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

All right. Good afternoon, everyone. I'm Robbie Bamberger, Senior Research Analyst covering Life Sciences and Diagnostics here at Baird. We're pleased to welcome Qiagen this afternoon, especially pleased to welcome Jon Pratt, who became Qiagen's CEO on September 1. So we're catching them right at the 2-week mark. We also have Roland Sackers, Qiagen's CFO and Domenica from IR with us as well. Thank you guys for all making the trip. Jon, just before we get into the business, I wanted to start with you. You stepped into the CEO seat, September 1, so we're catching you 2 weeks in. What was it about Qiagen that made you want this job? And in your conversation with the Supervisory Board, what were they telling you they wanted most for the next CEO of Qiagen?

Yes. Thank you again. Good to be here. I guess our new Qiagen, I've been involved in the space through [ Paul and Colder ] and through orders. for a long time, a new garden from an underground perspective. Almost every customer I touched was the blue boxes, so to speak. And so I kind of knew the brand. We did a bit of research on the brand. And in terms of the customer intimacy and the quality of the people employed intelligent. It was a pretty exciting place to come. So it was intrigued to join. It took a long time because I was in the business of selling filtration group to Parker-Hannifin. So there was a long transition period. So give me to understand the company a lot. Supervisory Board, they really felt that they obviously wanted the industry experience, Allied experience. In no particular order, they were pleased that I lived and worked in the U.S. and U.K., as you can tell from my accent, I was not exactly bought in Brooklyn. So that fitted well. They wanted somebody that could bring some simplicity, shall we say, to some complexity, strategic focus, very much execution driven. My experience with Waters and others was an execution kind of game in many, many ways. So all the things along well there. Somebody that will ship with a culture, a lot and lots of things.

And you spent most of your career in businesses that looked a lot like Qiagen, President of Beckman Coulter Life Sciences, inside Danaher, senior roles at Paul. And then the Waters Division at Waters Corp. So what are the maybe 1 or 2 things from those seats that you think can travel best to Qiagen?

I think the 2 things I'd highlight is R&D effectiveness, choice prioritization, linked to strategy. They're very much part of the Waters and poll journey. And then the other 1 is, I would say, commercial execution in all its forms. Beckman and Waters in particular, we benefit from upgrading kind of the commercial capabilities, the depth of technical capability is always there. But commercial execution in all its forms is something I would say that was important.

And then now how are you spending your first 90 days? And then when should investors expect to hear your view on the strategy and medium-term framework for Qiagen?

Yes. Obviously, learn phase, right, driving deep add quite a bit of time pre-appointment at DFD, but building on that, getting to know the enterprise, the people, the places are traveling to all of our facilities, really trying to understand how we win in each of our growth pillars, and what the midterm outlook is of that and frankly, where we probably should double down on and where we should manage differently. So classic onboarding process really.

Yes. And Roland, I'll include you on this one. The strategic review of the company, framed it as a continuous process with 3 paths, continue organically, strategic partner or a financially driven partner. So can you maybe walk through all of those 3 options from your seat now?

I don't think that I want to distinguish between the different parts of it, but I do think it's very fair to say, and Jon, I think was alluding to that right now, it's clearly a path and there's a path plan B. And again, we will -- one thing is also very clear, we want to have other a clear direction rather sooner than later. It's nothing what we want to decide end of this year or whatever. Of course, we need a clear path going forward. And I think we are all very much committed to that on delivering on that. Again, right now, by definition, I can't give you much more update other than, but we're working hard to get -- as in weeks and months to clear decision.

That makes sense. And maybe diving into specific segments. Starting with diagnostics, which is your in vitro diagnostic test you sell into hospital and webs -- the segment was down 2% constant currency in Q2, improving from 4% last quarter than 4%. The big piece inside of it is quantiferon, 25% of revenue, the blood test for latent TB. Given lower immigration testing expectations, you took out $35 million from revenue, which is essentially all of your U.S. exposure. So maybe 2 quarters into that impact, where do we stand on immigration volumes? And you took that essentially 100% of U.S. immigration testing exposure out. Does that still look like the right call? Or is that -- is some of that coming back? How are you thinking about that?

Good question. Just slight adjustment. So we took out [ $35 million ], that's correct, with USD 30 million, $5 million Middle East where I do believe that the $5 million -- or we do believe the $5 million Middle East over time will come back because I'm quite sure that, that is an area where we probably will see either the war stops or they find a way to go back into routine work. As you know, it's particular about construction workers working coming from some countries and work in this environment. It is I do believe or we do believe the USD 30 million probably will be out for quite some time because the legal immigration loss in this country have changed. And I don't think there's any indication that the change and quite soon. Nevertheless, I think it's also important to recognize that is going to annualize more or less February next year. So we should see that, that is fading away as a quite significant headwind.

And then maybe taking out aside immigration, what is the remaining 90% piece of QuantiFERON grow this quarter? And what are the drivers? And essentially, is that the right jumping point for 2027 as we look forward.

Again, if you do the math and just adjust for that apples-to-apples, it clearly leaves you in the kind of somewhere between 5% and 7% growth rate. So I think that is probably also compared to the market growth, which is 4% to 5%, probably a good assumption. So I would say, overall, over time, that is also the way we look at the business. as I said, integration most likely will not come back. If it comes back, we are ready. I don't think that's going to happen. At the same time, that is the most important message about QuantiFERON. It is still 50% to 60% skin test markets, so 120 old skin test, which still has the majority of the overall share and the overall market is growing 4% to 5%. So there's a lot of room for us to expand in the market -- we're clearly the #1 player in that market. And therefore, we continue to gain share.

And just confirming the immigration comp should essentially be end of Q4, so then Q1 should be a clean quarter.

I would say February is the first month, which is clean.

Okay. And then for competition, for QuantiFERON, who are the new entrants that you're competing against there? And which geographies? Have you had a chance to change like price or contract terms to defend any of your accounts? Or is it pretty much the leader there?

One thing we always have to remind the market on this QuantiFERON was always competitive, right Again, while we have significant market share, there was always players, and there was always a rarity. There was always a be there's always a handful of Asian players. So it's not always -- yes, we are clearly the leading player, but we are not the only player. Now, of course, there's another player most likely over time, entering the European market. Again, there's no sign right now that is happening to the -- might happen, again, as they're saying beyond '27, if that is '28 or '29, time will tell. But of course, we haven't stand still, right? We clearly were very actively in working with our customers and a long-term contract. We have now close to 60% of our contracts of our customers in long-term multiyear contracts Again, we did a lot, and you have seen that around automation, the impact solution will come end of '27 to the market, which is the only one fully away workflow automation available in the market. So I do think we have a very strong setup. And of course, we can talk about some details of the competitive environment in terms of testing, but we feel quite comfortable.

And you've been building out new patient population, just traditional beyond traditional health care worker screening, immunocompromised patients, diabetics, not dialysis. So can you maybe just frame how large those new populations are and how much of them are actually in numbers today and which are still left to grow?

So it's a smaller part compared to the rest of testing groups like health care workers and so on, but it's the fastest-growing piece of the target groups that we're looking at. yes. So that's basically what we're working on also to get more patient groups into the QuantiFERON test. And yes...

Just to enhance on that a bit. what about 10% of our overall IGAD QuantiFERON test is immunocompromised patients. That is also by far the fastest-growing patient group. -- is also -- again, there's a lot of talk about income and competition. This is actually one of the areas where they're struggling because to address that perfectly right, we have to have a CD4, CD8 test. We do have that. Others don't have that.

So would you say the biggest of those other populations would be immunocompromised patients.

Now, yes, over time, of course, diabetes, as you know, is an attractive market opportunity. because there's clearly a lot of patients around that and a lot of potential. There's a clear correlation between them. And again, getting into a latent TB, it's probably a bit more out, but it's clearly on the watch list of some of the health care standard setters.

The fully automated impact to workflow and the AI risk scoring tool, those land in the second half of 2027. When do those actually become revenue for you? And then how should we -- how do you expect to monetize them?

Monetization starts, more or less as early as in '27 because at the end of the day, it is a huge opportunity, particularly for midsized to larger labs to have forget way solution. Have in mind, QuantiFERON is also for our customers, one of the largest revenue generation they have in the lab. And having that in and again, the way solution is a significant step up. It's one of the limitation factors they're all having. And so we are looking forward to that as our customers are.

And maybe let's move to QIAstat-Dx, your syndromic testing platform. Growth was 7% in Q2 after down 1% cost in Q1. And you're guiding to low double digits in the second half of the year. I guess what's driving that recovery in H2 versus H1 besides a little bit of easing comps?

In all fairness, H1 was untypical for QIAstat because we were clearly as actually also the whole industry fighting very strong respiratory sales in H1 last year, we on a more normalized basis for the second part of the year, we also expect that the return to significant growth rate, most likely even double digit. On top of that, we were able to continue our portfolio expansion -- we have seen that we bought BCID to the market. The next one is critical urine sections. So I would say both is still going quite well. Placements of new instruments, but also portfolio build-out again that we had a strong respiratory season last year was good news for last year, but you know it is why it makes -- it doesn't make your life easier the following year.

And is there any assumptions that you embed in for the flu season for the second half of the year?

As you know, we like that you all do this big conferences because that is and very helpful for us. But joking aside, I do think right now, the tendency, looking to Australia and U.S. is probably more regular or softer environment.

Got it. And the blood culture panels are the most interesting new menu addition that you have, you said you're confident of FDA approval by year-end. Can you maybe frame the size of that opportunity, what the realistic 2027 contribution looks like there?

It's a bit early to size it. But of course, there are important factors to the portfolio. Again, respiratory is will be always the leading panel. Nevertheless, it makes it unique, and it makes the reason why customers choose your platform. And I do think that is important. As you know, my favorite term is always a bit like an espresso machine, right? We all like to have an espresso machine. We all like that they have 20 different flavors. At the end of the day, we all typically buy the 2 or 3 we use the most. But having the choice is what differentiates it. And I think that's exactly the case here as well.

Great. And kind of moving on to sample technologies, which is your front end of every molecular test, the instruments and kits that essentially pull DNA and RNA out of the blood before I think it's analyzed. Sample technologies, it grew 9% this past quarter and Q1 as well. Organic was about 3%, excluding parts. And you've guided to double-digit growth in H2 on a reported basis. So can you maybe just walk through what gets us to the low double digit from 9% the last couple of quarters?

Yes. I mean we -- I have the privilege of walking into an instrument replacement cycle. We've got 3 new instruments from the highest throughput, which we typically compete in a very, very high throughput right through now to the mini which is a benchtop instrument for individual scientists think price points south of $10,000, simplifying individual scientist workflow, this 100,000 of all those opportunities to install that enjoy the revenue from that as well. So those launches are here and now. The Mini is launching pretty much as we sit here. So that's creating some momentum in the back half as well.

Yes. And then automated consumables, that grew high teens, how much of that base is automated versus manual now? And then how should we think about that conversion from just manual to automated over time?

Majority is clearly still manual. But as you know, we on purpose drive conversion to automation because at the end of the day, it is the trend. In every lab, you have an increase in volume, but you have less people available in front of to do the work. So I do think automation is a significant part of the solution. And second, of course, there's only very few companies like Qiagen, and we are clearly by far the leading player in providing this different automation level as John was referring to it on the low level in the mid-throughput level, but also in the high throughput level, which is quite new for Qiagen. So we do believe there is a significant automation opportunity. And you have seen that, right? If you go back to the last 3 quarters, we have seen already a step up in underlying growth for example, prepub still in the early days. So I do think there's more opportunities for us going forward.

And you now have 2 of the 3 new sample prep systems in the market with [ Kamani ] still to launch. You sized them at about $20 million of incremental H2 revenue. Does that still seem about right? And how is the placement funnel building there?

The good news is today, September 5 -- has launched as well. So we have all 3 machines -- we have all 3 machines in the market, which is great news. So there's no launch with. Actually -- but you're right, we are a couple of weeks early. So your numbers were right, it's good that we're early, which is also good. No, we feel comfortable again. Clearly, we are -- I think it's also fair to say we are not living in the easiest capital expenditure environment in particular in the U.S. So we always have to balance that, and we have to see what the next couple of weeks and months are bringing some people talking about budget flushes or not. There is a discussion we can have some people saying, okay, let's see what the results are in the midterms that might ease up a bit of the confidence issues some people having. So I do think overall, there's opportunities for us, which might add on.