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

All right. Great. Thank you, everybody. Thanks for joining us today. Welcome to the JPMorgan Healthcare Conference. I'm Casey Woodring from the life science tools and diagnostics team here at JPM. I'm pleased today to be joined by QIAGEN. We have CEO, Thierry Bernard, with us, who'll do a presentation, and then we'll go through a Q&A session afterwards. So with that, Thierry, it's all yours.

Thank you, Casey, and good morning, everybody. I know it's just before lunch time. So I'll try to make it as interesting as possible for you all. It's a pleasure to be presenting again in front of you at JPMorgan. We have also people, I think, on the web so if they are in Europe or in Asia Pacific, good afternoon or good evening. You know that traditionally, QIAGEN doesn't disclose numbers on the previous year performance at JPMorgan. We won't do that this year, which is probably a good sign as well. We will disclose our full year 2024 performance in something like 15 days, early February. But as you can imagine, we have a good feeling of what we committed to you last year from a sales standpoint and also an EPS standpoint. What I'd like to do today is take you to where we stand today at QIAGEN, we believe that this has become a much stronger company, a company which is obsessed, I would say, by two mottos: One is execution, and another one is profitable growth. But let me start with a quick movie showing you on how because of a relentless focus on some key pillars of growth over the last 5 years, we made this company a stronger company, as I just said. Five years since I presented the first time in front of you at JPMorgan. It's fair to say that in the last 5 years, the world has become much more volatile on every dimension, politically, financially, economically. But for us, it has been 5 years of focus, as I said, focus, execution, 5 years of making improvements in life possible, and 5 years as well of trying to advance science and improve health care. [Presentation]

So we indeed believe that this company is much stronger than some years ago and why are we so confident in our future and our performance? I could give you many reasons, but I'm going to highlight four. First, because we play on what is probably the most dynamic active market in tools and diagnostics, the molecular market. It's a large market, our total accessible market for QIAGEN alone is probably moving closer to $14 billion. It's a growing market, at least mid-single digit growth. I know that some of you sometimes are concerned by what I considered short-term events. The evolution of Chinese market, the evolution of capital expenses in labs, but those are not long-term drivers. The long-term drivers of this molecular market are extremely good. Population is aging, more tests. Unfortunately, infectious diseases are still spreading all over the world. Cancer is impacting more and more people, more younger. And also the technology drive, who was talking some years ago about, for example, microbiome analysis or liquid biopsy. Every year, recently minimal residual diseases in oncology, we are pushed by new frontiers for technology. And this is driven by molecular technologies, either in tools or diagnostic. Second, because QIAGEN doesn't address a narrow band of customers, but we are extremely well balanced between life science tools, research and clinical applications. Third, because if you look at the left side of the slide, across different portfolio solutions, sample technology, PCR or digital PCR, next-generation sequencing, we are building sustainable and profitable ecosystem that are addressing needs of a fantastic arrays of customers. Academia, research, pharma companies, biotechs, clinical labs or law enforcement. Fourth and potentially one of the key or unique differentiation for QIAGEN. What makes this unique is that we are the leader in the first fundamental step in any run in molecular technology, which is the sample prep. Whether it is manual sample prep or automated sample prep, we are an established leader, sometimes more than 40% of the market. Let me give you an anecdote. Two years ago, I was invited in Cambridge in the U.K. in front of roughly 400 PhDs from all over the world, Asia Pacific, North America, Europe, you name it. And at the point, I ask who among you have been using QIAGEN's product? I had 400 raised hands because they all knew at least QIAGEN for this. And leveraging that very key leadership in sample tech, allows the company to then take further shares of wallet in different other activities, PCR, next-generation sequencing, digital PCR, clinical testing, syndromic testing, tuberculosis testing. And so this very active market where we are playing, plus this unique positioning are triggering key facts, and key commitments as well. Facts, first and foremost, leadership position, as just said, #1 in sample tech, #1 in tuberculosis testing, between #1 and #3 in PCR companion diagnostic, forensic testing, digital PCR, syndromic testing. Second, an unparalleled recognition by peer reviews and scientific publication. Third, a very solid P&L with significant gross margin, EBIT margin. This is driven by more than 85% of our revenues made of profitable consumables. And also a commitment, a commitment that we took to you in our last Capital Market Day in June of 2024. And those are very simple numbers. Simple to remember as well, 7, 31, 2 and 1, 7% is our sales CAGR above market growth for the coming years, 31% is our objective for EBIT margin, $2 billion is the total revenues that we are going to get from our pillars of growth and $1 billion, at least $1 billion is our commitment of return to our shareholders. So let me take you quickly to what we committed 6 months ago in New York. It's articulated around three key elements: First, a very simple and clear strategy. Continuing to focus on selected differentiated solutions, double down on digitization of our activities and artificial intelligence. Second, proven and factual commitment to profitability. We disclosed a plan that we call QIAefficiency, generating more than 250 basis points of operational efficiency through different actions. I can come back to that. Third, proactive return to our investors of more than $1 billion that we will return until 2028 to our investors. You could say that it's quite easy to set targets. But when those numbers are supported by more than 20 quarters of execution in sales growth, in EPS, our cash flow generation, those are not just targets. This becomes a realistic ambition. And if you look at 2024, again, I said that at JPM we do not disclose numbers for the year, but I said as well, we feel good about the top line and EPS ambitions. We feel that we have it under control, but it's not just a matter of financial execution. It's also execution in development across our different portfolio. I'm not going to go through all that slide, but let me highlight, for example, full FDA approval for QIAstat, unprecedented, full approval to the FDA in 1 year, and you have seen last week, the publication of a new one starting 2025, with the Mini GI approval. The fact that our syndromic solution is now endorsed by major pharma companies to develop companion diagnostics test for example, on Alzheimer with Eli Lilly or some chronic diseases with AstraZeneca. More than 100 new tests developed last year and available for our customers on QIAcuity. The launch of QIAcuity, our digital PCR platform to the clinical world, what we call QIAcuity Diagnostic. Year '24 what -- again confirms that obsession with execution. So let me take you through also a bit in more details on that commitment to 2028. Again, 7, 31, 2 and 1. First of all, the what, and then I'll go to the how. This slide is a very good example of what is QIAGEN today. First, the renewed clear focus. We do not invest everywhere. Why do we focus? Why do I relentlessly insist on focus since 2019? Because we are a mid-cap. Mid-caps need to invest and allocate, deploy capital where we can take between the #1 and #3 positon on the market. Below this, it's much more difficult to focus. And when you look at that focus, once again, it's remarkably balanced between two established leadership position already. Sample tech, tuberculosis and three, very growing differentiate solution, digital PCR, syndromic testing and bioinformatics. And you look at our ambitions here, it's very factually driven. In sample tech, I will come back to that in a minute. We want to continue to leverage on our efforts on investment and continue to launch new platform. We want to focus sample tech also on what we call, added value sample tech, for liquid biopsy, for microbiome, for minimal residual diseases. I know that many have been talking about raising completion or growing competition on QuantiFERON. It is forgetting that since we have launched QuantiFERON, we are faced with phenomenal competition. One of them is a technology competition, which is skin test. And as of today, we still have 50% of the market to convert to skin test. And in addition to that, we are launching new solutions based on QuantiFERON beyond latent tuberculosis with lyme and also a solution for emerging market. Moving our bioinformatic business, a profitable business, where we are #1 already in the world to a more SaaS model and continuing to invest in artificial intelligence there. Doubling down in resources to push our digital PCR solution with more sales force, more application specialists, more menu. And last but not least, continuing the development of the menu on QIAstat. Looking into a bit more details, definitely, we want to continue to invest in automation, starting with sample tech, where we are on the attack. You see here the plan for coming 2 years, very aggressive launching 3 new platforms in sample tech. One, upgrading what is the most successful sample tech system worldwide, QIAsymphony to QIAsymphony Connect, available to our customers at the end of 2025, specifically addressing the growing needs of liquid biopsy in sample tech. Second, the development of the small bench-top system that we call QIAmini, available early '26. And third, the entry of QIAGEN into high throughput sample tech where we are not at the moment. But it's not just about sample tech. As I said before, it's launching also our digital PCR into the clinical world, QIAcuityDx, but also the higher throughput version of QIAstat, especially in the U.S., what we call QIAstat Diagnostic Rise. The second, obviously, big steps in this strategy is to continuing to develop menu, diversified menu across different activities. Digital PCR, life science, focusing on quality control for pharma company, cell-gene therapy, in clinical diagnostics, pushing that solution around LDTs and hemato-oncology. QIAstat, this is a confirmation of what we have said many times, the development of the menu, direct identification of positive blood culture, [ cUTI, ] pneumonia. And on QuantiFERON, as I said before, the launch of the lyme application. Last but not least, let's not forget that we want to leverage on our current leadership position in companion diagnostic PCR to continue to develop solutions for pharma companies based on PCR format, digital PCR or next-generation sequencing. The what, but also the how. What I also like about this company over the last 5 years is that we never hesitate to challenge ourselves. After all, on a daily basis, we work on viruses or bacterias. We need to be like that, constantly evolve and mutate. How are we doing that? First, it's about constant operational efficiency. I talked about QIAefficiency before, but it's constantly trying to optimize our network of manufacturing sites all over the world. We are not in the business of accumulating sites. Let me give you an example. Two years ago, we closed the acquisition of NGS-based forensic company in California. But the traditional hub for QIAGEN in next-generation sequencing is in Maryland. We choose California, brought it to Maryland, operational efficiency. Second is process optimization, continuing to invest into an enhanced SAP system, SAP HANA to improve the end-to-end processes and generate more profitability. Third, those are the difficult decisions, but necessary decision of portfolio streamlining. Continuing again to focus, focus, focus. You have seen a difficult decision last year around NeuMoDx. We closed down that site or more recently, DIALUNOX. But it's around also the organizational setup. First, constantly bringing new talent to the company, 5 new board members in the last 3 years, 3 new executive committee members you see them here on the chart, Nitin, Fernando, Antonio. And it's also daring to change the organization. What do I mean by this? For those who have been following QIAGEN for many years, you know that traditionally, we have been organized around business units. Life science, molecular diagnostic, bioinformatics. I do not think that this organization is fit for the future. I know that it's sometimes tempting to put companies in boxes. Is QIAGEN a molecular company, clinical or a life science company? Our customers are more and more hybrid. They do clinical but they do also research. What is important for a company like QIAGEN tomorrow? Is it to spend or waste time, management energy to think whether a development on digital PCR should be life science? Or should be clinical? Or rather making sure that we invest enough in digital PCR to make it a very competitive technology against next-generation sequencing or qPCR. This is what counts. So what we are changing the organization for is to build solution in sample tech, in syndromic, in digital PCR that are answering both the needs of academia customer, research customers, clinical customers, pharma customers, biotechs or others. Sustainable, profitable, winning ecosystems. And this is why those 3 business units disappear starting January 1, and we are creating two new departments. One is Portfolio and Innovation, which is going to cover from strategic marketing to product development, and other one, Commercial Operation, where we are going to continue to specialize our people and decentralize decision-making power, as close as possible to customers. At the heart of this strategy, obviously, is cash, and the financial strength of this company. For the last 5 years, we have continuously strengthened our balance sheet. And as you know, as of today, quite no leverage, and 3 major capital allocation. Obviously, investing into QIAGEN, organic R&D model, QIAGEN as a company, which will continue to invest around 10% of our revenues in research and development. But with the caveat, it has to be profitable, that commitment to profitability. Second, M&A, but it is not a company that is doing M&A for the sake of M&A. We want to deploy capital for M&A, but it has to be synergistic with our existing portfolio. And it has to be also reasonably quickly accretive, in my view, 2 years for accretion. And third, obviously, is proactive return to our shareholders. And as you have seen yesterday, we have decided to proceed with another share buyback of $300 million. This is exactly once again executing on our commitment to return at least $1 billion, as I said before, to our shareholders. As a conclusion, what can you expect from QIAGEN in 2025 and beyond? First, the same humility and focus on quarterly execution, both on top line and EPS quarter after quarter. Second, continue to give objectives and deliver on higher growth than the average market. Third, continue to invest into digitization of our activities on every dimension. Sales and marketing, obviously, but also R&D, manufacturing. And fourth, that's very strict capital deployment discipline. In other words, what you can expect is growth, profitability and return. Thank you.

All right. That was a great overview. So Thierry, you hosted an Analyst Day this past summer, where you guided to 7% top line growth over the medium term. That growth rate is against an end market growth rate of 4% to 6%. Can you just walk through your confidence both in the sustainability in that end market growth number and then QIAGEN's ability to outgrow that number over time?

So first of all, it's based on, as I tried to show on the slide, a track record where we have obviously already outgrown the market. Look at the latest official numbers from QIAGEN, Q3. Slightly positive in life science, where most of the market was hugely negative at minus 6%, minus 5%, minus 4%, QIAGEN was 1%. And in clinical diagnostics, 10% growth, this is already outpacing the market growth. We believe, as I said at the beginning, that this market, regardless of what is happening in China at the moment or the softer capital spend context in many labs, the drivers of the market are very solid still. So we still believe in, let's say, 4% to 6%, 4% to 5% market growth overall. And by focusing on growing market where we believe that we are differentiated, bioinformatics, digital PCR, syndromic, sample tech, tuberculosis, we indeed believe that the 7% CAGR that we committed to is really reasonable. But it's once again proven what we have been achieving in the last 5 years. Remember, during COVID, many people were telling us here, but guys, you are or your numbers are really inflated by COVID. I think we did prove that we were extremely COVID relevant, but we never became COVID dependent. We were the first company to completely decouple our P&L back in summer of 2020 from COVID. And we were the first company to clearly distinguish COVID, non-COVID. And we said at that time in '20, we will grow our non-COVID revenues by double digit, and we executed on that. We executed on that. So there is no complacency here. There is no arrogance. It's just that I think that we have the right portfolio of priorities. Obviously, we can always increase that by smart M&A. We have the right people. I think we have the right organization now to execute on those numbers.

As we think about 2025, how do you view the current market -- end market backdrop? And how do you expect that end market to progress over the course of the year? You're coming off of a year in 2024 that saw more cautious spending on the instrument side, and then additionally, in '25, are there areas of opportunity for QIAGEN to accelerate growth above that 200 basis points above market growth that you normally see?

Well, first, we are not in a guidance call today, but to give a bit of lever. Yes, indeed, '24 has been impacted in many labs by sluggish capital expense. I would say, primarily in life science, more than clinical. And there is a fundamental difference that I hope everybody understand between clinical and more research labs as regard to capital expense. When you have customers more cautious on spending money in clinical, you can always place your system. Why? Because it's easy to focus together with them, a contracted volume of consumable and therefore, you can basically amortize the price of the system in the price of the reagent. It's very difficult to do that in research and academia, because they depend on grants, they depend on research projects. So forecasting a stable level of consumable is quite difficult. This is why we prefer not to place in life science. Never forget that when you place a system, the instrument is still on your balance sheet. But honestly, I don't think that, that situation is going to last forever. Why? First, last year, unprecedented situation, 54% of the world population last year was going under election. This is never good for, let's say, public health or public labs, uncertainties. It's behind us. I believe, on the contrary, that we have a bit more visibility on financial, also, forecasting. I have never seen a country even in the U.S. with all the rumors that we are hearing at the moment, decreasing their public health spending many years in a row. That's why I do not believe on the decrease of the NIH budget in the coming years. This year might be flattish. It was this year already. Next year -- but in '26, I believe that this budget will increase, and facts historically are proving us the same. So what does it mean? We think that capital expense in labs, especially life science, will normalize starting H2 of 2025. Geographically, we believe that the U.S. will remain the most dynamic market for molecular tools or clinical diagnostics. We do not believe in China bouncing back in 2025. We always said the same for the last 2 years, we spoke about '26. And where do we believe that our company has more opportunities in '25? One, syndromic testing clearly. Why? Because the performance that we are going to show you in 15 days for QIAstat was not very much impacted by our new approval, FDA approval for QIAstat in 2024. So this should come into play and impact '25. Second, because we have a case to prove. It's the value of digital PCR in clinical diagnostics, and we are launching our solutions we speak -- as we speak. And you see more and more publication of labs interested into infectious diseases and digital PCR, hemato-oncology and digital PCR. Third, even if the impact will be more towards the end of the year and early '26. I mean those launches in sample tech are going to pay off. And if you see why QIAGEN is performing better than competition in sample technology for the last 3 years is because for the last 3 years, we have already decided to invest into automation. We replaced QIAcube with QIAcube Connect. We replaced EZ1 by EZ2, and this is paying off. So this is where I see us having opportunity or extra opportunities next year.

Okay. That's helpful. I wanted to just touch on the adjusted operating margin targets that you put out. You have a 2028 target of at least 31% that implies more than 75 basis points annually. So how should we think about the cadence of that? Is there an opportunity to perhaps outpace that in 2025? And just any comment there on margin drivers?