Earnings Call: Q3 2020

Oct 22, 2020

Earnings release

Good day, and welcome to the BioMerieux Third Quarter 2020 Business Review Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frank Admunt. Please go ahead. Hello, thank you. Good afternoon, and thank you for joining us to review Guillaume Marriot's performance for this Q1 of 2020. As usual, I am on line with Alexandre Marriot, Chairman and CEO as well as Guillaume Gour, CFO. Before handing the call over to Alexandre for premiering remarks, please note that this conference call will include forward looking statements. I would like to remind you of the usual disclaimer saying that forward looking statements are based entirely and partially on assessment of judgments that may change or be modified due to uncertainties and risks related to the company's environment, notably rules described in the 2018 restructuring document, including but not limited to, economic conditions, financial exposure to currency exchange situations, change in government policies or regulations, third party investment policies, timing of the onset, length and severity of food 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 a replay will be available on the website on our website, www.dml.filaments.com. I now hand the call over to Alexandre Nariel, and then we will open the call to discussion and questions. Thank you, Frank, and good day to everyone. Thank you for attending this call. So let's start with the review of the activity activity for the Q3 and then I will go into more details with the performance by range of product and by region. So in Q3, we recorded a strong sales of €789,000,000 as compared to €663,000,000 a year before, which represents an organic growth of 20.6 26.5 percent. The reported growth reached almost 21%, mainly due to currency fluctuations year on year. This remarkable growth has been driven by our Molecular Body Solutions growing at 120%. Whereas we recorded a moderate year on year slowdown in immunotherapy and microbiology, however, improving versus previous quarter. After 9 months of activity, total Contingent sales are increasing 19.4% with Molecular Biology Solutions growing almost 85%. So now let's dig into more details for each range of products, starting with molecular. And as already said, we had recorded a strong performance with sales of EUR319,000,000 booked over the quarter versus EUR 155,000,000 in Q3 2019, implying an organic growth of 120%. The installed base continued to expand significantly on more than 1900 units were deployed during the quarter, bringing the total installed base to around 15,900 units. Most of the molecular performance comes from biopharma panels. However, extraction and argin solutions used as well as the threat against COVID-nineteen 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. Also, we keep on working on the expansion of our biopharma and electricity capacity, and we're also working to expand capacity in 2021. Regarding microbiology, as already mentioned, sales are still facing negative trend with a minus 0.5.2 percent versus Q3 2019. Even so, the trend is better than Q2 where we faced a sharp decrease of 14%. Trends improved versus the 2nd quarter, especially in Americas and Europe, while China is still lagging. Yet, we have not seen a clear recovery trend. Traffic and lodging activity within hospital keep on looking below pre COVID-nineteen prices. Regarding Inuit sales, after an almost double digit in excess performance in Q2, we came back to almost breakeven with 0 minus 1% in the Q3 versus last year. And this better performance Q2 has been interpreted within all the regions. And it was to mention as well that our 2 CROID tests, the Stylus anti SARS CoV, IgM and IgG contributed to this improvement, particularly in the developing settings. We might also that on the next effort, we continue our efforts to bring new tests on the virus platform such as nephrochek for acute injury, latent TB or dengue to keep differentiation through the menu. I would like to close this opening remarks with the industry business. On the industrial applications, we gained a positive growth rate versus Q3 2019 better than the minus 5% recorded in Q2. Still sales of Microgy Solutions for pharma industry are driving this performance, while the sales to the Food segment also suffered during last quarter with a negative trend. Now if you look into the would like to conclude this short introduction on our annual perspective. And still the recent dynamic developments on the associated lockdown measures, which are coming back, requires 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. But there's 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 operating items to exceed €520,000,000 Therefore, the 2020 performance for BioMar will be remarkable. However, as it is, it cannot be predictable beyond. With this, if it's time with you, we'll open the floor to the Q and A session. We will take our first question from Maya Thanks for taking my questions. I will start with 2 and go back into the queue. Alexandre, could you please elaborate on why you are giving such a cautious outlook for the Q4? Is it based on the fact that you believe the base business could take a hit? Do you or do you see any risk to your molecular, particularly BioFire franchise? 2nd of all, could you give us an indication? In the last call, you mentioned that the majority of the U. S. BioFire instruments went to existing customers. Could you give us a bit of clarity of where the 1900 or more than 1900 instruments have been allocated to this time around? Thank you. Okay. I'm not sure the guidance is cautious. First, I will give a guidance that we did before. I believe you have to see it as I would say we talk about we said that we'll do more. We'll do with the limit will be 15%, growth for sales and €5,000,000 for the EBIT. It's just as you see, we have a strong momentum and we have very nice trajectory year linked to the growth in molecular portfolio. For us, it's a way to give a projection. But also, I believe we have we don't see the demand remaining strong in the field of molecular testing. But also, I think I look at what's happening outside and I look at uncertainty that we see in terms of the secondary condition that we see start to see reemerging in some parts of the world. But this is how we base this. Regarding existing customers, maybe Guillaume, you want to point? Yes, of course. I think the question is on the BioFire installed base increase. So we can comment on the additional 1900 units of BioFire installed in Q3. 65% is 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, so 75% were actually sold equipment. And finally, remember, we commented earlier on the year on the new customer. So 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, Alexander, on 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, no, we don't know. That's something to no, no pricing impact at this stage that we noted on the not foreseen for Q4 in our projections. Thank you very much. Thank you. We will take our next question from Katherine Tennyson with Bank of America. Please go ahead. Hi, thank you. I just have 2 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. So last quarter, you gave us helpful numbers on your Argentine test sales and the capacity with which you were selling your BioFire test for COVID. Did you do something similar this quarter for your molecular business? And 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. So the sound was not perfect. So I'll take the question on the immunoassay business. The trend, as you know, ImmunoSA, we are like to see for other IBD players, there was less testing in the hospitals for routine. I mean, we have been impacted on this front. And I would say that the recovery that you see, the slight recovery that you see in Q3 is quite impacted by the growth sales in the time of SARS CoV-two. That's a solution we launched in end of June or in July, and we start to see the impact in Q3. And I'm sorry for the molecular question. I'm not sure I got everything. So, Dion, did you get it? And again, you can come back to your question, Catherine. But I think you had a question on the level of recovery in microbiology as well. So the comments in microbiology are quite similar or clearly Q3 was still negative versus last year, but yet improving versus Q2. As you can see, so the minus 14% in Q2 becoming about minus 5% in Q3. And that's a trend that we see especially in Europe and in America. But we find there are no clear signs at It was just on the molecular business. So what levels of recovery are you seeing in the core molecular business outside of the COVID test? So are we back to, say, 90% level versus Q3 of 2019? Or is it higher or lower? I'm sorry, molecular recovery for us. The strong push this year, it's to a strong demand for respiratory test both in funeral and also our margin. And 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. But for us, it's still working to meet the demand. That's great. Thank you. Thank you. And we will take our next question from Scott Bardo with Berenberg. Please go ahead. Yes. Thanks very much for taking my questions. So I had some technical difficulties at the beginning, so 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 4th quarter. So I'd like to understand what is embedded within that assumption. Do you expect BioFire sales to increase from the €280,000,000 or so that you booked this quarter? Or do you expect BioFire to decrease? I wonder if you could be specific on that point, please. The second question, understandable then that a lot of your existing customers want additional capacities of Filmora Instruments. Can you share some thoughts about the utilization of those instruments post crisis? Do you expect the Filmora 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. So I'll stop there and I have one follow-up. Thank you. If I come back on the second part of the equation, I think it's difficult to predict the future. But what we can see that, of course, at this point, it's about molecular, but I believe syndromic also is a strong potential of syndromic. And as we enter into the flu season, we believe that syndromic will be super important to detect between FluA, FluB and COVID. So it's a different therapeutic performance, it's the recognition of the value of molecular, it's a recognition of value of syndromic and the fact that we are able to extend our coverage in terms of customers with a big installed base. For me, it should be a positive signal for the future, for the whole BioPhyRen, not only respiratory, but you know also have GI, meningitis, the CID and the others. Today, the focus is probably on the respiratory, but I believe that extending our installed base is a positive signal for the future, Which is difficult to predict. And 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 15%. And the above, I think, is key in the guidance and the read of the guidance. So when you mentioned deceleration, yes, I don't know if it's the interpretation of the way we drafted, but it's above 15%. So 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 don't we expect Bio Fire to remain very, 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. We are not able to deliver the full demand for BioFire reagents right now. We also mentioned, I think Alexandre mentioned that we increased capacity this year and strongly in Q4, and we will continue on biophire reagents, especially with our new manufacturing plant that is running since this summer. So still very strong on by the prior year. And 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. The other question on the instruments and the other capacity, we also increased capacity to build similar instruments. But we are also cautious to make sure that we don't, let's say, deliver to customers, especially new customers, instruments where we would not be able to also, let's say, deliver reagents to be used in this instrument. So we try to maintain the right balance between additional instruments and being able to serve them with reagents, of course. And I think that was your main questions. Very good. And just the 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. So I wonder if you've any good information as to what sort of patients are getting tested with biopharmies and proportions thereof. And 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. So 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 start. But now for us, we see more molecular as in 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 from it will be mainly used in different type of settings. Now our view is that we see molecular as being the reference technology to detect patients in hospital and making sure they get the right answer. Yes. And additional technologies are also working because it's a tough situation so that the more we can test people, the better it is. And 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 for which it's used is very different from one hospital to the other. There are places where it became kind of first line testing and triage. There are, of course, other places where it's more second line for acute severe patients, the most critical. So it's really varying from one customer or hospital to the next. Thank you, guys. And our next question comes from Helene L'Oswell with Societe Generale. Please go ahead. Yes. Good afternoon, everybody. Delphine L'Owet. So three questions just dedicated to Filmora and Molecular Biology, please. I want to have a better flavor of what was the variation in terms of testing and capacity production Q2 versus Q3? And meaning that can we talk about the global envelope in terms of where we are now in terms of capacity production 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 our gene testing and then the SARS RASP panel and everything, where we are now in terms of mix of your order that you receive compared to what you have? And the third question would be on the R and D. Do you have any other tests for COVID specific and probably more on the serological path that you're 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 and D. And also, basically, we remain focused on molecular ancology, so molecular with fumarate and also with Arginine and also oncology with Vida. So we don't have planned at this stage to develop antigen testing. We are working on the Arginine range also to develop a new test, one that could be used for SARS CoV-two on the saliva testing. And also, we are working on developing type of a low plex test on the arginine that would include the IIIA, IIIA, IIIA also RSV. So these are the 2 things which are development of the Argentine range. Pneumonia? Okay. So 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. So you will understand that we don't give month by month or quarter by quarter, but the main element that we gave is we were at about €500,000 of average capacity of production of €500,000 of tests per month in 2019, and we will be in Q4 at about €1,000,000 per month in Q4 right now. So that gives, I think, a broad idea of the huge increase in the capacity that our Salt Lake teams have been able to achieve. From an industrial point of view, it's quite an achievement. And of course, we continue to work on increasing capacity for next year, but we don't give details at this stage yet. Okay. Can you repeat your second question? No, I tried to understand effectively from a client perspective how they changed 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 Argin and in the recipe panel? Or where we are 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, both on the 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's easy. No, there is demand that we are coping with. But I don't think there is a switch. There is a strong demand for both. But of course, the biggest demand, and you see our numbers is for syndromic on the RP2.1 panel. Okay. Thank you very much. And our next question comes from Maya Pataki. Please go ahead. I'm sorry, I was on mute. Apologies for that. Now I would like to ask a bit of a longer term question. I mean, we're seeing ramp up for testing manufacturing testing capacities across the board, be it PCR, low plex, multiplex, you name it. I think every pretty much every test. And of course, the demand is going to stay high for a foreseeable future. But 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? Or do you think it will be more a volume decline and companies will have to deal with excess manufacturing capacity? Difficult to predict. We all expect depending if I mean, we all want it to be over, but we don't know. What will happen after, difficult for me to make sure that we believe it. Anyway, the thing with Syndromic is at this stage, the focus is on respiratory. But as you know, it's more than that for us and it's gastronodentino, it's pneumonia, it's blood culture. So the idea for us will be then to expand the number of panels per instrument of per customers. Tracking pressure, it's very difficult to say at this stage. If things get better, hopefully, there will be hopefully. I say there will be less volume in terms of testing, but it's very difficult to predict at this stage. But capacity, we are a long term company and we believe the Syntropic Solutions is there for the long term. So the investments we are making are there also to cope with the current demand and the upcoming demand, but it's also to prepare the ground for the future growth of BioMarion. So 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, Q4, Q1, is ahead of time? Or was it something that you were anyway planning to do at this point in time? No, we have to accelerate. And to be frank, the teams are doing in SoftBank are doing a fantastic work. But the demand is higher than what we had anticipated. So the people are working extremely hard to cope with a strong demand right now. But it could be the actual, the new site is operational since last summer. So it takes time to bring it to its full capacity. Thank you. And our last question comes from Scott Bardo with Berenberg. Please go ahead. Yes, thanks guys for taking the follow-up question. So I know that this is a sales update, but 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 contributive 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. But at the same side, the line is doing well. So I guess the nature of the question is, please, is this new margin, 6.5%, 17% threshold to progress from next year? Or could we see some downside correction to that profitability? Any thoughts there, please, would be very helpful. And 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. And 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. So to the last question, competing, I don't know, it's a different approach. It's less exhausted, I would say, than the syndromic approach. So it will maybe meet a different type of needs. But 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 Argin and we are also doing a complex type of test with our Argin solutions. So I believe there will be demand and needs for different type of approaches. And to your first question, this year is, as I mentioned, these are extraordinary circumstances. And this is it will be also a special year for BioMerieux in terms of delivering such results. It's very difficult advantage for us to project ourselves on next year, on the years to come. We always said we wanted improve steadily the performance of the company. It remains an area. But let's say that 2020 is a special year. Understood. Thanks for your comments. Appreciate it. And there are no further questions at this time. Thank you. So we thank you all for participating to this call for all your questions. And we just remind you that the next formal release will be on February 24. We have worked out to the present preliminary full year results, including the sales and financial performance. By then, we remind you at the 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.