Thank you for being here this afternoon and today.
Thanks for having us, and thanks for your time.
So just to give everybody a roadmap for the next 25, 30 minutes, similar to essentially what we've been doing with everybody over the last day and a half, I thought we would talk a little bit about essentially almost like a state of the union, state of the state, talking about market conditions over the course of the year and how things have been evolving heading into year-end. Just given all the focus of the investment community on some of the appointments or the discussed appointments subsequent to last week's election, it's a little bit of an unfair question because it's only been a few days, but maybe we can just frame some of the exposure and how you're thinking about things a week into the post-election period.
And then I want to bring it back to some of the key areas of focus, I think at least in the investment community that are specific to QIAGEN, including competitive dynamics, key growth drivers, and P&L levers and capital deployment. So maybe to just start with kind of the state of the state, QIAGEN has posted very solid results all year, including in the third quarter. Again, this has really continued a trend that's been in place for several quarters. Could you just maybe recap what you feel should have been the key takeaways from the third quarter update?
Recognizing you've been with the company for a little while and it's been an interesting period, what are you most enthused about, not just coming out of Q3, but in general, what are you most enthused about in terms of how QIAGEN is positioned today versus how it was positioned when you first joined?
I joined some years ago now.
Yeah, it's been a little while.
10 years ago, and five as a CEO. And I would never say that there is before Thierry or after Thierry. I mean, what happened before happened, and it's a company which is celebrating 40 years this year. But anyway, coming back to your question, thanks for the kind comment. Q3 indeed for us was a very solid quarter, 6% growth, 10% in clinical, even in life science where we acknowledge, and it's been something like 15 months now that we said that capital sales or capital expenses in life science are a bit slower. But even in life science, we were at 1% growth, which is on average 4%-5% above our competitors. So we consider it solid as well. You remember that for the last five years, we insist on growth priorities, and those growth priorities delivered.
Once again, Sample Tech is back to growth thanks to automation, thanks to Sample Tech. QIAstat still are at 40% growth. QuantiFERON, another quarter at above $100 million revenues, double-digit growth. Digital PCR, we highlighted during the quarter that on capital sales, we were impacted by this environment in life science, but this is not my main concern at the moment. The focus for digital PCR is that the growth of consumables in Q3 was very good, close to 40%, which means that we continue to increase our footprint in this growing digital PCR market. And there are other activities that continue to deliver. I mean, we are currently going through a transition of recognition of revenues for our bioinformatics business, but the contracts are still there and our leadership position is still very strong. Forensics activities are doing well, so solid from a top line. No complacency, but solid.
What was very interesting as well is that we already have a strong P&L compared to comps, but we are perfectly on target to hit our objective of EBIT margin for the year. And profitability was also extremely strong during the quarter. If you look at cash flow, both operating or free cash flow continues to strengthen our balance sheet. So as a result, I believe that we are well on track to execute on our guidance for the year. We increased the EPS guidance, as you know, up to $2.19 now. And what does it show for me is what we told you in our last Capital Markets Day in New York, June the 16th, is a realistic ambition, 7% CAGR for the coming four years, 31% EBIT margin at the end of the period, and $1 billion return to shareholders absent of sizable M&A.
It means that the strategy to focus on some growth priorities pays off. It means that even our priorities are remarkably balanced. What I mean by this, and balance is a key attribute for QIAGEN, we are balanced between life science and clinical diagnostic. We are balanced geographically. 90% of our revenues are recurring year revenues, but even in the priorities balance as well, we have two activities where we are already leaders. We want to strengthen that leadership. It's QuantiFERON and Sample Tech, and we have three where we are in very growing markets with differentiated solutions. It's digital PCR, QIAstat, and bioinformatics, and just two final words, I said, I know that the market, and you like to put us in boxes. It's perfectly understandable, life science or clinical.
But I think the story of QIAGEN, and you see it more and more in our portfolio, is that what we do is that we create sustainable, profitable ecosystems that are relevant equally for academic or for research customers, for clinical customers, for pharma customers, for biotech customers. Sample Technologies is across all those customers. And it's valid for infectious diseases, for oncology, for neurodegeneratives. Digital PCR, you have seen that we move it to the clinical world after our FDA approval. And then it becomes also a full ecosystem. QIAstat-Dx moves now to the companion diagnostic world with deals signed with AstraZeneca or Eli Lilly. Even QuantiFERON moves beyond latent TB testing with our deal on Lyme with DiaSorin. So that makes the positioning of it. And so to your question, what do I think after five years? It's not up to me to say.
It would be a bit arrogant. I think the company is much more coherent, cohesive, stronger than five years ago, much more focused. We said no to a lot of challenges that we don't see profitable enough. And I believe that we can continue to outpace the market growth and continue to strengthen the P&L, which is already very strong.
Yeah, and I'll say it. I mean, I think the business has become more predictable. I think the portfolio has become more balanced. I think there are examples of there's a different type of discipline, and every company makes mistakes. And if there's something that you find doesn't belong as part of the portfolio, you've moved to move it into either discontinuing it or moving it into other hands. And it's a nice balance of a balanced portfolio, disciplined portfolio management, and I think a real commitment to focus more below the top line than I think what we've seen over time. And no disrespect meant to anybody who played a key role in building the business, but I think it's been a very interesting era of progress that's been unfortunately overshadowed by COVID and the COVID hangover.
Thank you.
With that said, bringing it back to the here and now, heading into year-end, as you think about the different end markets, you talk about the balance of the company, so that provides you somewhat unique insight as to what's getting better more quickly than other areas. How would you describe the state of the end markets heading into year-end?
I think we have been remarkably coherent, Doug, for the last two years. I know that there has been some ups and downs. I know that capital expense in life science is a bit slower these days, but those are not long-term trends. We need to look at trends. And for me, the fundamentals behind tools, life science, and clinical diagnostic are still very strong for many reasons. Basic ones that you all understand easily. Population is aging. Aging population means more testing constantly. Many diseases are becoming chronic diseases. Chronic diseases mean that you test multiple times for the same patient in one year. Progress of medicine doesn't stop. I mean, companion diagnostic and precision medicine is still proving more and more relevant. And also technology innovations. I mean, a few examples, 10 years ago, nobody was clearly looking at liquid biopsies in oncology.
For example, it's becoming a gold standard, at least for monitoring patients. Six years ago, nobody was really looking at the added value of microbiome testing. It's becoming a topic. Who was talking about minimal residual diseases two years ago in oncology? It's becoming also. So science moves and pushes research and pushes equipment in Sample Tech, in molecular testing. So I'm still very optimistic for the fundamentals. Now, the external events, nobody is immune to that. Major international crises, obviously, always impact, but I believe that many diagnostic companies have learned to weather challenges in logistics and supply chain. We were probably earlier compared to other industries because of COVID, and that helped. The economic environment, I believe that compared to a year ago, we have more visibility on some. I mean, that's going to be the tax rate.
It's always a question, obviously, but interest rate, we have more visibility, in my view. So yes, we have new administration in many countries, but it's far too early to say what's going to happen. And I mean, institution prevails over individual sometimes as well.
Just to unpack very quickly a few things there. I do wonder if, as we think about some of the things that are in focus right now where there is heightened uncertainty, the impact of tariffs. I just want to highlight what you just said, which is the industry, and specifically QIAGEN, had to get a lot better at supply chain management. So that's something we should be thinking about as we think about optimizing in a world where there is a different tariff structure. Is that fair?
Yeah, absolutely. In addition to that, immediately starting 2020, QIAGEN started a massive effort to reduce any kind of potential dependence, first of all, on single suppliers, that's for sure, but also on geographic suppliers, because especially Asia Pacific, obviously, for understandable reasons. Second, we believe that there are sometimes differences between what a candidate claims during a campaign and what is actually done. But we have built model given what we hear on what could be customs duties increases for QIAGEN. If some customs duties are raised in the U.S., we obviously believe that Europe will also raise customs duties. We don't think that diagnostics is such a business that is so much at stake in those discussions.
We have proven also in the past during COVID recently that if we are in sudden need to bring more manufacturing activities to a specific geographic like the U.S., we can do it quite quickly for two to five months to bring more activities here, for example. But once again, we have a balanced situation, so we can navigate through that. Yeah, yeah.
Let's talk about China. China, I think, is down to 5% or 6% of sales. Is that right?
Sure.
So I don't think we think of China as being as much of a concern for QIAGEN as maybe some of the other companies in the space. So I think that's the percentage of sales. That is the percentage of sales. From a value-based procurement standpoint, how much exposure is there for QIAGEN?
Less and less. Not that we are belittling the question of China. First of all, China, Q3 was 5% of our sales. On average, let's put 6%, and we are also very coherent for the last two years. I'm not an expert of China, but I've been living and working there for five years, and so nothing that is happening in China now was unforeseeable. I mean, China wants to build their own healthcare system, and therefore they want to favor local companies against foreign companies, and by the way, other countries have done that in the past. The U.S. did that, the French did that, the Germans, the Brits, so it's their policy. There are many tools to do that. VBP is one of them. What started with the pharma business moved to diagnostic. It's now moving to immunochemistry where we are not.
So the product that could be affected by VBP in molecular diagnostic are already impacted. So they are already factored in our numbers. And QuantiFERON is not a topic for VBP, at least in the foreseeable future. The only difference, I would say, post-COVID, pre-COVID, post-COVID on China for us is that, as I think discussed with you once, before COVID, we would start a budget discussion with our team in China at 10% growth minimal, because the country is big. But now we said because the local situation, the localizations need the steps of the economy locally, this market can bring us a maximum of 5% growth when it will normalize. And we don't see normalization before 2026.
Okay. One more on current events. NIH and the outlook for the budget there, that's a heightened concern. I mean, that being said, I do think it is worth noting for whatever my opinion's worth, which may not be much, but NIH funding did go up during the last Trump administration. That being said, what is your exposure to NIH, direct and indirect?
So our exposure is fairly limited. It's at the same level of China or less. So it's 4% to 5% of our revenue. So we can also, but once again, first of all, it's a name, NIH, so it's always good to look at it. But if you look at this year, we budgeted NIH at 0%. The official number from the administration came up in March, and it was actually 0%. So we were right. For next year, we will probably put 0% as well, which doesn't mean that NIH stopped using QIAGEN. Of course not. They use our Sample Tech. They use our enzymes, our oligos.
So what is important to me is that regardless of the administration, and you are right to say that, if you compare many declarations, especially during the Trump administration, the first one, around NIH budget and so on, cutting and so on, and the actual budget increase, it's quite striking. I mean, the budget was increasing every year. And regardless of the administration, I've never seen the NIH budget going flat or down for many years, because the U.S. are also aware that it's a good budget to spend to keep a technology hedge also in that worldwide race. So that's why I'm not pessimistic over the long run.
Let's pivot to some key areas of focus separate from current events. QuantiFERON, almost 25% of sales, continues to grow really robustly. I think above what you've targeted at points this year. It grew 11% year- over- year in the third quarter against a 25% growth comp. You are actually well ahead of what you said in your LRP target. Again, not to compare LRP to a quarter, but you've targeted 7% growth there. Recognizing the investor concern about competition, where are we in what we've heard from competitors? How are you feeling about your competitive position? And building off of that, but thinking more broadly, are the error bars skewed to the upside when we think of that 7% LRP target?
Oh, that's a very fair question, Doug. So we are leader on that market. Let's make it clear. It's not a monopoly. I mean, some of you sometimes perhaps forget that, but we are fighting competition on QuantiFERON. Since the very first day we started to sell QuantiFERON. There is one massive one, which is a technology. It's an antiquated one. It's skin test. It's still 50% of the market. So we still have a lot of convert. And then there was a smaller company from the UK called Oxford Immunotec. Even when they were much smaller than QIAGEN, they were still growing slower than QIAGEN for those applications. And then they were acquired by PerkinElmer, who was a big company. It didn't change basically the situation between our two companies. So we are used to competition.
Even way before some rumors were highlighting that potentially some new companies would come, we took very strong measures to protect QuantiFERON. The agreement with DiaSorin back in 2016, the agreement with Tecan and Hamilton for the front-end automation back in 2017. We are also improving the technology. We were QuantiFERON 3G until 2018. Now we are QuantiFERON 4G. I don't want to bore you with detail, but we improved the test. And we decided also to expand the usage of interferon Gamma beyond tuberculosis. It's the Lyme Disease agreement that we have with. So we are not saying that we are immune to potentially some competitors that, of course, it's the law of the market, but we have seriously raised the barrier to entry. And so as regards a new potential entrants, we are like you.
We have not seen any facts, no dates, no product specification, no explanation whatsoever on qualitative comparison with the gold standard, which is QuantiFERON. But we are very respectful. So for me, I don't care about the timing. I don't want to be provocative. I have told my team, regardless of what you hear, you are prepared for January 25. Very clearly. Nothing will happen on January 25, but regardless, we will be prepared.
Be ready for competition.
Which means every customer will be completely mapped, and every potentially competitive situation will be addressed with a specific action plan per customers. And I think that's the right thing to do. Now, are we conservative in our assumption? You highlighted that our coming plan targets 6%-7% CAGR. We are realistically ambitious. It's not easy to grow at double digits when you are already at $450 million revenues, which is going to be our situation at the end of the year. We target $600. If we can beat that, you'll be the first to know. But let's deliver on 7%. That's going to be good already.
The two other areas from a competitive standpoint that come up are digital PCR. It's QIAcuity. It accounts for only about 5% of sales, but you are targeting, I think it's $250 million in revenue by 2028. That's an area where there is some, again, competition, and we get questions on that. There's also a little bit of focus on what Illumina is doing in terms of moving into some of the adjacent areas to sequencing, including on the front end. Competitive dynamics on the digital PCR side, separate from that, what Illumina is talking about in terms of more integrated solutions. Do those developments affect how you're thinking about the growth projections of anything you laid out at the analyst deck?
No, not really. I mean, obviously, let's address one by one. I mean, the purely digital PCR market. So we are respectful of competition, but what we looked at, once again, are facts. We launched our solution three years ago, mainly in life science at that time, and in less than three years, because part of it was impacted by COVID, we have grown an installed base of more than 2,000 systems. This is unprecedented, and I don't want to sound arrogant, but you look at other success stories in diagnostic or life science. This is unprecedented. It's a growing market, digital PCR. People are understanding more and more the value either in research or now in clinical as well of this technology versus qPCR or next-generation sequencing. They see how it can be useful for their patient or their user or their research.
And therefore, there is a growing need on the market. And we take advantage of that need. And in addition to that, since we come with a newer solution, completely integrated boxes covering all the throughputs, small throughputs, medium, large throughputs, we are taking market shares from two main sources. The main competitor, clearly. And second, the market growth, because we are converting qPCR customers or even NGS customers. Now, your question to Illumina, does Illumina compete in digital PCR? No.
Right. Sorry to interrupt.
But no, no, no. But it's still an interesting question because it could be very relevant, Doug, when Illumina recently, and we have a tremendous respect. It's one of our partners as well. But they recently announced, as you have seen, a smaller system. And it's perfectly relevant for NGS. And some people were telling us, it's a smaller. Is it going to compete with digital PCR application? We don't think so because it's a smaller system, easier to use here. But the time to result has nothing to do. We deliver a time to result on digital PCR in less than 24 hours. Here, the total NGS process, even on that smaller platform, is a bit longer. And the cost of ownership, total cost of ownership for the customers is very different.
I think with what we have seen, with the fact that now we are moving into clinical application, telling the market that from $85-$90 million performance at the end of 2024 to $250 million at the end of 2027, it's perfectly realistic. And we can be number one on that market. We have the solution, and we have the people to do so.
So we've spent a bit of time on QuantiFERON and QIAcuity. I want to make sure we at least touch on at least QIAstat-Dx and some of the recent news there. We've seen several new pretty important FDA approvals over a matter of weeks. Can you walk us through how you think about the importance of these? What's most important? And again, how does this affect the long-term plan?
Just to position QIAstat, we are talking syndromic market. You sell panels, large panels to your customers. And the patient is going to be tested with one sample for 20 pathogens that could be respiratory pathogens, gastro, meningitis. It's a growing market. It's already a big market. Many people are saying $2 billion market. We came there via an acquisition. And we were massively present in Europe so far. U.S., we were present with one panel, the respiratory one. And it was an emergency-approved panel during COVID. And we were waiting to get our GI panel approved, if we remember, last year at the end of the year or early 2024. And I was always very transparent to the market, saying, guys, if we don't get that approval, it's clear that it's another story for QIAstat.
It will not be the end of it, but it will be really another story. And so if you compare the situation at the end of 2024 compared to January, our people in the U.S. went from one panel to now respiratory, GI, meningitis, plus a small panel respiratory, a small panel GI. And in a couple of months, they will have also our higher throughput system approved for the U.S. Completely different configuration. Now we can compete in the U.S. or with any kind of customer. And the U.S. remains the first market in the world for syndromic. It's roughly 60% of the world market, 65%. And it's still growing.
So this is why when we are in 2024 at 40% growth, mainly coming from Europe and other countries, not really yet in the US, now that we are really more competitive in the US, saying we're going to hit $100 million revenues at the end of 2024, therefore the target for 2028 is $200 million revenues and be a solid number two in the market, it's once again realistic, I think.
Excellent. Just a couple of minutes left. I want to pivot back to more numbers. So capital return, capital deployment. You announced a plan to return at least $1 billion to shareholders by 2028. You executed a, I think it was around a $300 million synthetic repurchase back in the first quarter. You're authorized to do another $300 million. That adds that up. It gets you two-thirds of the way to your multi-year target. I asked this question, I think, on the Q3 call. There's a lot of neat things going on here. You traded a material discount to peers. What would it take to get you to consider being even more aggressive with the buyback?
First of all, we need to look at regulation. This is why last time was a synthetic. And so what we can do also from a regulation standpoint, especially in Europe as well. Second, we need to also get authorization from our board and from our, obviously, investors. But we are used to do it. I think it's always a very good signal sent to the market on the confidence we have on our company. You understood that from different signals that we sent to the market that we could be very close to a new one pretty soon. And we said in New York in this Capital Markets Day, at least people focused on the $1 billion, but it was at least. It was equally important.
But we don't want to basically be prisoners of because share buybacks are very good, but they don't create growth over the long run. So therefore, M&A is always very important as well. And we need to accelerate on M&A. Sensible M&A, sensible M&A. What I mean by this is that M&A that could allow us to get closer, from a growth standpoint, to 10%. For example, we have given you a commitment for 7%. M&A in our view should bring us to 8%, 9%, 10%. This is good M&A. And accretive in a reasonably short time frame, two years. So expect the coming years to be a mix of both still while maintaining a rather good level of investment in R&D because it's another capital allocation, obviously. 10% basically of sales is the way to model it, I believe.
If we can execute on that, it's going to be good.
All right. We are almost out of time. Anything important you think we missed or anything you want to leave us with in closing?
No, I would encourage you and invite you to spread the word because, as you said, obviously, we are still trading at a multiple that I don't find fair. I'm not complaining. It's the law of the market. But compared to the strength of the result, you said yourself, Q3 again was very solid. I see competitors sometimes growing negatively and people saying it's encouraging. We are growing positively. And so it's up to us to continue to be extremely humble and execute quarter after quarter, number one. Second, proving you that the competitive situation on our key products, including QuantiFERON, is very solid. And I think we continue to deliver on this as well. And second, I think, and third, last but not least, we had a time where we did invest in new products promising like QIAstat, QIAcuity, and so on.
We are proving you also that we are able now to grow profitability, at least at the speed of the top line, which is also a good thing. So those are the key messages.
All right.
Okay.
You're the closer. Nice job.
Thank you.
Thank you very much.
Very good. Thanks a lot, Doug. Thanks.