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

Greetings, Day 3 of the TD Cowen Global Healthcare Conference afternoon session. I'm Dan Brennan, following Tools and Diagnostics. Really pleased to be joined with me on stage here. Thierry Bernard, CEO of Qiagen. So Thierry, thank you very much for being here.

Thank you for having us.

Terrific. Yes, I thought I'd start out with some higher-level questions, if you don't mind. Maybe you can just kind of level set us as you exited 4Q in 2024 and we entered 2025. Maybe just talk about some of your priorities and kind of how you think about the outlook for '25.

So as usual, I would say the first priority is to execute on the guidance. We gave a guidance at 5% growth for '25, excluding NeuMoDx, which is one of the top growth guidance in the market for this year. It's made as usual of different components that are our priorities around QuantiFERON, QIAstat, digital PCR, sample technologies and also bioinformatics. So that's first priority here. Second is accelerating on M&A. We have had an active allocation of capital over the last 2 years in share buyback. Share buybacks are a good proof that we are confident in our company, but we want to double down this year in M&A. On M&A, we have the balance sheet to do that. I mean we are looking primarily at interesting bolt-on opportunities. So I would like to close at least 1 or 2 opportunities in this regard during the year. And obviously, last but not least, because we do live in a volatile environment is to continue in our program of extremely tight operational efficiency, what we call QIA efficiency to make sure that we constantly adjust the P&L to the reality of our environment. So as you have seen, we are basically targeting to be over 30% operating margin. If we can beat that, we will not hesitate to do that. So long story short, we finished '24, as you said, Dan, strong. We are strong in the beginning of Q1. And my ambition would be not only to execute on the guidance, but if we can, obviously, update the numbers, both on the EPS side on the top line as soon as we can and as soon as we have obviously the numbers behind us.

Terrific. That's a great start. Just level setting on some of the more macro things happening with all of the policy initiatives. I would love to get your latest thinking here on NIH. I'm sure you've gotten the question 5 times today or 10. But it's a small part of your business, right, 3% to 4% government exposure. I mean you can correct me on that if we're off. But just maybe reflect upon kind of how you thought about that smaller end market in 2025 and in the first quarter, given the uncertainty that's been introduced by the administration? And any comment on kind of how things are going?

So first of all, entering '25, we never had any illusion on NIH budget because in our assumption, we put it at 0% for this year, 0% growth. And we did that last year as well, and we proved to be true. Second, there are still a lot of rumors. We try to keep a cool head and look at facts. And so there are different ways to take your question. And first of all, if I look at year-to-date, our numbers are not showing any impact on the NIH and affiliated account directly. Where we see still is a kind of volatility in the academia field, not surprising. It's normal. There are uncertainties. It's not specific to QIAGEN. I think it's market why. Now your numbers of 3% to 5% and 3% to 4% is a correct one, but we need to go to more -- a bit more detail. Inside that number, if I look at what is directly sales to NIH and what we call affiliate accounts, it's much lower than that, much lower than that by a significant magnitude. And then you've got the sales to academia, as I said before. And true, we need to think part of those sales to academia are generated by a grant from the NIH. But where do you put the threshold? Do you put at 20% of those sales, 50%, 60%, it depends. In addition to that, some of those research on the academia side are preannual development. They are already started. They are not going to be stopped. Last but not least, most of our sales to these sectors are consumables. I mean it respects the traditional split of activities of QIAGEN, which is 90% consumables, 10% instrument. And in addition, with sales, they are mainly sample tech, which is a fundamental step if you want to do your research. So cutting there, it's not that easy. What do I mean here? Are we completely immune to that? No. Do we see some volatility on the academia? Yes. Do we see overall NIH and Academia year-to-date impacted at QIAGEN? No. Do I believe that the 4% or 5% that I read sometimes in some analysis has grossly exaggerated?

Okay. That sounds good. How about tariffs in terms of Mexico, Canada, China? I mean most of the companies have quantified. Most of them seem reasonably okay. And then we don't know what's going to happen in Europe. So that's a moving target. But net-net, just how would you characterize it? I know you spoke about this, but it's always good just to level set these 2 questions upfront and then we'll move forward on the good stuff for QIAGEN.

So we obviously monitor this very closely. Mexico, Canada, no impact for QIAGEN. China, no impact for QIAGEN or quite no impact. Why? Because, first of all, China is rather a small percentage of our revenues, but also because we have no product manufactured in China for the rest of the world. It's all China for China. So where we focus the most is obviously, is the bilateral relation between Europe and the U.S. And so far, we believe it's under control. We don't know if there will be exemptions or not. It seems that the administration this time says no exemption. But as you probably know, I'm also chairing the AdvMed Diagnostics, which is the industry association in the U.S. We are very active to convince the administration and also members of Congress that Really, we are such a small part of the U.S. deficit that probably there are rationales for exemptions. So let's see, we are prepared. It could go -- it could be also a fantastic incentive for us to constantly challenge the way we are organized, you see tax-wise and try to optimize it even better.

Okay. Maybe jumping in to M&A. I was going to go through the businesses, but I'd like to start there since you brought it up as a second kind of guideline or excuse me, priority this year. You haven't been active in M&A recently since you've gotten there. You've really focused on driving the core business, driving margin, driving cash flow, which we'll continue to do, but M&A will be a new kind of add of the future, not that you haven't done stuff, I'm sure, but it seems like it's more of a priority. So just speak a little bit towards what is the bolt-on? Like what's the size per around that? And what are the kind of features of a deal that you would like to underwrite, maybe gross margin, operating margin, profitable, not growth? Just kind of walk through some of the metrics that would make for an attractive deal?

So first of all, I don't want to sound defensive, but it's not that I focus more on organic. It's just that I'm looking at M&A, and I did a lot since I joined QIAGEN and even under this tenure of CEO, but I'm not obsessed more by M&A. It's just we do M&A when it makes sense for the company and when it makes sense for you guys when it creates value for the company in. So what I can tell you is that, first of all, we have a significant firepower. Clearly, you look at our balance sheet, you look at our leverage, basically, we can act very quickly and significantly. Second, we have an extremely rich pipeline. And this is covering life science, bioinformatics, clinical diagnostic of many different sizes. It can start at only a couple of million dollars revenues to, let's say, on average, $40 million, $50 million revenues. Obviously, naturally, I'm pushing our business team -- business team, I'm sorry, to focus a bit more on the latter side. You see on the $25 million, $30 million, $35 million. Why? Because at the end, in M&A, regardless of the size of your target, it's the same kind of work from a due diligence standpoint. It's the same kind of work from a post-merger integration, but you need to try to move the needle a bit. And so I would prefer to focus where we could get an interesting growing $20 million, $30 million of revenue. So that's the target. Now in addition to that, I have also some key criteria, shouldn't be new for you. First, it has to be synergistic with what we are doing. There's no way we are going to spread QIAGEN now that for the last 5 years, we tried to streamline our portfolio of activities with M&A. Why do I say that? It's not just for the sake of synergies, is that the objective of M&A for me is to take more share of wallet in a given customers that we know already with our QIAGEN portfolio. And second is to be able to add to our natural core growth, 100 to 200 basis points of added growth. And so that means that we need to prove that we can accelerate the growth of the target, number one. Number two is that it has to be accretive in a reasonable time frame. We have the strength to accept the kind of dilution, let's say, 2 years. But beyond that, we need to see accretion. And last but not least, valuation should be reasonable. I note that valuation seems to be more reasonable over the last 6 to 8 months than 2 years ago, which is a positive point. But it has to make sense from a value creation standpoint. We are not here to just create value for the current shareholders of the target. You see we want to create value for our shareholders. So those are the mechanisms.

Maybe just one more question there, and then we can move on. So do you think to be more public or private type company? Do you lean more towards clinical or the tool side? And I guess, would you buy a business that's unprofitable today?

We are looking at everything. And again, it can be nonprofitable at the point if it's in a ramping phase. And if the product is growing 15%, 20%; per year, that's fine. But by QIAGEN, after 2 years, say, 2.5 years, we need to see that profitability coming. So that's -- then it's across all the spectrum. It can be life science. And obviously, as you know, opportunities in bioinformatics, normally, you are talking about smaller sizes than what you could find clinical or life science. Private, public, not an issue. Again, it's the feasibility and the value creation.

Okay. Great. So let's dig in some of the businesses then. Let's -- we'll start on Diagnostics. We'll start with QuantiFERON. So maybe just QuantiFERON, you had another good year in 2024. the long-term guide reflects just a natural rate of selling, which I think is prudent given the strength that you've had, still a really big market ahead, but maybe you're just being prudent there. So just speak about the guide in 2025 and just competitively, not necessarily what's driving that guidance in 2025 when you look at maybe some new tenders, when you look at just the existing business? Just kind of walk us through how you thought about the guide for '25.

There is one major factor that I think sometimes the market doesn't see as we see it or PAs' not good enough at showing it, is that more than 50% of the market is not converted and it's still skin test, which is, as you all know now, I hope, an antiquated, not patient-friendly, not even clinician-friendly methodology. 50% of the market. So that means that in the world, as we speak today. There are probably 50, 5-0, at least million tests of skin tests that we can convert. In the U.S., closer to us 16 million, 1-6, significant. I like to focus on the U.S. because the price of a normal skin test in the U.S. is rather high and very comparable to the price of QuantiFERON so conversion. And this is what is driving our guidance. Second is that in full humility, we are going to go soon to the World Tuberculosis Day. We keep discovering new buckets of growth for QIAGEN and tuberculosis. Honestly, 5 years ago, we would not imagine that latent tuberculosis could be such an issue for diabetic patients. go to Mexico, most of the diabetes population is under clear threat of tuberculosis infection. It's the same in the U.S. Patients under dialysis. So every year, we continue to discover new applications. So as you said, we gave a market CAGR for the coming 4 years at 7%. We are coming from higher than that. We grew 10% last year. We will grow again 10% this year. We believe that from $450 million last year to $600 million in 2028, it's a perfectly achievable guidance. And we are on our way to execute on that.

Okay. Well, we'll dig back in a little later maybe on QuantiFERON for a minute. So I mean QIAstat the x-ray, I think growing 25% right, grew 25%, I believe, in 2025 is the outlook. You have a really large installed base. You have some really nice menu -- excuse me, you have mid-teens growth this year after '25. So just walk through why the mid-teens growth rate this year after such strong growth rate last year. Just give us a flavor for what underpins that.

I mean because we -- in every guidance we give, I mean, we take into account our environment. So we were growing at more than 20% last year. I mean, still growing when we are already at around $100 million of revenues above double digit, it's interesting. So let's execute first on the guidance. If we can beat it, obviously, we will. The second thing is that, as you said, for us, the main potential in 2025 is to become really successful in the U.S. because now our salespeople on QIAstat in the U.S., they have a full menu. You just saw recently that we had another kit approved by the FDA. We have also our large throughput, high throughput QIAstat RS under submission. We'll see when the FDA is going to approve it. So we are fairly confident in the system. But for me, the priority in the U.S. is basically transforming the success of regulatory approval of '24 into sound commercial results in '25. That's the priority.

How big is the sales force selling QIAstat-Dx in the U.S?

So we are going to, first of all, continue to invest in it and extra specialize that. What I mean by this is because we're always managing our P&L. I believe I said that many times in sales specialization. So starting 2025, the people selling QuantiFERON will only sell QuantiFERON and the people selling QIAstat will only sell QIAstat. So that's an investment, obviously, but it's driven by our numbers. Second, we want to strengthen those people selling by what we call medical liaison because you need to visit also your clinicians. So if you could have, let's say, 3, 4 medical liaisons over the territory of the U.S. basically and between 8 to 10 sales reps focusing on QIAstat, you're well equipped.

I mean is it possible this year like you could replicate last year? I mean, I guess it's feasible. Is there any real reason if the new menu traction was right there? Or is there something with that 25% last year that's just not repeatable?

I mean, once again, I mean, it's a good question, but let's execute on what we have to execute before thinking about something higher. I mean, give us the time to execute already on what is a good growth on an already important franchise. So this is another way to say it, in our priorities, if there is one I think positively about and I feel comfortably about is QIAstat.

Okay. So maybe on digital PCR, it's like the biggest growth driver in your long-term CAGR that you guys laid out. Talk about -- I think there's been some instrument headwinds there, but just talk about the progress in '24, maybe it was masked a little bit by some of the instrument headwinds and kind of how you're thinking about 2025.

So first of all, where are we coming from? On digital PCR, we have created -- I'm sorry, the fastest growing installed base on the market. And I don't like superlatives, but probably in history of life science and diagnostics because beyond 3,000 systems in such a record time is fantastic, knowing that the first year we launched digital PCR, there was still COVID and digital PCR was absolutely not a solution launched for COVID. So that proves the quality of the system. In addition to that, you know that we don't have one instrument only. We have 3 instruments for low throughput, mid-throughput, high throughput. So it's very fair to say that QIAGEN is the only company at this stage democratizing access to digital PCR to many labs in the world. It's with the one plate. They wouldn't have the opportunity to invest in such a technology with other competitors with QIAGEN, it's a small box, one box sample in result. Second, we executed on the menu. When we launched the solution 3 years ago, it was really academia, academ research. Then we developed the biopharma. Why is biopharma important? Because biopharma are customers that are more 8 plates, so higher throughput, higher pull-through, obviously, per system. Then we developed cell and gene therapy. And by the way, at the moment, the 2 main growth drivers, consumable wise in life science are biopharma and cell and gene therapy. Last year, we put on the market another 100 assays, life science to our customers. This year, we are going to give them another 100 assays. Then we told you we are going to launch that solution in clinical diagnostic. We did it. The platform is now FDA approved. We want to really focus on LDTs and to second level in hemato-oncology here. And last but not least, Yes, of course, last year, we were impacted by a slower environment on capital sales. But let's keep a cool head here as well. When we say we were not on target on capital sales, completely right. But in Q4, we put more than 200 systems on the market. In Q3, we put also more than 200 systems on the market. This is just cumulative instruments that are just waiting for consumables because I remind you, it's a closed system. And so this is where I focus. Was I disappointing a bit by the level of capital sales? Yes, of course. But what is important is to continue to put more and more system. And so we are roughly at $90 million revenues. We are now penetrating also the companion diagnostic with QIAcuity, which is also good. We had the target to be at $250 million with the menu in life science, with the progresses in biopharma in cell and gene therapy, with what we are trying to do in minimal residual diseases in oncology plus diagnostic, I think $250 million by '28 is realistic.

So maybe just one more. I know at the Investor Day, you guys had a lot of slides was a little while ago. But just when you think about sizing this, just I think investors can get excited about like, well, this could really be x in 5 years versus even where you guided to. So how do we think about like maybe you can use the installed base of PCR, I don't know clinically. I'm sure you guys have done your math about how you're thinking about the opportunity ahead. What is the predicate example about the addressable market for digital PCR, you think?

So our numbers, and I believe it's supported by many data. And in addition, they are more conservative than some what -- some of our competitor numbers. As of today, I really believe that the digital PCR market is at least at $500 million, at least $500 million. It's growing double digit, and it's high double digit. So we are not talking 10%. We are talking higher than that, which means that in a visible, let's say, plan period, you see it at $1 billion, clearly. And then we always said that QIAGEN since we started in this field that the total potential addressable market over time is probably around $2.5 billion to $3 billion. For QIAGEN, I mean, beyond '28, obviously, so I'm not here in a midterm plan discussion, but should it be a $500 million revenues? Yes, for sure. I mean there is no reason why digital PCR an activity where we control the instrument, the reagents and the bioinformatics that we are also in companion diagnostic shouldn't be at least the size of QuantiFERON at a given time in our portfolio, clearly.

Great. All right. So let's -- maybe we'll kind of shift off that a moment, if you don't mind. Let's maybe talk about sample prep and extraction. You've got next-generation sample tech coming and more automation coming in '26. Just talk about sample tech and kind of how do you think '25 and '26 plays out?

So we believe that in '25, we continue to see the shift from manual sample prep to automated sample prep. And if you look at our numbers, manual is flattish to negative, automated is positive. So that proves that our strategy to constantly upgrade our instrumentation for the last 3.5 years is the right one. I remind you, QIAcube became QIAcube Connect, EZ1 became EZ2. And now the next one is the flagship system, QIAsymphony, becoming QIAsymphony Connect at the end of the year. End of '25 is going to be a pilot launch because we really want to make it right and the full launch will be '26. At the same time, in '26, we will have a very smart system in Sample tech, which is a one shot fully bench top, the size of your laptop. Imagine a researcher having this in her or his bench and ready to be used shot by shot whenever they want. cheap price for the instruments so that they don't have to go through a budget process of approval and obviously, related consumables. This is launched in 2026. We call it QIAmini. At more or less the same time, probably 1 or 2 months different, we want to go into the very high throughput market of Sample tech. The only market where we are not at the moment with what we call [ QIAstat ]. And there is only one competitor there and basically that had not been upgraded for many years. So we believe that -- so what do I see for us? First of all, this year, probably flattish to very small growth starting next year because of the impact of this instrument coming back to a 2% and the numbers that we gave on our CMD, which was 3% growth, we can achieve that. So some people are telling me, yes, 3%, it's a bit -- it's a mature market, but it's 3% at a significant profitability. And so it's fueling the P&L. Second, it gives you position in the labs that are very nice because once they take your sample tech, they can obviously move to other products in your portfolio, once again, the importance of share of wallet. And something that the market, I think, needs to understand, when we are going to launch the QIAsymphony, Connect, the Mini just the accessible base that we just have to replace or to complete, it's around 30,000 systems. So even without focusing on 18 new customers, we have 30,000 people using QIAGEN convinced about the quality and saying you're bringing something new. So the renewal of this base is already phenomenal. Those are the trends that I see for us.

So when you roll out those 2 new products, like what's -- I mean, what's the impact? Is it -- is there an instrument upgrade cycle? Is there a pull-through opportunity?

It's always you need to give time to time. Customers, they might be very interested. They need to validate it. So you have a trial period. I mean, for me, if you really launch QIAsymphony -- QIAmini, I'm sorry, and QIAsprint by mid-2026, you should be in full speed of sales mid-2027. Clearly, you will have sales before, but full speed, you see. And QIAsymphony Connect, I mean, I remind you, at the moment, the normal QIAsymphony's no instrument, we still put more than 100 systems per year on the market. There is no reason we should be doing less than that starting at of 2026.

Right, right. But 20% is where that growth goes. So I mean it can't get to 4% or 5%, given the size of install.

If we can beat it, we -- you'll be the first to know as usual. And at the same time, you see there are promising applications where we are -- I don't want to use customers' name, but I mean, a very good name in liquid biopsy go to Natera. It's impressive. We are talking about more than 100 QIAsymphony side-by-side there, and we continue to put more QIAsymphony. So choosing to invest in automation, I'm sorry, plus added value applications such as liquid biopsy, MRE and so on. If we can beat that, we will, obviously.

So talk about the long-term margin guide versus where you exited 2024. And wouldn't there be a lot of upside to that long-term margin guide? Just walk us through kind of how you guided '25 versus where you exited? And when would you contemplate raising the long-term margin guide?

There is upside. We always said that. I think it's fair to say that in the volatile environment in which we are One, we strongly believe in our 7% CAGR on the top line, but obviously, you need to sweat because the environment is volatile. Where I believe we have more margin of quick upside is on the operating margin. So we will not hesitate to review that number quickly if we see that we have solid rationale behind that. And so what should be the next target? I don't know it's premature, but it would be higher than 31%. But I'd like also to insist then, if I may. And again, I absolutely do not want to sound defensive, but eliminating the ups and downs of COVID, this company in the last 5 years, increased its level of activity, top line by 30%, 3-0. In an incredibly moving environment, improving profitability. We will be this year above 30% operating margin. Still now raising EPS faster than the top line. This year guidance for EPS is 9%. Obviously, you need to take into account and discount the ForEx, you take at least 200 basis points of ForEx, but 9% versus 5% top line growth in -- let me insist on that also very volatile tax environment. You know that the Pillar 2 in Europe, obviously, is increasing the level of tax rate we are submitted to -- we are submitting and generating a cash flow that is unprecedented. So the last 5 years are proving that the company is really stronger than ever. It's not translated into the current share price. That's why I invite you to be more active on it. But at the same time, definitely, we proved to be on top of our peers with solid P&L, improving profitability and very solid cash flow to do and deploy on M&A.

Let me ask you one final question.

I think there was -- sure.

[indiscernible].

So the question was on M&A and the push to be more acquisitive, how you would contemplate M&A in terms of ROIC? Would you underwrite a certain ROIC level for this new M&A?

Well, no, because, I mean, it depends, I mean, the time frame that you are considering, obviously. So for, the answer is clearly no. What I'm looking at clearly at the moment is really accretive from a growth standpoint because I believe that QIAGEN should focus on continuing to be a growth case to you. And we have proven with past acquisition that we were very good at making them extremely profitable and then improving our return on capital invested. We have proven you as well that despite giving it some time when it doesn't work, we do not hesitate to basically divest. Next example is obviously NeuMoDx. So the mindset will not change here.

And maybe final one, I know a minute past. But just with the software is -- and you've kind of outlined the growth, the margins, the cash flow, the focus. Do you think investors are -- is it -- I think people are hung up on QuantiFERON? Do you think people -- just kind of what do you hear back as we wrap it up? You're doing what you can, delivering, executing into your plan. But like what do you hear back about maybe what might be misunderstood about QIAGEN?

So first of all, I would say that management should always be extremely humble here and never hesitate to question itself because it's always easy to say, oh, it's QuantiFERON or it's China or it's NIH. We need to look at our own belly button, PRA, the way to translate our performance, the way to communicate, the way to -- we need to improve there, first of all. Second, I believe that, obviously, the rumors on QuantiFERON for me are largely unfunded when you look at what we deliver even since those rumors have started given the potential of market that we still have to convert from skin test, but that's the way it is. So what are our actions, continue to develop the product, continue to raise also commercially the barriers to entry and to execute. Last Q4, it was the seventh quarter of more than $100 million revenues for QuantiFERON. But clearly, I mean, rumors, especially when they come with absolutely no details on product performance, product specification dates and so on. They are just rumors. The current environment is not specific to QIAGEN, but clearly, it creates a bit of volatility. It's not specific to QIAGEN. Once again, I think for us, the story is stay humble, and continue to execute quarter after quarter. At the end, it needs to pay off. If not, I mean, some -- I don't know, there might be some other decisions to be taken that.

Well, terrific. Well, thank you very much again, Thierry, for being with us. Thanks, everyone in the audience, and let's finish strong on day 3.

Thank you. Thanks a lot for the time. Thank you.