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

Good morning, everybody. I'm Luke Sergott from Life Science Tools Diagnostics here at Barclays. With me, it's a pleasure to have Roland Sackers and John Gilardi of QIAGEN. It's been a long time, good to see you in person. So with that, if you guys want to open with a little comments, then we can dig in.

Yes, why not. And again, thanks for having us and also for us, I think the first physical conference, at least in the U.S. for quite some while. It's good to be back. I thought [indiscernible] but again. Yes, I think it's good to be -- and also good to report out on some of the developments we see. And as you know, we put out a very good fiscal year '21, clearly had a strong performance, actually both overall, what we call COVID-related business, which I think is probably more important for us also very strong performance of the non-COVID side, we have seen now, I think, consecutive quarters where we were able not only to make our guidance but also beat our guidance for the non-COVID side and deliver on a very strong double-digit growth rate. It's also actually the plan for this year. We put on our guidance earlier this year, which is calling for a double-digit growth rate of our non-COVID business also for '22. And that's clearly driven particularly by the performance of our 5 pillars of growth, where we, for sure, spent some time on. But I think it's also important to understand that what we see right now is the continuation of the trend. So while we believe that COVID business remains probably somewhat volatile, we have seen it clearly starting quite strong into this year. We too are cautious with assumptions, what I would call for the rest of the year. So more or less for this year, we call it on about $300 million COVID revenues for the full year, but there are $200 million more or less in the first quarter. Please bear in mind that we had also COVID-related revenues, pre-COVID because RNA [indiscernible] of $150 million. You can see, I think that there's, again, a cautious approach for the year affecting the volatility which might or might not happen. Better forecast is clearly the non-COVID business. And here, we all expect a continuous string of double-digit profit.

All right. And so with that, we'll start off, you got to go through the macro. Apparently, there's every question right now. So Eastern European exposure, minimal exposure here, but can you just talk about what you're seeing from the order book, how that trended throughout the year, just regular and overall Europe.

Well, I think what is clearly key for us as for the world is that the exposure right now to watch how Ukraine and this directly affected areas of [indiscernible] percentage of revenues. Also nothing on the supply side. I think it's too early to say what -- to meet overall economy because not sure much focus [indiscernible] but quite obvious that -- had a significant focus on that. Budget for this year, all are healthy. We have seen a good start to the year on the health care budgets in the U.S., but also in Europe, U.K., most of them have actually a good double-digit growth rate, which is a significant step up, particularly to the pre-COVID times. And again, outside any larger impact from the war, I would say that is probably something that we expect to continue. Also in terms of energy and oil impact, clearly, something we all have to monitor for sure. But if you look at our products, you can see that, again, there's not necessarily a high energy consumption. But again, clearly something what we have to factor in. Overall, inflation is something where I think our industry, particularly some of the brands are as QIAGEN we're able to push prices quite significantly, and that should help us to mitigate more [indiscernible]

All right. And so as you're thinking about that double digit, and we're talking about a little slower in Europe, maybe some academic and government weakness because of Omicron and now Deltacron, COVID rates up in Germany we were just talking about. So give us a sense of where you see flex in the model...

Yes, I think you obviously [indiscernible] the way we [indiscernible]. So we try to leave COVID behind, while I think COVID numbers are clearly high. Also, for example, in Germany, but other countries, we are now releasing more and more the restrictions. But Germany, for example, the big date is March 16, where more or less everything is done other than some mask mandates in public transportations. But the home office requirements are getting out of life. So I think there are significant changes coming up. Similar to what we have seen in U.K. now, I think, 4 weeks ago. So I would expect that it also having an impact to our industry because while we always talking about home offices, the same is true for labs, right? Clearly labs are fully operationally and consumer company like QIAGEN needs people in the lab working on instruments in brackets [indiscernible]. So normalization of that environment is clearly also being out for the industry.

All right. And you talked a little bit about inflation, and being able to pass your pricing among the customers give us a sense of how that paces through the year. How 1Q really shook out and there was trouble passing on as much as it happened in 1Q? And then how you're thinking in 2Q, 3Q, 4Q.

We started with that actually in the fourth quarter and then continued in the first quarter. We do it typically country by country, local prices based on local inflation levels. So I would expect that we have a good pass-through way. I would say, yes, we do have, of course, certain levels with customers who are in certain contracts. But we've used also quite regular. So I would say, as we did that all was in the past [indiscernible]. Customers are somewhat used to that. So I would say, so far we feel quite good with the recovery rate. We also made it very clear that -- we might have to do based on inflation expectation of the year, one more time this year. Again, we have to see how it really plays out. But history shows that we typically are good in terms of recovery.

And so you typically take it in 1Q. And then if you need to do it again, it would probably be revisiting in 3Q ahead of the NIH budget?

Yes.

Okay, that makes sense. Any customer segment where you're -- either you're not able to take as much or across the biopharma?

I think we typically have clearly more difficulties. If you -- for example, larger contracts with certain governments, which in a longer time period. These are the ones where you probably need a new rate. But I do think there's one thing else which you have to have in mind because I know that the world right now is focusing a lot of direct impact on [ borrowing ] inflation, but there's clearly also something what happens on the currency side in this world. Currencies at this time, which are devaluating, which clearly keeps companies as busy as well. So for example, we are trying to put some of these regions also closer to the euro or U.S. dollar environment, going away from local currencies. So I think there's a lot of activities required, but all in, we feel actually quite good for the year.

Okay. And then so when you're thinking about QIAstat, NeuMoDx and that QIAcuity. Can you give us a sense of that $300 million of COVID revenue by -- and also, like you said, the isolation technology, it's really hard to figure out what's being used what's for COVID and what's not. But give us a sense of by those -- the different technology, how much is exposed to the COVID revenue.

Clearly, a larger impact for us is on the overall sample preparation side, because RNA sample prep is something which is where QIAGEN products are keen in performing tests and we have seen with certain products like QIA program is very good one last year? And I think we said it publicly before that there is a product, for example, will be past $100 million last year. So there is a significant part of that. We would expect some normalization on that part. And again, have in mind just to put it into perspective. Last year, we had got about $700 million COVID-related revenues, guidance for this year is USD 300 million revenues in Q1. So I would say our guidance for this year is already expecting a significant drop offset. Same is true within QIAstat and also NeuMoDx. While both are actually very successful last year in terms of revenues and placements, we clearly have to expect a certain rebalancing of where we contribute. So for example, NeuMoDx is the guidance we achieved last year, let's say, $105 million of revenue, this year the guidance is like $80 million, $85 million of revenues, that doesn't mean it drops to $20 million but it probably might drop again just for calculation. Take $60 million on respiratory revenues and [indiscernible] at $40 million COVID revenues. So there's a significant rebalancing going on. The good news is we see that happening, basically demand offset, same is true with QIAstat. Pre-COVID, 1/3 of QIAstat revenues were coming from gastro testing. We also expect that is going back. Hospitals, patients, doctors' offices all want to move back as [indiscernible]. Therefore, the COVID pressure has to be relieved and also patient going back to hospital to doctors for their relevant segment.

So let's talk about that a little bit. So you have -- I mean, your QIAstat, you have a step up. And so I get the mix and of course, the mix dynamic. Why -- what's missing in the NeuMoDx, is it more of just expanding the menu that you don't have the offsets there?

Further, I think placement [indiscernible] last year was 220-plus instruments. So I think a great success. Instrument has clearly stayed [indiscernible] faster than everybody else [indiscernible] for a high super instrument [indiscernible] is significantly, right? We have everything what you need in terms of continuous low random access. And we also have a full menu ex-U.S. The limitation we're having is what we are pointing to is clearly the menu in U.S., where we have a, I think, a well-defined plan rolled out over the next 2 years to expand on that menu. Why we're successful right now in the U.S., the reason for both is 2 reasons: the capability of the instrument, plus it can also [indiscernible] LDTs, which is something that is very unique that we won LTs and regulated products in the same machine. Nevertheless, we have to expand on the menu, and that is what we're doing right now.

Okay. That makes a lot of sense there. And so can we talk a little bit about QIAcuity? You -- entering the digital PCR. Can you just talk about the competitive environment and where you're seeing most of that use and how -- where you guys fit in versus [indiscernible], and everybody else.

Sure. So digital [indiscernible]. Digital PCR is the next generation of technology or PCR detection picking up on qPCR, that's anywhere from $2.5 billion to $4 billion market right now depending on how you want to slice and dice it. But what we're seeing right now is the move into this market enables customers to do more with PCR machines than they can do with the current generation of qPCR machine devices. You can get to absolute quantification, you can find a lot more of the rare mutations or targets that you're looking for. And you can do certain things that are not possible with qPCR such as wastewater testing, which we see in emergency, really important surveillance tool as part of the whole fight against COVID-19 around the world. So in terms of competitors, you name 2 of them with Bio-Rad and Thermo, with devices on the market, our goal here is to become a very strong #2 player behind the incumbent in the market. Our goal is actually to surpass them in terms of number of placements and machines. What you see right now, though, is that some of the competitors out there have these very big monolithic machines that have a 6-figure price tag to be able to buy them. We're coming with a scalable solution of 1, 4 and 8 plate machines so that you can serve different sizes of the market. Right now, where we're seeing the most demand is with our 1 plate machines, which are a very attractive price comparison between the standard qPCR cycle and making the switch to digital PCR. It's kind of like going from an old Nokia phone or do you want to move to the new generation of smartphones. That's the technology, that's the way that we market these machines. And that's where you see a lot of space and a lot of greenfield opportunities to convert a major multibillion-dollar market opportunity.

And so what are the early applications, though that you're going and seeing on that low, I guess not the low plex, but low throughput.

What you see it in low throughput, we're also selling the mid-throughput and high throughput machines appeal more to pharma companies that are doing a lot of power throughput. These are actually some of the first initial customers for our platform, but you're seeing everything from gene expression, you're seeing liquid biopsy applications, you're seeing a broad range of applications. Those are possible because we offer a platform called GeneGlobe where the customers can go in and buy either PCR NGS panels that are customized to the specific targets they're trying to find. So the range of applications is actually unlimited.

All right. And so give us a sense of the wastewater opportunity that you see. Are you guys being used in that?

Right now, QIAGEN is being used in 70% of all U.S. states and territories. And that's where the CDC came out with some decisions last week that they will only accept digital PCR results for applications in terms of looking at wastewater surveillance for COVID. This is not just for COVID, it's going to be for infectious diseases going forward as well. So you could start to track whether there's a major influenza outbreak, [ anxiety ] or in certain regions of the country. These types of surveillance tools could become critical in the future. There were only 2 suppliers that were named in those documents, QIAGEN was one of them.

So how do you think about that opportunity? I mean, like from -- can you put a dollar size on that?

We're not really willing to put a dollar size on it yet. We want to see how it develops. But right now, we've had some very interesting government contracts that came in and helped us in '21 and are helping us in '22.

Okay. And on the -- for -- sticking on the QIAcuity, the $45 million in '21, kind of give us a sense of what was behind the guide, where the mix came in? And then as you're looking at '22 guide, give us a sense of your instrument pull-through.

The placements were good for the systems. I think what we were a little bit too optimistic on was the pull-through, and that was also due to a bit of COVID, customers coming back. It's really difficult to go out and see customers as well with the system to be able to take it for a test drive, to let them actually physically see it. So we are pleased with the overall placements. In terms of the goal for '22, we want to be able to see continued strong placements of systems. But we want to see more consumables pull-through. So if the weighting of sales in '21 was -- the vast majority was weighted towards instruments, you want to see that share start to come down. But instruments are still going to be over 50% of sales probably for the year.

Okay. And you talked about taking this into the clinic outside of the surveillance and things like that. So give us a time line here and how -- what menu we should be expecting?

I think we -- first applications are clearly going to be in oncology in terms of those types of areas. You see the first use is here in terms of monitoring patients for blood-based disorders, looking at PCR-able type panels that you need to do frequently to monitor patients with different types of leukemia, we're hoping to get some submissions done in '22 and '23 in that area.

Okay. And then as you're thinking about we're going through some of the 5 pillars, 5 piecemeal here. So highlight the other -- the key growth drivers that you're looking for within the pillars and give us an update on those trends.

Clearly, as we've said before, [indiscernible] clearly a very strong growth driver for the last few years, but we've picked up clearly for last year, north of $280 million, if you compare that to the $190 million the year before, or even to the $245 million, which was pre-COVID. You clearly see it was recovering nicely. Particularly if you have amount that on about 20% of the market where we had strong sales pre-COVID which was integration related is still building up. So I do think that is an area where we still see some momentum coming in. It's quite obvious also that overall penetration is still low, penetration as measured as a percentage of the traditional skin test. We're probably somewhere between 30% and 40% in the U.S., which is probably the highest penetrated level. Globally it's probably around 30%. So there's a long way to go. Competitive landscape clearly hasn't changed so much. We have seen clearly last year another company coming into in all fairness, didn't really make too much of an impact yet, because the automation solution, I think, is not comparable. Our partnership with DiaSorin is working out quite nicely. That clearly also is a significant one and tailwind because of COVID and placing new instruments where we now can sell on to. I think that is clearly a part of the success story as well. On top of that, we will see slowly but surely line picking up. We recall we got it approved last year in Europe. In U.S. is probably more -- second part of this year might be after the season this year, but clearly, that's helping us next year which is a significant opportunity as well. Have in mind, we sell it to DiaSorin, they bundle it, sell to the end customer. So we don't have the straight customer revenues, but we clearly have the impact.

All right. And so I mean, that market was -- you guys were targeting, I think, $300 million in 2018 and then obviously, COVID hit and derailed that. Now you're talking that again, that was decelerating. Just give me a sense as you're now looking at mid-teens growth, but stabilize that business for you, how the automated and the DiaSorin partnerships really kind of accelerated or reaccelerated that opportunity.

I do think what we -- what we're all benefiting from, is that health care in general and diagnostics and specific clearly went to a significant learning curve with COVID. But everybody understands PCR in the meantime and everybody is an expert sometimes, But clearly, the awareness of diagnostic solution has significantly increased with the doctors, but also with the patients. I think that's clearly being helpful. Then I think one thing what is particularly important for QuantiFERON is one of these examples where you see a new technology hitting the market, taking actually quite some while and to have a certain percentage of market share, and then the penetration goes much quicker because it becomes a new standard. I do think this is exactly what we see now with kind of QuantiFERON, typical testing away from the traditional skin test, which was dominating the market for 120 years. And now it's more or less becoming a new standard. And that, I think, is going to continue. Second topic, of course, which is helpful that you now have good automation solution. You will refer to the DiaSorin solution, which, again, takes away one thing that is always a hassle, which is an upfront investment. But -- and if customers say, okay, I have already DiaSorin has more than 8,000 instruments sold, and a machine where you just can add another panel on it, that's an easy one. So I think it's a combination of a couple of factors. Clearly also by a great product with a great recognition is helpful.

Okay. And then changing gears here, let's talk a little bit about NGS and liquid biopsy. Can you talk about the NGS demand and really where -- between the clinic and the research market, how the clinic is inflected? And then where you guys are positioned and how you're capturing that?

Sure. Well, one of the things to point out since we haven't seen you in so long is that we report products now in 4 product groups. We have sample technologies, diagnostic solutions, which includes QuantiFERON, QIAstat-Dx and NeuMoDx. And then we have a bucket called Life Sciences. I mean, assay technologies, which is more of our Life Sciences business downstream, that's where we see QIAcuity. And then the fourth one, which often, unfortunately, gets a bit overlooked these days is our genomics NGS business. And that business last year had 20%-plus growth. I mean they've included a onetime payment there for some intellectual property that someone went to buy for $20 million, but that business is really clicking along, had a very nice double-digit underlying growth rate even this year. And a key driver of that is our ability to supply universal panels that can be used on anybody's sequencers, hopefully, even Ellume yesterday. But there is a very nice market opportunity there where QIAGEN is really positioned as top 3, maybe even #2 behind the market leader for sequencing where once you have purified DNA or RNA and you're moving downstream, you need to isolate the targets that you want to be able to sequence and be able to find that, and that's a very attractive business for us. That's where our NGS universal panels are doing well. Then tying that on the other side, the QIAGEN Digital Insights, which is our bioinformatics business. I think hopefully, this year should get close to $100 million of sales in bioinformatics alone. So we have a very nice competitive environment there. But with the strategic shift towards the 5 pillars of growth more towards these PCR platforms, that business is still getting a lot of attention inside and it's doing very well.

Okay. I [ didn't ] appreciate that the bioinformatics $100 million business, remember when you guys bought that. And then so just wrapping up here at the last minute as we're thinking about -- we talked about all the growth drivers in the long term. But is the -- give us a sense of the pacing of the rest of the year based on how 1Q shook out and versus your expectations, right? Like is it still back half weighted? You see even things coming forward a little better?

Yes. I think on the revenue side, the way we are expecting it is more or less as we discussed before, we were taking, whatever you would call it, realistic, cautious approach, reflecting the volatility we have seen in the past in the COVID market. Therefore, I would say, at a reasonably low expectations for the rest of the year, if it picks up in the third and fourth quarter, I think we were able to supply and deliver. We have some capabilities, but we don't want to. We have our guidance depending on that. On the non-COVID side, we expect rather a double-digit growth rate more or less going to the year. On profitability, quite obvious that we expect a percentage of the full year share, clearly, the Q1 being a big one on that. While then last year, the second quarter was quite strong in the third quarter as well. So I think it goes probably to kind of a [indiscernible] again a stronger finish for the year.

Okay, thank you. Perfect timing.

Thank you. Thanks for having us. Good to see you.