Good day, welcome to the bioMérieux Q3 2018 business review conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Sylvain Morgeau . Please go ahead, sir.
Thank you very much. Good day, everyone, thank you for joining us to review bioMérieux's performance for this third fiscal quarter of 2018. As usual, I'm on the line with Mr. Alexandre Mérieux, Chairman and CEO, and Mr. Guillaume Bouhours, CFO. Alexandre will start this call by a short introduction to give you his main takeaway messages about the quarter, most of the call will be dedicated to the Q&A session. Before I hand the call over to management, please note that this conference call will include forward-looking statements.
I would like to remind you of the usual disclaimers in 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 2017 registration document, including but not limited to economic condition, financial exposure to currency exchange fluctuations, change in government policies or regulation, third-party reimbursement policies, timing of the onset, length, and severity of flu season and competition. Accordingly, we cannot give any assurance as to whether we will achieve these objectives. bioMérieux issued its press release related to the third quarter of 2018 business review this morning at 7:00 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 that the replay will be available on the website www.biomerieux.com shortly after the call. With this, I'll hand the call over to Alexandre Mérieux.
Thank you, Sylvain. Good day to everyone. Let's start with a few words on the quality performance of bioMérieux. Again, it was a strong performance, which was recorded during the third quarter with sales of EUR 580 million, up 8.8% on an organic basis. These solid results were primarily driven by the sustained increase in BIOFIRE sales and a solid quarter in Asia Pacific and in Europe, Middle East, Africa. Let's get into more details on these three drivers. Starting with BIOFIRE, where sales increased 38% as compared to Q3 2017. Still by the solid extension of internal sales that represented 17% of total sales and by the same result in the U.S. as well. After nine months, the growth of FilmArray reached about 40% on an organic basis.
The continuous development of the installed base drove 600 additional units over the quarter, out of which about one-third were outside of the U.S. This expansion allows to display a global install base of 7,600 FilmArray units throughout the world. All panels continue to grow healthily, in particular, GI and Meningitis. The next panel to be launched will be the Pneumonia Panel that has
Sorry, we've been cut.
Sorry for this. Okay.
Sorry for this, we go on.
I didn't touch anything. Okay, I stopped with BIOFIRE. I come back with Asia Pacific, where the growth of the region was mainly supported by India and Southeast Asia, with China recording a slightly lower growth than in previous quarters, which were partially stronger. After nine months of activity, the region is growing in the mid-teens, which is very satisfactory. We believe that Asia Pacific is a very important region for the future growth of bioMérieux, hence the importance to strengthen our position in this area of the globe. In EMEA, the breadth of portfolio allowed to perform well in many areas, particularly in Russia, Middle East, and Africa, up more than 30% in this sub-region, where we do not expect it to be recurring in Q4. Before switching to Palmetto, I would like to get back to global numbers for the quarter and to the FX impacts.
As anticipated, the revenues reported in EUR are still impacted by a negative FX effect in Q3, but to a much lower extent than in the previous quarter. bioMérieux recorded an EUR 8 million negative FX impact in Q3 against EUR 83 million on the first half of the year. After nine months of activity, sales growth reached 9.8% on an organic basis and 4.5% when reported in EUR. We still need to grow our sales by about 8% against height comparatives in Q4 of 2017 to reach the targeted growth for the full year. Aside from sales results, we also wanted to comment on the recent change of status of the Local Coverage Determination from Palmetto. As you are all aware, Palmetto, a Medicare administrative contractor, issued last September a final non-coverage policy for high multiplex molecular tests for viral respiratory infections in outpatients.
Palmetto did not take into consideration the comments from us, from medical societies about the needs and benefits of high multiplex syndromic panels in certain populations. It appeared that Palmetto was not convinced that the use of larger respiratory panels allows better-informed treatment decisions and finally improves patient outcomes. We will continue to emphasize the medical value of syndromic testing, the many positive public health impacts this testing brings to patients and hospitals, and the solid reimbursement still available. Indeed, the reimbursement allowed by Palmetto on viral respiratory test will be about $140 per test. This rate would be applicable to larger viral panels as well. You have to know that FilmArray RP panels include 3 to 4 bacterial targets, which are still being reimbursed in addition. This will lead to a total reimbursement of between $260-$300.
We would like also to remind that the majority of FilmArray tests are run on inpatients, where the cost of the test is covered under a DRG payment. We have this decision is applicable to Medicare outpatients only. We remain convinced that syndromic testing is a major breakthrough in the field of infectious disease diagnosis. On bioMérieux, we continue to promote this approach. Beyond pure viral infections, the FilmArray respiratory panel allows to differentiate viral to bacterial pathogens, to detect co-infections or secondary bacterial infections, and can play a crucial role in ensuring the right usage of antibiotics. Syndromic testing has become a standard of care in infectious disease and is a very relevant medical solution for certain patient populations. As a consequence, bioMérieux intends to continue to lead this fast-growing market with FilmArray that has unique features to remain the reference in the market.
With this, I propose to move on to the Q&A session. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Again, please press star one to ask a question. We will now take our first question from Romain Zana of Exane. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. The first one will be on Palmetto. First, when do you expect this new regulation to really impact your business? That's the first thing. Second, to make it clear at this stage, do you expect some sales to completely, let's say, a proportion of your revenue to vanish? Or do you expect, let's say, the bulk of it to remain valid under the new reimbursement that you have just mentioned?
Okay. First question is when it will be applicable by mid-November. This is what I think Palmetto has said, even if meanwhile we have the time to come back proposing, I would say, giving our medical and outcome studies promoting the value of syndromic. Regarding expectations, today, it's quite recent news, I would say. What we can say, maybe, Guillaume, is to talk more about what is the direct population, which is potentially impacted, knowing that this is only for outpatients which are covered by MAC.
Yes. Exactly. To clarify for everyone, the targeted population, you know that FilmArray is about almost 20% of our global bioMérieux revenues. Of course, Palmetto only covers for U.S. patients, first thing. Second, the decision is on the FilmArray RP, which is a part of our offering. Of course, most important, as Alexandre mentioned, this is only targeting outpatients testing, which are estimated to be about 20%-30% of the RP test today. Finally, of course, Palmetto applies to a number of Medicare jurisdictions. So even including, let's say, all Medicare patients that are outpatients for RP in the U.S., we have a targeted population which is below 2% of bioMérieux revenues.
Okay. Sorry if I was not clear in my question. I was not really speaking about the exposure, but rather about the lapse behavior that you are anticipating. Do you think that the new reimbursement will be still enough for them to continue performing RP? Or do you think that the incentive, let's say the economical incentive for patients will be too low?
I think for inpatient testing, which is the vast majority of the patients.
For outpatients.
For outpatients. We believe that the fact that the decision is on the viral panels, I mentioned that we have bacterial targets within the FilmArray, which is the beauty of it. I think we believe that this will still be covered. We believe that reimbursement should be $ 260, $ 300. I think it gives still a good potential to be used in the hospital for the outpatients. Also, we have the need to wait for the perception, but I think our job and our mission is to defend syndromic, which we'll keep on doing because we really believe in the medical and the economical benefit of this solution.
Okay. Thank you very much.
We will now take our next question from Bill Quirk of Piper Jaffray.
Great. Thank you, good afternoon. Staying on Palmetto, I guess two questions, Alexandre. First is, do you expect to see other private payers follow Palmetto's lead? Certainly, there appears as if there's some interest from the commercial payers. Secondly, concerning the inpatient versus outpatient difference, we certainly appreciate that the majority of your business is inpatient. However, are you suggesting that you're going to have two different pricing tiers for a hospital? That seems a little strange. I would think that most hospitals would negotiate a single price on the assay, irrespective of whether or not the testing is done on an inpatient versus an outpatient basis. Thank you.
No, I forgot the first question. Sorry.
Impact from commercial payers.
The impact. We believe that, yes. I think Palmetto today covers seven states. We believe that it's likely that some of those might follow this recommendation. To your second question, no, we will defend the syndromic value with one pricing policy, whether it is for inpatients or outpatients.
Got it. Thank you.
Thank you.
We will now take our next question from Hugo Solvet of Bryan Garnier. Please go ahead.
Hi. Hello. Three questions. Please, still on Palmetto, what's your view on the reimbursement pressures that could roll into the inpatient setting? Second, on the immunoassays, could you comment on the decline of manual rapid tests, and should we expect it to be temporary? Could you just give us an idea of the contribution of these tests to the turnover of the division? Third one on Asia. Could you share some numbers or at least qualitative comments on China? You had a pretty strong start into the year, and I was just wondering what could drive the slowdown in the country in the third quarter. Thank you.
Okay. First question is on the view on the reimbursement on the private-
Inpatients
inpatients. As I mentioned, I think we are under DRGs. DRGs, Diagnosis-Related Groups, which is a way a lump sum of money, which is allocated to follow a patient from a diagnosis to treatment. Hence, I would say the cost or the value, I prefer the general rate embedded in how we treat the patients. At this stage, we don't see more pressure on that front, as long as we keep on promoting and defending the value. Your-
Rapid test?
Yeah. Rapid test. Is that right, Guillaume? Okay.
Yeah, rapid test, if you will, is a very small product line. It's actually lower than 0.5% of total group revenues. Really very small, not a strategic line, I would say. We had a high reference of comparison last year. We saw tender offers that were won last year in the first nine months of the year. Actually, that's why we have a big decline this year.
Regarding Asia or China. I prefer to see the nine months view, where we display a growth of about more than double-digit. For us, I think the standard, the trend are good in China, we believe we'll be able to work and sustain a double-digit growth. I would say no major thing to comment around this quarter.
Okay. Thank you.
We will now take our next question from Maja Pataki of Kepler Cheuvreux. Please go ahead.
Yes, good afternoon. Thanks for taking my question, and apologies in advance if it's a bit loud. Alexandre, I was just wondering, you've highlighted or you outlined to us the additional bacterial pathogens that you have on the panel, which should generate additional reimbursement. Do you think that the procedure to get actually reimbursed is going to be complicated and represent a hurdle for labs? Then, the second question was more clarification. Did you say that you expected commercial payers to actually follow a Palmetto decision where it is applied? Thank you.
Okay. I'm going to ask my neighbors to make sure I understood the first question.
First question is about the way to get this additional pathogen into additional reimbursement. It's actually very simple. It's included. It's already applied by a number of our customers.
Yeah.
It's not new. It's just the way it works already today. Would you understand a code for viral and additional codes for the bacteria that are in the panel as well?
Okay.
Your second question. Some private payers may also move into this direction. However, many of the commercial payers have already reviewed and implemented positive reimbursement policies for FilmArray. At this stage, we'll have to follow, of course, but at this stage, we don't see a shift.
Just a follow-up. With regards to GI, do you believe that there will be a same pattern? Basically, will have a major cut in the reimbursement, you will have some bacterial or fungal pathogens that will allow for additional reimbursement?
We know they will comment also or give a decision around the GI, we have, at this stage, not received any updates so far on the LCD related to GI panels. It's difficult to-
Okay
anticipate.
Thank you.
Thank you.
We will now take our next question from Michael Levecquier of Berenberg.
Yeah, guys. Thanks for taking my questions. Just a couple from me. One, can you give us any update on the Pneumonia Panel? I was just wondering if you heard any new updates in terms of regulatory there and how that's moving forward. Second, just so I can be clear, in terms of the commercial payers as well as Medicare contractors, you anticipate other Medicare contractors will follow Palmetto's lead as well as other private insurers. I just ask that because if private insurers are paying across in and outpatient, it does seem strange to me that they would agree to a dual pricing environment, if you will.
No, to your last question, we expect other Medicare, other MAC, other Medicare administrative contractors to most likely follow. That's what we expect. We don't know, but we believe it's likely to happen. Only for Medicare, not for the commercial payers. Regarding pneumonia, it has been submitted to the approval in April. We are waiting for the feedback from the FDA. We believe it's a nice panel that has a lot of medical value also, with some specific, I would say, also can be quantitative. We have good expectations. Now it's in the hands of the FDA.
All right. Thanks.
Okay.
We will now take our next question from Romain Zana of Exane. Please go ahead.
Yeah, thank you. Me again. Some follow-up question. First one on immunoassay. Can you give, please, the breakdown between PCT decline and the rest of the business for the quarter? Also a question again on Palmetto, I'm sorry, but would you plan to have another version that could become available for outpatient labs with a limited number of pathogens for RP in order it can better fit, let's say, the newer regulation, or it's not in the plan?
Regarding your last question, no. At this stage, we keep on promoting the current value and the current syndromic approach, which we believe has the benefits, medical and economical benefits. At this stage, no intent to develop a specific panel. Maybe Guillaume on the PCT question. Yeah. Regarding immunoassay and the VIDAS range, which includes the PCT test. The trends are very similar to what we already explained in H1, very similar in Q3, but I will restate them. As everyone knows, we have a pretty significant competitive pressure with the pressure on prices in the U.S., so downward average selling price. Yet we are able to continue to grow our volume in the U.S. The net of the two remains negative price volume-wise in the U.S. Overall, we are growing in other regions in PCT, especially very strong growth in China.
I can state that overall, globally, the VIDAS reagents remain positive, low, but positive revenue growth.
Okay. The PCT decline especially, is it a low single, mid single, high single?
In the U.S., it's high single digit revenues-wise. Globally, it's flat overall for the PCT test.
Okay. Thank you very much.
We will now take our next question from Delphine Le Louet of Société Générale. Please go ahead.
Yes. Hello, good afternoon. I just need a clarification regarding the impact of the Palmetto. Could you say again the 2% was U.S.-driven, all outpatient under managed care, or just the Palmetto?
Let me restate. We take the full revenues. The FilmArray revenues are about 20% of bioMérieux revenues. Of course, from this, we have to take only the U.S. Palmetto is, of course, a U.S. target. Only RP panels. Of course, among these tests, only the outpatient, which we estimate with about 20%-30% of the test being done. Then, of course, the Medicare coverage on these outpatients. Even including what we say might be the medium term or maybe conservative, that all Medicare jurisdiction, were to potentially follow Palmetto, it remains with all these, let's say, targeted population, it remains less than 2% of bioMérieux Group revenues as a target.
Okay. Perfect.
Okay?
All right. Thank you. Yeah. Thank you very much. A follow-up question regarding Europe situation and particularly in Western Europe. Do you have any specific commercial activity to be made in Q4 or at the beginning of next year to revamp a bit the sales growth in these countries? Secondly, can we have an update regarding NephroCheck, where we are in terms of regulatory process, everything? Thank you.
No event being in Europe. So far, we're having a good growth, I would say, in Europe, when you compare also to the previous figures three or four years ago. I think we displayed a 7.5% growth.
Talking about just Western countries.
I think this is on track with our-
Yeah. Okay, same.
This is on track with our expectations and with our budget at this stage.
With two drivers of growth in Western Europe that we can mention, beyond of course, the core business, which is slowly growing because we have high market share. It's a mature market. We have two drivers of growth. One is FilmArray, which expands fast in Europe, the second one is industry applications, where we are really successful and we see the test being made more and more by our customers in the food and pharma industries.
Okay. Regarding Astute, I think we finalized the acquisition at beginning of Q2 this year. Also we are on track, today we start to promote the selling of a solution on a platform called the Astute140 Meter. It's a lot of work we have to do around also, say, medical education promotion, knowing that the end game for us is to develop the AKI test on the VIDAS platform. Before we have this, it's a lot about market education, medical studies and working with physicians. It's a ramp up, but our expectations will be higher in the three years.
Thank you.
Thank you.
As a reminder, if you would like to ask a question, please press star one. We will now take our next question from Bill Quirk of Piper Jaffray. Please go ahead.
Great. Thank you. Two follow-ups, if I may. First is, can you remind us your average contract length for immunoassay and BIOFIRE? I typically think of these as three- to five-year deals. Secondly, concerning your full year guidance, there wasn't a reference to it in your press release. Are we to assume that the previous guidance remains in force? Thank you.
Yes. The first question, I think contracts, your rate, I think is, yes, is three years or more. I think it's around three years. You are correct. No, we didn't change compared to the last guidance that based on the Q3 results. We believe we should meet the financial result that we have announced.
Very good. Thank you.
Thank you.
We will now take our next question from Philippa Gardener of Jefferies. Please go ahead.
Oh, hi. I just wanted to follow up on Delphine's question regarding the impact. If you were to expand that to also include the GI Panel, what would that number then be if you were to include the GI Panels in that group of patients?
We are still waiting for potential draft decision from Palmetto. No, I don't think we have this in our hands at this stage, Guillaume. No?
No. I think we can comment when the Palmetto potential LCD of GI is out. Yeah.
Okay. Thank you.
As a reminder, please press star one to ask a question. There are currently no questions in the queue at this time.
Okay. Thank you very much to all of you for participating to this call and for your questions. Our next formal release will be on February the 27th, with a physical meeting and a webcast for the bioMérieux annual results for the year 2018. Thank you again to everyone. Have a great day.
Thank you.
Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.