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

All right. Great. Thank you, everybody, for joining us today. I'm Casey Woodring from the Life Science Tools and Diagnostics team here at JPMorgan. Welcome to our conference. Here with me today, we have QIAGEN's, CEO, Thierry Bernard, following Thierry's presentation, we'll have a short Q&A session. But for now, I'll just turn it over to Thierry. Thierry?

Thank you so much, Casey, and good morning to everybody. I suggest that we are going to wait just a couple of seconds to have everybody getting in. Okay. I think we at -- I think we can start now. So welcome again. Thanks for your interest in QIAGEN. And obviously, in January, a very happy New Year to you all, to your companies. It's a pleasure to be with you again after -- last time I presented here at JPM was in January of 2020. So clearly, 2 years after, I think it's a pleasure to be presential and not only virtual. And I'd like to spend the coming minutes to show you what we have achieved over the last 2 years and our commitment to build a very balanced business and investment case driven by focus and execution. As you know, QIAGEN does not preannounce result during GPMs. So what we are going to mainly show our year-to-date results at the end of Q3 of 2022. But obviously, I will give you some flavors of what we expect for 2022 and some also flavors for 2023. For those that are potentially among you less familiar with QIAGEN, I would like to remind you that for the last 30 years QIAGEN has been developing molecular solutions for the life science and clinical diagnostic testing. I think it's fair to say that QIAGEN has literally been democratizing the access to molecular biology for thousands of researchers and laboratory all over the world. Not only in life science but also in clinical diagnostic through the standardization of extraction and purification of nucleic acid. And since than over the last 30 years obviously we move into developing what is today probably the deepest expertise in molecular techniques from PCR to next generation sequencing including digital PCR from manual to automated throughput from small to larger customer. With a clear vision and a compelling vision obviously for more than 6000 QIAGENers all over the world is to make improvement in life possible. As I said in title we believe that we have a very balanced investment case which is drivened by focus and execution. What do we mean by balance first? I mean by this that we're very well diversified among and across many leadership market opportunities. First of all, a very well-balanced presents between life science and clinical diagnostic 50% and 50% of our activities are in those 2 main activities and let me spend a bit of time here, the way you should see the configuration of customers profile in those 2 activities is fair to say that life science market in molecular biology is probably a low to mid-single digit growth profile in market. But at the same time we are here talking about very long-tale customers with significant high margin. Whether on the clinical market, we're always addressing the market which is between mid-single digit and high single digit sometime double digit in some geographies. Balanced also in our geography reach, you see here the presence of QIAGEN very strong obviously presents in North America and Europe but the growing activities in most of the emerging countries. And last but not least obviously we constantly benefit from the so-called razor -- razor blade business model where are we growing install base is constantly, obviously generating a significant flow and consumption of high margin consumables. Focus. Why do we speak so much in the last 3 year at QIAGEN about focus. This is probably one of the main evolution of this company because we are a mid-cap company. We're a bit more than $2 billion revenues with 6000 QIAGENers all over the world typical of a mid-cap what is the main challenge of a mid-cap is always critical mass. Not spreading the company to fine and therefore investing our R&D effort. Our sales and marketing effort where we can become between the #1 and the #3 position in the world. And this why for the last 2 years you hear a lot about that 5 pillars of growth strategy. And if you look at the 5 pillars that they're themselves remarkably balanced as well between 2 of them being leaders on their market. Sample Tech and QuantiFERON where we try to extend and protect that leadership and creates the product with growth potential because of their differentiation and because of the dynamics of their market. Syndromic testing with QIAstat. High volume PCR testing with NeuMoDx and digital PCR with QIAcuity. But make no mistake. Speaking about 5 pillars of growth doesn't mean that the rest of the portfolio of QIAGEN is not growing. We leverage a significant portfolio and expertise in molecular techniques where you can find significant relevant buckets of revenues with themselves as well, double-digit growth profile. Let me give you a couple of examples. We'll come back to that. HID forensic, we announced this morning the full acquisition of a company called Verogen, close to $100 million revenues now, so relevant for a $2 billion company, double-digit growth profile. Our activities in next-generation sequencing, universal chemistry or bioinformatics, double-digit profile. Companion diagnostic double-digit profile and so on and so. So 5 pillars doesn't include -- exclude the fact that we grow also in our core business. Execution. Here we try to exemplify it through 3 main examples. First of all, what have we done since we last presented together 2 years ago. I'd like to summarize that. I'm not going to read all the slide into 3 buckets of execution obsession from this management. Operational efficiency, profitability people. Operational efficiency, you see that yourself over the last 2 years, significant numbers of quarters beating the guidance, achieving what we committed to deliver to you, significant level of quarters with double-digit growth in our non-COVID portfolios. Increase of instrument placements all over the world in our traditional installed base or new product, increase and significant increase of volume and output of production, increased deliveries on menu for QIAstat, for NeuMoDx, for QIAcuity. Profitability, increased EBIT margin compared to pre-COVID, freedom to operate, I would say, with a much better and stronger balance sheet. People, this management is dedicated, obviously, to increase diversity in our company, 35% or close to 35% of our executive and management being diversified and especially, obviously, gender diversified. This compares to less than 30%, 3 years ago and also the commitment that we took to you to reinforce and strengthen the governance of QIAGEN with adding more expertise in our field and the addition of 3 board members over the last 2 years. If you try to look at execution for our 5 pillars, we gave you some guidance at the beginning of 2022 for Sample tech, QuantiFERON, QIAstat, NeuMoDx and QIAcuity. I can tell you as of today that we will be on track at the end of the year when we will be publishing 2022 result early February for those 5 pillars of the growth. But it's not just ticking the box of the sales result. It's also delivering on new innovation, new menu, new workflow, new packaging for Sample tech, new system, EZ2 was launched last year. QIAcube Connect 2 years ago, and we are working on the succession for QIAsymphony. More menu also and more application to expand the application for QuantiFERON and latent tuberculosis. Menu deliveries, new instruments for QIAstat as well with QIAstat-DX and with QIAstat Rise, I'm sorry, and new applications at meningitis. 16 already assays delivered for NeuMoDx in Europe, 1 of the largest in less than 3 years menu for infectious diseases in Europe. And obviously, the launch and the new menu for QIAcuity with the biopharma menu that we launched last year. If you look at the overall year now execution as well, again, this is not a preannouncement, but we believe that we will be well on track to deliver on what we committed at the end of quarter 3, 2022, which is the new guidance of the company for '22, more than $2.25 billion of revenues and an EPS at $2.40. And we achieved that, trying to be extremely proactive in the way we try to monitor our environment. Let's be very clear, no company is immune to the external environment. We are in health care, so we are already more protected. But the way we dealt with our environment is a source of satisfaction, outbreaks means agility for us. Two years ago or 3 years ago, we were not planning to even develop more than 12 solutions for COVID. This is why we always said we are very COVID relevant. We are not COVID-DEPENDENT. We proved it with that crisis. We proved it also with monkeypox developing immediately when it was not forecasted at the beginning of 2022, 3 different assays for monkeypox as well. Inflation, this company passes price increases every year. This year, we passed 2 because we discussed with our customers to share the burden. It's not greed just if our customers wants to continue the added value of our effort and R&D spend in innovation, they need to share the burden with us around inflation. Proactively working before even the invasion of Ukraine on protecting our flagship site from manufacturing in Germany in [indiscernible] from energy issues and investing into alternative supplies and working for the last 3 years to make QIAGEN more and more independent from supplies from Asia Pacific because nobody knows what's going to happen in this part of the world. Let's zoom a bit in some of those 5 pillars. First Sample tech the DNA of this company. Who knows that we have more than 20,000 systems all over the world that are continuously consuming QIAGEN Sample tech [ business ]. And why are we so prevalent? Why are we deciding to continue to invest in Sample tech because this is the first fundamental step of any biological process. The quality of any biology result depends on the quality on Sample tech. And this is why it's so fundamental to be a #1 position or company in this field. And we are probably the most versatile company any time of Sample tech, any type of process manual or automated, any types of analytes and we continue to invest. And we continue to upgrade our different instruments. And this is why we confirm today what we told you during the last QIAGEN day, December 2022 that we see this as a key fundamental element of our strategy, and this is a low to single-digit growth profile. Moving to QuantiFERON. I know that for the last 3 years, everybody was offset with COVID and naturally so. But do you know that every year, more than 1.8 million people are dying from tuberculosis. Do you know that tuberculosis alone is killing more people every year than HID and malaria together. This is why it's extremely relevant for the company to be well positioned in the fight against tuberculosis. And here, we have everything to win again, a gold standard solution with so many publications all over the world against an antiquated technology skin test, the most automated workflow in the market, thanks to our partnership with DiaSorin but also on the front line with Hamilton and Tecan. And we are proactively protecting that leadership franchise by investing into new applications beyond latent tuberculosis. So we are not just depending on tuberculosis. And why are we confident to confirm to you, as we said 2 years ago, that this is a franchise more than $300 million of revenues, prone to grow at double digit for the coming years, first of all, because we still have a significant market to convert from skin test all over the world. Second, because we are preparing the growth of tomorrow with application in other untapped diagnostic needs such as Lyme disease, for example. QIAstat, where are we playing here? It's a significant market already. When we acquired STAT-Diagnostica syndromic market, the ability to detect 20 analytes in one sample was already said to be a $800 million market. It is now at least $1.5 billion market. Some people are even saying it's a $2 billion market, growing at 15% per year. It is very relevant for QIAGEN to be here with a system which is completely differentiated from competition. There is no sample prep here. Basically, a kid of 8-year-old could run a QIAstat. And in addition to that, we deliver more value in our results than the simple result you have an infection or not. We deliver what we call a CT value, which is an indication of what is the viral load of the infection in your organism. And this is why we are extremely pleased to show this growth on installed base in barely 3 years of growth, more than 3,000 QIAstat over the world already. And the menu, which is continue to grow. This is why we confirm to you that our objective here is to take the #2 position on this market. If I would tell you we would be the #1 is far to aspirational, given where the #1 is at the moment. But #2 is clearly where we are going. High throughput, meet throughput infectious diseases with NeuMoDx, once again, a significant park.This is a $3 billion market. And it's still growing between mid-single digit and high single digit in many countries. And I know that there are other significant players there, but we come with a very differentiated system, the easiest system to use on the market. One of our customers said you are bringing the simplicity of clinical chemistry to molecular biology. That's how simple that system. And not only is this simple, it's fast. Proof is in less than 2 years of launch 300 systems have already placed on the market, which is already more than 10% of the leading installed base of the main competitor in that market. It's very encouraging. And this is where we say here that the growth vision for this product is to be between the #1 and the #3 in the coming 5 years on the market. And moving probably to what I call the new frontier in molecular biology, digital PCR. This is already a significant market, at least $400 million, moving in the coming 3 years, probably to $1 billion market. It was key for us to be there. But again, invest in a differentiated solution where with most of competition, you have to piecemeal workflow with QIAGEN, you buy 1 box for 1 given throughput. And since we have invested in 2022 into a biopharma menu, which is the largest market to address. We are extremely pleased to show more than 1,000 placements in 1.5 year launch of this system, and this is clearly geared to become the #1 solution for digital PCR. And this is not arrogance, this is not aspirational. This is based on fact and the last 3 years achievements. As I said before, this is not meaning that the rest of the portfolio is not growing. And let me give a bit of details on the core business. We have announced once again this morning that we completed the acquisition of Verogen, a company that we were distributing. Let's be clear, first of all, QIAGEN had been in forensic and human identification for more than 20 years. With Verogen, what we are putting together is the most complete workflow from Sample tech to genomic analysis and results for forensic activities. And we are creating here the $100 million franchise, so relevant, which is here to grow at double digit in the coming years. If you move to companion diagnostic, do you know that QIAGEN is probably the only company at the moment, fully mastering and having collaboration with a significant number of pharma companies, more than 30 framework agreement with pharma companies on PCR, on NGS, thanks to our partnership with Illumina, but also on digital PCR. This is unique. In oncology, obviously, but also as you have seen this year, in other applications like neurodegenerative diseases like Parkinson's, for example, double-digit growth profile. Universal chemistry for NGS or bioinformatics, this is exemplifying that we are really right in 2019 when we announced to the market that QIAGEN was dropping its investment into developing a system, a platform for next-generation sequencing. This was the right decision to take. Why? Because the market is proving us right because we have so many players coming to that game, element, similar, backed by you and so on, that positioning ourselves of platform agnostic to deliver our chemistry was the right thing to do. Once again, focus, focus, we cannot be a leader in instrumentation for NGS be a leader in chemistry. And you will see during some presentation of some of those companies this week, how pleased they are with the collaboration with [indiscernible]. Bioinformatics, the same completely platform agnostic. You can play are bioinformatics on the [indiscernible] more other players. And as a result, QIAGEN in bioinformatics is the #1 in the world already. Our revenues at the moment are twice the revenue on the #2 and 4x the revenues of the #3. As I said before, we have a much stronger balance sheet than 3 years ago. We need to put it to play. And we are going to focus, first, obviously, in investing on our business because we want to be a growth profile for you. We are extremely convinced obviously that we need to be much more active in merger and acquisition. I'll come back to that in a minute. And as well, because we have done that in the past, we know that we can, when it will be relevant according to the economic environment to proceed again with some share buyback. So what do we mean by M&A at QIAGEN? And we have been clear over the last 3 years here. M&A is reinforcing and strengthening where we play. It's not about spreading the company FIN and those are 2 great examples of what we mean by this. Mid-2022, the acquisition of Blirt, we were already a major player in enzyme. Enzymes are fundamental and necessary in every biological process. Not only do we sell enzymes to many companies in our business but we use enzymes ourselves. It completes our presence already. And Blirt -- and Verogen, I'm sorry, once again, is leveraging a presence of more than 20 years in HID, adding new capabilities, adding new differentiation. This is what M&A is going to be for the coming years at QIAGEN. Focus on bolt-on. We have the mean to do bigger than bolt-on once again only if it makes sense and it's transferring either our core portfolio or our 5 pillars of growth. I think it's time to conclude, we believe that we have proven that doesn't mean that we are becoming arrogant about it, that it's a compelling investment case, balanced again, focused recurring revenues. We have a real obsession with execution and delivering on what we commit to you. Being as pre-rational is not in our DNA. Being realistic is, but realistically ambitious because we can grow. We said at the end of 2022 quarter 3 that we believe that we have everything in hand for a double-digit growth of our non-COVID portfolio in 2023 as well. Why did we say that? Because with what we have at the moment on our pipeline, the deal flow with our customers, the launches of new products and also our reading of the economic environment, our ability to pass price increases made it natural to us to tell you, yes, we believe like in 2022, we will be able also in '23 to grow double-digit our non-COVID portfolio. And I remind you that QIAGEN was probably the first company to fully decouple our P&L from the volatility of COVID, and this was in July 2021. And in July 2021, we already told you we would grow our double-digit our non-COVID portfolio by double digit in '22, and we executed it. And we want to execute on that again for 2023. And as I said just before, obsessed also by this discipline, obviously, management of expenses and of capital allocation. So balanced focus, driven by execution but also something fundamental for us and for this management is humanity. Humanity because there is so much that we don't know and because we know that we have a difficult environment. And hence, that's obsession with execution and also humanity to praise the 6,000 QIAGEN that have been relentlessly working over the last 3 years to prove again that this company was COVID-relevent but absolutely not COVID-dependent. Thank you.

Now move to the Q&A session. If anybody has a question in the audience, please feel free to raise your hand, and we have a mic runner here that will take your questions. Anybody on the webcast that wants to ask a question, they can do so on the company website. I guess to start, I'd like to get your perspective, Thierry, on how the company has changed since the Thermo deal, back pre-COVID. Based on where you're sitting now in 2023, are you where -- are you where you thought you would be as a company? And then I guess as a follow-up to that, what does strategic sales still be on the table? It feels like QIAGEN is consistently in merger rumors the latest 1 with Bio-Rad a few months ago?

So first of all, I think when I say humanity, I mean it. So there is not a [ Thierry ] period and before it was [ Schatz ]. I mean, this company has been basically building on 30 years of significant scientists, innovation, management skills. When I took over in '19, I just said that it would be an evolution, not a revolution. First of all, when the discussion of the strategic discussion with Thermo and other started, it was absolutely not the same context. If you close your eyes and you remember 2 or 3 years ago, we just missed 2 quarters in a row. Suddenly, a new CEO of more than 15 years was leaving the company and there was a new 1 coming interim. This is the typical condition where obviously strategic are [ sharpening ] around you see, and it's normal. Since then, first of all, we always believed and we always said it could make sense to merge with Thermo Fisher, if it creates value for our shareholders, if we create also a big development or significant development for our stakeholders, our employees, our brand, our facilities all over the world. But at the same time, we said it has to be for the right value. The deal was rejected by our shareholder, and we came up immediately with that plan around more focused 5 pillars and some other activities as well. I think since then, we are more focused definitely, clearly, as more than 60% of our R&D portfolio is invested in the 5 pillars of growth. I think we have a much stronger balance sheet. I'm going to be very honest with you, I hate to talk about it as an opportunity because it has been killing people. So COVID is not an opportunity. But clearly, we proved to be relevant. And therefore, we have created an installed base of instrument with our customers that we were not even dreaming about 3 years ago for QIAstat, for NeuMoDx, for our Sample tech instruments or also for QIAcuity. And this now, we always said those were menu plays. They are not depending on COVID. They were in our portfolio just before COVID, they will be in our portfolio for the next 25 years. Now it's basically continuing to put menu and it should be okay. That doesn't mean that we are completely close to any discussion with potentially strategic if it makes sense, again, for our shareholders. For our stakeholders. And if we have a significant vision on the deal certainty in a complex regulatory environment, that's the situation.

Got it. That's helpful. Speaking of M&A, you just closed on a bolt-on deal here this morning with Verogen. Can you maybe elaborate on why this acquisition makes sense at this time? And if we can expect similar bolt-on deals in the near term? And if so, and what specific areas would you look towards?

It makes sense because we were already in HID, and we were close to $80 million of revenue in HID mainly with Sample tech activities and some others. And so we saw that opportunity. It completes -- it gives, again, a leading position from Sample tech to genomic results. Just a fact that could be interesting for you. Do you know that around 60% of criminal case are never matched even with the DNA sample, 60%. It's at least 1 million cases in the U.S. that are remaining every year unidentified because of 0 match from a pure sample of DNA. Verogen doesn't stick to DNA goes much beyond and give results from snips. And this is fundamental. And this is creating a difference this is going to be a revolution. We created and we're acquiring a database that is going to be more and more used, that is the kind of mix of different [ gene logic ] databases where people decides freely to opt in. So we never do anything against the will of the people that is accessible to police over the world. This is going to be really a revolution in HID and this is why we are so confident in that double-digit growth profile. And so yes, clearly, with the balance sheet that we have, bolt-ons are going to continue either on the 5 pillars of growth or on the core business. Our key criteria, it has to be immediately understandable for every one of you that you see, of course, it fits there. They are not trying to venture in something that is going to create management dilution -- attention focused dilution, it's focus. So yes, clearly. But at the same time, I said, with the size of our balance sheet, yes, if we have something more transformational than just bolt-on, we should look at it with the same criteria. It has to make sense. It has to strengthen the company, and it has to be reasonably accretive in a short time frame. And when I say accretive in a short time frame, that means 2 years.

That's helpful. I want to touch on stocking. QIAGEN is 88% consumables and there's been a notable stocking dynamic in life science tools and diagnostics around supply chain concerns last year. So just curious if you're seeing any of that at all within any of your end markets?

I hope that I clearly got your question. So do not hesitate to push back, if I'm not precise enough. First of all, supply chain. I mean, once again, I know no company which is completely immune. But diagnostic, I would say, is kind of more protected than many of other colleagues on the supply chain constraint standpoint, why? We are fighting against it for the last 3 years. Let me give you an example. We use, for example, a biological component called Guanidine, in our products. In a normal situation, pre-COVID, we ordered kilos of Guanidine. With COVID, we had 2 order tons. So basically, working extremely fast to find new suppliers, diversify the suppliers. We have been doing that for the last 3 years. So we are kind of, I would say, not fully protected, but quite protected. Second, I know that many people are saying, with the influx of instruments on laboratories for the last 3 years because so many laboratories have been investing in many instruments, especially for COVID, there will be basically a stop or a significant dry out of investment on equipment in laboratories. I do not share that not because I want to be optimistic, is that because I've been in that business for more than 20 years, and I know for fact that laboratories are on a rolling process, renewing their installed base every 5 years. Some laboratories, 7 years, some other 3 years. What I say to the market and I believe in that, what's going to be the change and the difference for the coming 2 years, at least, that I think that many more laboratories are going to use placement. They will not do capital sales. They will do placement. That means the instrument is still on our balance sheet. But if we are extremely precise in monitoring the consumption of consumables, it's okay, we are used to that way also. So I'm not saying that, again, we are doing into everything. I believe that this company is protected. Did I answer your question or ...

Yes. No, that was helpful color on the instrument side. Maybe just asking a different way. On the consumables side, have any of your customers seen any destocking here over the last several months?

No, because I was clearly very clear to you in January of 2020 that basically playing with inventory at customers, be them commercial partners or with is not this management DNA. So we have no and never basically played with numbers because we have put a lot of inventory at customers. Our reagents and consumables are fast turning consumption someone who is using a QIAstat on COVID or non-COVID, for example, is not going to invest in ordering for a year in advance. No, they order when they want and when they can, and when they have a good demand from patients. So no, I don't see that. To protect our customers, and this is a financial effort, but we are -- I think we owe that to our customers from a supply standpoint to come back to your previous question, we do not hesitate to ourselves, take position to suppliers on a year basically. So we order a year in advance to make sure that our customers are going to be protective.