Qiagen N.V. ($QGEN)

All right. Welcome, and good morning. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink. And my pleasure to be hosting QIAGEN team today. Joining us on the stage is CFO, Roland Sackers; and also Head of Investor Relations, Daniel Wendorff. So great to have you guys. Thanks for coming to our conference.

Thanks for having us.

Yes. Maybe, Roland, the first one, something that's on a lot of investors' mind, and there's quite a bit of discussion around it. Maybe just if you could talk about -- obviously, you've stated that you're open to discussions regarding strategic options. Theory has really emphasized shareholder value. Now it's always -- I understand, look, it's hard to comment on these ongoing discussions and level of interest. But wondering if you're willing to share a bit more about this process and how things are progressing? Any updates on the strategic front?

Sure. And again, thanks for having us. I do think was pretty much clear, and I've seen that, of course, Bloomberg picked it up last week as well, that on the one hand side, QIAGEN feels quite strong about its position in the market. Clearly, we executed quite well over the last couple of years. At the same time, we also believe we have a strong pipeline. At the same time, it's also very clear that more or less since a couple of months, we're in a CEO transition. And that is a typical time where not only the CEO, but clearly also the Board can ask itself, okay, what other alternatives are accessible for us or might even create further view of future value or incremental future value, if you like. And this is exactly what stated that, that is probably the time we're in. While the CEO search is progressing and just to be very clear, that's progressing quite well. We are more or less from a long list to a short list, and we would expect that there is a new CEO at least announced in the second quarter of this year. There's clearly opportunities on the M&A front as well. That also goes into different directions. On the one hand side, I do think we, in the meantime, build a very nice track record of doing bolt-on acquisitions like Genox or as well. At the same time, there might be opportunities in any kind of combination with different or even larger companies to create more value for the shareholders as well. The Board as well as management demonstrated and want to be very clear that is where we are open to, and let's see where we end up.

Got it. Okay. You addressed both of those key questions, but I'm sure you're going to have more of those in one-on-one meetings. But maybe just given the ongoing conflict right now, any -- and there are some inflationary concerns. Just wondering if there are any considerations in terms of shipping costs, other things that you have started to think about if this was to stretch longer?

Yes. As you said, it's a question of how long it might take, right? Is it more or less a few more weeks, I think we all should be fine. There is clearly already some hiccups in terms of logistics, left and right. I don't think that's too material right now, is a lot of things you probably have to eat, but I don't think that is any large material change of business. That might change in a second, of course, when your logistics supplier, for example, starts to increase fuel surcharges. I know they are typically good at that. If a larger time frame fuel prices also for them change they might add to that pricing. It might be a couple of millions. Again, nothing that I'm too worried about right now because I would say, let's see how where we are in 3, 4 weeks down the road. Again, we right now do rise calculations. I think it's also important to know that the majority of our freight cost, we pass on to our customers -- so I think the net impact might be smaller than that. But again, right now, it's probably more the logistics change in general, while we don't have too many things coming via ship. Also a lot of plans are stuck somewhere while it probably will take some time before there's a normalization also with the logistic providers. Again, something where we have to play through right now. I'm not to avoid, but at the same time, you cannot ignore it. .

Got it. Okay. That's helpful. And then the other question on the macro side is just overall the state of funding, both in academics versus pharma that's been relatively stable. But then there is also the question of the smaller biotechs. So maybe just trying -- I believe you were expecting 50 bps of improvement from funding. Any changes that you're seeing here in the first half so far?

Just in perspective, 50 bps on a half year number from H1 is [indiscernible] So again, if that is our maximum work for the here, I'm happy to take that. I do think we have to slice and dice it a bit. What I do mean we said the consumable business is a very resilient business. As you know, it's 85% of our revenues -- and even in the governmental shutdown in the U.S., we still sold consumable on a quite regular basis. The more for the larger impact typically comes on the automation on the instrumentation side. Of course, here not only good enough to have the funding available. And as you know, the good news is we do have an NIH budget is growing 1%, much better than most people who are expecting/faring while at the same time last year when the world was thinking about or is it down 20%? Is it down 30%. So plus 1%, I think is a very solid and good number. So I'm not too worried on the consumables side. But on the implementation side, I think you need more than money available, you need also confidence in the system because anestiment is not an investment for a 12-month period is a midterm investment. So you typically enter into a new consumer screen, you might have to hire a new operator for the machine or at least your contract -- a service contract for the machine as well. So it's not necessarily only about the budget for this year is also do we believe what is my funding situation down the road. Building confident, as we all know, doesn't happen in for weeks -- that's also what we factored in when we have given guidance a year. So it might take some time but the confidence into the system, probably will take some time. Again, that's more specific to the academic situation -- we do not see this trend in Europe right now. We also don't see that in the clinical environment just to frame it. So we are careful on the instrumentation side because, as I said, we would expect building confidence back will take some time.

okay. And then switching gears to 2026 revenue, your guide, you are expecting at least 1% organic growth in Q1, but for the full year, I believe you're expecting 5% and that implies a significant second half ramp. Maybe just walk us through your comfort level on that ramp, still somewhat a number of things that you pointed out, obviously, in the marketplace is still were in that somewhat of an improvement phase there's some conflict ongoing and macro questions that are in the marketplace. So just given the CapEx environment still, what gives you sort of confidence on that second half?

Well, I think looking back towards to last year, similar to end, we gave a quite low guidance for the first quarter of the year. And I would say we proved in the guidance over the course of the year twice, particular on profitability and gaming quite strong. Nevertheless, I think it's also fair to say this year is somewhat different, given some of the macro trends, particularly in the U.S. Nevertheless, the bridge from H1 to H2 is actually the following: as you said, from 1% and then more or less a 500 bps increase H1 to H2, 200 bps is just mechanics because it is until mid of this year, we do have the headwind from the discontinuation of 2 of our business, Nimodix and DynaLogic. This will automatically fall apart to 200 bps out of the 50 million another 200 bps is from what you just were referring to is from the new product launches. 150 of that is from the new sample prep machines. We are going to launch 3 new machines this year. QIAstat and QIAsprint are already on the market. So there's no launch risk or whatever. Again, having $15 million more revenues in the 6 months period coming from 2 new significant launches. I don't think it's too aggressive while I would say it's fair to say, yes, you still refer to this instrumentation topics before. I still believe that is reflected in the numbers as well because, again, only half of our business is life science, half of our business is in the clinical market, which is doing quite well. And of course, this instrumentation business also comes with pipeline and so on. So you have a recent visibility another 50 all of the 200 million comes from launches we do around QIAstat and as well as a QIAacuity, our digital PCR platform. we delivered so far quite nicely on both of them. I wouldn't say there's any larger we -- another acceleration, we do expect [indiscernible] it's fair to say that Q1 is clearly a bit more challenging for us, quite unusual. That has to do with the large tender business we had last year, you might go back to Q1 last year where we had a 16% growth for QuantiFERON wise, which also for us is a strong growth rate. And it has to do with the tenders we won in Brazil and in Oman. This tenders typically come with a full package, not only the consumables, but also the instruments, the software. So that will normalize way starting in the second quarter and then even sequentially in the third and fourth quarter. So I think there's other impact. And the last impact is the Parse acquisition, which, again, they did $20 million in '24. We said we do million, at least $40 million in '26, but sure right now that we do more than $40 million. So there's an acceleration of probably $5 million from H1 to H2 as well. So I think there's a lot of reasonable factors for us to believe that it's going to happen. But I want to be fair as well, it's not a home environment is not the easiest one, 1 now. You have this other things you just mentioned, U.S. academic and you have China here, now you have the Middle East -- there are a lot of things to juggle at the same time. I think there's a lot of reasons to believe that we will on that way as well. And again, if what that is happening with a lot of other companies are saying right now that he believes the academic environment in the U.S. will even improve sooner than later. -- that is upside to our guidance as well. I think we haven't factored in here too much as well.

Got it. I want to come back to QuantiFERON in a second, but maybe just briefly on PRS. Just wondering -- in terms of the product, you were expecting going to $40 million the competitors, as you know, some established competitors in the marketplace, they have launched also new products that are lower priced products. So there is another sequencing company that also has via their acquisitions, they have products in the marketplace. So I guess if pricing was to pricing pressures were to emerge in that market obviously, how should we think about that?

So first of all, the technology of Parse has a big advantage that it's scalable and it's instrumentary. And our competitors, they rely on implementation solutions. And the one you're referring to, I guess is one of them is 10x. They are moving currently customers from one platform to a new platform, which is indeed cheaper. However, if you do -- if you buy the kits with higher single-cell brands per kit from past we are very well price competitive. So it's not that we are seeing price pressure on our -- for our products at us. That's not the case, right? So our pricing has been stable over the last 2 years. And if you do a really apples-to-apples comparison and if you do a really big data set generation of single cell analysis, you will see that our pricing is actually very competitive, still also to the new platform of 10x. So that's not really what we are seeing.

I would just to add to that, I think I would argue that Parse [indiscernible], again if you want to compare to certain offerings, you probably have to compare to the scale part, the scale part is most likely, as they said, $ 4 million in revenues. As I said, we are saying at least $40 million this year. And I said before, we were going to beat that number. Second, wherever a healthy gross margin is a profitable product. The only reason why we have dilution this year from that acquisition is we are doubling down on R&D because we believe now the times set the standard for the future. Given the advantage we see in the technology, as Daniel said, automation-free hundreds of millions of copies possible. There's a significant opportunity for us to, again, to get here to a leading franchise for a significant time going forward. It's the reason why we're doubling down.

And then maybe an add-on. You might have seen that we launched a new chemistry, the forces pass. And 2 of the main advantages is that 1 is that the data quality is even higher than for the old chemistry which is 1 of the key competitive advantages of the platform. And the other advantage is that the sales retention rate is meaningfully higher, 75% higher. -- due to the introduction of a magnetic bead technology, which is able to get to increase the cell retention rate with new chemistry. .

Got it. And then do you have customers using any of the downstream analysis? And maybe on the other piece that I have on the margin side, you talked about investments into this. So sort of how should we think about the overall margin drag in sort of Q1, Q2 here?

Just Q1, I think we said that the as well, it's just coming from acquisition at $0.02 dilution. Again, it will improve quarter-over-quarter. As I said before, we also believe that probably sometime next year becomes margin accretive given the growth we're expecting in a healthy gross margin. So I'm not concerned on the profitability profile at all. It's on the question of how much we really want to double down on R&D, and I do think there's a nice opportunity. As I said before, one of the benefits is exactly what you were referring to a nice combination with our QDI business, don't we see that already happening as we speak. There is not only internally at QIAGEN, but also on the customer side, I would say, a strong linkage happening. People are thinking more and more end-to-end and getting that out of one hand is a significant benefit.

Got it. Maybe just coming back to QuantiFERON, you talked about tenders and tougher comps from last year. One question that remains in the market place is really the emergence of competition from a major [indiscernible] testing provider. How are you Again, that's been a question that's come up quite a bit, but maybe just tell us how should we think about that, where your strength would be, where the channel is strong, where the defensive moats are.

Yes. First and foremost, I think the company you mentioned twice now since 2012 to come to the market. To be honest, in the meantime, we are bagging that sector to the market because right now, we are fighting a ghost and let's see what they are going to see us now in May. Again, I would say, let them come to the market and we talk in 6 months again. Nevertheless, we are not standing still right. First and foremost, as you know, last year, they were clearly referring that U.S. launch got pushed out. So -- and we're still working under the assumption that they come to the market in Europe, sometime mid of this year. Let's see if that gets confirmed. What is surprising to us that there is not much news around that. Last one, you might have seen that was a poster launched a couple of weeks ago on a conference. Interesting enough that poster didn't have any clinical data, just biomarker data which is very unusual because if you are close to your launch in our industry, you typically provide clinical data because that's where you sell. But you typically goes, and I don't have to tell you that you go to 1 of the top KOLs in our industry and say now what the QIAGEN instrument and solution, here's our wealth, you compare or whatever comes good out that, you put into a marketing poster and tell the world. It hasn't happened yet. Again, I don't want to read too much into that. It's just an interesting news. Second is, we clearly haven't sat still in the last 2 years, we signed on with more than 60% of our customers multiple year agreements. Interesting factor as well as most customers were signing this contract, which are also volume based with no larger impact to prices. Actually, we actually are typically now having inflation base protection into that, which in this case is not a bad thing to have as well. And last but not least, I think the question particular investors have to ask himself, where are these machines placed from the competition? Are they there where TB testing is happening? And then second, how much capacity do they have? Because what people also forget is that TB test is either 3 or 4 column test. It means you have to have quite significant excess capacity, probably 40%, 50%. I'm not sure which labs 4 years post COVID has a machine hanging around with 50% capacity. So I think you can play around with it fair enough. But at some point in time, when you want to play a series, you might have to buy a new machine, -- then again, if you have to buy a new machine, you look up, okay, what is the best machine available? Is it a 10-year machine in the market? Or is it one of the newer, for example, ind solution? Again, we are preparing for a lot of different things. right now is also one of the reasons why we said CAGR is probably not 10% anymore. It's probably somewhere around 7%. Let's take it from there. Right now, we are just hoping that we don't have to fight a ghost for another 12 months. .

Yes. That's a good perspective. On the instrumentation side, maybe just you have QIAsymphony. There's a potential for a replacement cycle there. Maybe just tell us how are you thinking about what the new product launches already in? How should we think about the -- both the growth of those products Sprint, other boxes, automation boxes and then more importantly, QIAsymphony.

Yes. So as Roland already mentioned at the beginning, we are in the process of launching 3 new instrumentation platforms. The QIASymphony Connect, which was basically a follow-on to the new development for the QIAsymphony, QIAsprint Connect and the QIAmini. QIASymphony Connect will be fully IVDR launched mid this year. It's already on the market in a precommercial launch since end of last year. The QIAsprint Connect was just launched at a conference in Boston a few weeks ago. The QIAmini will come in fall 2026. What is important to note, the QIAsymphony Connect is in particular, developed for the needs of high-value applications, meaning for the needs of liquid biopsy customers. And if you want to do microbiome testing, for example. It has a full sample traceability, and it has superior extraction performance. And we expect that mainly our clinical customers will want to buy this machine. Consumables, which are currently run on the QIAsymphony can also be run on the QIAsymphony Connect. That's different to the QIAsprint connect. So the QIAsprint Connect is really our entry -- it's a completely revolutionary entry into high throughput sample preparation. That market hasn't seen innovative products for quite some time. We launched the QIAsprint Connect with 13 new -- so with the new menu, 13 new sample types. And that should really be incremental, not just to instrumentation, but also to our consumables revenue. The QIAmini and it's mainly research for research applications being used. This is also the case for the QIAmini. The QIAmini is really designed to provide smaller labs mainly being on manual tests to provide a first entry into automation. It can process up to 8 samples. And if you want to do if you want to enter more automation processes, the QIAmini would be the right platform to buy also many research customers. So when you think of the QIAsprint, it's basically a bit of a market expansion. The QIAsymphony, we really doubled down on our high-value customers, in particular, liquid biopsy.

Got it. Okay. Maybe just given the time, let me switch gears. China, I mean you have historically said China would bounce back before 2026. Given the high teens declines in 2025, are you seeing any stabilization? What's the latest there? And what are you hearing from the teams?

Yes. just to phrase it first, China as is around 4% of revenue, so sizable, but I would say not too meaningful. We still believe that China will start the year with a negative growth were probably high single-digit growth rate, but negative growth rate. But I would say there's also reason to believe that it shows sequential improvement and hopefully, and the last quarter, kind of a flattish on that. What is probably the difference between QIAGEN and many other companies serving that market as well is that we have two kind of different brands in China. We have some very typical global brands, the QIAGEN brand. But we also have, since 2005, a very local brand, an acquisition what we did in 2005, actually, at that point in time, our single largest copy cat. We always kept a separate Chinese R&D, Chinese production, Chinese management. And here, we clearly can see the difference between being perceived as a local company and being perceived being a global company because the local business is doing better. Our topic is not like VBP or so, it's not really affecting QIAGEN at all. It's more like this bank Chinese topic, buying local, if you like, and of course, overall GDP situation. We have seen some improvement. So we hope that it moves in the right direction. At the same time, what we are, of course, reviewing right now as we speak is a more product which we can integrate into our local brand by Chinese production, again, China for China and see if we get the benefit out of it.

And do you expect China for China, broadly speaking, growing simply because there's reference even in the life science tools beyond the IVD market for local products.

Absolutely. Again, we shouldn't forget China is already the second biggest health care market in the world and by definition population growth, at some point, it will be the single biggest health care market. So we made, on purpose, a decision to stay in the market. sometimes it might be even official to be a European company who knows. So again, there is clearly still a need for cutting-edge products. We still particularly see that some of the top educated and recognized labs in China are very low customers. So I think there's also reason to believe that things at some point might to other lease that they are not negative anymore. Let's start somewhere.

Maybe switching gears to -- just wanted to get your thoughts on capital deployment. I mean, you obviously completed the $500 million share buyback in January. Maybe just give us a view into the valuation gap that sort of exists out there? How do you think about M&A, buyback and especially at a time when you have looking at strategic option, CEO sort of ongoing at the same time.

Sure. First and foremost, let's see what comes all of the you right. And I do think that is clearly probably the next milestone. Second, since 2012, I think Gas built a nice track record of capital allocation. Again, first and foremost, investing into our organic growth rate, meaning R&D second to doing bolt-on acquisitions. But to us, we typically generated excess cash flow. And I think that cash flow over the years even become stronger, and I don't think it's anywhere different for '26 or '27. Therefore, we stepped up our share buyback programs from $100 million, which was initially more or less a yearly share buyback then into more or less earlier a few years ago into a $300 million bucket. And this year, as you said, to a $50 million share back if nothing changes, but that way, I'm quite sure that we will have on the Annual General Meeting this year. Another proposal for 2 topics. As you know, we also started last year to pay a dividend. We started quite low. So I think there is an opportunity for us to step that up. Again, we are not becoming a huge yield player, but given the cash flow generation, that's for sure an opportunity to nicely increasing that dividend payment as well. And second, of course, ask for approval for another share buyback because we do believe it's rather a regular tool for us going forward. If there's a bolt-on acquisition opportunity, happy to do that as well. Nevertheless, I don't think, given the likelihood in our industry, there's only a reason to believe that in average, there should be excess cash.

Okay. That covers it. That's helpful. Maybe in just 1 sort of last question around, obviously, AI as the topic comes up. QIAGEN always had developed a strong position by informatics and a number of tools, not just any early days it was open source. Now more and more things were incorporated into QIAGEN products as well. So maybe just give us a sense of with AI now, where are you seeing -- are you seeing any upside in terms of the customer demand -- how are folks employing these tools? And what's your expectations for overall the bionformatics side of the business.

Is a huge opportunity for the industry, but I think partial for QIAGEN, as you said correctly, it is already embedded in our particular QDI information. Because at the end of the day, tech sequencing. There are so many information coming out of the sign, it's beyond human comprehension. So you have tools to help you to get to the right conclusion in a faster way and a better quality that's a perfect outcome. At the same time, we all have to recognize there's a long way to go to train these machines, right? So there's a lot of data required that all this information get even better over time. So there's also, I would say, a huge opportunity for the underlying QIAGEN business because this information do not come from [indiscernible] And particularly, if you think now clinical, 99.9% is not good enough, right? And I still can only remind people on automation but I started more than 20 years ago at QIAGEN, when we just entered the automation of sample prep Still, the majority of sample purposes world done is still done in a manual way. Automated, of course, is growing much faster. So while AI has changed in the world, Particularly on the clinical part, it will take quite some time before we see that as making a dramatic difference. But until then, it will drive a lot of pros.

Yes. There's always inertia that you have to fight back. But thanks for the thoughts here. Ron, I really appreciate the time, and thanks for joining us. .

Thanks for having us, and thanks for letting us in your penthouse. Thank you.

Yes. Absolutely.