A, B, and C, and look at the total cost of ownership to process a test, whether it's HIV, hepatitis C, TB tests, or cancer screening, whatever you're trying to get done as a lab, where can I make the highest margin spread in terms of the reimbursement against that business? This is a business that where you have big customers like a Quest or Labcorp. You have a lot of regional labs around the world that we're serving. Obviously, our big products here would be QuantiFERON for latent tuberculosis testing. That's approaching $400 million of sales this year, even though we're barely penetrated, only about 35%-40% penetrated alone in the U.S. on that market. We're also a big player in cancer screening, cancer detection, companion diagnostics that help guide treatment decisions for a lot of the big drugs.
There, we have partnerships with literally 25 top pharma companies around the world. And then the third area would be infectious disease testing. That would involve our QIAstat-Dx platform for syndromic testing, as NeuMoDx for integrated PCR testing.
Gotcha. And, sorry, just when you look at those two parts, life sciences versus diagnostics, are both tracking, you know, at the mid-single level for Q4, or what are you assuming?
I wouldn't say for Q4. I would say for the year you see right now on a non-COVID basis, the molecular diagnostics business doing better than the life sciences business. Here, you're seeing the impact of QuantiFERON really taking off. QuantiFERON is, again, the latent tuberculosis test. Remember that there are two forms of TB. There's the active form, where there's about 10-12,000 cases a year alone here in the United States, and then our test is used for the latent detection. And latent TB is a disease estimated to affect about one in four people worldwide. And of those people who have latent TB, about 10% of those will convert to active TB, and that's what's causing the replenishment of the TB population in the world as the efforts to fight TB are increasingly focusing on both latent and active.
It's amazing today that a disease written about in the Bible still is the leading cause of infectious disease death in the world. More people die of HIV, more of TB than of HIV and malaria combined. This is a disease that's getting renewed attention in this post-COVID environment because the COVID pandemic set back the efforts to eradicate TB by at least a decade. So this is a $1.5 billion market opportunity for us. There's about 70-80 million of these skin tests done a year. Everybody in the room has had one. Even your kids have had them going to school. Think about that as a $20 test. Starts to give you a market opportunity, and we're at about $400 million in sales.
So this is a product this year that we have said before has traditionally grown about 10%-12% a year. This year, we're tracking above 20%, so that's really going through a solid growth phase here as we're seeing more and more conversion in a post-COVID environment due to the benefits of our test and also the ease of processing the test with our partner, DiaSorin.
Absolutely. I do want to touch on QPB.
Sure.
But before we get there, you know, you did mention 15% of your portfolio's instruments. One of your peers, I think, recently mentioned book-to-bill, and that, in that part was returned positive or about one. Like, does book-to-bill matter for QIAGEN? Maybe just talk about the macro environment, what you're seeing.
You know, I got to tell you, I wouldn't even know the book-to-bill number for QIAGEN, to be honest. I wouldn't even know where we are in terms of order inventories, because the instruments we're selling range in price somewhere from $15,000-$20,000 for a very small sample prep instrument or for a one module of the QIAstat-Dx system. Our top-of-the-line systems run somewhere around $100,000-$150,000. What we have said, though, is that the higher ticket items, let's say 75 and higher, those, the market for those has slowed down in terms of capital spending decisions or reagent rentals, whereas the smaller instrument placements have been doing better and also for our digital PCR system.
That's due more to the technology upgrade cycle going on, that Digital PCR is really starting to roll out and gain some traction here.
Gotcha. And does your Q4 guidance assume any year-end budget flush? Like, does it matter for QIAGEN?
Budget flush will help us at times with consumables, and some instrument purchases there, but we were not expecting heavy budget flush this year in terms of what we were looking at. We continue to take a more cautious view on the academic spending environment in the United States. Let's see how the discussions come out in terms of where the NIH budgets will land, because there's a fairly big delta between what the Senate is expecting versus what the House wants to do. In terms of the Senate wants to spend more, and the House has been signaling that they want to see budget reductions, if I'm not wrong.
What happens in a flat NIH budget scenario?
I think that's where you're seeing companies in our industry start to guide for lower sales growth rates in 2024. Part of that is taking into account the overall macro environment's becoming tougher, but also more cautious spending trends among customers. We went through that during the sequestration years . We'll have to see how that plays out, but that has. We can sense that in our sample prep business. Sample prep is about a third of the sales of QIAGEN. It involves the kits that we sell, thousands of different types of kits. To be able to get DNA or RNA out of any biological sample, that's the core of the QIAGEN brand. That's where our brand is used as a verb by customers, to QIAGENize a sample.
That's a business where you don't see really consumable stocking trends because we made a mistake in teaching our customers, conditioning them, that we will ship kits to them in 1-2 days around the world. Here's an area where we ship probably easily over 2 million boxes a year. This is a really critical step that customers get the good quality DNA or RNA out of a sample. They're paying usually per sample prep in a kit, somewhere between $5-$15 or $20 a sample. It's not a big-ticket item in the lab, if you think about what a sequencer costs, but it's critical, again, that they get the high-quality DNA, and that's why we show up in more than 20,000 academic research papers a year.
Understood. And just, you know, since you brought up Sequestration, what did the business do back? You know, what did the business, like, grow? Like, did it gain share?
No, we were able to gain market share. We can tend to do better relative to others in a down environment because you need to do sample prep, but it's obviously the water's come down for everybody.
U nderstood. And the other, you know, big picture topic has been pharma. Some of your peers do talk about destocking, but again, like, I think when you say 15%-20% of QIAGEN revenues is pharma, my sense is it's slightly different. Maybe talk about what you've seen in pharma customer base so far year-to-date. How is Q4 tracking?
I can't talk that much about Q4, but I can say that tracking in general has been pretty good with the pharma customers. Remember, again, we're not that big-ticket item, but what you're hearing is that, okay, with the Inflation Reduction Act coming, companies are going out and saying they want to save, they want to save $X billion in terms of procurement costs, then the suppliers are the ones who are going to have to face that. It's a question as is where can you, where can you maximize that? Sample prep, again, is not an area where you see people going penny-wise, pound-foolish.
Gotcha. So would you say pharma is actually growing for QIAGEN this year?
Pharma should underlying for us, should grow.
Gotcha.
'Cause you're seeing underlying QIAGEN, we're expecting around 8% non-COVID growth for the year. Obviously, like everybody else, we're facing massive COVID headwinds. We have rebased that business. This year, we expect around $160 million-$165 million of COVID sales. We were among the first to come up with this category, and I have to say, we stuck with our definition through thick and thin, compared to some of the other companies out there. And that's something that we see, you know, see as very important to build credibility. But I would say we were the company that actually had COVID sales before COVID. Remember that in 2019, we had $143 million of sales from products that were redeployed for use during the pandemic.
QIAGEN was and continues to be the gold standard for the Centers for Disease Control in the US and for other public health agencies around the world, for sample prep in these workflows that they have for pandemic outbreaks. You saw that during Mpox . These products were then redeployed for use during COVID. That number blew up to, I think, the highest peak we had was 200 million in a year, well over 200 million, and now that's come back down. That number has come down this year stronger, more forcibly than people expected at the beginning of the year. If you remember last year, this conference was virtual. We were still in a pandemic environment.
And then sometime during Q1 2023, COVID testing or respiratory testing fell off a cliff, and then we started to see the tougher macro trends come out during Q2 2023.
Understood. I guess the other topic that's come up is, has been China. What is QIAGEN's exposure to China, and how has China grown for QIAGEN?
C hina, for us, represents around 6%-7% of total sales, and we've been in China for many years, and this is a business that's also involves life sciences and molecular diagnostics. The approach we take in China is that we sell the Western brand QIAGEN products into the country, but we also sell through a local brand, where we have a China-for-China strategy, where we produce in China for China, and then we bring in the products. We do not manufacture in China and export out of the country. But obviously, as for every company in our sector and for many companies around the world, China is an important supply chain partner for us .
That's why we've built up inventories of certain products and supplies, so that we can withstand any supply chain shocks that should emerge in this unstable environment we're seeing these days. For us, we see China on a non-COVID business right now as a low single-digit declining business for us. We've been doing fairly well, again, due to the consumables nature of our business and also that sample prep business. We tend to take a more cautious view of the midterm growth prospects in China from a macro environment.
Understood.
Not necessarily QIAGEN specific, but more from the overall macro picture. We tend to take a more cautious, conservative view.
When you say a cautious, conservative view on China. D oes it mean China growth is in line with corporate, below corporate?
We haven't made a prediction about where the future is going, but you got to remember that China, for us in the past, used to be a double-digit growing business, and all of a sudden that's gone worse than flat. And that's the question is, what's that midterm trend going to be? And we'll start to talk more about what we see in 2024.
Understood. Are we, I guess for China, should it grow in 2024?
We're not ready to make predictions there. I would say overall, we feel comfortable with where consensus is right now for 2024. We've said that publicly, and that would still position QIAGEN as delivering bottom line, top line and bottom line growth next year and some margin improvement.
Got you. And sorry, when you say consensus, that's for overall QIAGEN?
That's for overall QIAGEN.
Got you.
We're going to get rid of this COVID, non-COVID.
Sticking on maybe one last one, John, because you did bring up QuantiFERON. I think China is a pretty big market. How big is QuantiFERON in China for you guys?
China is actually a marginal market for us on QuantiFERON. The sales for QuantiFERON largely track what we're seeing in terms of a geographic split among the regions, with around half the sales in the United States, another good third in Europe, maybe a little bit more, and then less than 20% in Asia, Pacific, Japan, including China. The QuantiFERON test is really an industrialized, test, market test. You're dealing with, very specific groups of people that have to be tested on a routine basis for latent tuberculosis. The first group would be healthcare workers, doctors, firefighters, nurses, paramedics.
Depending on which state they're working in, the United States or the country, regulations are going to be tested on every 1-3 years in terms of TB exposure, as part of their OSHA workflow or, infectious disease testing for employees. The second biggest group of people that are tested are what we call congregate living. These would be people who are in nursing homes, universities, prisons. Any intake into a U.S. prison, you're going to get TB tested. You're also going to see military in that group. The third biggest area, which is also very big, is, back-to-school testing. That's why our business with QuantiFERON Q3 tends to be, a high point in terms of high watermark, that kids are routinely tested during different, ages in terms of getting their school physicals.
If you ask any parent who has the choice between would you rather do one visit and a quick blood draw and get the results done, or would you rather have to bring your kid back to the doctor a second time? It's a pretty clear answer in favor of QuantiFERON. The fourth group is what we call clinical testing, and this is actually probably maybe half the market overall where we are today. There are a lot of drugs, if you're watching the DTC ads on TV, where you'll hear them talk about TB testing required before the test is done.
Because the QuantiFERON test, what you're looking for, such as anti-TNFs, chemotherapy, type two diabetes, renal impairment, these types of people, if they have latent TB infection, they have a much higher risk of converting to active TB, because the body's immune system with latent TB has the bacteria in a headlock and is waiting for some immune system modulation or suppression to be able to spring into active form and then spread. And so that's where a lot of those drugs require TB testing or monitoring patients before they go on to a certain type of therapy. And that's where we also have a market. But again, a good half, if not the majority of testing is not reimbursed. So that's, you know, recession-proof business is required by law.
Got you.
I would say, sorry, the one group I forgot to add into there is immigration. And immigration, in terms of formal immigration into countries such as in Europe or in the United States, requires TB testing to be able to get a green card or to be able to get citizenship. And then obviously, right now, we're in a situation where, unfortunately, we have a refugee crisis in the United States, and unfortunately, we're having the same issue in Europe. That's causing active TB outbreaks and is causing more need for testing, especially with the Ukrainian crisis that we have in Europe, since the former Soviet Union is one of the hotbeds or pockets of active TB.
TB eradication is so critical from a public health perspective, because we're now at the point where we're getting what are called multidrug-resistant, extreme drug-resistant, and even totally drug-resistant bacterial strains of TB that are circulating around the world. And as again, as I mentioned, this is that leading cause of infectious disease death in the world and is a, a major target from the, from the WHO and from the UN.
You mentioned historically, this business, QuantiFERON, has grown double digits-
Yep.
This yea, north of 20%. Was there any inflection point that, you know, drove the acceleration?
I've been watching this product for over a decade, since it's been part of QIAGEN. I remember when we bought it in 2012, and it had about $15-$20 million of sales, and we paid $300 million for this business. That has since generated over $2 billion of cumulative sales. So I remember some of the sell-side reports. You were always nice to us, Vijay, but there are certain sell-side guys that I have their reports stuck away in a file to remind them of this acquisition. But I would say it's been a product that we are still, honestly, in the early innings in terms of what this can mean for QIAGEN in terms of the growth.
What we tell people in terms of modeling it going forward is probably a 10% growth rate, and you can beat us if we deliver 20% again. But to your point about inflection, you, you see at certain points in the past, it was rather linear, and, you get into these, what we call elevator shafts, where you start to see conversion in certain pockets, where a market will start to convert itself, and that's what we're seeing in this post-COVID environment. We are way beyond COVID testing catch-up. What we're at a point now is where the, the price for the skin test, which is the competitor, which is the 120-year-old skin test, the price for the material that you inject into the arm for the test has gone up considerably in price.
There are very few suppliers of that, and so the price differential is not there as an argument not to use QuantiFERON. And then the ease of use has really come to the forefront because you have a lot of doctors who and nurses who don't have to see the patient anymore to get the test requirements done. It's just a simple blood draw, and I have the results in 24 hours.
Understood.
It's no longer a flip of the coin and a visual inspection of a skin test to be able to get the results.
Did you say, like, half the tests are still not being reimbursed? Are there any reimbursement?
No, it's not a reimbursement issue. It's because it's a cost. If I'm a hospital or a university medical center, or I am the county fire department, I have to pay to take care of worker screening, to be able to check the box on workers that have to have certain healthcare worker screening done.
And that's where I remember I was at the L.A. County Public Health Department in 2013, and I asked her, "What do you think are the benefits of this QuantiFERON over the skin test?" And she looked at me, and she said, "Are you dumb or stupid?" And I said, "What do you mean?" She goes, "Do you know how hard it is to get a fire station shift to come back 48 hours later to do the skin test read, or paramedics or firefighters, or to get homeless people to come back for the second visit on these tests?" That's what drives the QuantiFERON. But those are not being clinically reimbursed.
Those are costs, and that's where we provide a cost-efficient way for these organizations, the U.S. military, Federal Bureau of Prisons, to be able to take care of these testing requirements and get it done. And it's a very sticky business.
Gotcha. Maybe another related diagnostic question. On Lyme disease tests, where are we? Any updates on this test? How should we think of adoption?
So QuantiFERON is a technology used to detect latent diseases in the body. That means the disease is present in your body, the bacteria that's causing the disease is in your body, but it's stuck in a headlock. It's not replicating DNA, so you cannot use a PCR test to find the pathogen. But you can ask the immune system, "Have you been exposed to this pathogen before?" And we're going to measure T cell response to be able to determine if the pathogen is in latent stage in your body. Lyme Disease is another disease beyond TB, where we have an application in development. We have the approval in Europe. We're now working on reimbursement.
Our partner, DiaSorin, with whom we work to do the automation work on their LIAISON platforms, they have more than 10,000 LIAISON platforms worldwide that can run QuantiFERON. They are taking care of the submission. That hopefully will get done, and we'll have an approval by the end of 2024. So the problem with Lyme disease is that I think some of you have probably known someone who has Lyme disease. It's not necessarily going to kill you, but it can cause very severe neurological problems for someone. The problem with this disease is that somebody gets the tick bite, they go to the doctor, the doctor says, "Ah, we're not sure what it is, and you're supposed to come back later for some testing, some diagnostic testing in a couple of weeks." But often people forget or they come back too late.
DiaSorin offers those types of tests, and they are also not very specific in terms of finding the disease. With QuantiFERON, we've been able to show that we can do an earlier detection of the disease in the Borrelia pathogen in the person at a much earlier stage and allow for treatment decisions to be made much earlier and hopefully get better patient outcomes. This is about a $300 million market in terms of testing for Lyme disease around the world, and this is an expansion of the QuantiFERON technology. We do offer other types of tests for QuantiFERON, for, like, cytomegalovirus testing, especially in pregnant women. We just announced a new version of the test being launched for Epstein-Barr virus or mononucleosis, which can lead to some health complications in certain people.
So we're adding some different tests, but let's be clear, TB testing is a $1.5 billion market opportunity and growing, and that's the big shot on goal, and that's where we make the biggest public health contribution .
Understood. And what is your exposure to genomics, and then, yes, how big is that for QIAGEN?
So we report results in sales in four categories. The first bucket is sample prep, and that, again, is about a third of the business. The second bucket, which is also about a third of the business, is called diagnostics. That's where our QuantiFERON, our QIAstat, our NeuMoDx, and also our precision medicine companion diagnostics are all located. Those involve regulatory approved products. The third bucket is called nucleic acid PCR products. That's where our QIAcuity sales are booked and other products that are used in life science research labs downstream of sample prep. The fourth bucket is genomics. This involves our business with products that are used around next-generation sequencing. So in that business, we have two parts of the business. We talk about what's called before the sequencer or the widget maker, and what comes afterwards.
In the before the sequencer area, we sell what are called library prep. These are panels used to extract genes of interest out of the sample and be able to get them prepared to go into the sequencer. We work in that area, we have the QIAGEN portfolio of products. This is going pretty well for us. Our products are known in terms of LOD or limit of detection, that if there is something in a sample that you're looking for as a target, we have a much more, much greater likelihood of finding it based on the sample size than competitor products. That's the way we sell our products. Then the products go into the sequencer, then out of that, you're going to get a bioinformatics file. It's just, to be honest, in certain ways, a glorified TXT file of Cs, Ts, As and Gs.
Then you need software to be able to make sense of this genomic data that's honestly beyond human comprehension. If you think about the gigabytes, the amount of data coming out of these sequencers, it starts to become, you know, in terms of the exponential growth, it's staggering in terms of the amount of information being generated. We sell here software products that can be used with data coming out of any sequencer under the QDI brand. It's called QIAGEN Digital Insights. This is a business where we now have about $100 million of sales.
We're clearly the largest player in this market, and we are also probably one of the only profitable ones, if not the only profitable one in this business, running a bioinformatics business with profit margins in line, if not better than the group averages you're seeing, especially on gross margin. So we have some competitors in that area that they may have $20-$30 million of sales, but they have $20-$30 million of cash flow burn for the quarter. W e're profitable, cash flow positive in that business, and we've built up a portfolio where we are going to invest more into this business we've said. We may even actually accept some dilution on it because somebody has to come in and consolidate and create scalable, strong leader in this industry for bioinformatics.
We're in a stage similar to when companies used to do their own in-house accounting software. The question is: Who's going to come up with the SAP, the Oracles, these types of systems to run, to standardize, scale, and commercialize bioinformatic solutions? We have two different types of products in that area. The first involves what's called secondary analysis. That's to be able to make sense of the data in terms of what is wrong in the sample or what's a variant of interest. And then you move into what's called tertiary analysis, and that's where you make sense of what is wrong, that's clinically relevant, and what is this noise? And then, based on what you see in terms of the molecular fingerprint of that patient, what were the treatment regimens for other patients?
What were the outcomes for those patients based on what they were treated with? And what are the recommendations to drive treatment? That's the future of medicine. That's the future of sequencing. The future of sequencing is about the data, the applications, making sense of that and creating value there. And that's what we always wanted to get to, was to be able to make sense of the genomics data and help people before and after the sequencer. That's why you see us working with Illumina, but also with Element, all the other, Ultima and all the other companies. We have partnerships with all these companies in terms of sequencing hardware.
When I look at the genomics business that grew in Q3, most of your peers are talking about challenges in genomics, actually. Was that growth mainly being driven by the software, or did you see growth in sample prep ?
Library Prep.
Library prep.
The Library Prep business, I think, saw some modest growth there, but bioinformatics had a very strong double-digit growth quarter. That's where we honestly wish there were more players in this industry that understood the value and the future of bioinformatics and the value of being able to help to unlock that genomic information.
How do you size that market, that software opportunity?
We think that's a market right now with probably over $1 billion of total market opportunity. In terms of where you're seeing, there's a lot of small, unprofitable players there with very high cash flow burn rates. The top three players still are probably below $200 million of combined revenues. That's where, we want to figure out how do you really grow and scale that business to create some critical mass.
How do you get paid in that business, John? Is that like a licensing model or a per sample basis?
We look at both, but it's really a SaaS model.
Sure. And just maybe a big picture as, you know, price of sequencing comes down, do you see more dollars being shifted from actual sequencing to library prep and analytics?
I would say the prices there are not dropping per se, that much as they are in that area. So relative, they, they stay high. But obviously, that's a business where, especially on bioinformatics, it's really about the value of what we can offer and how we can support pharma companies. That's an area where we have, I think, 30 of the top 30 pharma companies, again, are our customers in bioinformatics. You have plant genomics that we're selling there. We're selling in the human identification forensics, even genomic solutions there, where, again, the value is for our customers in how do you make sense of the data, not necessarily always how you generate the data.
Maybe switching gears to margins. The gross margins are down, I think, close to 90 basis points year-on-year.
Killing me here.
Why, why are gross margins down? Because, I mean, revenues have been pretty phenomenal. Is this like FX or,
No, no, no. I think what you're in a phase right now is where we are in the process of launching three new platforms at QIAGEN. QIAstat-Dx, which is our play into syndromic testing. That's, again, where you have a patient, where they come into the doctor and doctor into a hospital. They're in a pretty difficult situation. They either have traditionally a respiratory, a gastrointestinal, or maybe a meningitis scare, and you want to take a sample and test that against 20 different pathogens and determine what's happening with the patient. That's going to be about an $80-$85 million business for us, growing at a good 20% clip. We're trying to solidify our position as number two in this market. We're approaching 4,000 cumulative placements of our systems. And then the second one we're launching right now is QIAcuity.
That's our play in the digital PCR. That's really been into life sciences, academia, biopharma customers right now. 2024, we're going to make the transition into the clinic. That's going to be really for oncology, hematology testing. That's the first area you go after. That's a business that we have said should do about $70 million of sales this year, and that's the one that you're seeing some of our competitors call out as being a pressure point area for them. That's, I think, if you were going to ask me, what's the one business that people don't understand yet, what it can mean for QIAGEN is digital PCR. In 4-5 years, the size of that business for QIAGEN in terms of the ramping, because you're penetrating the $2.5 billion market opportunity of qPCR testing and life sciences alone.
This is moving from Nokia phones to smartphones. It does the same thing at the base, but you can get so much more out of Digital PCR. If you want to move into areas of MRD or minimal residual disease, you want to start moving into oncology testing, these types of topics, right away, Digital PCR is the play there. The third area platform we're launching is NeuMoDx. That is our integrated clinical PCR testing platform. This would compete, like, with the Hologic Panther or the Abbott m2000 or the COBAS systems from Roche. This is where you're having a system that's like an iPad. You're running 20, 30, 40 different types of tests, where you know what you're looking for, one target at a time from the panel.
This would be like for HIV, Hepatitis C, Hepatitis B testing, these types of tests that have to be done. That's a platform where we've honestly had challenges. The market changed significantly during COVID. This year, we're expecting around $40 million of sales. And we have said we are in a position now where we're going to look at the options for this platform going forward and different opportunities there, because that is clearly not living up to our expectations.
Gotcha. So you would say the gross margin impact has mainly been driven by these three new product launches?
I f we were going to take these out, we would be 70% plus.
Understood.
We had built up production capacity for kits and consumables. Obviously, we're at a point where these are in ramping stage, and we don't want to starve the business, but if you take those away or even if you just take NeuMoDx away, that's a considerable pressure on gross margin. R&D is running right now around 10% of sales. That's on the rich side. That should move more towards 9% in 2024, and then we're looking for SG&A savings . G oing into 2024 so that we can get some margin improvement. I'd say modeling for or thinking ahead to 2024, we will have less interest income benefits because we're just going to have less cash in the bank because we're paying, in the process of paying back some converts.
I'd also say that the tax rate, we've been public, that the tax rate moves more towards 20% from the current level at about 18%. I think one of the topics that's not being addressed enough across our sector, but in general, on the street right now, is the impact of Pillar Two.
Yeah.
What the OECD measures to create more harmonized minimum tax rate levels around the world is not getting enough, it's not getting enough treatment these days in terms of people addressing it. Honestly, the word is, say, is starting to think about what those tax rates are going to be on a go-forward basis.
Gotcha. And just maybe, on the fiscal 2024, given Q4's mid-signals exit rate, is that the starting point for next year? How are you? What are the pluses and minuses for next year?
We've seen—I mean, the street right now is consensus is around 4% growth, 4%-5% growth. That implies taking that 8% non-COVID rate where we are today. And we're gonna have to eat some COVID sales in 2024 that we didn't have this year. Also, as part of our OEM business, which we didn't really get into, we've had some volatility there. That is a business where we sell chemicals, oligos, and enzymes to other diagnostic manufacturers and pharma companies for use in their own products. And that's run into some volatility this year and cost us easily 2 points of sales growth.
And then taking into those together, probably at least a good 2 points, and then you start to see the overall slower macro demand trends out there, and that's where you see the street starting to come into a number around 4%. We'll see what happens when we give a formal guide in early 2024.
What's that? Sorry. Oh, how much is COVID a headwind for next year? If that's still it.
Easily a good $10 million-$15 million.
Okay. Okay.
Incrementally, maybe 15, 18. We'll have to see how the year goes, but there's, there's clearly a COVID headwind.
Gotcha.
From Q1 2024. From Q1 2023, when we still had COVID testing, and COVID was still an issue.
Understood.
COVID still existed.
It still seems like we should expect margin expansion off of those, midst-
We're looking for some modest margin expansion, even off a lower base. But again, below EBIT is where you start to see some real incremental pressure on the interest income line and on the tax rate.
How much does the convert pay off with the-
We already paid off this year $500 million of debt out of our cash reserves, and we have another $500 million minimum coming due in 2024. And our leverage right now is still maybe 0.7 turns net debt to EBITDA, so we're still very underleveraged compared to our usual levels, around 1.5-2.5 turns. Given our strong cash flow and cash flow conversion, we can support the business that way. So we are looking at targeted M&A opportunities and to put the balance sheet to work. We also continue to look at buyback opportunities. We have authorization to do $300 million of buybacks through a reverse stock split.
We continue to look at those options, continue to view the stock as clearly undervalued at these levels and frustrated, but we understand the overall macro trends.
And just, sorry, below the line, what is the interest expense headwind because of the convert paydown?
Because we just have less cash generating interest income. That's what we're gonna have there as the issue.
Okay. And maybe the last minute here, you did bring up valuation rate. I look at versus pre-pandemic, you have a higher revenue base. It looks like you're seeing a different trend versus rest of peers. A gross margin seem transitory. That should be solvable. You're still promising margin expansion. What is the street missing? Like, why is QIAGEN being lumped with rest of life science tools when other companies have cited macro pressures?
I think you got to realize that over the last 3 years, after a busted deal, we've been out having to rebuild credibility, and that means quarter by quarter, putting up numbers against the expectation. That's where we want to continue to, to do that, and we think it's an execution point. I think the people want to see more durability in the overall growth and continue quarter by quarter, building that confidence. What I would say, though, is that people need to really understand how digital PCR has the potential to really transform this industry if you're thinking about next 5-10 years out. And with the next company coming up with their play in that space . F or digital PCR, there's a very big opportunity between qPCR and next-gen sequencing.
You know, there was the point where we all thought nextgen sequencers could change our car tires. The market was so hyped there. We're at a point with digital PCR, whereas in five years, I think that's going to be a very important technology that we're talking about at these kinds of meetings. But I'll be retired by then, hopefully.
Fantastic. O n that positive note, John, thanks for spending the time with us this afternoon. Thank you.