Qiagen N.V. (QGEN) Earnings Call Transcript

All right. Good morning, everybody. I'm Tycho Peterson. It's my pleasure to introduce our next company this morning, QIAGEN. [Operator Instructions] And with that, I'll turn it over to Thierry.

Thank you, Tycho, and thank all of you. Good morning or good afternoon, depending on where you are. Thanks for your interest on QIAGEN. Obviously, a very happy and a very healthy New Year to all of you. I'm very pleased and honored to present to you once again on QIAGEN at JPMorgan 2 years after our change of management end of 2019. 2 years during which I believe our company has definitely proven to be extremely COVID relevant, but absolutely not COVID-dependent, and 2 years from which I believe as well that our company emerges as a stronger, as a more focused QIAGEN. I'm going to drive that presentation, a signal when I'm moving from slide-to-slide. Moving to Slide 3. For those who are not that familiar with our company, I would like to remind you our very simple and straight-forward mission and vision. First of all, the mission. We have a deep understanding of the building blocks of life, mainly RNA and DNA, and this enables QIAGEN to give access to clinicians, laboratories all over the world to valuable insights from molecular research to clinical health care. And this trigger a very straightforward vision, which is making improvement in life possible. Moving to the next slide, which is a simplified scorecard of our company as of today. I would say this scorecard exemplified 2 key words: recurrence and balance. Recurrence, first. QIAGEN has been developing for the last 30 years, molecular solutions both for life science and molecular diagnostics. And those 30 years of innovation have allowed us in 2021 to pass the bar of $2 billion revenues. Our business model is a recurring revenue business model made of a razor -- razorblade model, with 88% of our revenues coming from consumable and associated services, and 12% from capital sales or instrument placement. As you can see as well, recurrence is translated into the width of our installed base, more than 500,000 customers all over the world, of which most of them are long-term customers. Recurrence, but also balance. Balance in the organization of our portfolio, 50% of our revenues in life science, 50% as well in clinical molecular diagnostics. But balance as well geographically, where you can see that 45% of our sales are coming from the main markets in the world, the United States where 35% of our sales coming from Europe, but already a very interesting presence in emerging countries, not only Asia Pacific, Japan, but also, obviously, China. So as of today, moving to the next slide, I would like to propose you 4 takeaways -- simple takeaway message with organized around 1 word, focused. First of all, a new management team, which is focusing on delivering quarter-after-quarter on commitment, plus focusing on continuing to build a team of QIAGEN, a team of EMPOWER doers incentivized to deliver results. Second, focus on our portfolio. The first signal of that focus were when we explained the 5 pillars of growth, I'll come back to that in a minute. But as we have said also in 2021, decoupling QIAGEN from the volatility of COVID-19 to focus on what is the non-COVID business, the recurring business -- the core business of QIAGEN. Focus of continuing to build a compelling equity story, thanks to our, once again, recurring revenues, diversified customer base and geographic diversity. And last but least, obviously, focused on building a disciplined capital allocation from investing into our priorities to interesting potential bolt-on acquisition, and also showing under confident in our future share buyback program for this to increase the return on investment, on our investment case. If you look at the rapid description of what happened in the last 2 years since I was asked first to take over as interim and then as permanent CEO. 2 years of very, obviously, dynamic activities for our company, but 3 major steps. The first one for '19 to '20 was to stabilize the company after the change, and also obviously reviewing our strategic opportunities. You will remember from our discussion vision with leading to QIAGEN remaining independent and immediately then focusing on the strategy on focusing on 5 pillars of growth, reviewing the what for QIAGEN. QIAGEN a mid-cap company. A mid-cap company cannot be spread too thin and as a result decide to invest where we can be between #1 and #3 position on the market. Those last 2 years have been also spent in proving that we could develop a significant portfolio of COVID-solutions to be COVID-relevant, like as I said before, not COVID-dependent. Growing our installed base. Yes, obviously. The COVID-19 pandemic has allowed QIAGEN to build an unprecedented installed base much bigger than what we were expecting 2 years ago, but this now needs to be transformed to take and capture new opportunities. 2022 and beyond we'll be focused on rebalancing our portfolio from, obviously, non-COVID, also transferring the menu that we have for our different platforms on the current installed base that we have been growing, still ensuring a very disciplined capital allocation. Moving to the next slide, and going very quickly, not that I don't want to speak about COVID because I would think it's not important, of course, COVID is important. But once again, QIAGEN is COVID-relevant and not COVID-dependent. But what is important in that slide is to see, first of all, that we have built potentially the largest portfolio of COVID related -- relevant solution. But at the same time, we are prepared if governments are deciding to go to the next phase of the pandemic, which is the surveillance, we are prepared with a very dynamic portfolio as well as solutions, quantify for the monitoring of your T cells, which are proving to be an excellent marker of vaccine efficiency, but also variants monitoring and genomic sequencing, not to forget, obviously, wastewater testing with our digital PCR solution. What is important to highlight is that none of our assumptions for 2022 and beyond are relying on COVID. So if you try to look at a bit closer at 2021, I would say that the key word for 2021 and as you have seen, we have decided not to preannounce some results. We will publish 2021 in our normal calendar by early February, but I can only -- and already said, that basically the best summary of 2021 is, once again, this management is working, first on numbers. Obviously, quarter 4 will be a strong quarter for QIAGEN in addition to a very good performance at year-to-date at the end of Q3 of 2021, where we were at 25% CER growth, and an EPS adjusted at $1.88, 10 consecutive quarters where we beat guidance both on the top line and the EPS. Second, focus obviously on the portfolio. The 5 pillars of growth. We said last year already that more than 50% of our investments in R&D were going to the 5 pillars of growth. These numbers continue to increase to now 65% our investment. And you can see on the right side of this slide, some of the key highlights. We tick the boxes of all the commitments we took to you towards you from a development standpoint. I would highlight, for example, the launch of EZ2, the successor of EZ1 in Sample Tech. The launch of our solution for low-resources, high-burden countries on QuantiFERON is QIAreach, but also the expansion of our interferon gamma portfolio to Lyme in partnership with DiaSorin. The completion of the menu of QIAstat with the submission of GI for the U.S. and the launch of meningitis for Europe, plus you're completely unplanned but very strategy, very tactical, I would say, launch of a 4-plex on QIAstat-Dx also. On NeuMoDx, we continue, obviously, to develop assays. We had adenovirus in Europe, and we transferred our other menu by submission to the FDA of what we have available on the European [ capital ]. On QIAcuity, as I said before, adding still new application. I will come back to that, but the main translation being, obviously, wastewater testing in the fight against COVID. Focus also and working on in what I said at the end of 2019, the vision, the willingness to talk to you with an increased transparency translated in a new way of reporting the QIAGEN result, which is allowing you to follow our performance as well, obviously much better, the decision, the brave decision, I would say, of last year in July when we decided to decouple our P&L from the volatility of COVID. And this is another commitment that we took 2 years ago, renewed basically focus on ESG and also obviously increasing the governance of our company by the nomination of 2 new Board members. Now that 2021 is behind us, and I'm in Slide 9 now. We believe that we have confidence in the years to come and in the months to come. 2022, obviously, why? Because we believe that we -- our company is at the right place at the right time. First, because one of the main lessons of COVID-19 is proving the key importance of diagnostic testing in any kind of health care settings. Second, because inside testing, molecular testing has proven to be a superior methodology, especially against that virus. Second, because as you can see on this slide, our market continues to be dynamic. On the left, we show you that investment into research continues. You see some numbers for the U.S. or the U.K., but also a very interesting statistics showing that in diagnostic clinical testing in many activities such as oncology and others, we are, in December of 2021 probably, an 11% higher than in February of 2020 when the pandemic hit. So this confidence in the future is very well exemplified that makes the strategy of 5 pillars of growth even more readable. Once again, as a reminder, why did we choose those 5 pillars of growth? First of all, because this is a very large market. Those 5 pillars of growth are allowing QIAGEN to address already $6 billion of our total addressable market of $11 billion. Second, because they are very well balanced, 2 of those pillars of growth are definitive leadership that we -- or where we continue to invest to expand that industry, Sample Tech and QuantiFERON. And 3 of those pillars of growth are emerging platform with a significantly dynamic growth profile. This is QIAstat-Dx syndromic, NeuMoDx in PCR and digital PCR. You will see that we have an ambitious program of development continuing the success of 2021 to 2022. I would highlight some of them. I mentioned the launch of EZ2 for Sample Tech, but also the transformation of our very innovative QIAprep&amp, liquid-based extraction, into other applications beyond QIAwave. QuantiFERON will see the launch of Lyme in the U.S. but also the confirmation of the launch of our solutions for high burden and low resources countries. We will continue the launch of new menu in QIAstat with meningitis coming to the U.S. as well and BCID positive blood culture for Europe. On NeuMoDx, we will continue to transfer our assay available in Europe to the U.S. market. And that's what -- at least you have seen that in a recent press release, we are improving, increasing the application available on our digital PCR solution, an agreement for NIPT testing, and we are also entering beyond DNA and RNA, the world of protein with digital PCR. In addition to that, we continue to invest to make QIAcuity our digital platform solution, a clinical platform by 2023. A very quick word -- I'm not going to go all the details on some of those key pillars. Sample Tech, not to be defensive, but I have a feeling with some questions during the worst of the COVID pandemic that some people were believing QIAGEN is a manual Sample Tech solution. It's an RNA company. Not at all. RNA COVID-relevant is the smallest part of our portfolio, 70% of our Sample Tech portfolio is DNA based. And as you can see here, we have more than 20,000 instruments all over the world waiting to consume more than 300 consumables and kits. And we continue to invest into that automation, the next one to come, planned for 2023, being the upgrade of the QIAsymphony, the QIAsymphony Boost. In digital PCR, I said a quick word on that. Here, the strategy is very simple. We believe that for many standpoint, 3 boxes completely integrated, no complicated workflow, faster time to results, higher multiplexing than our strategy here, our ambition needs to become #1 on that market. We continue to develop partnerships. I talked about it before, but this is clearly where we want to go on the total market that we believe will be year-after-year, much closer to what is the qPCR market currently, which is $3 billion. QIAGEN is very exciting. Not only do we continue to develop and execute on the menu, once again, QIAGEN is not a COVID play, it's a menu play. But we are going to launch very early 2022, a new reader, a higher throughput for QIAstat, which is allowing us to go to higher hospital, higher volume of hospital. I have no time to show you a detail today of this innovative winner so pity because it will be extremely differentiated. It will be the first reader of that kind with an automated loading and unloading of cartridges, clear driving for our customers. Moving to QuantiFERON, we are #1 on the market, but we are not complacent. We continue to invest -- I mentioned the launch of QIAreach at the end of last year. This is extremely promising. I'm expecting growing revenues not that much in 2022 because it takes time to go into those low resources’ countries, but we have now exceptional contact with WHO with subsidy. This is a very added value, opening a new market for latent tuberculosis testing. But interferon gamma as also application as well. We have already a CMV test with QuantiFERON. We are now expanding to Lyme together with the leader of IgG and IgM testing for Lyme DiaSorin, adding our QuantiFERON in a completely new . It has been launched in Europe this year; it will be launched in the U.S. in 2022. I've insisted on that very disciplined capital allocation. Obviously, we have a stronger balance sheet. We want to put it to play first in reinvesting into the R&D of our 5 pillars of growth to fuel those growth potential. We are constantly looking at potentially interesting bolt-on acquisition with 1 condition -- or 2 conditions. First of all, it's not to spread QIAGEN again, is to keep the focus on the core and the 5 pillars of growth. And also, it has to make sense from a valuation point. And last but not least, any time it will be necessary showing again the confidence in our company with share buyback program. As the first conclusion, I would say why QIAGEN, why in the case of QIAGEN? First of all, because you have a combination of highly recurring revenues with high margin, with a very balanced, derisked approach geographically from a portfolio. And at the end, the question, are we a life science company? Are we a clinical diagnostic company? No, we are both. We are a hybrid company, combining the recurring revenues of life science and higher margin of life science with the dynamic profile of clinical growth. But in addition to that, especially with the addition of digital PCR for life science, we can boost further also the growth profile of our essence activity. This is why after 2 years of pandemic; we are increasingly confident of this new QIAGEN. It's a stronger, more focused QIAGEN. It's a stronger team of EMPOWER doers. It's a much bigger installed base ready to cash our menu developed for all our platforms. That doesn't mean make no mistake that we will become complacent. This QIAGEN -- this stronger QIAGEN will continue to focus on execution quarter-after-quarter. Thank you.

Great. Thanks, Thierry. Maybe I know you like to emphasize your COVID-relevant, not COVID-dependent, but I do have 1 or 2 COVID related questions and we'll jump into the rest of the portfolio. But Street projections around $2 billion in revenues, $2 in EPS, does that feel accurate given what we know about Omicron? Will the spike in testing here potentially drive upside given the change here in the near term?

So I said that we would not do any kind of announcement, but I'm glad to at least deliver some messages. When we set the expectation for '21, if you remember in July, we gave a number for the top line, we will be above the top line, obviously. So quarter 4 has been a strong quarter for QIAGEN. But the second thing, which is potentially even more interesting for me is that the profile of '21 is different for '20, why? Because in '21, any surge in COVID testing is not impacting the non-COVID business. And this is fundamentally different from 2020. And therefore, we took the commitment to growth our non-COVID portfolio by 20% in '21. I cannot really tell you that we will take that bus when we will publish our definitive revenues. As a result, our EPS will be also stronger than what we gave as a guidance in July.

And then the other question we tend to give a lot around is testing mix, right? So COVID will continue to be included in syndromic respiratory panels for you on QIAstat. But how do you think about the longevity of PCR testing, also on NeuMoDx versus the shift toward rapid antigen tests for that market.

Well, I don't know if there is a shift, I continue to hear, I mean, different kind of opinion here. I always took the same stance, Tycho, it's never opposed PCR to antigen, and now never opposed lab test to home test. I think it's the wrong debate. The right debate is that we have such an increase of contamination that any kind of value obviously and medically relevant technology is welcomed. There is no doubt that having quicker sometimes antigen solution helps. There is no doubt as well that they are still insufficiencies with antigen testing, whether from a false negative or for a false positive standpoint. So everybody in that country now -- not because I'm preaching for QIAGEN. I believe that if at the point, basically, we enter a surveillance, a phase for COVID, and that volumes are going down then I think it has been proven that the most reliable testing methodology is PCR and with volume down with less pressure on us, we will go back to a predominance of PCR testing and, therefore, then we'll see basically testing on NeuMoDx, on QIAstat for COVID-19. But once again, those 2 platforms, to just said those 2 ones were in our portfolio, way before COVID, they will be there way after COVID. COVID has been a tool to increase the installed base, basically. But the future is transferring now the menu on those platforms, clearly.

Last one on this theme. Just how about T cell testing. Given the varying degrees of immunity around the vaccines, is that an area where you think there potentially going to be some upside?

Yes. I said that in the presentation, I call not only for T cell, but I believe that surveillance should be the way to go. And I have raised some time the voice in some publication saying that many governments have been so far, far too politically reactive. Basically, they are behind the virus when they should invest into preparedness and the surveillance, and how well is genomic surveillance is wastewater testing and probably adding to the traditional antibody monitoring, the T cell monitoring, why? Because T cells are proving to be a very valid marker in their longevity after vaccination to see the result of your vaccination.

Maybe jumping into the rest of the portfolio, and you had a press release out this morning on the QIAstat rise. I'm curious, as you think about that market for reference lab for large IDNs, and I know you had a slide on it. Why is it the right time to be kind of launching into that market, given we've seen a proliferation of technologies in the past year around the pandemic?

Proliferation, I don't know. I mean there has been more investment into syndromic, which is proven by the way, that QIAGEN was right to get into that market 3 years ago, we were a bit ahead. Second, because our customers are asking for it. I mean some customers are currently saying, okay, I'd like to have higher throughput, I mean putting 4 models together is good. I mean 3 plus the operating model because I'd like to have higher throughput firm because I believe that we come with a very innovative system, as I told you. I mean we couldn't show it here, but this automated loading, unloading of cash, which is the first on that market. And so syndromic test sometimes associated to point of care. It's not only point of care, lab like Quest, like Kaiser or like Mayo Clinic are using those tests as well. And as you know, there are growing recommendations from the CDC to go for more testing than just 1 analyze in a sample.

And can you talk about the underlying trends for both QIAstat and NeuMoDx? I mean QIAstat is going to end up doing, I think, around $60 million in '21. I think you'd originally guided $120 million. NeuMoDx, $100 million versus $140 million. So they were trending a little bit below the initial projections. Obviously, you had a pandemic in the background. But can you maybe just talk to the rollout of each of those platforms?

I thank you to underline that we had the pandemic in the background. I'm also happy to say that we said $60-plus million for QIAstat. We will tick that box. You will see when we publish, and we see that NeuMoDx will also tick the box over $100 million, which is already significant. It's very simple. I have a double-digit growth profile for those 2 platforms, Tycho, and I'm going even further than that. When I say, I always want to be transparent to the market and I have realistic ambition that doesn't mean that I'm sandbagging, I clearly say that given the specificity of the platform, no Sample Tech, CT values, the menu, QIAstat is geared to become the #2 on that market. If I would have told you #1, this would be completely aspirational. We are far too behind in installed base by a fire. But getting towards #2, is the mid- to long-term strategy, and we are going to get there. And for NeuMoDx, it's a very large market. The PCR a $3 billion market. A platform like this, given again its specification, the differentiation once we have a NeuMoDx fully working in the hospital, we see the kind of interesting pull-through that we get, we need to capture at least 10% of that market. And if we don't do that, it's a lack of execution.

And on NeuMoDx, one of the things we hear from customers is they like the fact you can run LDTs. I mean how do you think about that in terms of rolling out your own expanded menu. Is there a risk that LDTs would maybe cannibalize some of the new menu enhancements?

Yes, it might. But entities are still significantly prevalent, especially in North America and also in some European countries, we forget that too often, but say the Netherlands or Nordic countries. So definitely entities are a fantastic buffer to give us time, especially in North America, to transfer our revenue available in Europe. I remind you 13 assays without the COVID, 15 total, transfer this menu to the U.S., which means 5 to 10 case submission -- PMA submission. But in the meantime, that hasn't been that we cannot sell because we can sell on the promise of entities. Now you know that the future of entity is always under question. Sometimes the regulatory authorities would like to regulate it a bit more. In NeuMoDx case, we cannot serve both. We can have regulated and entities working randomly at the same time on the platform. So we are well equipped. I believe that anytime you come with a very, very valid regulated assays, eventually labs will run that regulated assays against LDTs after some time.

I want to take 1 or 2 that came in on e-mail. I'm just curious, one is asking about your strategy around liquid biopsy, including potential pan-cancer assays. Can you maybe touch on that?