Earnings Call: Q3 2019

Oct 22, 2019

Earnings release

Good day, and welcome to the BioMallio 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. Murgot. Please go ahead, sir. Thank you. Good afternoon and thank you for joining us to review Valimera's performance for this Q3 of 2019. As usual, I am on line with Alexandre Marriot, Chairman and CEO as well as Guillaume Boerks, CFO. So 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 regulation, 3rd party reimbursement policies, timing of the onset length and severity of the flu season and competition. And 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.biomarieuxfinance.com. I will now hand the call over to Alexandre Marieux, and then we will open the call to discussions and questions. Thank you, Sylvain. Good day to everyone. So let's start with the overview of the activity for the Q3 and then we'll go into more details with the performance by a range of products. So in Q3, we recorded strong sales of €653,000,000 which represent an organic growth of 9.6%. Thanks also to favorable currency fluctuations year on year and to the consolidation of the HIBIUM and Invisible Sentinel, the reported growth reached almost 13%. In particular, we are very satisfied with the recurring region sales that grew double digit while instrument sales were still soft in the quarter. After 9 months of activity, total composite sales are increasing 6.8% with region sales growing 8%, which we see as a good performance. Now let's dig more into more details for each range of products starting with the immunoassay. 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 customer clearance and distribution. Otherwise, on top of it, I would say ImmunoSe continued to see very solid growth in Asia Pacific. On the point on PCT in the U. S, the price erosion has been softer over the last 3 months, which also helped to regaining better dynamics overall for the immuno salvage. So Vydas remains a key pillar in Biomer's strategy and we feel encouraged to continue our efforts to bring new tests on the Vydas platform such as NephroCheck for acute kidney injury, latent TB or arboriasis to keep differentiating through the menu. Switching now to microbiology. So 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. And as it has been seen in the past, the growth was driven by a flagship range such as VITAC and BACTEA LUT 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 URE analysis range and the high comps in instruments. On the molecular front, BioPhryas continued to perform very well with sales of €150,000,000 €135,000,000 booked over the quarter, implying an organic growth of 25%. The strong progression has been mainly driven by region sales with mixed instrument sales. The base of installed unit 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. And in Japan, after BCID, we are pleased to announce that the authorities have cleared and granted reimbursement to the Filmora Respiratory Panel. So overall, a satisfying performance for Biofiber Filmora in this quarter. But also keep in mind that Q4 of 2018 was reasonably strong and will show high comps, pushing the growth rates to likely lessen in the next quarter. Talking about the Industry Business. So Industry Application regained a decent growth rate, particularly with regions growing high single digit 7% in Q3 for year to date of 6.5%, while instrument sales partly recovered from the softer H1. So dynamics of the region seems good, while we still see some delays on instruments. The macroogy line within industry remains the key drivers associated with a nice pickup of the molecular biology solution, GENUP. Even if the Industry division remains below our long term expectation of the 9 months, BioMarieu 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 objectives. 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 this relative 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 BioMarriott to land in the previously set objectives between €385,000,000 to €400,000,000 With this, I propose to move on to the Q and A session. Thank We will now take our first question from Katherine Tennyson from Bank of America. Please go ahead. Hi. Thank you for taking my questions. I have 2, if I may. My first one is on the BioFire placements. So 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 the remainder of the year as you begin to roll out biopharma placements ex U. S? And then 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. So we'll start with the last question around immunoassay. So in order to ramp up in Q3, you see a plus 7% for immunoassay, it's not, I would say, classic figures. Yes, it's mainly due to a recovery partial recovery that was expected in Middle East Africa where we had a low Q1 because low H1 because of customs and I'm not curious type of effect. But I would say that's the main reason for the nice pickup. But as I mentioned also, immunoassay continues to grow quite well in Asia Pacific. And we see also the diminution of the erosion of price in the U. S. On PCT. To your first question regarding the installed base of the film array instruments, I do notice this is a growing installed base? I believe we displayed at the end of December last year that we have 8,000 of the instruments. We are so far at the 9,800 instruments, so it's a nice increase. It's true that H1 was small in terms of sales of our instruments. And in Q3, there is a trend toward, say, an increase of placement towards capital sales. But otherwise, I would say the dynamic is good in terms of additional of equipment and installed base. Thank you. Thank you. We will now take our next question from Bill Quirk from Piper Jaffray. 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? Or I don't know, perhaps we didn't have as many contract renewals in the quarter? Just trying to understand kind of 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 positive, no big change. I think the market is as more and more players. I would say that the fact that we've seen in Q3 that there is a lighter erosion on price, which is good for us. I mean, maybe we are going to a stabilization. I think it's too early to tell. But 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. Very good. And then a follow-up question. Just thinking about your guidance with respect to your expectations around the flu season. Can 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. Can 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 Q4? Thank you. When we guide, I think we took in consideration mild flu season. That's with the start rather in January, I would say, or mid December. So we are I would say we take the range of flu season in our projections. But better earlier, I would say earlier would make maybe a difference. It really depends. So to be frank, we don't control. We like you and we see what happens in Australia and other parts of the world. But I think it's too early for us to predict the intensity and the on the earlyness of the 2 season. Very good. Thank you. Thank you. We will now take our next question from Matcha Patxi from Kepler Cheuvreux. Please go ahead. Good afternoon. This is Maja. I have also a couple of questions regarding the PCT. Alexander, could you give us maybe a bit of a breakdown? Was the U. S. Immunoassay growth for you still negative? Or is that more of a flat territory? And 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%? And 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 VITAS? Thank you very much. Okay. Okay, my colleagues. PCT in the U. S, I would say we are still negative in the U. S. On the PCT dynamic. But I mentioned price erosion, but volume we also are catching up. We lost some customers. We are catching up in the smaller on the medium sized hospital, which is our strategy linked to the throughput of the VITAS platform. ImmunoSA 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 we're trying in development. That's part of our strategy. So we talked about the latent TB, ARPU viruses on the API. This is part of development we do for the mid for Farfetch to that's part of our strategy to be differentiated on immunoassay SA. On these three parameters, the one that we talked about, should help us to bring to go back to a stronger momentum in Immuno EMEA. Also not around Nephrochek. Sorry? Nephrochek will be one of the parameters in the pipeline for Vias. But that will be probably the first one to come, right? Yes. Probably. We will now take our next question from Scott Bernda from Berenberg. It's Scott Bardo from Berenberg. Yes, just a few questions, please. Just 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. But the growth did decelerate for BioFire in the 3rd quarter as compared to the second from about, what, 31% to 25%. I know still very good growth. And as my colleague mentioned, the placement rate decelerated for instruments, whereas I think historically Q3, you've seen a bit of an uptick. So 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. Yes. As you've seen, it's still a very nice acceleration for Filmora in Q3. I think it was 25%. So it was also please keep noting, I would say also the increase we have our international sales now of Fumarate represent 20% of total sales, so it's a key component. Don't see a deceleration. I see the base is getting bigger. So I think this is still quite remarkable to grow this fast. Or maybe Q3 compared to Q2, so maybe there's a trend for more placement. Maybe it's a market trend. I will still need more time to analyze. But also Q2 was good and Q2 was also good because of the flu season lasted also in April. So it's very important for Filmorhea in the U. S. And RP to use the comps compared to the year before. But 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, there is no we are monitoring this. I cannot say that it has an impact on our growth. That's something to monitor on diesel price. But so far, I would say we keep we're on track. Very good. And just following up on BioFire. I recall when you first bought the Filmaray several years ago, And I think you highlighted at the time a medium term expectation for this asset to drive 2 percentage points of incremental group growth from the 4, 5 or so that you're 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 sort of 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 5 years ago about BioFire being a couple of percentage points of incremental growth? Or in your mind, is there still opportunity to do more than that? Just some longer term thoughts would be helpful. For me, if you were aware, I would say molecular is a long term driver of growth for the company. I'm sorry, I don't recall the 2% growth, the 2 point growth. If you look at the past 3 to 4 years, I think it has been almost half of the growth coming from FIMA. But no, for us, we are investing, as you know, in R and D, in new panels. So molecular and fumarate, so it's a long term driver of growth for BioMerics. Understood. And last question, please. Obviously, you had some good success getting a relatively broad approval in the U. S. For your pneumonia panel. We're now sort of in or Q3 was in the 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. And we are still convinced that's the high value test. We have to further quantify our efforts on this. We are still convinced that pneumoniae will be a stronger driver for the growth of HEMLIB. But it's a soft start. Okay. Thanks a lot, Max. Yes, Alexael. Thank you. 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. Yes, 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 profile that you demonstrated in previous years. So 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. That's part of our mission of affecting infectious disease, but more, I would say, on the consumer, on the safety front. In organic, I think we you've seen that early this year, we have done an acquisition of Invisible Santander. It's a company with a starting with a small revenue but with a high potential. So we are doing our efforts to develop this franchise. If other opportunities as interesting happen to be open on the market, we look at them. Our industry is part of our strategy. But 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. We will now take our next question from Hugo Salvatsch from Baingarten. Please go ahead. Hi, hello. Thanks for taking my Two quick follow-up on Filmarie. First on the utilization 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? And second, on Japan, should we expect any additional investment in order to deploy Filmaray in the region? And do you expect to benefit from the upcoming flu season already? Japan, I believe yes, Japan is an important market for us. We believe it's the number 3 market in the world for in vitro diagnostics. So we believe that BioMar has a strong potential to grow there. Yes, we'll do we did some investments already. But now that we have both BCID and RP being approved on reimbursement, we should see this as a key contributor of growth for us in Japan. So yes, we will invest 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? And linked to the EBIT case? Yes. There's no we are in the 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 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 Pataky 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? And do you have an understanding of why labs are if they are if they're going for a competitive product? Thank you. So I would say historically the first competitor was on Stiliz, I believe, a gene market That we see now mainly in the U. S, less in Europe. I think they would saw them in Europe. We don't see them anymore in Europe, GeneMark. We have many, many companies. I would say that the recent newcomer is QIAGEN with QIAstat. We got that and they got their clearance for RP SDA clearance in May that we start to hear on the market. I believe so far, not losing customers. So I believe so we have to wait and see. I think that's the start maybe of the intensity of competition. But also important to keep in mind, we have some advance now with similar rates within the installed base, But I would say mainly through the breadth of panel that we have. And I believe it's a key differentiating factor towards competition. Thank you. We will now take our next question from Dela Le Louet from Societe. Please go ahead. Yes. Thank you very much. Good afternoon, Graham. Good afternoon. We've got your weekend. Thank you very much. Sorry, just to be back on the Filmora 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 panel for BioFire, it would be very useful just for us to have the vision where the traction is in between the recipe, the GI, the PENERMO, the sepsis panel and everything. So I don't know if you can give us more sensitivity on this one and possibly on the 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 Filmora installed base. It's definitely a gap with your competition. But in your best scenario, what's the plan in term of installed base? 2nd question is a follow-up to Scott's question on industrial application. What was the contribution of Invisible Sentinel into the SCOPE? SCOPE add up €20,000,000 in revenue this 9 months, 1% in organic growth, if I remember well. Was it meaningful? Or was it still limited? And third question dealing yes, sorry. 3rd question dealing with Asia and effectively in Microbio with the new approval you had for VIRTIO, which is a very good news. But could you elaborate a bit more on the potential and the lengthy the length of the process of take up of Vertuo in China you expect to have? Thank you. Okay. I will start with Vertuo and then Guillaume, let me introduce the other one. Asia Pacific, yes, no, nice growth. And you see that for us, it's the news are there. On microbiology, it's still an area of growth in this country. And I talk about China, I talk about India also. On the A2, it's a good news because for us, it's a very automated platform. It's also with resin bottles. And we believe that it is so far, it will remain, I believe, a key defecting factor towards our main competitors, which is a big turn. It's great news for us. Things don't happen overnight. It takes time to replace existing instrument in the hospital. But for us, we see it as a key driver of growth for the years to come in China. We are expecting we have been working hard to get this clearance and we're happy with that. Guillaume? Yes. Invisible Sentinel. So the contribution of Invisible Sentinel out of the €20,000,000 of scope from revenues from the scope changes is actually €4,000,000 This and the bulk of the rest is IBLION, our Chinese acquisition. Just remember that Invisible Sondyl was acquired in February. It's not a full 9 months on Invisible Sondiel. And the panels, so to your question about the different panels inside the BioFire growth, the message remains exactly the same without giving exactly the figures, but we have a very balanced growth, so pretty similar around 20% to 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 2 in terms of base. But again, in terms of percentage of growth, they are really similar in 20% to 30% range. And of course, the 5th one is pneumonia. So maybe not relevant to speak about percentage, but fast growth, but 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, but 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. Thank you very much for your questions and discussion, and we are looking forward to speaking with you either the next conference or roadshows. This 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.