Good day. Welcome to the bioMérieux Q3 2019 Business Review Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Morgeau. Please go ahead, sir.
Thank you. Good afternoon, and thank you for joining us to review bioMérieux's performance for the third quarter of 2019. 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 the usual disclaimer, saying that the forward-looking statements are based entirely or partially on assessments or judgments that may change or be modified due to uncertainties and risks related to the company's environment, notably those that are 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 reimbursement policies, timing of the onset, length, and severity of the flu season and competition.
Accordingly, we cannot give 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 our website, www.biomerieux-finance.com. I will now hand the call over to Alexandre Mérieux, and then we will open the call to discussions and questions.
Thank you, Sylvain. Good day to everyone. Let's start with the overview of the activity for the third quarter, and then we'll go into more details with the performance by range of products. In Q3, we recorded strong sales of EUR 653 million, which represent an organic growth of 9.6%. Thanks also to favorable currency fluctuations year-on-year and to the consolidation of the Hyb iome and Invisible Sentinel, the reported growth reached almost 13%. In particular, we are very satisfied with the recurring regional sales that grew double digits, while instrument sales were still soft on the quarter. After nine months of activity, total consolidated sales are increasing 6.8%, with regional sales growing 8%, which we see as a good performance. Let's dig into more details for each range of products, starting with the immunoassays.
You have seen that immunoassay displayed a nice growth of 7% in the quarter. This performance was mainly driven by a partial and expected recovery in Middle East and Africa after a slow start to the year, which was related to challenges in custom clearance and distribution. On top of it, I would say immunoassay continued to see a very solid growth in Asia Pacific. On the point on PCT in the U.S., the price erosion has been softer over the last three months, which also helped to regaining better dynamics overall for the immunoassay range. VIDAS remains a key pillar in bioMérieux strategy, and we feel encouraged to continue our efforts to bring new tests on the VIDAS platform, such as NEPHROCHECK for acute kidney injury, latent TB, or arboviruses, to keep differentiating through the menu. Switching now to microbiology.
Microbiology displayed a very decent performance at about 5.5% in the quarter. I will be short on this one. This is very well in line with our historical trends. As it has been seen in the past, the growth was driven by our flagship range, such as VITEK and BACT/ALERT, with very consistent growth contributions from all regions, while the microlab automation was still a drag over the quarter due to the discontinuation of the urine analysis range on the high comps in instruments. On the molecular front, BioFire continued to perform very well, with sales of 150 million, EUR 135 million booked over the quarter, implying an organic growth of 25%. The strong progression has been mainly driven by reagent sales with mixed instrument sales. The base of installed units continues to increase, but with more placements as opposed to capital sales.
Development of international sales accelerated in the quarter, representing more than 20% of the total sales. In Japan, after BCID, we are pleased to announce that the authorities have cleared and granted reimbursement to the FilmArray Respiratory Panel. Overall, a satisfying performance for BioFire FilmArray in this quarter. Also keep in mind that Q4 of 2018 was reasonably strong and will show high comps, pushing the growth rate to likely lessen in the next quarter. Talking about the industry business. Industry application regained a decent growth rate, particularly with the regions growing high single digits, 7% in Q3 for year to date of 6.5%, while instrument sales partly recovered from the softer H1. Dynamics of the region seems good, while we still see some delays on the instruments.
The microbiology line within industry remains the key drivers associated with a nice pickup of the molecular biology solution, GENE-UP. Even if the industry division remains below our long-term expectation of nine months, bioMérieux can propose a unique offer to address a growing market of customer safety, both with food and pharmaceutical customers. I would like to conclude this short introduction on our annual objective. As you saw in the press release, we think that the organic growth for the full year should come to around 7%, mainly driven by the slightly slower Q4 as compared to Q3, and the respective softness is expected to be mainly due to a partial recovery on instruments, both in industry and clinical, and in Middle East Africa. It also assumes an average flu season from December.
Regarding profitability, we expect bioMérieux to land in the previously set objectives between EUR 385 million-EUR 400 million. With this, I propose to move on to the Q&A session.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Catherine Tennyson from Bank of America. Please go ahead.
Hi. Thank you for taking my questions. I have two, if I may. My first one is on the BioFire placements. As I track them, I see that there's been a little bit of a slowdown in Q3. Can you explain what you think your expectations are for the run rate for the remainder of the year as you begin to roll out BioFire placements ex-U.S.? My second question is on the pickup in the immunoassay business in the Middle East. Was this more a function of pent-up demand from the slowness in H1, or what is a reasonable run rate for us to assume for the remainder of the year? Thank you.
Thank you. We'll start with the last question around immunoassay. In order to run back in Q3, you see a +7% for immunoassay. It's not, I would say, classic figures. Yes, it's mainly due to a partial recovery that was expected in Middle East Africa, where we had a low H1 because of the customs and clearance type of effect. I would say that's the main reason for the nice pickup. As I mentioned also, immunoassay continues to grow quite well in Asia Pacific, and we see also a diminution of the erosion of price in the U.S. on PCT. To your first question regarding the install base of FilmArray instruments. No, this is a growing install base. I believe we displayed at the end of December last year that we have 8,700 instruments.
We are so far at 9,800 instruments, so it's a nice increase. It's true that H1 was quite strong in terms of sales of our instruments. In Q3, there is a trend toward seeing, I would say, an increase of placements towards capital sales. Otherwise, I would say the dynamic is good in terms of additional equipment and install base.
Thank you.
Thank you.
We will now take our next question from Bill Quirk from Piper Jaffray. Please go ahead.
Great. Thank you very much, and good afternoon. First question, I guess going back to the PCT comments. Can you help us think about, is this a more stable environment in the U.S.? I don't know, perhaps we didn't have as many contract renewals in the quarter? Just trying to understand if the environment has changed, or if this is perhaps a nice positive blip here, but we unfortunately are going to go back to some more pressure.
No big change. I think the market has more and more players. I would say that the fact that we've seen Q3, that there is a lighter erosion on price, which is good for us. Maybe we are going towards stabilization. I think it's too early to tell. Otherwise, as we mentioned in the different calls or meetings we have, the PCT market in the U.S. is growing, and it will grow for the years to come. It's also a different question.
Very good. A follow-up question, just thinking about your guidance with respect to your expectations around the flu season, could you help us perhaps look at a little scenario analysis here in the event? Certainly, our research would suggest that we are actually potentially looking at a fairly severe flu season in the northern hemisphere. Could you help us think a little bit about if we had, say, a 10% increase in flu, what that would mean relative to your guidance here for the fourth quarter? Thank you.
When we guide, I think we took into consideration a mild flu season that will start rather in January, I would say, or mid December. I would say we take the average flu season in our predictions. Better earlier, I would say. Earlier would make maybe a difference. It will depend. To be frank, we don't control. We're like you, and we see what happens in Australia and other parts of the world. I think it's too early for us to predict the intensity and the earliness of the flu season.
Very good. Thank you.
Thank you.
We will now take our next question from Maja Pataki from Kepler Cheuvreux. Please go ahead.
Good afternoon. This is Maja. I have also a couple of questions regarding the PCT. Alexandre, could you give us maybe a bit of a breakdown? Was the U.S. immunoassay growth for you still negative, or is that more in a flat territory? Is there any chance that you could give us a feeling for how much the pickup in the Middle East APAC sales actually contributed to the 7%? Then a second question with regards to your statement about the support for immunoassay growth going forward. You mentioned latent TB, NEPHROCHECK, and other tests. Could you give us a bit of an understanding whether we could already see in 2020 something coming additionally on VIDAS? Thank you very much.
Okay. Looking at my colleagues. PCT in the U.S., I would say we're still negative in the U.S. on the PCT dynamic. As I mentioned, price erosion, but volume, we're also catching up. We lost some customers. We are catching up in smaller, on the medium-sized hospitals, which is our strategy linked to the throughput of the various platform. Immunoassay overall, okay, there's one very good impact from Middle East Africa. For me, Asia Pacific, the trend is still quite good in countries such as India and China. I think it's been a trend for the last few years, and it's something we want to keep on doing. On your next question around the pipeline, it's true that we mentioned the test with China in development. That's part of our strategy. We talked about the latent TB arboviruses on the API. This is part of development we do.
That's part of our strategy to be differentiated on immunoassay on these three parameters. The one that we talk about should help us to go back to a stronger momentum in immunoassay.
Thank you for that. Another one, NEPHROCHECK.
Sorry?
NEPHROCHECK will be one of the parameters in the pipeline for Virus.
That would be probably the first one to come, right?
Yeah.
Yes.
Probably.
Thank you.
As a reminder to ask a telephone question, please signal by pressing star one. We will now take our next question from Scott Bardo from Berenberg. Please go ahead.
Thank you, Scott Bardo from Berenberg. A few questions, please. Really following up on the discussions that we've had at this point. When we look at your molecular franchise, still obviously seeing very healthy and favorable growth also from BioFire. The growth did decelerate for BioFire in the third quarter as compared to the second from about, what, 31% to 25%. I know, still very good growth. As my colleague mentioned, the placement rate decelerated for instruments, whereas I think historically Q3, you've seen a bit of an uptick. I just wonder, is this, in a sense, a bit of volatility that one should expect, or is there any signal in your mind that the competitive environment is getting a bit tougher or that there is some digestion of the new reimbursement framework in the U.S. for the outpatient setting?
Just some broader thoughts about this interquarterly trend would be very helpful, please.
As you're saying, it's still a very nice acceleration for FilmArray in Q3. I think it was 25%. Just keep noting, I would say also the increase we have our international sales now of FilmArray represent 20% of the total sales, so it's a key component. Don't see a deceleration. I see the base is getting bigger. I think this is still quite remarkable to grow this fast. On maybe Q3 compared to Q2, maybe there is a trend for more placement. Maybe it's a market trend and we still need more time to analyze. Also Q2 was good, and Q2 was also good because of the flu season lasted also in April. It's very important for FilmArray in the U.S. and RP to use the comps compared to the year before. The trend is still good. Competition is coming, for sure.
We all know many players want to come or are joining, I would say, the syndromic party. At this stage, we are monitoring this. I cannot say that it has an impact on our growth. Okay. That's something to monitor on this, on price, but so far, I would say we're on track.
Very good. Just following up on BioFire. I recall when you first bought the FilmArray several years ago, I think you highlighted at the time a medium-term expectation for this asset to drive two percentage points of incremental group growth from the four or five or so that you were witnessing previously. Now, of course, you went on to surpass that significantly as an organization and ended up growing more high single digit, low double digit. Just as we think about extrapolating your comments there about the market, in a sense, has been developed to a certain extent. Would you say it's prudent now to revert back to the initial comments that you had back five years ago about BioFire being a couple of percentage points of incremental growth? In your mind, is there still opportunity to do more than that?
Just some longer-term thoughts would be helpful.
For me, FilmArray, I would say molecular is a long-term driver of growth for the company. I'm sorry, I don't recall the two-point growth. If you look at the past three to four years, I think it has been almost half of the growth coming from.
More than that.
from FilmArray. No, for us, we are investing, as you know, in R&D, in new panels. Molecular and FilmArray, it's a long-term driver of growth for bioMérieux.
Last question, please. Obviously, you had some good success getting a relatively broad approval in the U.S. for your pneumonia panel. We now sort of-In Q3 was in the sort of cold and wet season, if you like, where pneumonia is often quite prevalent. Have you seen any real change in appetite to use this new innovative test in North America, or is it still quite slow? Thank you.
It's what we said last time in September. It's a soft launch at this stage because it's quite a sophisticated panel, and we need to invest, I believe, a bit more in terms of efforts to generate evidence with our customers on the value of the test. We are still convinced that's the high-value test. We have to further intensify our efforts on this. We are still convinced that pneumonia will be a strong driver for the growth of FilmArray, but it's a soft start.
Okay. Thanks very much, Alexandre.
Thank you.
As a final reminder, please press star one to ask a telephone question. We'll pause for just a moment to allow everyone opportunity to signal. There appears to be no further questions. Apologies, we do have a follow-up from Scott Bardo from Berenberg. Please go ahead.
Thanks very much indeed. I just wanted to touch upon the industrial applications business. We see, as you highlight, some relatively nice uptick in growth for that business, more towards the profile that you demonstrated in previous years. Just really a question on sustainability in your mind around that end market. Historically, you've been somewhat acquisitive in that space. Given your strong balance sheet, is now the time to consider further inorganic expansion in that business? Thank you.
For us, the industrial business is core to what we do, and that's part of our mission of fighting infectious disease, but more, I would say, on the consumer, on the safety front. Inorganic, I think you've seen that early this year we have done an acquisition of Invisible Sentinel. It's a company with starting, I would say, maybe with a small revenue, but with a high potential. We are doing our efforts to develop this franchise. If other opportunities as interesting happen to be open on the market, we will look at them. Industry is part of our strategy. So far, we also believe we have quite a good offer both in food and pharma applications to tackle the food safety and the pharma quality needs of the customers.
Very good. Thanks very much indeed.
Thank you.
We will now take our next question from Hugo Solvet for Bryan, Garnier & Co. Please go ahead.
Hi. Hello. Thanks for taking my question. Two quick follow-up on FilmArray. First, on the intellectualization of the production, which is ongoing. How much it has been a driver in your decision to maintain the EBIT guidance, if you can comment a little on that. Second, on Japan, should we expect any additional investment in order to deploy FilmArray in the region? Do you expect to benefit from the upcoming flu season already? Thank you.
Japan is an important market for us. We believe it's the number 3 market in the world for in vitro diagnostics, we believe that bioMérieux has a strong potential to grow there. Yes, we did some investment already. But now that we have both BCID and RP being approved on the reimbursement, we should see this as a key contributor of growth for us in Japan. Yes, we'll keep on investing mindfully to seize the opportunity. You want to take the other question?
The other question was on the automation of production, right?
Link to the EBIT guidance.
Yeah. As you know, we are in the process of slowly, step-by-step, with the different steps of the manufacturing to slowly automate the different steps of the production. It's a complex work, but it's ongoing. It did not have any, I would say, significant impact this year on the guidance or the confirmation of the guidance. No major impact, I would say.
Okay. Thank you very much.
We will now take a follow-up question from Maja Pataki from Kepler Cheuvreux. Please go ahead.
Yes, thank you very much. Just to get back to BioFire, could you help us understand who is the main competitor that you encounter most when you're trying to close a client? Do you have an understanding of why labs are, if they are, going for a competitive product? Thank you.
I would say historically, the first competitor was and still is, I believe, GenMark that we see now mainly in the U.S., less in Europe. I think we saw them in Europe. We don't see them anymore in Europe, GenMark. We have many competitors. I would say that the recent newcomer is QIAGEN with QIAstat-Dx. They got their clearance for RP FDA clearance in May, that we start to hear on the market. I believe so far, not losing customers. I believe we have to wait and see. I think that's the start, maybe, of the intensity of competition. Also important to keep in mind, we have some advance now with FilmArray within the install base, but I would say mainly through the breadth of panel that we have. I believe it's a key differentiating factor towards competition.
Thank you.
As another reminder, please press star one to ask a telephone question. We'll pause for just a moment to allow everyone opportunity to signal. We will now take our next question from Dalal Alouat from Oddo BHF. Please go ahead.
Yeah, thank you very much. Good afternoon.
We got your name.
Thank you very much. Sorry, just to be back on the FilmArray BioFire. I know, but I'm going to ask the question. I just want to let you know every quarter, guys, if we can have more in-depth breakdown in between allocation of the panels for BioFire, it would be very useful just for us to have a vision of where the traction is in between the respiratory, the GI, the pneumo, the sepsis panel, and everything. I don't know if you can give us more sensitivity on this one and possibly on a regional base, meaning the U.S. versus Europe. Secondly, can you share with us your long-term view? Now you're going to break the 10,000 BioFire FilmArray install base. It's definitely a gap with your competition. In your best scenario, what's the plan in term of install base?
Second question is a follow-up to Scott question on industrial application. What was the contribution of Invisible Sentinel into the scope? Scope add up EUR 20 million in revenue these nine months, 1% in organic growth, if I remember well. Was it meaningful or was it still limited? Third question dealing with Asia, and effectively in microbial, with the new approval you had for VIRTUO, which is a very good news. Could you elaborate a bit more on the potential and the length of the process of take-up for VIRTUO in China you expect to have? Thank you.
Okay. I will start with Virtuo, then Guillaume, maybe you do the other one. Asia Pacific, yes, nice growth. You see that for us, the needs are there. On microbiology is still an area of growth in this country, and I talk about China, I talk about India also. On Virtuo is a good news because for us it's a very automated platform. It's linked also with resin bottles, and we believe that it is so far, and it will remain, I believe, a key differentiating factor towards our main competitor, which is a Abbott. It's great news for us. Things don't happen overnight. It takes time to replace existing instrument in the hospital. For us, we see it as a key driver of growth for the years to come in China. We have been working hard to get this clearance, and we're happy with that.
Guillaume?
Yes. Invisible Sentinel. The contribution of Invisible Sentinel out of the EUR 20 million of revenues from the scope changes is actually EUR 4 million. The bulk of the rest is Hybiome, our Chinese acquisition.
Just remember that Invisible Sentinel was acquired in February, it's not a full nine months on Invisible Sentinel. The panels, to your question about the different panels inside the BioFire growth, the message remains exactly the same without giving exactly the figures, we have a very balanced growth, pretty similar, around 20%-30% for each of them year-to-date. Of course, from different base, respiratory being the first one and GI the second one, the biggest two in terms of base. Again, in terms of percentage of growth, they are really similar in a 20%-30% range. Of course, the fifth one is pneumonia. Maybe not relevant to speak about percentage, fast growth, still below our expectations.
As we already explained that the sophistication of the panel requires medical adoption that is a bit slower than we were expecting. No worries for the medium long term.
Okay. Thank you.
Thank you.
Thank you.
There appears to be no further questions at this time. I would like to turn the conference back to the host for any additional or closing remarks.
Well, thank you very much for your questions and discussion, and we are looking forward to speaking with you either in the next conference or road shows that will be before the end of the year. Thank you very much. Bye-bye.
This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.