Good day, welcome to the bioMérieux third quarter 2020 business review call. Today's conference is being recorded. At this time, I would like to turn the conference over to Franck Admant. Please go ahead,
Hello. Thank you. Good afternoon, and thank you for joining us to review bioMérieux performance for this first quarter of 2020. As usual, I am online with Alexandre Mérieux, Chairman and CEO, as well as Guillaume Bouhours, CFO. Before handing the call over to Alexandre for preliminary remarks, please note that this conference call will include forward-looking statements. I would like to remind you of usual disclaimers saying that forward-looking statements are based entirely and partially on assessment or judgments that may change or be modified due to uncertainties and risks related to the company's environment, notably those described in the 2018 registration document, including but not limited to economic conditions, financial exposure to currency exchange fluctuations, change in government policies or regulations, third-party investment policies, timing of the onset, length, and severity of flu season and competition.
Accordingly, we cannot give you any assurance as to whether we will achieve these objectives. I also remind you that today's call is being recorded and that the replay will be available on our website, www.biomerieux-finance.com. I now hand the call over to Alexandre Mérieux, and then we'll open the call to discussion and questions.
Thank you, Franck. A good day to you, everyone. Thank you for attending this call. Let's start with the review of the activity for the third quarter. I will go into more details with the performance by range of products and by region. In Q3, we recorded a strong sales of EUR 789 million as compared to EUR 663 million the year before, which represents an annual growth of 26.5%. The reported growth reached almost 21%, mainly due to currency fluctuations year-on-year. This remarkable growth has been driven by our molecular biology solutions growing at 120%. We recorded a moderate year-on-year slowdown in immunology and microbiology, however, improving versus previous quarter. After nine months of activity, total consolidated sales are increasing 19.4%, with molecular biology solutions growing almost 85%. Now let's dig into more details for each range of products, starting with molecular.
As already said, we recorded a strong performance with sales of EUR 319 million booked over the quarter. This is EUR 155 million in Q3 2019, implying an organic growth of 120%. The installed base continued to expand significantly and more than 1,900 units were deployed during the quarter, bringing the total installed base to around 15,900 units. Most of the molecular performance comes from BIOFIRE panels. However, extraction and reagent solutions used as well in the fight against COVID-19 epidemic have also continued to contribute to the segment growth. Almost all the regions have strong molecular performance, worth to mention North America, Japan, most European countries, and Latin America. We keep on working on the expansion of our BIOFIRE manufacturing capacity, and we're also working to expand this capacity in 2021.
Regarding microbiology, as already mentioned, sales are still facing negative trend with a - 5.2% versus Q3 2019. Even so, the trend is better than Q2, where we faced a sharp decrease of 14%. Trend improved versus second quarter, especially in Americas and Europe, while China is still lagging. Yet, we have not seen a clear recovery trend. Traffic and routine activity within hospital keep on looking below pre-COVID-19 levels. Regarding immunology sales, after an almost double-digit negative sales performance in Q2, we came back to almost breakeven with a zero, - 1% in the third quarter versus last year. This better performance versus Q2 has been observed within all the regions. It is worth to mention as well that our two COVID tests, VIDAS anti-SARS-CoV-2 IgM and IgG, contributed to this improvement, particularly in the developing settings.
We might also that on the [immune effort, we continue our efforts to bring new tests on the VIDAS platform, such as NephroCheck for acute kidney injury, latent TB, or dengue to keep differentiation through the menu. I would like to close these opening remarks with the industry business. Under industrial applications, we gained a positive growth rate versus Q3 2019, better than the -5% recorded in Q2. Sales of microbiology solutions for pharma industry are driving this performance, while the sales to the food segment also suffered during last quarter with a negative trend. I would like to conclude this short introduction on our annual perspective and still recent dynamic developments and the associated lockdown measures which are coming back require us to be cautious in our 2020 performance outlook.
Nevertheless, as you saw in the press release, we think that organic growth for the full year should be above 16%, driven by strong momentum again on molecular biology. There are still, as I mentioned, lots of uncertainties in terms of recovery on microbiology, immunoassay, and industrial applications. Also, we expect the contributed operating results before non-recurring items to exceed EUR 520 million. Therefore, the 2020 performance for bioMérieux will be remarkable. However, at this stage, it cannot be projectable beyond. With this, it is time we open the floor to the Q&A session.
We will take our first question from Maja Pataki with Kepler. Please go ahead.
Good afternoon. Thanks for taking my questions. I will start with two and go back into the queue. Alexandre, could you please elaborate on why you are giving such a cautious outlook for the fourth quarter? Is it based on the fact that you believe the base business could take a hit? Do you see any risk to your molecular, particularly bioMérieux franchise? Second of all, could you give us an indication, in the last call you mentioned that the majority of the U.S. bioMérieux instruments went to existing customers. Could you give us a bit of clarity of where the more than 1,900 instruments have been allocated to this time around? Thank you.
I'm not sure the guidance is cautious. We give a guidance that we didn't give before. I believe you have to see it as, I would say we said that we'll do more. The limit will be 16% growth for sales and EUR 520 million for the EBIT. It's just as you see, we are on a strong momentum and we have very nice trajectory this year linked to the growth in molecular. For us, it's a way to give a projection. Also, I believe we see the demand remaining strong in the field of molecular testing. Also, I look at what's happening outside and I look at some uncertainty that we see in terms of sanitary conditions that we start to see reemerging in some parts of the world. This is how we base this. Regarding existing customers, maybe Guillaume can comment.
Yes, of course. I think the question is on the bioMérieux install base increase. We can comment on the additional 1,900 units of bioMérieux installed in Q3. 65% was U.S. and 35% outside of the U.S. A bit more outside of the U.S. than what we mentioned for H1. We can also mention that 25% was placed and the rest, 75% were actually sold equipment. Finally, remember we commented earlier in the year on the new customers, I can confirm that on the U.S., the majority of the new installations are actually with existing customers who are adding capacity in front of the pandemic.
We continue to see the trend to existing customers. Just to double-check, Alexandre, my first question. I'm trying to understand whether we are starting to see some pricing pressure that is impacting your business and that could be the reason for you giving expectations for a potential slowdown in Q4 growth.
No, we don't. No, that's not linked to pricing impact at this stage that we noted and not foreseen for Q4 in our projections.
Thank you very much.
Thank you.
Once again if you would like to ask a question, please press star one. We will take our next question from Catherine Tennyson with Bank of America. Please go ahead.
Hi. Thank you. I just have two as well. Could you help us have a bit of an idea as to the levels of recovery that you're seeing in the base molecular business? Last quarter, you gave us helpful numbers on your ARGENE test sales and the capacity with which you were selling your bioMérieux test for COVID. Could you do something similar this quarter for the molecular business? Outside of that, in the immunoassay business as well, what levels of recovery are you seeing in your European business there outside of the COVID opportunity? Thank you.
Okay. The sound was not perfect. I'll take the question on the immunoassay business. The trend that you know immunoassay, we are likely to see for other IVD players, there was less testing in the hospitals for routine. We have been impacted on this front. I would say the slight recovery that you see in Q3 is quite impacted by the growth of sales in the term of SARS-CoV-2. That's a solution we launched in end of June or in July, and we start to see the impact in Q3. I'm sorry for the molecular question. I'm not sure I got everything. Guillaume, did you get it?
Yeah. Again, we can come back to your question, Catherine, I think you had a question on the level of recovery in microbiology as well. The comments in microbiology are quite similar. Clearly Q3 was still negative versus last year, but yet improving versus Q2. As you can see, the - 4% in Q2 becoming about - 5% in Q3. That's a trend that we see especially in Europe and in America.
We find there are no clear signs at this stage of a full recovery regarding the microbiology because of the situation in the hospitals.
And then-
That's helpful.
Can you repeat the other part of the question?
Yeah.
Yeah.
It was just on the molecular business. What levels of recovery are you seeing in the core molecular business outside of the COVID test? Are we back to, say, 90% levels versus Q3 of 2019, or is it higher or lower?
I mean, the problem about molecular recovery for us, it's really the strong push this year. it's true, strong demand for respiratory tests, both in FILMARRAY and also ARGENE. Yes, we are still facing with a strong demand, hence our investment or the investment we have done also to increase capacity, also working on different type of shifts that we can do in the plant. For us, it's still working to meet the demand.
That's great. Thank you.
Thank you.
We will take our next question from Scott Bardo with Berenberg. Please go ahead.
Yeah. Thanks very much for taking my questions. Sorry, I had some technical difficulties at the beginning, apologies if there's any overlapping questions here. First question, please. Your guidance this year, whilst clearly very strong, implies some sort of deceleration in the fourth quarter. I'd like to understand what is embedded within that assumption. Do you expect BIOFIRE sales to increase from the EUR 280 million or so that you booked this quarter? Do you expect BIOFIRE to decrease? I wonder if you could be specific on that point, please. The second question. Understandable that a lot of your existing customers want additional capacities of FILMARRAY instruments. Can you share some thoughts about the utilization of those instruments post-crisis?
Do you expect the FILMARRAY instruments to be stockpiled and gather dust, or do you think that your customers will structurally increase the amount of consumption as compared to pre-crisis? If you could share some thoughts there, please. I'll stop there, and I have one follow-up. Thank you.
If I come back on the second part of your question, I think it's difficult to predict the future. What we can see that, of course, this thing, it's about molecular, but I believe syndromic also, it's a strong potential of syndromic. As we enter into the flu season, we believe that syndromic will be super important to detect between flu A, flu B, and COVID. Difficult to predict, but for me, it's the recognition of the value of molecular. It's a recognition of the value of syndromic and the fact that we are able to extend our coverage in term of customers with a big install base. For me, it should be a positive signal for the future for the whole BIOFIRE range, not only respiratory, but you know we also have GI, meningitis, BCID and the others.
Today, the focus is strongly on respiratory, I believe that extending our install base is a positive signal for the future.
Which is difficult to predict. [audio distortion] Coming back on your first part of the question. First, I just like to reiterate that our guidance is not to be at 16%, it's to be above 16%. The above, I think is key in the guidance and the read of the guidance. When you mention deceleration, yeah, I don't know if it's the interpretation of the way we draft it, but it's above 16%. Maybe the low end can be a slight deceleration, but it's the low end of the guidance. That being said, more business-wise, we expect BIOFIRE to remain very strong. We have a very strong demand still. We mentioned in the past, and we can reiterate that we are, unfortunately, but we are on the back order, meaning we are not able to deliver the full demand for BIOFIRE reagents right now.
We also mentioned, I think Alexandre mentioned that we increase capacity this year and strongly in Q4. We will continue on BIOFIRE reagents, especially with our new manufacturing plant that is running since this summer. Still very strong on BIOFIRE. As you understood, the main, let's say, variability or uncertainty for Q4 is really on the other businesses with, as Alexandre mentioned, the new lockdowns and the hospital traffic that can be consequently impacted or not. On the other question on the instruments and the add-on capacity, we also increase capacity to build FILMARRAY instruments. We are also cautious to make sure that we don't, let's say, deliver to customers, especially new customers, instruments that where we would not be able to also, let's say, deliver reagents to be used in these instruments.
We try to maintain the right balance between additional instruments and being able to serve them with reagents, of course. I think that was your main questions.
Very good. Thank you. Just a follow-up then, please. I'm imagining that BIOFIRE is being extensively used for a lot of hospital inpatients, for those for elective procedures, which is somewhat of an atypical use for the system given that it is more designed for critical care patients. I wonder if you've any good information as to what sort of patients are being tested with BIOFIRE pieces and proportions thereof. Last question, please. I think that there's some mixed messages now coming from the industry about the status of PCR testing in 2021. I think Abbott yesterday referring perhaps to some slight declines as compared to this year, and Thermo Fisher suggesting things remain robust. As a leading global molecular diagnostic company, I'd like to understand your views as to whether you think demand increases in 2021 or decreases. Thank you.
I think it will depend on the severity and how long the pandemic will stop. Now for us, we see molecular as the right IVD solutions to test patients. The fact that new technologies are coming such as antigen, I believe it's a good thing because we need more tests, and it's for multiplex, which will be mainly used in different type of settings. Now, from our view, we see molecular as being the reference technology to detect patients in hospital and making sure they get the right answer. Any additional technologies are also welcome because it's such a tough situation so that the more we can test people, the better it is.
To your first question about the type of patients, it's extremely difficult for us to answer. Unfortunately, we don't have a good way to track this. What I can mention is that actually the use and the type of patients that are actually using this or for which it's used is very different from one hospital to the other. There are places where it became a kind of offline testing and triage. There are, of course, other places where it's more second line for acute severe patients or the most critical. It's really varying from one customer or hospital to the next.
Thank you, guys.
Our next question comes from Ella Le Louët with Société Générale. Please go ahead.
Yes. Good afternoon, everybody. Delphine Le Louët. Three questions just dedicated to FILMARRAY and molecular biology, please. I want to have a better flavor of what was the variation in terms of testing and capacity prediction Q2 versus Q3. Meaning that, can we talk about the global envelope in terms of where we are now in terms of a capacity prediction compared to where we were at the beginning of July, for instance. Where are we going to go? You're talking about the Q4 increased capacity. Is there any plan for 2021? Secondly, I want to get a better flavor between where we were at the beginning of the COVID regarding ARGENE testing and then the RESPI panel and everything, where we are now in terms of mix of your order that you receive compared to what you have.
The third question would be on the R&D. Do you have any other tests for COVID specific and probably more on the serological path that you are working on or not, or you are full set for your offer in COVID? Thank you very much.
Okay. I will start answering to your last question regarding R&D. Also, we will remain focused on molecular and serology. Molecular with FILMARRAY and also with ARGENE and also in serology with VIDAS, and we don't have plans at this stage to develop antigen testing. We are working on the ARGENE range also to develop a new test, one that could be used for SARS-CoV-2 on the saliva testing. Also we are working on developing a type of a multiplex test on the ARGENE that would include the flu A, flu B, and also RSV. These are the two things which are development on the ARGENE range.
Pneumonia. Okay. Also working on adapting, let's say, adding COVID to our Pneumonia Panel for BIOFIRE, which I think we already mentioned in the last quarter, but just to remind everyone. Just taking your first question, which was on the capacity for BIOFIRE. You will understand that we don't give month by month or quarter by quarter, but the main element that we gave is that we were at about half a million of average capacity of production of half a million of tests per month in 2019, and we will be in Q4 at about 1 million per month in Q4 right now. That gives, I think, a broad idea of the huge increase in capacity that our Salt Lake teams have been able to achieve. From an industrial point of view, it's quite an achievement.
Of course, we continue to work on increasing capacity for next year, but we don't give details at this stage yet.
Can you repeat your second question?
No. I try to understand effectively, from a client perspective, how they change their order in the range of COVID testing from the beginning to where we are now. Do you receive most of the order now on R-GENE and the RESPI panel, or where we are at trying to understand the switch and the interest of the client now, what do they want?
It's not a switch. It's more demand, in fact.
It's just more demand. It's just more volume on every category. As soon as you launch something, you get the volume and you capture that, and you get 20%, 30%, 80% increase on a monthly basis.
No, that is it. There is demand that we are coping with, but I don't think there is a switch. There's a strong demand for both. Of course, the biggest demand, and you see our numbers, is for syndromic on the RP2.1 panel.
Mm-hmm. Okay. Thank you very much.
Our next question comes from Maja Pataki. Please go ahead.
Maja, you're not on mic.
Oh, I am sorry. I was on mute. Apologies for that. I would like to ask a bit of a longer-term question. We are seeing ramp up for manufacturing testing capacities across the board, be it PCR, low plex, multiplex, you name it. I think pretty much every test. Of course, the demand is going to stay high for foreseeable future. What do you think will happen once we see COVID testing slowing down? Do you believe that in areas where you have a high competitive presence, prices will start to come down as well as volumes? Do you think it will be more a volume decline and companies will have to deal with excess manufacturing capacity? Thank you.
Difficult to predict. We all expect I mean, we all want it to be over, we don't know. What will happen after, difficult for me to hedge. We believe anyway, the thing with syndromic is at this stage, the focus is on respiratory, as you know, it's more than that for us. It's gastrointestinal, it's pneumonia, it's blood culture. The idea for us will be then to expand the number of panels per instrument and per customers. Pricing pressure is very difficult to say at this stage. If things get better, hopefully there will be less volume in terms of testing. It's very difficult to predict at this stage. Capacity, we are a long-term company, and we believe the syndromic solution is there for the long term.
The investments we are making are there also to cope with the current demand and the upcoming demand. It's also to prepare the ground for the future growth of bioMérieux.
My second question would be just related to that. Since you have been planning the expansion of manufacturing capacity for BIOFIRE for a while with building a new site and everything, can you give us an indication whether the uptake or the manufacturing uptake that you're planning for Q1 next year or Q4, Q1, is ahead of time, or was it something that you were anyway planning to do at this point in time?
No, we had to accelerate. To be frank, the teams in Salt Lake are doing a fantastic work. The demand is higher than what we anticipated. The people are working extremely hard to cope with the strong demand right now. It will be gradual. The new site is operational since last summer. It takes time to bring it to its full capacity.
Thank you.
Our last question comes from Scott Bardo with Berenberg. Please go ahead.
Thanks, guys, for taking the follow-up question. I know that this is a sales update, you've also chosen to give some profit guidance, which is much appreciated for the full year. If I'm correct, this suggests that you anticipate 250 to 300 basis points in year-over-year contributed EBIT margin expansion this year. Alexandre, I think you were keen to highlight that there were some costs within the business this year that were lower than perhaps a normalized situation given travel and conventions and so forth. At the same side, the top line is doing well. I guess the nature of the question is, please, is this new margin 16.5%, 17% a threshold to progress from next year? Could we see some downside correction to that profitability? Any thoughts there, please, would be very helpful.
I would like, again, big topic question, if I may. We've seen lots of companies now coming in with these combination tests for RSV, influenza, and COVID. I wonder then, do you consider these tests competition to a syndromic panel? Have you any data to suggest what proportion of this sort of multi-target testing these new approaches are taking? Just some thoughts there as whether that's opportunity or potential threat to your syndromic business. Thank you.
To the last question, competing, I don't know. It's a different approach. It's less exhaustive, I would say, than the syndromic approach. It will maybe meet a different type of need. As I said in the beginning, I think the better the market can allow, can accept a different type of technology or approaches. Even ourselves, I mentioned the new development of ARGENE, and we are also doing a complex type of test with our ARGENE solution. I believe there will be a demand and need for different types of approaches. To your first question, this year, as I mentioned, these are extraordinary circumstances, and it will be also a special year for bioMérieux in terms of delivering such results. Very difficult at this stage for us to project ourselves on next year, on the years to come.
We always said we wanted to improve steadily the performance of the company. It remains an area that, let's say that 2020 is a special year.
Understood. Thanks for your comments. Appreciate it.
Yeah.
There are no further questions at this time.
Thank you.
Thank you. We thank you all the participating to this call for all your questions. We just remind you that the next formal release will be on February 24th. We will webcast to present bioMérieux full year results, including sales and internal performance. By then, we remind you are at your disposal for any further questions you might have. Thank you very much.
Thank you.
Have a good afternoon. Bye.
Bye.
This concludes today's call. Thank you for your participation. You may now disconnect.