Good morning. My name is Peter Welford. I'm one of the European Pharma Biotech and Life Sciences analysts at Jefferies in London. It's my great pleasure to be hosting the next company in this track, which is Qiagen. And here we have Roland Sackers, the CFO, joining us here today. So Roland's just going to say a few brief words, and then we're going to get started with the fireside chat. If anyone does have any questions from the audience, please feel free to raise your hand, and we'll get a mic out to you. But with that, Roland, do you want to kick it off a few comments, and then we'll get started?
Yeah. And of course, thanks, Peter, for having us. It's always good to be here. Yeah. As Peter was alluding, Qiagen, I would say, had actually a good start into the year. And also, the last quarter was very successful. We delivered 6% overall growth rate. And clearly, which is not an easy environment in general, we were also able to actually beat our EPS guidance in the second quarter as well. For the third time this year, we were able to increase our EPS guidance.
We started the year with 210 EPS as a guidance. Now we're looking more like 213+ for the full year. If you look at the drivers for the growth, you see that our focus strategy is actually still paying very nicely off, QuantiFERON being very strong six quarters in a row with more than $100 million in revenues.
In fact, actually $120 million, 10% growth rate. Big benefit is clearly that still 60% of the overall market is literally 120-year-old skin test. We also believe Q4 will be no different, and as you have seen our midterm guidance, we feel quite strong for the business in general. Same is true for QIAstat, which is our syndromic testing, 40% growth rate in a quarter, strong placement rates. And probably more important, strategically significant step forward in a quarter.
We got now three FDA approvals in one quarter, which is, of course, always good news. We have a quite complete menu now in the U.S., which you know always was some kind of an issue for us that in the U.S. we had mainly respiratory approved. Now with gastro meningitis and one more mini panel, we have literally a complete set.
In terms of looking now into 2025, nice improvement as well. Same is true for digital PCR, very strong consumer growth rate. We will clearly see also here continue momentum with the launch of our dPCR strategy, where we got now the platform out to our customers. And last but not least, our bioinformatics business, which overall I think is developing nicely. Here we see a transition from customers, literally what we see in other parts of the industry as well, more to a SaaS kind of a business.
So instead of taking an upfront license for three, four years, paying us $200,000 per license, there was a pay-per-use, and that is an impact we probably will see for some time. Nevertheless, the order income is quite good, and actually the profitability is even better on that.
So I would say we feel quite confident. Last but not least, margin north of 29% in the third quarter was a record number for Qiagen. You know that we guided 28.5% for the year. Have in mind that does not include more or less the full benefits from the discontinuation of our NeuMoDx business. Of course, that is still rolling in probably in the first half of next year.
Just to remind you, mid of this year, we announced to the market that we will stop one platform, which I would say was a great platform. But clearly, during COVID, we all did a good job in placing a lot of instruments in the centralized lab, and particularly in the U.S. We therefore decided to stop that kind of a business.
And as it was a loss-making business, that's clearly being helpful for us once it's out of the numbers. So just by that, you should expect a nice margin improvement also for next year. Let me stop here, Peter, and we'll probably have a list of questions.
Let's get started. So perhaps first, let's just stay big picture a minute. You mentioned instruments. Can you just talk a little bit about what you're seeing across your different customer segments in terms of the demand and the ability to pay for some of the bigger ticket instruments?
Yeah. Yes. As I said before, I think overall, of course, 85% of our business is a very resilient consumer business. And I would also argue that the smaller platforms like QIAstat, and to a certain extent also digital PCR, so with price points $30,000-$50,000, are actually doing quite reasonably. The bigger platforms north of $100,000, which for us is probably just a fully loaded Symphony, is clearly a more difficult environment.
That's similar to what I said just for QDI as well, which is every day is also kind of CapEx. If you take a license for a three- to five-year period, you also have a quite significant CapEx request. There we see, I would say, in all areas, that customers think twice. In academia, I think it's probably a topic, particularly also now for the fourth quarter. In pharma, I would say it's different.
Here, for example, we see that the digital PCR platform is doing quite well because it actually helps customers to save money. Because what we're seeing here quite a lot is that they're moving away from sequencing to digital PCR because it has clearly a time advantage. It has a cost advantage, and investing here at a platform to $30,000-$50,000 is actually an outstanding return for them.
I guess then thinking about from a geography perspective, could you just talk about the trends, I guess, you're seeing in the US, Europe, but I guess particularly as well when we've got to talk about China and how you see current sort of situation in China, but also your sort of strategy in the region?
Yeah. I would say the US is doing actually quite well. We have seen good growth rate. Also, if you look on the NIH budget proposal for next year, which is more or less similar to what we have seen this year, I think we feel quite comfortable with that. Europe, I think it's a bit different from country to country. I would say being German, unfortunately, Germany right now is probably the more difficult environment. Some other areas are actually doing quite well. Overall, nevertheless, I think we find the performance here quite reasonable. China, different. Just to frame it, China for Qiagen is around 5% of total revenues.
And I would say therefore important, but not financially so meaningful than for most other companies. Also have in mind, China for Qiagen is also kind of a different setup. We have in China, as the only country, a dual-brand setup.
That means in 2005, we actually acquired our single largest copy cat at that time, always kept it separate, own R&D, own production in China. Here we clearly see that producing in China only for China, so we do not export into the world, clearly brings some benefits. While I think overall our China results are slightly negative also in the third quarter , and we believe it's not probably going to change in the Q4 , we still believe that China has an opportunity to improve probably into the mid-single-digit area.
Not sure it's going to happen until mid of next year. We have to see also what the stimulus package is doing. Right now, we're hearing a lot, but we don't see a lot. I would say there's also one thing we have to wait for.
And then I guess you've set a 31% margin target in 2028. Perhaps we can just talk a little bit about the sort of levers and various different things you need to pull to be able to get to that aim. And what are the real key drivers to do that?
Yeah. Again, being the CFO, of course, you always feel quite comfortable with your margin target. And as I said, we had now more or less 29%+ already in the third quarter . We're ending this year with 28.5%. We had a 300-basis point margin improvement just third quarter this year compared to last year. So, there's a significant step forward.
And I do think it has to do with a couple of initiatives we're driving within the company because we clearly had the benefit that most of our larger CapEx investments we did during COVID, particularly in the production environment. So we're still growing into the capacity we're having. That means also for the next probably three years+ , there's no larger investment in terms of production equipment needed. So I think that's being helpful.
We're clearly seeing also that we have now, I would say, fully levered staffed sales and marketing for us. So just by growing revenues, adding more menu content to our machines, we don't need more salespeople, and last but not least, I do think it's also important to understand that we are right now running also a review of particular smaller sites within Qiagen.
You have seen NeuMoDx was one bigger one, but we're also in the middle of reducing smaller footprints within Qiagen. That all will add up, so I'm quite sure that next year, the margin improvement will be at least a very healthy 100 basis points, and if you now compare that to the 31 in 2028, I'm quite sure that it will be more than 31 in 2028, but time will tell when we're going to increase that.
Then, as you said, you're the CFO. The other great topic you love to discuss is capital allocation. Can we talk about how Qiagen thinks about capital allocation? Obviously, you've done some buybacks, but I guess what sort of framework you consider for that and potentially, I guess, a dividend, although we haven't seen that yet. I guess that brings in as well acquisitions. How that features in your consideration?
I think historically, since 2012, we are quite steady in more or less our allocation to all three areas. Driving organic growth, doing bolt-on smaller acquisitions, which we can integrate and significantly improve our portfolio setup. Last but not least, also share buybacks. Typically, we did share buybacks in $100 million incrementals. We changed that actually this year. We started to do a $300 million share buyback earlier this year. I'll come to the techniques in a second. We also asked on the AGM this year for the approval of another $300 million, and we got that approved.
We also asked or told to our investors at the capital market there that we want to do at least $1 billion share buyback programs or capital return programs by 2028. I do think if you look at that, you see clearly an increased commitment to share buybacks.
I think it's also important to understand that we are now, as a Dutch company, using synthetic share buybacks, which I do think is a nice combination because on the one hand side, you reduce the numbers of shares, but also the investors still get a cash payout. And in many jurisdictions, actually, it's a tax-free payment because it's seen as a payback of all of equity. So I would say it's actually the best of both. Again, very Dutch, but nevertheless very effective. And so we are clearly committed and clearly want to continue that as well.
Okay, let's move on and talk about some of the key franchises. Perhaps we can start off with digital PCR. Can you just talk a bit about what it is that you have at the moment at your platform that differentiates to enable you to capture share? And what particular segments of the digital PCR market are you focusing on?
Just to frame it, QIAcuity, which is our digital PCR platform, had more than 2,000 placements end of last year. We clearly said that we see quite healthy placements this year as well. Goal for this year is $90 million, and the 2028 goal is more than $250 million in revenue. We do expect significant growth. Big drivers are here. It is a conversion of the traditional qPCR market, which is a $2.5 billion market opportunity. Clearly, digital PCR has significant advantages because at the end of the day, you get more information for similar price points in a very quick turnaround.
Also what I was referencing before, transformation to at least from some parts of the sequencing market, which is a $1.7 billion market opportunity.
Here again, particularly in pharma and pharma research, there is a significant time and cost advantage. And there's also the areas where we see right now probably the largest part of demand coming from biopharma because there's a significant advantage. But there's also other areas. As I said, we were going to launch also Dx applications going forward. BCR-ABL is clearly one opportunity for us. And so there's opportunities on the life science side, but going forward, probably also in Dx. And again, we will see how quickly that goes.
Nevertheless, it's probably one of the fastest growing areas in the industry, but also for Qiagen.
And do you think that in the diagnostic segment of digital PCR, so like the oncology or the hem-oncology sort of areas you mentioned, do you think that's an area where you are more differentiated probably? And you're probably one of the few that focuses on this, or?
Yeah, the platform is out, and we clearly see a nice ramp in demand. Now it's really about getting the menu out as well. And I think everybody is trying also to find out the regulatory way, which will take some time as always. Nevertheless, given the clear advantages in time and in cost, I'm quite sure that we see a similar trend for digital PCR as we have seen in other areas of our portfolio. That means Dx follows life science over time.
Then if we go on to multiplex syndromic testing, I think all the players in this market have seen pretty resilient sales post the pandemic, despite, I guess, some of the fears that we were going to see a drop-off in respiratory testing, but overall, the market's been very resilient. Can you just talk a little bit about how QIAstat-Dx is differentiated from the competitors, particularly obviously the incumbent, which has got by far most of the market, and how you think about the longer-term opportunity for QIAstat?
First of all, I do think we're doing right now very well in that area, and you might actually have seen that particular last quarter with more than 150 placements. We probably even had more placements than the number one. While the number one clearly started early in the market, it looks like that we are caught up now quite nicely in terms of placements, and now also with the increased menu in the US market, which we were clearly lacking, I would see we have an incremental opportunity to continue that track, particularly in the US next year as well.
The advantage for Qiagen is very simply spoken or easily spoken: our platform, because it is a fully integrated platform. It has clearly time and advantages. We do cartridges. We don't have pouches. It doesn't spill. It is not loud.
It doesn't require, which is a significant advantage for the customers. If you go from one panel to another panel that you have to clean the machine, you just can take another panel. It has integrated sample prep. I think you will not find anybody going to argue that we have by far the best platform. What we were lacking, and I think that was a fair comment, particularly in the US, was menu expansion. But again, just I would say that changed now with the last quarter because three FDA approvals for that in one quarter was also a very big step for Qiagen going forward.
On top of that, you have seen that we have now, and nobody else is even close to that as far as we know, we were able to announce two pharma corporations, one with Lilly and one with AstraZeneca around the Alzheimer's diseases, but also on the other side on chronic diseases. So it also shows the value we're having on the diagnostic side. And again, I do think these are both significant market opportunities with large players in that market. So we are feeling quite good around that as well.
And then moving on to sample prep. I mean, this is your sort of bread and butter business that you've been in since the very start. What should we think about in terms of the growth profile of this segment? And what are the sort of levers here you can pull to deliver more growth?
I'm quite sure most people would be happy if they would have margins as we have on sample prep for bread and butter. But again, it's clearly an important business for us and clearly where Qiagen started like more or less 40 years ago. By far the market leader, it's quite obvious. We have by far the largest portfolio in the area.
And the benefit we're having, it's the reason why we're still getting market share, is while we are talking about more than 20 different technologies, more than 200 different products, if you're once used and trained on one of our products, you can use all other products because it follows the same workflow. So the adoption for a portfolio extension at Qiagen is very easy for any person working in the lab.
And that is the reason why you see every time when you're going home and see a lab in TV or a live, you see the blue and red boxes in the shelf because that's the Qiagen brand and that's where we are known for. Nevertheless, there's, I would say, nice opportunities coming for us up because what most people do not know, still the majority of sample prep is done manually. So instrumentation launches are important for us.
And there is a larger launch coming up early next year, which is a new Qiagen Symphony machine, which I think is a very step forward. And in 2026, we're entering even a part of sample preparation where Qiagen doesn't have any footprint in, which is a high throughput market with a new machine.
While we, of course, have a consumable portfolio, we have to bring that on the new machine. That would be, I think, a nice opportunity. Both actually nice opportunities to probably also bring the growth rate into kind of a 3%-5% growth rate at the end of the day. Because again, I don't think that we can necessarily grow much faster than the market. If you're 60% of the market, nevertheless, you can drive penetration quite a bit.
Then if we talk about QuantiFERON tuberculosis, I mean, how sustainable is the double-digit growth we've been seeing for that? And what are the main sort of drivers really that's driving that strong growth?
Again, we have now, as I said before, sixth quarter, significantly above $100 million in revenues, double-digit growth rate. Nevertheless, for the midterm outlook of 2028, when we have given guidance on a capital market date, we lowered it to 7% over that period because clearly the overall base is getting clearly bigger, but also there's clearly also probably some competitive movement into the market.
While we don't know exactly when that is going to happen, and as always, probably later than earlier, but who knows? It is important to understand, first of all, that 60%-65% of the market is still the literally 120-year-old skin test. So there's an ongoing conversion required and possible. And even the underlying market is growing every year around 4%. Challenges like global immigration are most likely to remain.
We see more and more countries starting with mandatory testing in the U.S., like back-to-school testing, legal workers' immigration, governmental funded trainings. We just won significant tenders in the Middle East for reserve workers' testing. So I would say there's nice opportunities for us to keep that growing. If it always will be double-digit, I don't know. Will it be a healthy growth rate? I'm quite sure because, again, the conversion is going to continue. It's the one thing you always have to remind on the Dx side. And sometimes it works in your favor.
Sometimes it takes you too long. It's a sticky industry. You have to change medical practice. And that is something which takes time. When we started in 2012, we said we started with $20 million in revenues.
And now we are getting close to more or less $500 million in revenues in a very profitable business. I still remember, Peter, and we are both too long in that industry, I guess. You gave me a hard time when we did that acquisition. How can you pay $300 million for an acquisition with $20 million in revenues? Now, so far, we had, I think, accumulated $2.2 billion in revenues. It paid out quite nicely.
I guess thinking about paying off, I mean, obviously, the next step as well is the Lyme disease test together with your partner, DiaSorin. Can you just talk a little bit about the updates there in getting that to market and how we should think about that test?
Yeah, the good news is it's launched in Europe, so it's on the market. In the US, we expect that, as you know, DiaSorin is driving it. But nevertheless, we expect that it's going to happen then next year in time for the Lyme season as well, so I think it's a nice add-on opportunity, probably also being helpful to what you just described to mitigate some of the overall QuantiFERON situation.
It's a $400 million global market, and the combined test, it's where DiaSorin is going to sell it with their existing franchise, clearly offers a much better treatment and diagnostic solutions for hospitals, for doctors, so we're quite optimistic, again, in the midterms.
And I guess, can you just talk a little bit about finally as well some of the other innovations you've done with QuantiFERON? And I guess I'm thinking both in terms of the automation, but also in terms of the formats for emerging markets as well.
Yeah, I think, as I said, TB is clearly a global challenge. And it's clearly a market which is also not what people always get wrong, I think, this very focused market. So typically, TB testing is not done in a centralized lab setting. It's also done there. But as I said before, a lot of tests happening actually in prisons, in immigration offices, in any kind of other settings. There's clearly also an opportunity in emerging markets.
There we have a solution coming up, which is not necessarily QuantiFERON-based, but it is because of different price points, different technology that you can also work in remote areas. But that might be an add-on as well.
And then I guess finally, let's return to the finances, wrapping it all up, I guess. Can you just talk a little bit about, so you've improved free cash flow quite a lot this year. How sustainable is that? How sustainable is the current sort of free cash flow? And I guess leverage is related to that. I mean, leverage is still very low at the company. I mean, is this a deliberate issue or is this just for want of, I feel like, alternatives? And what is the ideal level of leverage you'd like?
Cash flow clearly improved 73% now for the nine-month period, nine months, $350 million+ US dollars. So I do think it is a significant, but I think also continuous improvement in free cash flow for Qiagen. A couple of drivers, clearly inventory situation got a bit easier. Some of the supply chain risk was never issues, but risk which led for us to increase inventory levels looks like mitigated a bit more or something what we can handle better.
Accounts receivable actually came down a bit as well. So I would say working capital improvements is still ongoing, and I think there's room to do even better, but it's a big driver for that. I do think another opportunity for us is clearly also that in terms of leverage, while we are focusing on bolt-on and increasing cash flows, that we might step up share buybacks as well.
As I said, we have already another approval in hand, and we have to see what we do then for the year after, so I would agree right now we are clearly the leverage is more on the lower end, and that gives us flexibility.
That's great. We've run the clock down. Thank you all very much for attending. Obviously, mostly, thank you very much, Roland, for spending time with us today. With that, we'll close the session. The next session will start shortly. Thank you.
Thank you.