Earnings Call: Q1 2018

Apr 19, 2018

Earnings release

Good day, and welcome to the BioMarro Q1 2018 Business Review Conference Call. During today's conference call, all lines will be in a listen only mode until the question and answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Sylvain Morgot. Please go ahead, sir. Thank you very much. Good day, everyone. Thank you for joining us to review BioMarriott's performance for this 1st fiscal quarter of 2018. Today, I'm on the line with Mr. Alexandre Merriault, Chairman and CEO as well as Mr. Guillaume Bruur, who joined as the Chief Financial Officer since March. Alexandre will start this call by a short introduction to give you its 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 this conference call will include forward looking statements. 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 environment and notably those that are described in the 2017 registration documents, including but not limited to economic condition, financial exposure, the 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. And accordingly, we cannot give any assurance as to whether we will achieve these objectives. BioMarriott issued its press release related to the Q1 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 a replay will be available on the website, www.biamario finance.com. And with this, now I will hand the call over to Alexandre. Thank you, Sylvain. Good morning and good afternoon to all of you. I would like to start the call by highlighting the good performance of BioMarriott in the Q1 as we've added an organic growth of 12.5%. On a reported basis in euros, sales growth reached 3.4% impacted by about 900 basis points of negative FX impact effect. And as expected, the U. S. Dollar accounted for most of the impact. Before leaving time to more interaction with you through Q and A, I would like to cover 3 main topics relevant with this Q1 and relevant for the future of the company. First one being Molecular Biology and BioFire, second being Asia Pacific and the third being about immunoassays. So let's start with Molecular Biology. So the strong flu season we have experienced this winter has obviously driven a higher demand for respiratory panels and we have been able to serve existing and new customers during this period. This performance is reflected in the numbers as the BioFire sales reached €130,000,000 in the quarter, up at a fast pace of nearly 50% organic on a solid basis of comparison. It is also interesting to note that the growth was obviously driven by RP panels for the reasons we just discussed, but also by all the other panels of the funeral menu, GI, meningitis and BCID did all very well, growing even faster than the RP panel. It highlights the importance of proposing a large and adapted menu to the hospital and labs that are adopting the single link approach. On the instrument front, the installed base continued its rapid expansion and now it's close to 6,700 instruments with a strong growth in the U. S. The international deployment of the Biofaire range also continued in a healthy way, and the sales outside the U. S. Represented 13% of total sales as compared to 10% at the end of last year end of Q1 last year. In terms of innovation and pipeline, we announced that the new pneumonia panel has been filed to the FDA in April, in line with our plan. It is our most advanced panel to date, and it carries a strong medical value with 33 targets in about an hour with 15 targets reported with the quantitative information. We believe there will be a strong interest for Plinabulin in the hospitals as most of the time doctors are unable to pinpoint a specific cause of pneumonia. Therefore, more sensitive, fastestness to identify causes of pneumonia and to promote better treatment brings and to promote better treatment will bring medical value. As a word of conclusion, BioFire continues to provide exciting growth perspective for the group, and we follow our path to make BioPhire the industry leader of molecular syndrome testing. As a second topic, let us move now to Asia Pacific as we are also very satisfied with the performance of this region. After a 5% growth in Q4 of 2017, the Aspect region recorded a 25% growth in Q1. And the uptake of sales was mostly driven by the strong progression of region sales from all strategic ranges in most countries. Except Japan, which was expected due to the end of our distribution model, all countries delivered a sound performance and in particular China, India, Southeast Asian countries and Korea. Growth was notably strong on the immunoassay range with VITAS high medical value markers such as PCT or KADEC markers performing well, supported by a more moderate but still very decent mid teens growth on routine assays. Microbiology also reached a noticeable growth during the quarter with sales up double digit in VITAC, ACTT and Culture Media. And the impact of Fumarate becomes visible with strong performance such as in India, driving up the molecular sales for the region. Even if Asia Pacific is characterized by the certain volatility quarter on quarter, we believe that this region is a strategic area for the future as PAC counts for more than half of the worldwide population with the important unmet medical needs related to infectious disease. I would like to end this formal comments talking about immunoassays and more particularly about the recent acquisition of Astute Medical. This company has really impressed our team in the way they discovered, developed, registered and built scientific and medical evidence for the use of novel biomarkers for the risk assessment of acute kidney injury, ATI. Today, about half of ICU patients develop ATI, which apart from an increased risk of mortality, increases also the total patient cost. The available solutions come too late to help prevent kidney damages, hence the need of a predictive diagnostic test for all those patients. The nephrotect test, Novoasto, is a strategic move for BioMarriott. It perfectly fits BioMarriott's objective to differentiate like that through proprietary markers, also ambition to provide high meaningful value contents to our customers. So we are very enthusiastic about the future business opportunity associated with this market. So as a conclusion, Bioneer was again able to deliver very solid commercial performance this quarter and Varelle was able to invest for the future of the company with the future loans of our deployment panel and also with the acquisition of Astute for the benefit of our patients and of the EASA franchise. So, Mr. Kavijun, I propose we move on to the Q and A session. Thank Our first question is from Peter Welford from Jefferies. Please go ahead. Hi. Yes, thanks for taking my questions. Apologies, I joined a little bit late. I wonder if you could tell us maybe you may have said this, what the number of placements were of the Filmer Ray instruments in both the U. S. And ex U. S. Regions during the quarter. And so what the year the so 31st March end number of film array instruments is. I wondered also if you could possibly give us the contribution you think from the flu season. It was obviously a more severe flu season. But can you sort of perhaps give us a magnitude of how much you think the incremental benefit was, if possible? I appreciate you may not be willing to do that. And going on to biodefense, could you possibly disclose what the sales of the biodefense business were in the quarter? And then could you just comment a bit further on Vydas? The tone of the commentary in the press release suggests that the trend there is somewhat slowing for the high medical value tests that you're there. I appreciate the headwinds, obviously, you're facing from competition in the U. S. But could you provide any more insights into the dynamics you're seeing in that business line? Thank you. Okay. So we'll try to answer to the 4 questions. So the first one, the total reserve base now of the FINRA instrument is close to 6,700 instruments, which is a nice take compared to the last figures we communicated in Q4. We also said that now we have in Q1, we have 13% of the sales, which are done outside of the U. S, which is higher than what we had at Q1 at the same time last year. Clearly, the flu season helps, we believe, in the growth of BioFire. Difficult to quantify really the impact as it's we are on a growing phase with Finnair. But as I mentioned also during my call that RP clearly grew, but it's true also that the other panels grew quite well also and sometime at a faster pace than RP. So yes, I believe like our competitors, we benefited. So it is a result from the an intense flu season. Difficult to quantify exactly, but it's a good start. It's a good Q1 for us. The sales of biophiles defense on the Q1 were at USD 5,000,000. Your other question was around the PGP, I guess, in the U. S. But let's say, if you globally have immunoassay in the Q1, on a worldwide basis, we grew quite well in the immunoassay franchise. Asia Pacific was a key contributor of this growth. And in the U. S, as I've mentioned, yes, we are facing tougher competition with an impact on the ASP, while the volume of test of PCT is still growing for us in the U. S. Amal, for any question? That's great. Thank you. I'll jump back. Thank you. We have another question from Seb Alsheff from RBC Capital Markets. Please go ahead. Hi there guys. This is thank you for taking my questions. Apologies, I'm joining the call a bit late. I was just late for the call. I was just wondering, can you I have a number of questions. Just wondering, can you brief me on the clinical trial data for the pneumonia panel that I thought they released this morning on the specificity and the sensitivity that you saw in the clinical trial? And also, how many sub DCS does the do the 18 bacteria cover? And what is the speed to answer of this panel, like from the time for sample 2 answer? Yes, it will be helpful if you could give me a bit of detail here. Yes. I won't deep dive too much into the technology of the test, but we announced today that we filed this panel or it's not FDA approved yet. It will take some time to get the FDA review. Now we mentioned it's a we believe that it's a high medical value panel because as I mentioned, I think most of the time, it's difficult for the doctors to pinpoint the right treatment, meaning to pneumonia. So the benefit we have with this test the fact that it's quite comprehensive, right? So 33 targets, time to result in the 1 hour range. And the beauty of it is also it's working on different type of samples such as specific information to come on the I'm sure, I would say, communication. Yes. As you know, the ECCBID Congress, which is the European Congress for infectious disease in the next few days and we will entail some data around the pneumonia panels at Acmead. So there will be some detail in those coming days. Okay, okay. Okay, Paul. Paul. Just one more question, if I may. Is the preliminary panel, do you have CE mark already? No, not yet. We are preparing this one also. Okay. Okay, great. Can I ask one more follow-up question? Sorry. I understand that the obviously, you include bacteria, resistance markers and viruses as well. Normally, people say that the majority of LRT infections are caused by like bacteria and fungus. Can you provide me a little bit of information on why you included the viruses as well? Because we felt it because we know that it has a medical relevance. But what I can say, but in case you come back, I think there will be more communication or whether digital, telecentric communication around this maybe in a different setting than this call. Okay, perfect. Okay. Thank you very much. Thank you. Our next question is from Peter Welford from Jefferies. Hi. Sorry, just one quick follow-up. On the Astute Medical deal, I think you mentioned in the press release that there could be a 60 bps impact on the you contributed the EBIT target for the year. Just curious, is that a 60 basis point impact potential on the margin? Or is that a potential 60 bps impact on the absolute number? And on that, to comment, I guess, why haven't you changed your outlook for the full year based on that deal? Is it because it's yet to close? Or do you think that there are other parts of the business that could somewhat mitigate the impact of the Astute Medical acquisition? Thank you. So yes, we did mention 60 basis points impact for the year from this acquisition. As you understand, this acquisition is still in development mode, especially for the automated version of their necro check test. That's why there are still significant, let's say, cost to there in this development phase. The 60 bps, just to clarify, is the impact on the Global Group, Dunoyer Group margin, contributive operating margin, I mean. And this is compared to our earlier guidance, which was €325,000,000 to €345,000,000 of contributed EBIT. So in I'm not sure you it was fully understood, but we did actually change with this announcement our guidance. Right. That's great. Thank There are no questions in the queue at the moment. We do have another question from Hugo Solvay from Bryan Garnier. Please go ahead. Hi, hello. Thanks for taking the question. On the strong contribution from Asia Pacific and what seems to be an increased utilization rate here, can you give indication on the trend that you expect for the remaining of the year? And if any ordering pattern impacted Q1 sales to the point of offsetting a weaker Japan actually? It was a strong Q1. That's for sure. I believe that the performance of Asia Pacific in 2018 will be, I would say, maybe in the same range as what we did a lot last year. So it will be we keep growing the momentum of the company in this region. The growing. Yes. We are fettled by, I would say, our investment and the fact also that I mentioned there are still a lot of unmet clinical leads there where BioMarriott is well positioned to take the long term position. Japan? Igor, you had a question you had a specific question on Japan? Not specifically, just putting it back in the context of Asia Pacific. But if you just follow-up on the answer you just gave. If we're supposed to end 2018 at around the same growth rate as last year, it means that Q1 has definitely been impacted by strong ordering, which country might have drive this increase then in Q1? Or which specific instrument? No. China was great in this Q1. But then again, it's 1 quarter round. So there was a bit of a volatility we're seeing there in the region. But all in all, the trend in Asia Pacific is quite good and in line with our expectation and in line with the adjustment we have done in the region. Okay. Thank you. Thank you. Our next question is from Christophe Genet from ODDO. Please go ahead. Hello. Good afternoon, everyone. Thank you for taking my question. Actually, I have 4 of them. Maybe I'd like to hear you about Brazil. Do you think that we shall expect an impact of the change of your software on Q2? Or is it fully temporary and completely passed after this Q1? The second question relates to Europe. Do you see in the reasons that does explain the trend on the Q1, a reason for changes so that we shall expect acceleration in Europe in the coming quarters? Then the third question would be on the proportion now of the machines, so equipments and consumables on BioFire. Can you provide us an update on these proportions figures? And the last one is related to Japan. Here again, can you provide maybe a little update on when shall we expect takeoff on your sales now since that you have reshuffled your local organization, let's say? Thanks. Okay. So the first question is on Brazil. Brazil, the impact this month for this quarter is linked to the change of ERP system. We believe this is more linked to, I would say, type of an infusing type of issues and not showing, I would say, a change of dynamic for BioMarin in Brazil, even if Brazil is a complex market by itself, quite volatile. For Europe, your question I forgot your question. I'm sorry, acceleration. Europe, I think we should be we have our plan. Fibrillation should be a strong contributor of the growth for Europe this year. As you know, so Medall and Africa, we have done some investment there also, which will show the growth. So too early to tell, but I think we are on track. Consumables on the funeral rate, this is, I would say, the same or like the average of the company. This is evolving. And the good news that we have more and more customers using more and more banners. It was the right direction. Regarding Japan, I think that, yes, we are changing the model. We have announced the end of the JV last summer. And now we are transitioning also to take back the service, which was still in the provided by our ex partner. So we should be on track now to propose a full service and full solution to our customers. There are no questions at the moment. Okay. Maybe still no questions? No questions. Okay. Very good. Thank you all of you for your participation in this call. And our next release will be in July, and so we are looking forward to seeing you in several conferences or several meetings by then. Thank you very much. Bye bye.