Earnings Call: Q1 2019

Apr 24, 2019

Earnings release

Good day, and welcome to the BioMeru First Quarter 2019 Business Review Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Sylvain Marjou. Please go ahead, sir. Thank you, John. Good day, everyone, and thank you for joining us to review BioMarjou's performance for this Q1 of 2019. As usual, I'm online with Mr. Alexandre Merriault, CEO and Mr. Guillaume Boucher, CFO. Alexandre will start this call with a short introduction to give you his main messages about the quarter and then most of the call will be dedicated to the Q and A session. Before I hand the call over to management, please note that this conference call will include forward looking statements, and I would like to remind you of the usual disclaimer saying that 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 described in the 2018 registration documents, including, but not limited to, economic conditions financial exposure to currency exchange fluctuation change in government policies or regulation, 3rd 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. Du Merlyu issued its press release related to the Q1 of 2019 this morning at 7 a. M. French time. If you have not received our communication or if you would like to be added to the company's distribution list, please feel free to contact me. I also remind you that today's call is being recorded and that a replay will be available on the website, www. Biomerrier finance.com. And with this, I hand the call over to Alexandre Marillou. Thank you, Sylvain, and good day to everyone. So let's start with a global overview of the sales performance for the Q1 of 2019, and then I will then address some specific topics. So at the end of these 1st 3 months, Biomerular recorded sales of 32,000,000 as compared to EUR 587,000,000 a year before. It implies a reported growth of 7.7 percent, including favorable FX impacts for about 2.90 basis points and consolidation of recently acquired companies for about 100 basis points. As you probably remember, when we disclosed our financial targets for 2019 in net February, we highlighted that Q1 was expected to be soft and more specifically softer than the full year target for organic growth. And as expected, the organic growth of Q1 came below our full year guidance at 3.8%, in line with our forecast. Now digging into more details. I think it's worth commenting on the 2 specific ranges, Vydas and BioFire. So let's start with the immunoassays. I'm more truly with Vydas, which makes the bulk of the immunoassays. It's just probably worth reminding that Vidas has a dual positioning in the immunoassess space. First, positioning as a complementary platform to the main instrument in the lab, mostly running specialty and high medical value tests. This is typically the use we can see in developed and mature settings. 2nd positioning as the main platform in the lab, running both routine and specialty testing, and this is a use with Wazersi in emerging or developing settings. The routine testing now accounts for less than half of the sales on an annual basis with very different dynamics depending on the geographical areas, growing in developing countries, while decreasing in developed countries. For high medical value markers, we have seen a strong increase over the past few years, shooting the growth of immunoassay at a high single digit space. Since about 3 years now, we experienced more competition on one of those high medical value marker, namely PCT, in one specific market, the USA. This increasing competition has created price pressure on the U. S. Market since about 2 years, which is a big we have already discussed with you over the past quarters. The new impact that we have seen during this quarter is a strong revenue decrease in Europe in Q1, both on routine market and on the high medical value markets, while the high medical value markets used to be slightly negative. Both are mostly volume driven with a limited impact from prices. In parallel, several growth areas such as North Africa or Asia Pacific have experienced a slower growth than usual for one off reasons such as customer clearance or management of receivables. All these drivers combined led to a quite significant performance on the ImmunoSC line and are encouraging BioMarriott to continue its efforts to bring new tests on the Vialas platform, such as NetworkCheck for acute kidney injury to keep differentiating through the menu and also to support the development of Hybium, which performed very well in the Q1, offsetting the decrease of ILS. Let's talk now about BioFire. On the Multiplatform, BioFire continued to perform well, particularly in the context of a less severe flu season. As you remember, BioMarion enjoyed an extremely strong growth in Q1 2018 at +12.5%, which was largely driven by Fumarate growing nearly 50% year on year. This performance has established a strong basis of comparison and was a much less than a full season this year, the funeral rate reached €157,000,000 in sales, up 13%. The softer growth has very different situations. For RP Panels, the growth obviously slowed down materially because of this base effect, whereas the growth of GI, managed access and BCID panels remained pretty steady in line with last year trends. It is also important to mention that we have not seen any major impact from the recently changed reimbursement landscape for outpatients. GI panel growth remained very solid and RP was mostly impacted by a lower flu season. Respiratory and gastropanel also gained positive coverage decisions from private payers, which is encouraging us to continue to conduct HEOR studies to demonstrate the value of single gene therapy testing for infectious disease as we are deeply convinced that this is the way to go for a more efficient patient care. On the instrument front, installations remain very solid with about 700 new placed or sold instruments over the quarter, And this growth has been notably driven by the U. S. And by the U. K, Italy and Spain. About the geographical deployment of BioFire in Q1 2019, sales outside of the U. S. Weighted for about 16% of the total funeral sales as compared to 13% for the same quarter in 2018, presented with strong growth in France, Greece, India, Singapore or South Africa. Overall, it has been a very satisfying performance for BioFire Fimbrae despite unfavorable flu context. So as a conclusion to the short introduction, I would like to reiterate that this soft quarter is not coming as a surprise and does not question our 2019 objectives. The recurring business of reagents did go well in most of our strategic businesses lines except by us, which was partly offset by some volatility on instrument sales and by one offs in Southern countries. With this, I propose to move on to the Q and A session. Thank you. John, can you introduce the first question, please? Of course, sir. Thank you. And we will now move on to our first question from Roman Zana of Exane. Please go ahead. Your line is open. Yes. Thanks for squeezing me in. Can you hear me? Yes, sir. Yes. First question regarding the full year guidance. And correct me if I'm wrong, but from my understanding, the full year 2019 guidance range was closely related to the magnitude of the flu season. Is it accordingly fair to expect rather the bottom than the top of the range? Or do you think that the upper range is still realistic? That would be my first question. 2nd question is more big picture regarding the diagnostic markets. If we look at Roche, Abbott and even Waters overnight, they all seem to point to weakening demand. So even if it's different segments, so I was wondering if you would have any comments that could give us more color on what is happening in the industry and could explain the weakening demand? Thank you. Okay. Yes, to your first question, we maintained the guidance for this year. We were expecting we had we had last year. So at this stage, looking at the dynamic, we confirm the guidance for the year and not giving higher or lower of the range. We confirm the guidance. In terms of dynamic, yes, I have seen a few results also coming from the company. I cannot say we see a decrease of demand when you look at the BioMarin, at least on the when you look at the reagent sales. I think this is quite positive. So on our side, it's only Q1. It's too early to do a conclusion, and I surely cannot talk about the competition. Okay. And just a follow-up question, if I may, on Vidas. What kind of visibility do you have on a pickup of demand in the coming quarters? I'm thinking especially about Europe, where you seem to experience more difficulties maybe related to consolidation of labs. How do you see the trend evolving looking forward this year? I would say that the lab consolidation is a fact in Europe for many years. I think this is continuing. It has impacted us on VITAS for some years. So we believe consolidation will continue. But so it's usually we used to have a meta region also as a Pacific with a strong capacity last year catching up with that. That's something we are following. I don't see a complete change of the landscape at this stage. The consolidation keeps happening. The thing that we need to monitor is the price decrease of obesity in the U. S. That we have to see and watch or wait for that. It's something we are, I would say, evaluating and assessing. Because would you say that further deteriorated this quarter on pricing? The price has not stabilized yet in the U. S. Regarding the PCT testing. Okay. Okay. Thank you. Okay. Thank you. We will now take our next question from Majapatki. Your line is open. Please go ahead. Yes. Hi. This is Maja from Kepler Cheuvreux. I have a couple of questions. First of all, Alexsandro, you said that you don't really see an impact from Palmetto on the respiratory volumes in the U. S. And I was trying to understand whether you can walk me through the thinking process behind that? I mean, you do have if we say that 2019 flu season was similar to 2017, if we look at the CDC data, you do have a significantly higher number of instruments in the market. How do you I mean, how has the test per machine developed? Has it been if we compare it to 'seventeen to the existing installed base. I mean, just trying to understand how strong is your confidence that PONETO has not had an impact in Q1? That's the first question. 2nd question, you talk about the high medical value test on VITAS and QIAGEN has been pretty vocal about you entering the TB market to investors. I was wondering if you could give us an update on that. I believe that QIAGEN is actually talking about the 12 to 24 months range of possible BioMarriott TV tests coming to the market. Anything you can add to that? Thank you. Okay. To your first question, I'm not sure if I can remember the O17 you want me to compare O17 with O19? What we can say on the flu season effect sorry, I said Yambu. What we can say on the flu season effect is that it is indeed slower than last year, lower than last year. It's actually lasting a bit longer, so there will be a bit of effect on probably March April, March already April. But the effect that we see in Q1 is about it's difficult to evaluate. So again, it's only an assessment. Growth assessment is about €15,000,000 of impact of 2019 full season sales as compared to 2018. Again, take it as an estimate. It's just to give you a rough order of magnitude. And so that's part of the bridge that you were expecting in your question. Then on Palmetto, I think our view and Alexandre will complement is more on the customer feedback and what we see from customer behavior that we don't see a major or any significant impact of the Palmetto on the customers in the U. S. This is something we are monitoring, but it's true that the Palmetto so far, we believe that Syngromic is well positioned. As you remember, maybe Palmetto is only for old patients caused by Medicare. So it's a limited number of population. Plus the pricing was only concerning the viral targets or why the fimbrae has viral and bacterial targets. That's the beauty of the syndromic. So we are monitoring this, but our statement, which is the right one, as you say that we don't see an impact, I would say, slowing down the penetration of our key panels in the U. S, but we are monitoring. Your question on TV, yes, it's too sometimes competition are talking about our development. I prefer to talk when the product is developed and approved. But it's true that, yes, we have R and D work being done on TV, but it's too early at this stage to communicate around results or around the date. Just a little bit working on it. Okay. Thank you. On R and D front. Thank you. Okay. Thanks. We will now take our next question from Delha Lou of SocGen. Please go ahead. Your line is open. Thank you very much. Delphine, Leuvreux speaking here. Can we get, Alexandre, a better vision regarding the U. S. Growth considering the good performance of BioFire and finally the 0.4% growth that you've seen in North America? 2nd question deals with the industrial And third question will deal with the Immunoassay division and specifically regarding the volume. You mentioned the fact that you have lower volume in Europe. How is it compared to the U. S, meaning that just to get a filing of the pricing pressure and the mix between volume and pricing? Thank you. Okay. So the first question was on the U. S. So U. S. Where we have very nice growth on BioFire. For the West, with the dynamic in North America, I would say maybe the impact has been a slow start in terms of equipment, Obviously, not only in America, but I think Q1 has been a slow in term of equipment. We rather see it as a delay or postponing if it's too early to say if it's going to be a trend or not. And we believe it's mainly slow Q1 on the placement on the installation and selling of instruments. Otherwise, the demand impact in the U. S. On the dynamic of the U. S. Is coming from the price pressure we have on PCT on the ImmunoSA. I would say this is the main factor. Then to be assessed in the food season lower than last year, also a global impact on the dynamic. That's to be assessed on the microbiology front. But that's what I can say. Regarding industry, if you look at the performance of industry, it's also a slow start in term of equipment. But when you look at the reagent growth, we are on a worldwide level. We are around 7.5%, which I would say is in the high single digit, which is into our objective. So we can see for the instrument ramp up, but the dynamic of the reagent, which is a consumption of our test by the customers is quite okay. The last question was on immunoassay in Europe. Immunoassay, it's not so much a question of price. This is mainly a question, as I mentioned in the beginning, around the lab consolidation in the European part of, I mean, the, let's say, Western or Central Europe. This is why this is happening. And usually, we tend to balance this consolidation in Europe with higher growth in net pay under this quarter. We have been a bit delayed because of one off reasons also, I would say, such as customs and clearance. But a different dynamic in the U. S. And in Europe. Europe is around that consolidation. And in the U. S, this is quite linked to BCT. Okay. Thank you. We will now take our next question from Bill Quirk of Piper Jaffray. Please go ahead. Your line is open. Great. Thank you. Good afternoon, everyone. So first question, I guess, just staying on immunoassay for a moment. I appreciate that the pricing trends are difficult in the U. S. In particular. Any way to think about how long this may last? And I guess what I'd like to think about this is just bigger picture. You tend to have longer term contracts. And so do we need to think about immunoassay being kind of a multiyear negative headwind in the U. S? I wish I knew, but the thing is still the prices are still decreasing. It's not a cliff. It's a steady, I would say, a decrease of price. The thing, as we mentioned to you in the past, we believe that the PCT market is still growing in the U. S. And still the test is not used, I would say, we believe at its right level, at its right recognition, which is a growing market. But no, I cannot tell you at this stage, we are working on developing also our business on BYDAS with all the type of customers, maybe not the bigger labs, but this is things we are keeping on promoting as well as API. So we are assessing the market, I would say, but we are fighting with others also to prove the recognition of PCT, which is still unutilized, we believe. Understood. And then just on European trends European market trends, excuse me. Is there any way, Alex, you mentioned obviously a slow start to the year. Is there any intra quarter commentary? In other words, did we see any improvement as in the business as we headed into March or even perhaps in April? Or was it fairly consistent throughout the quarter? I need to remember that. No, I think to be frank, it's good to see Q1 and Q1. I'm not sure we can only differentiate different trends between January, February or March. Let's say, it's just it looks like a slow start for the industry. Understood. And then just lastly for me, just thinking about some of the positive coverage decisions within the commercial payers that you mentioned concerning both respiratory and GI. Certainly, we track that as well. Curious, are you having maybe you can help us think about the number of discussions that you're having with some of the other commercial payers? Should we expect more positive decisions in the coming quarters concerning specifically respiratory and GI within the commercial insured population? Thank you. We find that this is not exactly in our hands, but what we do since the beginning is to promote the value of a syndromic, not only the medical value, but also the economical value for the hospital, for the lab and for the patient. And I believe that we have stepped to this type of a HEOR approach, but we are not the one to take the decision. We can only keep on doing what we do is promoting the value of syndromic. Understood. Thank you. Thank you. We will now take our next question from Mike Ruzek of Berenberg. Please go ahead. Your line is open. Hey, guys. Thanks for taking my questions. Just a couple from me on BioFire, please. Firstly, I appreciate it's still early with the pneumonia panel, but I was hoping you could give some sense of what the uptake has been there thus far? And did it contribute to growth at all this quarter? And secondly, I saw at ECCMID last year, you did a presentation with and joint panel. I was wondering if that is progressing and if so, when you think that may come to market? Thanks. Your question around Ploominets that we launched Ploominaya in Q3 or Q4, I believe. At this stage, we still believe it is a very, very sophisticated panel in a nice way, and because of the provide, I would say, very rich information in terms of viruses, bacteria, resistance. So it's a soft launch, I would say, at this stage. And it's got a very good recognition within the medical hospital community. Now we have to keep on doing our efforts on generating, I would say, real life evidence of the clinical value with Key West. We still believe that pneumonia will be a strong seller, I would say, for BioFire. It's going to take time because of its sophistication, if it is under U. S. Well, I don't know. So we need to do some mitigation on it. That is very, very promising. But at this stage, it's a very, very limited impact on the growth of Q1. Sorry, the second question was around the PGI. PGI. And I look at Sylvain, we know the PGI is the next one, but did you give a date? A date. No, sorry, we don't give it a date. So still in development. We have not disclosed yet any loan state. We will now take our next question from Maja Pakee of Kepler Cheuvreux. Please go ahead. Your line is open. Yes. I'd like to have 2 follow-up questions. First of all, can you give us an update on what you see in the competitive environment for BioFire? I believe that the QIAGEN instrument hasn't really made any inroads, but what do you see from other players in the U. S. Like GenMark or on another note, Accelerate Diagnostics? Do you hear anything from your customers? That will be question 1. Okay. More for them to comment and so then for us. But today, we, I think, are still in the implementation phase, understand. But we don't see them so much. Regarding the other competition in syndromic, we know it's coming. It's very, very attractive space. To be frank, I have not seen the recent result of GeneMark. They're not published yet. On QIAGEN, I think they've announced that they should have an FDA filing or approval in terms of Q3 or Q4 in the U. S. So we are watching them. But to be frank, it doesn't really change. We know that more competitors will come. We believe there is room for more also. The idea we keep is the same idea is to keep developing and I would say owning the syndromic space through next generation of parallel improvement of the instrument. We do keep having the same strategy. We want to keep on leading the rest through our R and D and our commercial investment. Okay. Great. And then just a quick question on Nephrochek and where are you in the process of having Nephrochek running on Vydas? So R and D work at this stage, we start filling the Nephrotech test on the Astute reader today. But it's still in development for Vydas. And I don't know if we gave a date around this one. And it should be around during 2020. Okay, great. That's very helpful. Perfect. Thank you. Sometime in 2020. We will now take our next question from Bill Quirk of Piper Jaffray. Please go ahead. Your line is open. Great. Thank you. Just one quick follow-up for me. You had an announcement back and I think it was late 2017 about an arrangement with Banyan Diagnostics for a concussion immunoassay marker. I'm just curious where we are with this particular product. Is it on market? Kind of what the trends have been? It certainly strikes us as being fairly novel. Thank you. Yes. No, it's not on the market. It's on development. Also the idea is to put it on the Vida's platform. This marker is for detection of traumatic brain injury, but still R and D work. Understood. And any comments on when we might see that reach the market? I gave a date for ATI. It's already a lot from we don't give a date yet Bavena. Understood. Thank you. Thank It appears there are no further questions via telephone at this time. I would like to turn the conference back to you for any additional remarks. Thank you, John. Thank you to all of you for participating in today's call and for your questions. So our next formal release will be for the first half of 2019. It will be on September 4th with a webcast to present those results. By then, we remain at your disposal if you have any questions. And of course, we are looking forward to meeting with you in the next conference or road show by September. Thank you very much. Bye bye. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.