Qiagen Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. I am Katie, your call operator. Welcome and thank you for joining QIAGEN's First Quarter 2023 Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site.

Operator

The prepared remarks will be followed by a question and answer session. At this time, I'd like to introduce your host, John Gallardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

Speaker 1

So thank you, operator, and thank you as well to all of you for joining us today. On the call, we have Terry Bernard, our Chief Executive Officer and Roland Saker is our Chief Financial Officer. Also joining us is Phoebe Lowe from the Investor Relations team. Please note that this call is being webcast live and will be archived on the Investors section of our website at www.qiaGEN.com. A copy of the quarterly results press release and presentations are also available on this website.

Speaker 1

Today, we will first have some remarks from Terry and Roland and then move into the Q and A session. Before we begin, let me briefly cover our Safe Harbor statement. This call discussion and responses to your questions reflect the views of management as of today, May 4, 2023. We will be making statements and providing responses to your questions that state intentions, beliefs, expectations or predictions of the future. These constitute forward looking statements for the purpose of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Speaker 1

These statements involve risks and uncertainties. Actual results may differ materially from those indicated by these forward looking statements as a result of various factors. These include those discussed in our filings with the U. S. Securities and Exchange Commission.

Speaker 1

These are also filed with the SEC and available on our website. QIAGEN disclaims any intention or obligation to revise any forward looking statements. We will also be referring to certain financial measures not prepared in accordance Generally Accepted Accounting Principles or GAAP. All references to EPS refer to diluted EPS. A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures are available in our press release and the presentation.

Speaker 1

So with that, I'd like to now turn over the call to Terry.

Speaker 2

Thank Thank you very much, John, and a very warm welcome to all of you and obviously thank you for joining us. As you have seen from our release yesterday, QIAGEN has had a very solid start in the Q1. Our teams all over the world remain focused amid uncertain macro conditions and did a great job executing on our goals, delivering 12% CER growth in our non COVID product groups, even better than expected. Now let me get to the top messages for today. First, we exceeded our outlook for net sales growth and adjusted EPS driven by strong sales in the non COVID based business.

Speaker 2

Net sales at CER for the Q1 were $502,000,000 and exceeded our outlook for at least $490,000,000 On the other hand, Due to Q1 2022 being an exceptionally strong quarter for COVID testing, we had sizable headwinds as expected in COVID product sales in the Q1 of 2023. As a result, Total sales declined 20 percent CER to $485,000,000 at actual rates. Adjusted earnings per share were $0.52 CER also above the outlook for at least 0.47 Thanks, CER. Our second message, our teams are executing on our 5 pillars of growth strategy. In SampleTech, first, we are pleased to report double digit CER growth continuing in the non COVID portfolio.

Speaker 2

This is driven by strong consumable sales across the business and also supported by our ongoing instrument upgrade program. The QuantiFERON latent TB test also delivered another quarter of double digit CER growth with strength all across the regions. QIAstat Diagnostics and NeuMoDx, Our PCR clinical testing system both made good progress in transitioning to non COVID use. NeuMoDx, for example, delivered underlying double digit CER sales growth, while QIAstat Diagnostics saw significant sales gains for the GI and meningitis panels in Europe. The QIA QUITY portfolio of digital PCR system and application kits delivered double digit CER sales growth with solid instruments placement and an increasing uptake of consumable all across the regions.

Speaker 2

As a fair message, we are maintaining a good level of profitability. We continue to make investments into our business organically or non organically, while actively managing cost with a high level of discipline. And as a last message, we are reaffirming our full year outlook for 2023. Our teams are determined to deliver on our goals for the year. We remain proactive, agile in addressing any new developments.

Speaker 2

For 2023, we continue to expect sales of at least $205,000,000,000 at CER And for adjusted EPS of at least $2.10 CER again. Of course, key to this outlook is our goal to deliver for the full year double digit See our sales growth in the non COVID portfolio, just like we did in this Q1. We are also forecasting for a significant decline in COVID-nineteen sales. Remember that those sales compared to the pre pandemic level of around $150,000,000 of sales in 2019 from those products that were then redeployed for COVID testing. We do have a strong portfolio, A solid pipeline of instruments and a solid customer knowledge to support our growth ambitions.

Speaker 2

And we have the team worldwide to deliver. As a last point, I would like once again to welcome Steve Rykovski to our Supervisory Board. Many of you know Steve from his long tenures as Chairman, President and CEO of Quest Diagnostics. Steve has indeed a remarkable career in the diagnostic industry And we look forward to its valuable contribution to the future success of QIAGEN. I would like to Now I'll hand over to Roland for a review of our results in greater detail.

Speaker 3

Thank you, Thierry. Hello, everyone, and thank you as well for me joining us today on this call. Let me first review our results for the quarter and later provide some perspectives on the outlook. Q1 2023 net sales were $485,000,000 These results, as expected, were down 20% at constant exchange rates compared to the Q1 of 2022, which was a period of sizable COVID-nineteen revenues. The decline at the actual revenues was 23%.

Speaker 3

At the same time, our teams delivered strong 12% CER growth in the non COVID product groups to 4 $34,000,000 Among the areas that outperformed were the sample technologies and sequentiferon latent TB portfolios. Instrument sales were lower on a year over year basis. Also, we saw overall good placement trends across most of our platforms. The Reagent rental business was more robust than capital sales. There are benefits to this approach since the placements are linked to multiyear visibility and commitments for consumable purchases.

Speaker 3

In terms of sales among the 4 product groups, let's start with Sample Technologies. This product group represents about 1 third of total sales. Sample Technologies sales continued to trend from 2022 with solid growth in non COVID applications that presented over 80% of the product group and also supported by instrument sales gains. Diagnostic Solutions is our 2nd product group and also represents about 1 third of sales. The QuantiFERON latent TB test was the main driver with sales rising 19% CER on growth in all regions.

Speaker 3

We continue to see strong conversion from the tubacolin skin test to QuantiFERON as a modern blood based gold standard. Among other products in this group, sales of the QIAstat Dx system for syndromic testing declined due to the drop off in COVID-nineteen testing. The same was also the case for Neuromodex. At the same time, as Thierry mentioned, sales for other applications were higher in the Q1 of 2023 over the year ago period. Moving to the PCI Nucleate Acid Amplification Product Group.

Speaker 3

Sales for non COVID Product groups rose at a double digit CER rate, but this was more than offset by the significant decline in COVID-nineteen testing. The QIAcuity digital PCR system maintained a sales growth above 20% CER on further growth in instrumentation sales and growing consumables utilization. In the Genomics NGS product group, which represents over 10% of total sales, non COVID product group sales rose at a mid single digit CR rate over the Q1 of 2022. These were supported by solid growth in sales of universal NGS kits for use by any sequencer and in the QIAGEN Digital Insight Bioinformatics business. Looking at sales on a geographic basis, All three regions had lower overall sales in the Q1 of 2023 over the year ago period and again due to the decline in COVID-nineteen sales.

Speaker 3

However, sales in the Americas and Europe, Middle East, Africa regions both grew at a double digit CER pace excluding COVID-nineteen product groups compared to Q1 2022. The Americas benefited from the solid Trends for QuantiFERON as well in Life Science. In the EMEA region, the top performing countries were Germany, the United Kingdom, France in Italy and this growth across both customer classes. In the Asia Pacific Japan region, Non COVID sales were largely unchanged compared to the Q1 of 2022. This reflected a significant decline of over 30% CER in China due to COVID headwinds from the Q1 of 2022.

Speaker 3

We continue to closely monitor the situation in China and expect to see improvement trends and the non COVID product groups over the course of the year. Let me also comment on the rest of the income statement. Adjusted EPS for the Q1 of 2023 was $0.52 at constant exchange rates and above the outlook for at least $0.47 CER. Results at actual rates were $0.51 due to the small adverse currency headwinds. Adjusted tax rate for the Q1 was 19%, which was in line with our outlook and it's the same as the Q1 of 2022.

Speaker 3

Adjusted operating income reflected decline in COVID related sales along with higher R and D investments over the Q1 of 2022. The result was an adjusted operating income margin at 25.6 percent of sales. Among the key factors, The adjusted gross margin came in at 67.3% of sales and this is a good start for the year. For the full year in 2023, we are likely to see a level in the range of about 66.5% to 67% of sales. This is due in part to utilization of the product capacity that we built up to address the pandemic And now transitioning to other applications.

Speaker 3

R and D investments rose over the same period in 2022 And we're on the high end at 11.3% of sales due to investments into the 5 pillars of growth. Here, we expect a full year level of about 10% of sales. On the other hand, we had lower levels Expenses in other categories, sales and marketing was 23.6% of sales as we increased our digital customer engagement. General and administrative expenses were also lower than in Q1 2022 and represented 6.8% of sales. This is a mix of gaining efficiencies through scalable teams, while making investments into IT systems, including an upgrade of our SAP system and into cybersecurity.

Speaker 3

Turning to cash flow. Results for the Q1 of 2023 also reflected the lower sales and profit levels from the same period of 20 22. Results for the Q1 of 2023 included higher working capital requirements, in particular for an increase in inventories to ensure product availability. At the same time, accounts receivables were lower across all regions Then in the 1st year of 2022, with a level of about 50 days of sales outstanding compared to about 59 days in March 2022. In terms of our balance sheet, total consolidated net debt stood at US592.6 million dollars as of March 31, 20 20 3 compared to US443.1 million dollars at the end of 2022.

Speaker 3

Our liquidity position was 1 As a result, our leverage ratio was 0.8 times net debt to adjusted EBITDA compared to 0.5 times at the end of 2022. Also keep in mind that we have approximately $400,000,000 of debt reaching maturity in the Q3 of this year. We are using our healthy balance sheet to strengthen the business through investments and targeted M and A. A recent example is the acquisition of VEROGENE to expand our human identification and forensics business and build up a top offering with sequencing related products. We continue to review additional acquisition opportunities with a keen focus on strategic fit and financial discipline in terms of prices.

Speaker 3

I would now like to hand back to Thierry.

Speaker 2

Thanks a lot, Roland. And now please allow me to give you a few details on some of the portfolio progress made by our teams in the last quarter. First, in Diagnostic Solution, our syndromic testing platform QIAstat Diagnostics has been launched in Japan, starting with our respiratory panel. This entry into Japan adds to the more than 100 other countries where QIAstat diagnostic instruments are already being used for the diagnostic of various diseases in near patient settings. At the end of the Q1, we now had over 3,700 QIAstat systems placed worldwide.

Speaker 2

The key driver for new placement includes the strong offering in Europe and in many other countries with the respiratory, GI, gastrointestinal and meningitis panel. We also good demand in the U. S. Where our teams continue to work on expanding the menu. As an example, we expect an FDA decision in the middle of this year on the gastrointestinal panel And we also expect to submit the meningitis panel in the second half of this year.

Speaker 2

Now that we have made good progress on these 3 important panels, we are developing new applications such as panels for blood infections, pneumonia and complex urinary tract infections. Also in Diagnostic Solution, the QuantiFERON TB test As successfully gained new certification in Europe under what we call the revised in vitro diagnostic medical device Regulation IVDR. The upgraded IVDR certifications means that QuantiFERON TB plus joins a group of all the QIAGEN products that have already received this new status including the NeuMoDx integrated clinical PCR system and related assays. We also very much welcome the reaffirmation this week of the positive B recommendation by the U. S.

Speaker 2

Preventive services task force for latent TB screening in certain adult population. This is extremely important because it means that screening by primary care physicians continues to be available without co payments. Our companion diagnostic portfolio and pharma co development revenues are also in this product group. This is indeed an important area of our portfolio and we added to our list of partners through a new agreement with Servier, a global pharmaceutical company. Together with Servier, we are developing a companion diagnostic for TIBSOVO as a treatment for acute myeloid leukemia.

Speaker 2

Under this agreement, QIAGEN will develop and validate a PCR test that can be used to detect IDH1 gene mutation in acute myeloid leukemia patient in wall blood and bone marrow aspirates. As a reminder, QIAGEN has more than 30 master collaboration agreements with global pharma and biotech companies. And as another reminder, QIAGEN is probably as of today, the only company offering companion diagnostic in PCR, NGS and also digital PCR formats. In our genomics And next generation sequencing product group, among the recent development, we launched a group of QIAGEN's targeted cell free DNA Ultra panels for use on any sequencer. Those new panels allow customer research in cancer and other diseases to turn Liquid BioSee samples into libraries ready for sequencing in less than 8 hours.

Speaker 2

Those kits further strengthen the position of QIAGEN as a key provider of universal NGS consumables. You therefore can see that all over the world, our empowered teams are working hard to build additional value through portfolio advancement. As we move through the year, we have still some key expansion plan, such as more digital PCR application for use on QIAQUITY and submissions for additional tests on QIAstat Diagnostics and NeuMoDx. And now back to Roland for more details on our outlook Q2 and 2003.

Speaker 3

Yes. Thank you, Thierry. Let me provide more perspectives on our outlook for 2023 and also for the Q2. As mentioned earlier, we have reaffirmed the full year sales outlook for at least US2.05 million dollars at constant exchange rates and for double digit CER sales growth in the non COVID product groups. The share of sales from non COVID products is clearly growing as we work through the pandemic headwinds.

Speaker 3

One of our strengths is our portfolio with a high share of recurring revenues from consumables, which represent over 85% of total sales. As you have heard from other companies, we are also seeing some caution among various customer groups in terms of instrument purchases. At the same time, we are seeing positive trends in placements and the level of customer interest. This is clearly due to the value proposition that our new platforms have to offer. In terms of regions, we are keen and we are keeping an eye on trends in China and how they developed during the year.

Speaker 3

Another area we are watching closely is our OEM business. This involves larger orders from other industry suppliers. And as we have seen in the past, this is a business where ordering can be volatile. In terms of profitability, We also reaffirms our outlook for adjusted EPS at about $2.10 at constant exchange rates. This includes the $0.03 of dilution for the VERIGENE acquisition.

Speaker 3

Moving to the Q2, we have set an outlook for net sales of at least $490,000,000 at constant exchange rates. Adjusted earnings per share are expected to be at least $0.50 per share also at constant exchange rate. This outlook for the Q2 of 2023 has to be seen against the healthy non COVID results in the same period of 2022, which was marked by increased customer demand after pandemic restrictions were eased. As for currency movements And based on rates as of May 1, we expect a neutral impact on both net sales and adjusted EPS for both the Q2 and for the full year 'twenty three. Now I would like to hand back to Thierry.

Speaker 2

Thanks a lot, Roland, once again, and we are coming back to the end of our preliminary comments. So let me provide you with a quick recap of our key messages before we move into the Q and A session. First, our results for the Q1 show a solid start of the year. We exceeded the outlook for sales, driven by double digit CER gains in the non COVID based business. As a reminder, this is the 9th quarter in a row we have delivered double digit CER growth in our non COVID product group.

Speaker 2

We also exceeded our outlook for adjusted earnings per share, while continuing of course to invest in key areas of our business. 2nd, Our teams are focused on execution and committed to delivering on our goals. We have a number of important developments ahead of our product across our portfolio for 2023. 3rd, we are maintaining a strong profitability profile and using our healthy balance sheet to strengthen our business. Our disciplined capital allocation policy has proven its value in supporting internal investment, We're also targeted M and A and increasing returns to shareholders.

Speaker 2

And lastly, we are reaffirming our Full year outlook for 2023. We continue to expect full year double digit CER sales growth in the non COVID portfolio against a significant decline in COVID-nineteen product group sales. In closing, we are off to a strong start this year while addressing uncertain macro trends with, as usual, a sharp eye on cost management and discipline in our investments. Our teams are following through on the goals for the year with determination and agility to deliver. We see this progress as important to setting QIAGEN on course for a solid mid term growth trajectory.

Speaker 2

And with that, I would like now to hand back to John and the operator for the Q and A session. Thanks a lot for your attention.

Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer The first question comes from Andrew Brackmann with William Blair.

Speaker 4

Hi, guys. Good afternoon to you. Thanks for taking the questions. Maybe just to start on guidance here. Appreciate all the commentary.

Speaker 4

I think it's straightforward and no real surprises. But maybe if I could just ask on SampleTech. Obviously, nice growth in the quarter. But how should we sort of think about some of the durability of that low double digit non COVID growth? I think you called out instrument upgrades as assisting there, but can you maybe help quantify where we are in that upgrade process and how much runway is left there?

Speaker 4

Thanks.

Speaker 2

Thanks a lot, Andrew. And as a very quick comment, I would say, we have no reason to change what we have been saying for a year. First of all, SampleTech is part of our DNA. This is where we have a clear leadership on manual And also on Automated Solutions. And therefore, what we said back in 2021, which was expecting Mid single digit growth for this portfolio is still perfectly our target.

Speaker 2

Why? First of all, because COVID-nineteen has strengthened our leadership and helped us to gain market shares. 2nd, because we are probably the only company in this domain where we have systematically upgraded our instrument offer for the last 4 years and we will continue to do so. As a reminder, QIAcube became QIAcube Connect, EZ1 became EZ2. And every time we differentiate it features for our customers.

Speaker 2

We will have an upgraded version for QIAGEN SYMPHONY, our flushing instrument as well. And 3rd, because we have continued to launch innovation. COVID, for example, gave us the opportunity to launch a completely revolutionary liquid based protocols. We continue to invest in very useful research application, microbiome, for example, sample take for liquid biopsy, Plant analysis, soil analysis. So this was all in all, I believe we have strengthened our SampleTech Dominance.

Speaker 2

With COVID-nineteen and post COVID-nineteen, we continue to believe in the mid single digit growth for this portfolio.

Operator

Thank you. We'll take our next question from Asa Noor with Morgan Stanley.

Speaker 5

Good afternoon. Thanks for taking the question. Just one on pricing. Could you comment on the pricing levels you've been able In the quarter and separately in Japan since the launch in April, what kind of pricing you are expecting for QIAstat in Japan? Thank you.

Speaker 2

Thanks for the question, Nathania. So on the pricing, first of all, it's worth highlighting again that Price increase is a tradition at QIAGEN every year. It starts in preparation around November, December and is passed and communicated to customers on January each year. Last year was a bit exceptional because we had an inflationary also specific context. Therefore, in addition to the traditional 2.53% price that we passed every year around January last year in June, July, we passed another price increase much higher around 6% to 7%.

Speaker 2

And in January of this year, we passed a new more normalized price increase of around 2.5% to 3%. And this is paying off. We have a clear objective in numbers for the year. This number obviously is fully factored in our guidance for 2023 and we monitor our progresses against this guidance Every week, I'm talking the price objective. To your question in Japan, QIAGEN Sales on innovations and on quality.

Speaker 2

Our syndromic panel for respiratory has a lot of value, An unprecedented level of automation for syndromic testing as you know, the ability to deliver CT values compared to a just yes and no answer. So there is no reason we would basically decrease the price in Japan and the price in Japan will be basically In the framework of the global price, which is, as you know, for a respiratory panel Between €90 to €100 per panel.

Operator

We'll take our next question from Dan Arias with Stifel.

Speaker 6

Yes. Hi, guys. Thanks for the questions. Thierry or Roland on NeuMoDx, this is a platform that's obviously in the middle of the transition From heavy COVID use to lower COVID use, but it does sound like you're making some progress with the non COVID adoption. So would you be able to put some context The utilization today or just where you think you end up for the year compared to the levels that you saw at the COVID peak?

Speaker 6

I know you don't talk about things in terms of annualized pull through, but it would just be really helpful if we can understand where usage is on a relative basis and what the trajectory backup looks like for that

Speaker 2

Thanks a lot, Dan. And as a quick reminder, first of all, number 1, NeuMoDx addresses mid to high throughput volume in laboratories, in PCR infectious diseases mainly, which means that the full utilization of the NeuMoDx system It's supposed obviously to bring meaningful pull through per system. I'll come back to that. Taken. We already are in a positive situation in Europe, where we already have one of the largest available menu for infectious diseases on NeuMoDx.

Speaker 2

It includes Blood borne viruses, HIV, hepatitis B, hepatitis C, sexually transmitted diseases and those are application. It is true, as we already disclosed for the last 2 years, That NeuMoDx was obviously very much driven by COVID utilization In 2021, a bit less in 2022, but we said in some geographies, especially in the U. S. That up to 70% of the performance of NeuMoDx during COVID was driven by COVID. This is why we are very pleased to see The non COVID usage progression, which is up by more than 50%, Obviously, where we have the menu, which is in Europe.

Speaker 2

In the U. S, we continue to forecast submissions every year. For example, at the moment, CTNG in the U. S. As we speak.

Speaker 2

But do not forget that in the U. S, we can leverage also the fantastic feature of NeuMoDx, which is to be the only system on the market at the moment, where customers can use randomly the platform either for regulated assays or for laboratory developed tests. So that's the strength. And obviously, We want to continue to submit every year to the FDA. That's the key success factor for NeuMoDx.

Speaker 2

Now precisely to your question and you need to understand that we have 2 configuration of NeuMoDx, The 96 system mid volume and the 288 system higher volume. But when the system Is in the full utilization of a complete menu, which once again starts to be the case in Europe, it's still not the case in the U. S, Expecting an average full flu on a normal platform of around $100,000 per year plus Is what we should have in mind.

Operator

Thank you. We'll take our next question from Derik De Bruin with Bank of America.

Speaker 7

Hi. This is John on for Derek. I wanted to ask On the margin progression, could you update us on your expectations for the operating margin for the rest of this year? And How should we think about that going into 2024? And in terms of China, you're seeing headwinds there.

Speaker 7

So of course, How was this quarter compared to your expectations? And if you have any outlook given that you are reinvesting in the region, that would be great? Thank you.

Speaker 2

Thank you, Derek. What I propose Roland, would you like to take the question on margin and then I can chime in on China?

Speaker 3

Yes. Happy to do so. Hi, John. Yes. I know it's quite obvious that we do expect actually a healthy margin improvement more or less sequentially over the course of the year.

Speaker 3

I do think what we have said before is that there is clearly leverage opportunities For us, in general, on the operational side, R and D, we clearly continue to invest into our 5 pillars of growth. Nevertheless, also here Q1 was probably a bit higher than what you should expect to be normal For the course of the year, so I think that is going to normalize around, let's say, 10% of revenues. We will continue to see operational benefits around SG and A. Our digitalization strategy is still Has some lean way to go and will have an impact. And of course, scale in general will be important for us.

Speaker 3

So we clearly expect Margin progression not only moving into 2024, but clearly also over the course of 2023.

Speaker 2

Thank you, Roland. Regarding China, first of all, I mean, we need to remind everybody that Our exposure to China, which is around 6% to 7% of our global sales is probably more limited than of our peers. However, we do consider China as an important market. It's probably the 2nd market in the world in size, but it's a very specific market. It's a market which is under significant pressure from the authorities to make sure that people are localizing Activities in China.

Speaker 2

So it's not about selling to China, it's about manufacturing and even more Doing research and development in China. How do we address that at QIAGEN? First of all, we do have a site in Shenzhen for local R and D And manufacturing. So we are equipped to localize part of our portfolio. 2nd, which is probably a bit more specific and original and differentiated, we also have a second brand In China, selling made in China products, it's a second brand which is fully consolidated in our global revenues, But which is behaving from a sales marketing standpoint completely independently in China and from QIAGEN China.

Speaker 2

So to come back to Q1, first of all, We have a base effect. We had quite some impact in Q1 of 2022 in diagnostic, but also in life science from some COVID sales in China. This has very much gone down. If you look at the non COVID sales in China, it's slightly positive for Q1, but it doesn't compensate obviously the base effect of the non COVID. However, we remain positive that the non COVID activities should improve sequentially quarter after quarter for two reasons.

Speaker 2

First of all, because of the Nature and strength of our portfolio locally and second, because we believe that the overall Chinese economy will also improved sequentially quarter after quarter. So attention, Adjustment to local specificities and little exposure Q ups and down of the market, this is how I would summarize.

Operator

Thank you. We'll take our next question from Adesis Menasiotis with Berenberg.

Speaker 8

Hi, thanks for taking my questions. I've got 3, please. On Kia Symphony, Boost, your next platform here. Could you please share a bit more color on the time lines and the key specifications that you'll be upgrading? And seeing that a few other digital upgrades for your other SampleTech platforms have been received quite well, would it be sensible to think that this could Help a lot with taking your growth trajectory at the high single digits for a couple of years for SampleTech.

Speaker 8

And then a couple of quick ones for Roland. So on the interest dynamics, understand you're guiding around €60,000,000 for the full year, But what dynamics do you expect to not be as pronounced in the following quarters? And lastly, for your COVID related Sales this quarter, could you please give us a rough description of how these sales are split between divisions And essentially which COVID related product groups have been more resilient than others? Thank

Speaker 2

you. Thank you, Roland. Would you like to take the interest in COVID Please, and then I'll move to the QIAGENFONI and SampleTech.

Speaker 3

Yes, happy to do so and also hello from my side. Yes. The COVID split, as I said, I think we haven't done so in the past as well. We're not going to break that down. We are also looking forward that we have to Stop about we can't stop talking about COVID late this end of this year because it is rather sometimes even more confusing than others.

Speaker 3

So again, You have seen the total COVID numbers released, and I don't think that you really want to break it down further. On the interest income, I think you clearly have seen recent developments here as well, and you have seen the Q1 performance. As you said, there is Probably an expectation for the full year out, but have also in mind, I think I said in the script as well, That we have a $400,000,000 repayment in the Q3, where right now we most likely are not planning to refinance it. So there's clearly a cash drawn to QIAGEN as well. So I think that probably explains how do we get to our numbers.

Speaker 2

Thank you, Roland. And coming back to QIAGENFONI Boost and SampleTech. So first of all, thank you for the comments. Yes, indeed. The market is really accepting and acknowledging the value of the 2 precedent upgrades, QIAcube Connect and ISIT 2.

Speaker 2

Regarding QIAGEN SYMPHONY Boost, first of all, let us highlight that the current QIAGEN SYMPHONY, which is a leading platform of the market, is still having a healthy number of placement per year, which is remarkable for a leading platform. And we want to upgrade it probably launching the new solution by the second half of twenty twenty four. We have different features, one of which is one of which, I'm sorry, being Higher volume input, which is going to be extremely key for application around liquid biopsy. In our mind and without disclosing too much for today, we believe that Continuing to invest in even higher throughput system could be an option for our company.

Operator

Thank you. We'll take our next question from Dan Brennan with TD Cowen?

Speaker 9

Great. Thank you. Thanks for taking the question. Maybe just a 2 parter. First one just on sequencing.

Speaker 9

Just there's been obviously a lot of new instruments being launched, been some kind of volatile trends during the back half of last year, but There's a lot of excitement on the clinical side, obviously with MRD. I'm just wondering from your positioning sample prep informatics, Just kind of give us a flavor for like the type of growth that you envision for QIAGEN and the strategic focus there? And then just secondly, I had a question on the balance sheet. Very undelevered. You've been pretty prudent with modest tuck in deals.

Speaker 9

Just kind of wondering what's the plan for kind of capital deployment as we look out? Thank you.

Speaker 2

Roland, do you want to take the one on the balance sheet? And clearly, yes, under levered, but and then we'll move on to Strategy on capital deployment and then we'll go to sequencing and UNGS. Roland?

Speaker 3

Yes, happy to do so. And hi, Dan. No, I think it's a fair comment that clearly we had, I would say, and then still have an exciting stress of performance at QIAGEN also generating significant cash flows. At the same time, of course, we More or less believe that our actual capital allocation policy, which actually since 2012 is serving us quite well, It's also the one we want to continue with. So there'll be a combination of investment into the business organically.

Speaker 3

That will be more or less added by also targeted mainly bolt on acquisitions. And last but not least, also reviewing on share buyback opportunities. And if you will review, for example, also now, For example, the documents for our next AGM, they will again also asking you for Giving the opportunity to do a larger share buyback going forward as well. So I do think the mix so far served us quite well and we want to continue with that.

Speaker 2

So coming to the question on UNGS and sequencing. First, I'd like to remind that I really believe that at the end of 2019, When we decided to become fully platform agnostic, not only for bioinformatics where we were Already platform agnostic, but also in chemistry, we took the right decision. Again, as a mid cap, we cannot go Everywhere and we need to try to invest anywhere we can take leadership between the number 1 and the number 3 position on the market. And this is exactly What we have been doing in Universal NGS. And the market is proving us wrong.

Speaker 2

I mean, if you talk to all the newcomers in platform, the Element, the PacBio, SingulEx, as well as the established one, Illumina, obviously, BGI, they will all tell you That to different level, bioinformatics or chemistry, they do work with QIAGEN Solutions. If you were at JPMorgan, you probably saw the presentation of PacBio, for example, or Element highlighting again Their satisfaction with their collaboration, especially from a chemistry standpoint with QIAGEN. So I think it was the right decision to take and the market is confirming it. As a result, for the overall UNGS portfolio at QIAGEN, We see that the remainder again, the mix of bioinformatics solution and chemistry solution. I don't see why we should not continue to grow at double digit.

Speaker 2

We continue as we explained today to invest in new chemistry solution. And we are clearly at the moment the number 1 in bioinformatics solution. And as you know, we want to continue to give that activity a new means to grow even faster. This is why I think that expecting a double digit growth is what we should have in mind.

Operator

Thank you. We'll take our next question from Casey Woodring with JPMorgan.

Speaker 10

Hi. Thanks for taking my questions. So you mentioned you're seeing some cautious spending from customers on instruments. Curious to hear from what customers in particular you're seeing this cautiousness from? And then what specific instruments would feel the impact there?

Speaker 10

And Maybe can you just talk towards your order book trends, particularly in Europe, given the macro? Thanks.

Speaker 2

Thank you, Casey. And I think obviously, Roland, feel free to chime in whenever you want here. But as a quick first Hint, we said and it was clear in the part from Ronald That placement or reagent rentals are now a bit more favored than pure capital sales. But we have been saying that For the last at least year and a half when we were asked, do you believe that post COVID there will be a significant slowdown of instrument sales. We always said, no, the market will continue to renew platforms and invest, but the way to do that might change in favor of reagent rentals.

Speaker 2

QIAGEN is a company which is very much used to reagent rental. We have been doing that For many years, we will continue to do so. As Roland explained today, it gives a clear visibility on the expected pull through and consumption Normally on the pre annual basis and the key success here, the key success factor is clearly monitor obviously Every site where you have a real agent rental in place. I think that that movement It's going to continue probably for the coming year to year and a half. This is a comment which is this is a movement which is Clearly true in clinical diagnostic.

Speaker 2

In Life Science, most of customers are primarily still buying. I'm not saying that it will be always the case, but they are primarily still buying. And so when you look at the performance of instruments in the Quarter, I think it's healthy. Whether it's placement or capital sales, it's a healthy one and a healthy progression across the lines. SampleTech, QIAstat, QIAquity.

Speaker 2

This is the situation as of today.

Operator

Thank you. We'll take our next question from Patrick Donnelly with Citi.

Speaker 6

Hey, guys. Thank you for taking the questions. Terry, maybe one on QuantiFERON, another really strong quarter there. Can Can you just talk about what you're seeing in the market? I mean the conversion has obviously been going on for years, but it seems to be getting stronger if anything.

Speaker 6

So Maybe just what you saw and then the durability there and maybe a quick one on just the competitive dynamics if you're seeing any change, but really just the core strength of that market and how you're thinking about it going forward?

Speaker 2

So thanks for the question, Patrick. Yes, QuantiFERON is obviously a matter of satisfaction. So what do we see at the moment? Across the globe, it's really across geographies. In the very developed countries, Europe, North America, the main lesson is 1, The partnership with DiaSorin is working.

Speaker 2

Anytime we convert The normal quantifier on traditional 4 gs, for example, customer to automation on Liaison, we do it, 1, with a premium price and second, most of the time it translates into an increase of volume. 2nd, the potential for conversion of skin test, and I remind you, antiquated technologies, cumbersome technology, just the fact that for a patient you need to go twice to a clinician, Steel represents a significant potential. And that's a good segue To your question on competition by the way, because yes, there has been rumored, we know that Oxford Immunotec has been acquired by PerkinElmer, we know that Biomerie launched a system on the VyDAS. But the main competitor here is still the number of skin tests that we have to convert all over the world. And we estimate this number to be around 60,000,000 skin tests all over the world, six-zero.

Speaker 2

If you take a geography like North America, it's already 16,000,000 of Skin Test and part of the performance in Europe and North America is clearly the conversion of Skin Test. Geographically, in less mature countries, we continue to make progress because here we leverage 2 things. 1, the unprecedented level of publication around the value of QuantiFERON. There is no other product with that level of publication. 2nd, years of medical education, medical investment into, for example, pushing for guidelines.

Speaker 2

And this works. You have seen, for example, what we published in Brazil extending guidelines to, for example, healthcare workers. We see that in many other countries. All this makes us believe That we continue we can continue to have a double digit growth profile for QuantiFERON. Obviously, we bet on the more, let's say, Low double digit growth for one reason, not that we are becoming pessimistic.

Speaker 2

It's just that at the end of the year, we still target 360,000,000 Dollars for this activity and continue to grow at double digit when you reach $360,000,000 is already a performance.

Operator

Thank you. We'll take our last question from John Sauerbier with UBS.

Speaker 6

Hi. Thanks for taking the question. Just a couple here digging into on the QIAGENY digital PCR platform. Sales continue to be strong there. Can you just talk a little bit on customer mix across research, pharma and clinical and potential menu expansion there?

Speaker 6

And then any thoughts on the competitive landscape of a few others entering the digital PCR market as well? Thanks.

Speaker 2

Thanks, John. And starting with the second half of your question, the market dynamics, I continue to believe that the market is probably around $400,000,000 total at the moment, but what is important is the growth of this market. And it's clearly a very dynamic growth. I really believe that in the coming 3 years, This market will already be around $1,000,000,000 And if you go beyond 3 years, We confirm that this is a total value that we see at around $3,000,000,000 for this market. So it's a very dynamic one, one we can take really significant market shares and including leadership.

Speaker 2

When you refer to the mix now for QIA Equity of customers, first reminder, at this moment, QIAquity is a life science product on our portfolio. So mainly we are targeting 3 kind of customers: Research, Academia, where you will see mainly placement of what we call our 1 plate and 4 plate system and since the second half of last year with the launch of our biopharma menu, The pharma market, where here we will be targeting higher throughput and obviously the sales of our 8 plate system. As we have disclosed to the market, We are preparing the launch of QIAQUITY to the clinical market as well. In other words, we want to make it a regulated platform and we are perfectly on track. At this moment, as we have said at JPMorgan, we believe that we will be able to submit the platform QIAquity to IVDR and the FDA by Q1 of 2024 And our strategy there is to start with application in oncology.

Speaker 2

We believe that's the biggest at the moment, the most quickly addressable market in clinical. The first assay that will be launched on the regulated QIAquity platform will be BCR ABL for basically Liquid based or blood borne blood based concepts. We are well aware that there might be little by little also Interesting opportunities for application, for example, in infectious diseases or even neuro Logic neuro diseases as well. There we are At this moment, completely open to different strategic option, including partnership. The key message so far, Life Science, Growing contribution of pharma because we have launched the biopharma first part of the menu last year.

Speaker 2

Moving to clinical also solutions starting Q1 of 2024 with oncology as a priority, first step.

Speaker 1

Okay. Thank you, Terry. And with that, I'd like to end the call here and appreciate your support for QIAGEN. If you have any questions or follow-up topics, Please do not hesitate to contact VB and me. Thank you again.

Speaker 1

Bye bye.

Operator

Ladies and gentlemen, this concludes the conference call. Thank you for joining and have a pleasant day. Goodbye.

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Earnings Conference Call
Qiagen Q1 2023
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