Earnings Call: Q3 2018

Oct 18, 2018

Earnings release

Good day, and welcome to the BioMiro 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 Mourjot. Please go ahead, sir. Thank you very much. Good day, everyone, and thank you for joining us to review Berrien Herriot's performance for this 3rd fiscal quarter of 2018. As usual, I'm on the line with Mr. Alexandre Merriault, Chairman and CEO and Mr. Guillaume Bouhour, CFO. Alexandre will start this call by a short introduction to give you his main takeaway 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 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 documents, including, but not limited to, economic condition, financial exposure to currency exchange fluctuations, change in government policies or regulation, 3rd 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. Boumereau issued its press release related to the Q3 of 2018 business review 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 the replay will be available on the website, www.biomario finance.com, shortly after the call. And with this, I'll hand the call over to Alexandre Mario. Thank you, Sylvain, and good day to everyone. So let's start with a few words on the quality performance of BioMarriott. So again, it was a strong performance, which was recorded during the Q3 with sales of €580,000,000 up 8.8 percent on an organic basis. These solid results were driven by the sustained increase in BioPhyours sales and by a solid quarter in Asia Pacific and in Europe, Middle East, Africa. Now 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 full expansion of internal sales that represented 17% of total sales and by the sound result in the U. S. As well. After 9 months, the growth of Fumarate reached about 40% on an organic basis. The continued development of the installed base drove 600 additional units over the quarter, out of which about 1 third were outside of the U. S. This expansion allows to display a global base of 7,600 funeral units throughout the world. All panels continue to grow healthily, in particular GI and meningitis. The next panel to be launched will be the pulmonary panel that has Sorry, we have been cut. Sorry for this. And sorry for this and we can't go on. I didn't touch anything. Okay. So I'll stop the risk profile. And I'll come back with Asia Pacific, where the growth for the region was mainly supported by India and Southeast Asia, with China reporting a slightly lower growth than in previous quarters, which were partially stronger. After 9 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 biomerium, 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 euro are still impacted by negative ForEx effects in Q3, but to a much lower extent than in previous quarter. BioMarriott recorded €8,000,000 negative ForEx impact in Q3 against €83,000,000 on the first half of the year. After 9 months of activity, sales growth reached 9.8% on an organic basis and a 4.5% when reported in euros. We still need to grow our sales by about 8% against tight competitors in Q4 of 2017 to reach the targeted growth for the full year. So aside from sales results, we also wanted to comment the recent change of status of the local coverage definition from Palmetto. As you are all aware, Palmetto, a Medicare administrative contractor, issued last September a final non coverage policy for high multiplex molecular test 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 appears that Pareto 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 impact this testing brings to patients and hospitals and the solid reimbursement still available. Indeed, the reimbursement allowed by Panmato on viral respiratory test will be about $140 per test. This rate would be applicable to large viral panels as well. You have to know that Finlare RP panels include 3 to 4 back level targets, which are still being reimbursed in addition. This will lead to a total reimbursement of between $2.60 to $300 We would like also to remind that the majority of field rate tests are run on inpatients, where the cost of the test is covered under DRG payments, where this decision is applicable to Medicare outpatients only. We remain convinced that syndromic testing is a major breakthrough in the field of infectious disease diagnostic, and BioMarriott will continue to promote this approach. Beyond pure viral infections, the Filmora 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 solutions for certain patient populations. As a consequence, BioMarin intends to continue to lead this fast growing market with Filmorhea that has unique features to remain the reference in the market. And with this, I propose to move on to the Q and A session. Thank you. We will now take our first question from Roman 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? And that's the first thing. And 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 I think 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, given our medical and outcome studies promoting the value of Syngormid. Regarding expectations, today, it's quite a 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 Filmer Ray is about almost 20% of our global BioMerrier revenues. Of course, Palmetto only covers for U. S. Patients, first thing. 2nd, the decision is on the respiratory panel, which is a part of our offering. And of course, most important, as Alexandre mentioned, this is only targeting outpatients testing, which are estimated to be about 20% to 30% of the RP test today. And 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 BioMarieu revenues. Okay. And 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. I mean, 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 outpatient. For outpatient, we believe that the fact that the decision is on the viral panels and as I mentioned that we have bacterial targets within the funerary, which is the beauty of it. And I think this we believe that this will still be covered. So we believe that reimbursement should be 260, 300. I think it gives still a good potential to be used in the hospital for the patients. Now also we have the need to wait for the perception, but I think our job is to our job and our mission is to defend the syndromic, which we will keep on doing because we really, 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 and good afternoon. Staying on Palmetto, I guess two questions, Algonza. First is, do you expect to see other private payers follow Palmetto's lead? Certainly, their peers as if there's some interest in the commercial payers. And then 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 2 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, no, I forgot the first question. Impact. Impact. Yes, we believe that, yes, I think Palmetto today covers I mean 7 states. We believe that it's likely that some of those might follow this recommendation. To your second question, no, no, that we will defend the systemic value with one pricing policy whether this is for inpatient or outpatients. Got it. Thank you. Thank you. We will now take our next question from Hugo Salvatore 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? 2nd, on immunoassays, could you comment on the decline of manual rapid test? And should we expect it to be temporary? I mean, could you just give us an idea of the contribution of these tests to the turnover of the division? And 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 Q3? Thank you. Okay. First question is on the view on the reimbursement on the private inpatients. Now as I mentioned, I think we are under DRG. So DRG is 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 funeral rate that they did in how we treated the patients. So at this stage, we don't see more pressure on that front as long as we keep on property and defending the value. Your Rapid Test? Yes, Rapid Test in a few words is very small product line. It's actually lower than 0.5% of total group revenues. So really very small, not a strategic line, I would say. And we had, let's say, a big high reference of comparison last year with some tender offers that were won last year in the 1st 9 months of the year. So actually that's why we have a big decline this year. Regarding Asia or China, no, I think it's I prefer to see the 9 months view where we display growth above more than double digit. I think for us, I think that the the trend are good in China, and we believe we'll be able to work and sustain double digit 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 Majav Patiki of Kepler Cheuvreux. Please go ahead. Yes, good afternoon. Thanks for taking my question and apologies in advance, it's a bit loud. I was just wondering, you've highlighted or you outlined to us the additional material pathogens that you have in the panel, which generates additional reimbursement. Do you think that the procedure to get actually reimbursed is going to be complicated and represents a hurdle for us? And then the second question was more a clarification. Did you say that you expected commercial payers to actually follow a POMATO decision where it is applied? Thank you. 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 pathogens into additional reimbursement. It's actually very simple. It's included. It's already applied by a number of our customers. Yes, it's not new. It's just the way it works already today. Would you understand the code for viral and additional codes for the bacteria that are in the panel as well. I think your second question, yes, we some private payers also move into this direction. However, many of the commercial payers have already reviewed and implemented positive reimbursement policies for Filmorets. So at this stage, we don't see we'll have to follow, of course, but at this stage, we don't see a shift. And just a follow-up. With regards to GI, do you believe that there will be a same pattern that basically will have a major cost in the reimbursement, but then 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, but we have at this stage not received any update so far on the LCD related to GI panels. It's difficult to anticipate. Thank you. Thank you. We will now take our next question from Michael Lezicoutier of Berenberg. Yes, 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 had any heard any new updates in terms of regulatory there and how that's moving forward? And second of just so I can be clear, in terms of the commercial payers as well as Medicare contractors, so 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 point, to your last question, we expect all the Medicare or the MAC or the Medicare and executive contractors to most likely follow that we expect. We don't know, but this is more we believe it's likely to happen, but only for Medicare, not for the commercial payers. Regarding pneumonia, it is it has been a strategic steady peak to the approval in April. Yes, so 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. So we have good expectations, but now it's in the end of the Okay. We will now take our next question from Roman Zena of Exane. Please go ahead. Yes. Thank you, Megan. Some follow-up questions. First one on immunoSA. Can you give please the breakdown between immuno between PCT, sorry, decline and the rest of the business for the quarter? And also a question again on Parlemento, I'm sorry, but would you plan to have like another version available for that you could could become available for our outpatient labs with a limited number of pathogens for IP in order it can better fit, let's say, the new regulation or why it's not in the plan? Regarding your last question, no, no. At this stage, we will keep on promoting the current value on the electronic syndromic approach, which we believe has the benefits medical and economical benefits. So at this stage, no intent to develop a specific balance. Maybe Guillaume on the PCT question? Yes. Regarding immunoassay and the virus range, which includes the PCT test, so the trends are very similar to what we already explained in H1, very similar in Q3, but I will restate them. So as everyone knows, we have a pretty significant competitive pressure with the pressure on prices in the U. S, so downward average same price. Yet we are able to continue to grow our volume in the U. S. The net of the 2 remains negative pricevolume wise, so in the U. S. Overall, we are growing in other regions in PCT, especially very strong growth in China. So I can state that overall, globally, the virus reagent remain positive low, but positive revenue growth. Okay. And the PCT decline especially, I mean, is it low single, mid single, high single? In the U. S, it's high single digit, revenues wise. Globally, it's flat overall for the PCD test. Okay. Thank you very much. We will now take our next question from Gelle Le Louet of Societe Generale. 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? Yes. So let me restate. We take the full revenues. The Filmorhea revenues are about 20% of Du merio revenues. Of course, from this, we have to take only the U. S, Palmito is, of course, a U. S. Target, only RP panels. And of course, among these tests, only the outpatient, which we estimate with about 20% to 30% of the test being done. And then, of course, Medicare coverage on these outpatient and even including what we say might be the medium term with or maybe conservative that all Medicare jurisdiction were to potentially follow Palmetto. It remains with all these, let's say, targets targeted population, it remains less than 2% of BioMerieux Group revenues as a target. Okay. Perfect. Okay? All right. Thank you. Yes, 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 that countries in these countries? And secondly, can we have an update regarding NephroCheck, where we are and in terms of processing, regulatory process, everything? Thank you. No, 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 3, 4 years ago. So I think we displayed 7.5%. Talking about the Western, just Western countries? I think this is on track with our Yes, okay, same. This is on track with our expectations and with our budget at this stage. With 2 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, that it's a major market, which we have 2 drivers of growth. 1 is Filmorhea, which expands fast in Europe. And the second one is industry, 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. And regarding Astute, I think we finalized the acquisition at the beginning of Q2 this year. And also we are on track and today we started to promote the same of a solution on the platform called the Astute Meter. It's a lot of work we have to do around, so I would say, medical education promotion, knowing that the end game for us is to develop the API test on the VITAS platform. Before we have this, it's a lot about market education, medical studies and working with physicians. So it's a ramp up, but it's our expectations are will be higher in a few years. We will now take our next question from Bill Quirk of Piper Jaffray. Please go ahead. Great. Thank you. So 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 3 to 5 year deals. Can you confirm that? And then 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. Your first question, I think contracts, your rate, I think, is yes, is 3 years or more. I mean, it's around 3 years. You are correct. No, no, we didn't change compared to the last guidance that based on the Q3 results, so we believe we should be in the we should meet the financial results that we have announced. We will now take our next question from Philippa Gardner of Jefferies. Please go ahead. Oh, hi. I just wanted to follow-up on Delfin's question regarding the impact. If you were to expand that to also include the GI panel, what sort of 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 drug decision from Valmetto. So we 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. 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. And our next formal release will be on February 27th with a physical meeting and a webcast for the BioMarriott annual results for the year 2018. Thank you again to everyone. Have a great day. Thank you. Thank you.