clearly -- and we have said that for years, a potential of basically 12% to 13% growth for this already leading product. And we have also, in those 5 pillars, high-growth potential, more nascent product, but given their differentiation, given the market they are playing in, we believe that they can bring double-digit growth. I'm talking, obviously, digital PCR with QIAcuity, where we have already -- after what is broadly a year of launch, more than 700 instruments all over the world with significant successes, for example like in wastewater testing, recently with the public health labs. This is definitely, obviously, a field where we say we want to become not #2 or #3, we want to become the #1 of that market. So if you compare with the current leadership and when you compare with the growth of the market, with the size of the market, it gives you basically an estimation of where we believe we should be in medium plan, for example. And I'm thinking, frankly, we should target $300-plus million for this purpose. This is what the product deserved. We have invested in the product, we are still investing in bringing it to clinical and therefore, to regulatory, and we have dedicated people on the field to sell. And then we have Syndromic I believe the market is proving that they believe in that market growth, I mean, you have seen the recent investment of Roche of also DiaSorin of Hologic. And We have always said since we acquired STAT-Diagnostica that this was a double-digit market growth already and probably $1.3 billion market, some are saying higher than that. And we think it's a 15% market growth. So given QIAstat, given the fact that, let's be honest, the pandemic gave us an installed base that we were not forecasting originally. We have now close to 3,000 system on the field that the menu is going to plan, I mean submission of GI in the U.S., launch of meningitis in Europe. Once again, double-digit profile. And here, I clearly say because I'm never trying to be aspirational. Being #1 in the market would be aspirational. We are too far from bioMérieux, BioFire, [ Hamilton ], but being the #2 in the market which is when you compare the ranking, I mean, clearly gives you an estimation of where we won very quickly from a revenue standpoint. It's taking the share of GenMark. Clearly, and I think we have the system. Once again, we have the brilliant team opinion to plan and we have dedicated people on it. NeuMoDx PCR [ core labs ], the system is differentiated once again an installed base that we were not forecasting. Thanks to the pandemic. More than 200 systems installed development more than 220 system venue which is already reached in Europe, more than 15 assets, now we need to bring it to the U.S. But if we can do that, I see no problem here even. And now you go to the core. And if you look at the pre-pandemic time then, they were part of the core portfolio that were already growing at double digit, sometimes it were not more than 20%. Let's take some of them. Universal chemistry for next-generation sequencing. It has been at QIAGEN pre-pandemic with more than 20% growth. We are very strong in chemistry with next-generation sequencing. We took the right decision to say guys, let's drop the development of our system. We will always come on the market with too little and too late again that focused mid-cap strategy, but we have a fantastic platform-agnostic chemistry. I see no reason now that we see demand for oncology testing. We see, obviously, demand for other kind of next-generation sequencing assay. I see no reason for this to grow beyond the 10%. And when I say 10%, I'm much more optimistic than that. If you look at Companion diagnostics, QIAGEN is a leader in Companion diagnostic for PCR. Thanks to our partnership with Illumina, we have added the capability of answering pharma needs also in NGS and which is a positive good surprise for us. We have already better demand and expertise for digital PCR Companion diagnostic. So QIAGEN is simply on its way to become the company able to offer a digital PCR, NGS Companion diagnostic. Now that the pandemic seems to recede, I believe that clinical trials at pharma will start again, it's encouraging, it should double digit. HID forensic testing has been impacted by obviously the pandemic, lockdown, less crime rates and so on. We have made a development into next-generation sequencing also for forensic and see no reason for this to go below double digit. So that gives you a very quick obviously assumption. So the way I see it, and again, today, it's not a midterm guidance call, but, yes, I see a mid-single digit as a threshold, lower threshold. I think that this pillars of growth and the core should help us to go to where we have said. The 6% to 7%, this is what we had in mind. And disciplined capital allocation, the way we think about M&A, one of the feature should be, can this target help us to bring us closer to the double-digit growth for the overall company. That's the way I think about it, so recall, so that gives you a landscape basically.

For sure. For sure. No, and we'll dig into some specific questions coming up on the pillars and the base. But maybe just kind of keeping on a high level, if you don't mind, just to kick it off. Obviously, awful situation, I mean, unprecedented of what's going on, right, kind of right near your home with Russia and Ukraine. But just to ask the business point of question here. I understand your exposure is very low. So maybe just kind of on record, just kind of what's the direct exposure there? And are you seeing any demand impact maybe as European customers pause or kind of they're not focused on the business at hand given what's going on. Just wondering how we think about the potential impact or fallout from what's happening on QIAGEN?

So our exposure, very simply then is extremely limited when I'm basically gathering Russia and Ukraine, we are talking about less than 1% of our revenues. However, QIAGEN was among the first companies I would say, probably even further [ NOC ] company to take a very official stance on that conflict. And as early as December, together with the team responsible for this geographic area, I took the decision to one, put part of the budget that we have planned for '22 in risks. So it was already factored in our numbers. Two, basically try to make sure that at the end, the people will not be impacted so that we could supply. So therefore, we put a bit of inventory there. How long is it going to last? It's difficult to say. It's obvious that if there are more international sanctions also impacting health care company, we will abide by this sanction. At this moment, we are not closed our operation in Russia. We are directing Russia with a distributor in Ukraine, we try to support. But the exposure is obviously not normal. To your second question, which is, do we see? at the moment, we have not seen an impact on demand. It's very early, probably. It's fair to say at the same time that many people have their mind also focusing on that. Just before this call, you said we were talking -- you and I, I told you what's forecasting before with COVID was not easy. Now with this crisis, it's going also to create volatility. But we don't see that in the demand where we are clearly monitoring where we are, I think, covered at the moment, but like anyone else, we need to be extremely proactive in the coverage is one, obviously, supply chain. It includes, obviously, utilities and energy for our main site. We have no problem in the U.S. We have no problem at the moment in Germany, but we are already taking proactive measures to invest into basically alternatives, clearly. We have no problem in one of our major sites in the U.K., which is in Manchester. So we believe it's under control, but still -- we also carefully monitor the evolution of inflation on our P&L. There is an inflation clearly. We need to also and we have already passed price increases, share that with customers. As I said in many conferences before, I will not hesitate to pass with second range of price increases if necessary in the second semester. We have done that in the past. We can do it again. It's always in full transparency with our customers. And this is how we are trying to protect ourselves.

Got it. Good. Well, you answered my inflation question. So I don't know have to go there. Okay. So let's maybe dig in a little bit just on a few of the key product drivers, just to go a little deeper on this. So on QIAstat, maybe a couple of questions there. When we think about the opportunity, we did a call with an expert last week and who is favorable on the product positioning and kind of the growth of the decentralized market. But it felt like the rest of world growth could be a much bigger opportunity than in Europe and the U.S. because there is a lot of penetration even though there is a lot of new growth. Just help us think through the opportunity set as we think about QIAstat, Europe, U.S. versus rest of world, just which of these are going to give you the biggest meaningful like kind of revenue driver over the next, say, 3 years?

So first of all, the market, Dan, if you allow me, as I said before, I believe this market to be already around $1.3 billion. And I think this market is growing still around 15%. We have seen some competitors saying that it's already a $2 billion market, still going at 20%, okay. I listen to that. And also we told it's a growing market. I don't want to be facetious. But I insist again that, we are very disciplined in our capital allocation. First of all, I think we did this investment ahead of many other companies and we paid $150 million for QIAstat what became QIAstat. I think prices paid recently were slightly higher than that facilities. We have an interesting position. We believe that the market is still mainly at the moment in the U.S. This is where, taking for this kind of value is the most, I would say, embedded in the laboratory mindset. It's coming into Europe, but I would say, it's fair to say 65% to 70% of this market is probably still mainly North America. And this is interesting for us because unlike some of the competitors, we are less present in North America at this moment than in Europe because we launched first in Europe, and this is in Europe where we have the main revenue at the moment. Third, these thing is also giving us a bit of a positive perspective. It's clear that the rest of the world that is equally important for us, we are equally surprised at the moment we saw good traction in Latin America. China being kind of parenthesis because China I think the regulatory approval is going to take at least 4 to 5 years. I mean, BioFire is still not approved in China. And I'm giving you my bet, there will be no foreign company on syndromic testing approved in China as long as there is no Chinese local competitors NMPA approved. It's going to be as simple as this. This is why we should be thinking about solution like OEM and so on, but there should be as well the market progressing there. Not very strong in Europe, which is very important for us is that now we have the typical venue that should allow you to be competitive for any kind of competition or for any kind of tenders, respiratory, GM and meningitis. The rule of the game is to make sure that we can do that in the U.S. ASAP. We tick the box of our commitment to you and to the market when we say, we would step into GI in the U.S. by last year. We did it, but honestly, we factored only 1 quarter of sales of GI for 2022 because, given the backlog of approval at the FDA, I don't want to take an unnecessary risk. So we plan to sell in the U.S. GI, only for the fourth quarter. We very transparently disclosed that last year that, obviously, QIAstat was COVID-dependent, but like the rest of our portfolio, it's not only COVID dependent. Clearly, we said, probably, last year, 80% was driven by COVID. But now the good thing is that we have GI and meningitis in the U.S. and this is where we are incentivizing our sales force, is to convert that installed base. And from what I see at the moment, it's rather encouraging. In the U.S., we don't have this yet, but the good thing then is that lack of the product, even if you see customer stopping testing for COVID, they will see probably test for respiratory kind of symptoms, and we have it as well. So they will either take this, depending on with COVID or without COVID, but I don't see the scenario where many customers we clearly stop from the date with user to stop it little, clearly, because they will still have some demand. So how we model this? It's fair to say because it's an extensive panel, a respiratory, meningitis, GI. We are talking roughly about $100 panel. It's fair to say that in a normal situation, modeling a panel per module per day, 1.51 to 1.5, panel is the way to model. When you have a complete menu like basically meningitis, GI and respiratory, then you can start trying to model 1.5 to 2 panels per day. And then basically, we need to continue to improve. So next year -- this year, I'm sorry, we want to put meningitis to the U.S. at the end of the year. Next year, we want to come up with pneumonia and BCID. The direct identification of positive blood culture. And the year after, we have our -- and this will be quite unique on the market, our complicated UTI panel. So if we deliver on that, I think that we should be able to reach our objective to become the #2. In addition to that, we are launching a higher throughput system in Q2. This will help also offering syndromic to key customers such as bigger labs Mayo Clinic, Cleveland Clinic or Quest, LabCorp. That's why we believe that if we continue to execute, it should be a solid double-digit growth.

Maybe just one more question here and then we'll move forward. I have one from the audience, but I'll kind of wrap into mine. So have you filed to get full FDA approval for COVID. We did the call with an expert recently who said, that's what we need. We need diagnostic vendors to get -- move beyond EUA? And then b, just a question on BioFire. I guess they've come out with maybe a faster time the result product. I don't know if that's kind of caught your attention or not, but just how does QIAstat stack up to that?

Yes. So that's a good question. On the first thing, obviously, our objective is to file for the 510(k) for the respiratory. That's what we are working on. This is necessary. I mean the FDA is not going to be governed by EUA or so -- and then we need to obviously hope that the FDA is going to solve their backdrop. I see no fright at the moment of disagreeing from the market because of no 510(k). This is not the message that we have received from the agency, okay. But obviously, we want to file. The new system from BioFire, we have not seen a lot. I believe that it's specific with a segment that they want to address with lower analysis per panel where time to result is key. They save less than 20 minutes, let's see. We have that flexibility with start if we want to hide some results from a software perspective. This is not a game that I want to play at this moment. I'm not sure really of the sustainability of syndromic in point of care. Because it's expensive, and you need to be very quick. So short panel, yes. I mean, for example, flu, RSV, COVID, but we already have this on QIAstat. So we don't need to invest in something more at the moment.

Okay. All right. Maybe let's jump over to QuantiFERON, I guess. I mean you talked about it in the opening remarks. Just you've got the product that goes into some of the, I guess, more of the emerging market opportunity. Just maybe when we think about the 11% to 12% top line growth that you're pointing to or even beyond that for QuantiFERON, what would you say are like the 2 or 3 critical aspects of like your business strategy for QuantiFERON over the next 3 years? Like where are you focused to how to sustain that growth? Get that growth higher? Just how do we think about the key planning around QuantiFERON?

First of all, I don't want to look at the past, Dan, but obviously, continue despite the leadership position to avoid any kind of arrogance and complacency. What do I mean by this? First of all, it's a pillar of growth, so we continue to invest. Second, we have proven, when nobody was talking about PerkinElmer acquiring Oxford Immunotec or bioMérieux coming with VIDAS or whoever. We have proven that we were investing in the product to protect and expand that franchise way before any kind of competition was visible. And this is why we did the deal with DiaSorin to automate the back end of the [ everything ] as early as 2016. It was one of the first thing I did when I joined QIAGEN basically. So no complacency here, continue to invest in other options like, for example, as you said, the QIAreach for higher burden countries. We are the only company who is able to go into offer this solution. And thankfully, it has been endorsed by the WHO recently. As I always told -- said to the market, I don't expect a significant revenue in 2022. Why? Because you need to go to the MOH, the Ministry of Health of those targeted countries. And then basically, it takes a bit of time and education. With that trust, I have a lot of trust in that -- in that impact '23, '24. Second, continue to invest in medical education. I mean, it sounds trivial to you, but every year, we gain countries that are putting Latent TB in their guidelines. Last year, Brazil, you see, this year, investing into for the NMPA China this year approved -- so -- it doesn't seem to be very flashy, but this constant investment to push for medical indication to push for guidelines is also what is explaining our firm. Looking at the future, developing the menu around QuantiFERON, prove a company that, okay, you are invested in QuantiFERON, potentially with automation. It's not just for Latent TB. You can run Lyme, you can run cytomegalovirus as well. You can run potentially, and we are thinking about that extent by virus. So stay tuned, we will probably come back to the market. So expanding the menu. This is something that is nothing in numbers at the moment, but I see no reason why pharma company should not be interested into T cell monitoring for their development. When you see a company like Moderna, developing, for example, an approach or a vaccine for cytomegalovirus and that is, for me, clearly an option for QuantiFERON and the alliance between T cell monitoring and pharma Companion diagnostic is another option that we need to obviously explore. And last but not least and then and probably the most important -- let's not forget that the main competition of QuantiFERON, if you just focus on Latent TB, it's not bioMérieux. It's not PerkinElmer. It's skin test and antiquated techniques where you have probably still over 50 million tests in the world of skin test. In the U.S. it's 18 million tests according to our data. And I'm proud of something because having a granular vision of where the skin test is not easy, and we are invested in marketing. Once again, let's not be complacent. And we are now marketing tool to trace the skin test customer which we didn't have before. So this is where also we are pushing our sales force. So I believe once again that saying QuantiFERON 12%, 13% CAGR is a question of execution, but we have it in hand.

Great. So I have a few more on the business, but let me jump forward to a question we discussed a lot in December around the headlines back at that time. So I have a question here. And a question from an investor, which I kind of put together. So listen, you've kind of brought a new discipline certainly to the company, which you've outlined throughout this conversation and in the past in terms of, I would say, accountability, transparency, organic growth...

Focus.

Focus. Yes. At the same time, the stock here and obviously, we've had major dislocation in the market here year-to-date. But net-net, stock here, we're still trading at the last offer price from 2 years ago, right? And the multiple is arguably, amongst the lowest for the growth that you're offering and the profitability that you have amongst peers. So I guess the question is, why do you think that current strategy is the right one to generate shareholder value? And besides execution, what else should the company be considering to create value for shareholders?

That's a very fair question. And I don't see it as complacent. But if you allow me, I wouldn't benchmark with the most recent days. I think the market is, in general, taking a severe hit because of the volatility. And I simply think that the journey is still out there. And again, I have the humility to say that, if we want to continue to restore trust, this is what we are -- what we have to do. First is focused on execution quarter after quarter. We are now a 10th quarter in a row. And for those who are thinking, particularly, last year in July, you basically reset your guidance, and said, okay, but you saw that at the end of the year, we were in the numbers that we previously gave. So that means that the numbers we gave in December of 2020 were quite good numbers. And if I blame myself is that, I listen too much at that time. But okay, second, so execution. Second, probably we need also to show a bit more that we are not just a clinical company. We are not just a life science company, but the strength of life science is probably not perceived in our portfolio. Because after all, you are talking about extremely solid market shares, sometime to the tune of 40% to 50% back in Sample tech with long-term customers, recurring customers because of gold standards and very high margin. So expect the communication also to highlight this a bit more. Third, I believe that also our investor portfolio is changing for the good, because we have seen, let's say, short-term investors, moving away from the company, and I think it's a good thing. And it's encouraging for me and for the future. Fourth, very disciplined capital allocation. I'm not just talking share buyback. Share buyback is a good proof of trust and confidence in our company, but I believe also in smart M&A with, obviously, the condition that it has to be in the focus of the 5 pillars of growth on the core business. We are not here to go to M&A, to straight the company in a day. If we stick to that and with the typical transparency that we have given to our communication, I believe that the market will understand better and better the fundamental strength of this company. And believe it's a good bet because it's a balance that geographically, business was 5 pillars of growth wise, everything is well balanced, but we have to execute quarter after quarter.

Great. Well, with that, we're at the top of the hour, Thierry. So again, thank you for participating here at the conference. Thanks to QIAGEN. I hope you have a good set of meetings and obviously stay safe over there.

Excellent. Thanks for your interest in QIAGEN. Bye-bye.

Okay. Bye-bye.