Thanks.
I think, Roland, maybe I'll just start off with a higher-level question. You've done a lot in terms of reshaping the portfolio. You're buying stock. You've got expanding margins. You're doing all the right things. I think, are there areas you think you could be doing more, and what do you think is most underappreciated right now?
First thing that I'm going to do is buy a new table. Once I've done that, I do think, as you said, it's clearly quite a volatile environment. Nevertheless, I think QIAGEN had a good start, and I do think that's a testament to the very resilient consumables portfolio we're having with 85% of revenues coming from consumables. I do think what is somewhat still underappreciated by the market is also the power we have, and I do also think we are demonstrating as we speak in terms of gaining profitability. We had, over the last two years, a margin improvement of 330 basis points in operating margin. I think it's also important to understand that we are not even close to an end. We have clearly a couple of impacts there, which were one time, which is mainly the discontinuation of our NeuMoDx franchise.
Even within the 330 basis points, the majority comes from ongoing efficiency measures, and we do believe they are carrying on probably for the next few years. Therefore, as you know, we have a target out of EBIT margin of 31% by 2028. It is quite clear that we hit that much earlier, so we have to update that at a given point in time. The same is true for cash flow generation. I would say still, thanks to the COVID days, we were able to make all material investments during that day, and therefore we still can nicely go into the utilization of that capacity. One thing that is important to understand is that not only in terms of cash flow, but also in terms of margin expansion, and gross margin impact is going to kick in.
Probably not too much in 2026, but 2027 and beyond, we should see also a nice expansion in terms of gross margin because we are going then in areas like QIAstat-Dx, but also in others where we come out of the significant underutilization in a much more regular environment. I would say that is probably the one thing where most people in these days do not take attention to. Everybody has, of course, very detailed in terms of top line, not too much on profitability.
You mentioned a choppy backdrop. Obviously, academic and government has been challenging for everybody. I think a lot of your peers are guiding down 20%, 25%. You flagged the consumable nature of the portfolio, and I think sample preps helped as well. Maybe just talk a little bit about your relative exposure. What was academic down in the first quarter, and then what are you baking in for the year?
I would say maybe I've given guidance for the year. I think we took what was a conservative approach, is probably the right road to take. That's the reason why we also, I think, came in better than expected in the first quarter. We had a 7% actual delivery in the first quarter. We clearly set a tone for the second quarter of 5%. It is very clear that so far things are going quite well. I do think what is important to understand in terms of exposure, U.S. NIH budget is probably for us around 4%-5% of total, and academia U.S. as a full picture is probably somewhere between 6%-7% points. I think it's meaningful, but compared to others, clearly a much lower exposure. Plus, and I think that is important, 85%-90% of this exposure is consumables.
As long as you do not have any significant ramp down in headcount, it keeps quite stable, right? Because it is an integrated part of any kind of work you want to do there. Again, as you know, I got known the last couple of events, always asked, but it was probably different in Q1. In January, it was better than March, and I said, no, it was always quite fairly allocated. Then April, it came down. No, April did not come down. Now we are in June. I would say there is clearly an underlying volatility in all markets, but we feel still very comfortable with what we said.
I guess, assuming we're not one and done with the NIH budget being under pressure for next year, I mean, how are you preparing for an environment where maybe that budget's down for a couple of years in a row?
First of all, again, one step back, having you know that, of course, but just to remind that we have 50% of our revenues coming from the clinical environment and clearly 50% in life science. Within that life science budget, there's only a smaller part really driven by public funding, particularly in the U.S., as I just mentioned before. Yeah, we have to look into that. Even if you look on our overall exposure on tech instrumentation, which is probably the single largest part of it, which would be exposed, other than one instrument, all our instruments are below $30,000-$40,000. Even in that area, we are typically in an environment where an instrument is break even 12-18 months. It's easy to make that case. Right now, everybody is a bit more careful.
Again, as I said before, if you could pick between a -10% budget NIH today and a -5% in September, we would take the -10% today because what is really the killer right now is uncertainty. People can deal with it. We have seen that before. We all got clearly very positively during the COVID days when NIH budgets were up double-digit, pre-COVID as well. We were used to flattish environments, and we even sometimes had negative environments. It has not changed too much our numbers in general.
Maybe shifting to some of the pockets of strength. QDI, you had a good quarter there. Talk a little bit about, I think you said pharma in particular is doing well. Was that a couple of big wins? Is it a broader recovery in pharma?
QDI is our bioinformatics business where we're helping customers who are taking what are universal data files coming out of any sequencer and being able to make sense of the data. We have both a discovery side of the business and a clinical side. The clinical side is obviously growing faster than the discovery side. The discovery side is also meaningfully bigger than where we are on the clinical side. To your point, yeah, we're seeing good wins in pharma. We're the largest player out there in the industry. We're doing about $100 million of business in this sector right now. What we're going through is a transition from licensing agreements and moving that towards SaaS contracts, Software as a Service. That's a bit of a drag right now on the overall growth.
As we go through that transition, we see that continuing for probably another 12-18 months. We feel good about the uptake in that business.
You alluded to a deal on the last earnings call, and then you did Genoox. Maybe just talk a little bit about that, the strategic fit, what that brings to the portfolio.
Sure. That was talking about something that we saw coming down the pipe. Genoox is a company based in Israel that we picked up. What you're doing is being able to help people make sense of their own data, especially labs that want to be able to work on their own sequencing file. You see people who take a hybrid approach that they will maybe send out the samples to be sequenced to larger labs, or they'll do it in-house, but they want to be able to do the analysis work, the interpretation work internally. Our QDI product, which is called QIAGEN Clinical Interpret, QCI, is very good with big data sets. For larger customers, Genoox had a very good solution for smaller, medium-sized customers where you have a bit more of a pay as you go approach, and that's where they are a good fit.
What made them also very good is that the part of the founder group are people who had worked at Google and these types of companies. They have very good UI/ UX design in terms of what's the interface for the online platform that we'll be able to flex that within our workflows. It is a good addition. It is adding $5 million of sales this year. Obviously, it is going to grow in the future, but it is neutral on EPS.
Yeah. Maybe talk about the margin profile of that business. I mean, longer term, how creative could that be?
As Jonathan said, it's clearly a very nice gross margin business right now. Nevertheless, we overproportionally invest into R&D. Therefore, I would say the EBIT level is probably somewhat where it is in the group average. I would say that it's going to normalize over time given also the overall profile we're seeing there. It should be accretive to the overall company going forward as well.
That is still a pretty fragmented industry on the software side. I mean, how much of a priority is it to consolidate and really scale up there?
It's customer-driven at the end of the day, right? Nobody really wants to have too many different platforms or tools. Again, therefore, also contacts with too many different service and salespeople. I would say that the consolidation is rather driven by customer demand. As Jon said before, the problem is rather that while there's quite a number of interesting technologies out there, there's not too many who are also fulfilling the profitability demands we're having. We have to find the right balance here on finding opportunities which not only deliver revenue growth, but also with a clear track to a reasonable profitability.
Maybe just to shift over to QIAcuity, you've continued to place a lot of instruments there. I think you've talked about anywhere from 600- 1,000 in a good year. Where are you kind of on that range right now? Is that still 50/50 equipment versus consumables in terms of the mix?
I think it's more or less a ballpark we're in. It's like 50/50, sometimes 60/40 in a quarter, but in that kind of a ballpark. If you review now the last, I would say probably two, three quarters, I would argue that we are probably somewhat ahead of our midterm plan in terms of consumable and consumable pulse super machine. For sure, driven by, I would say, the quite aggressive expansion in menu, which we did. As you know, we launched 100 panels last year on our QIAGEN QIAcuity platform. We're going to add this year at least another 100 panels as well. We will have a very comfortable portfolio, I would say, end of this year. We're still selling probably platforms in the range you said before.
It is fair to say that it is clearly a bit more challenging in these days in the academic environment, while the biopharma area, we actually see nice opportunities and probably more or less going as planned. I would say there is even the case to make if pharma, which can or cannot happen, gets into a more difficult environment, that that should get an acceleration. Why? Because there is clearly an opportunity with digital PCR to be faster and clearly more cost-effective than, for example, sequencing solutions. While sequencing is an outstanding solution, if you are looking for the unknown information, typically in the biopharma area, people know these are the five, six, eight markers who either should change or should not change.
You can do that with a digital PCR solution in one day instead of weeks with sequencing, and you can do it for a couple of hundred dollars compared to in the thousands. I would say there's even an opportunity for us which might accelerate.
Related to that, after what happened at ASCO, just to jump in here real quick, you saw that we had the announcement with Tracer Biosciences for MRD testing where we're opening up QIAcuity as a platform to our partners. You're going to see more of these types of partner agreements come where we're willing to work with companies that want to create content, put that on our systems, and then we'll be able to reach an agreement to work together. Not everything has to be made by us.
I mean, it's a good question because we get that a lot in terms of digital PCR versus sequencing, right? I know you're talking pharma, but how do you think about the clinical side of that? Obviously, companies like Exact are commercializing on PCR. You've got others, Guardant, heavily using sequencing. How do you think about the pipeline clinically going forward?
We're going to be agnostic in terms of technology platform. If you want to, and that's what you'll see in terms of the news flow coming. If you want to work on digital PCR, we'll work with digital PCR in terms of companion diagnostics or what kind of clinical applications you want to work on. There you see the announcement with, or we'll also use qPCR where we use QIAstat-Dx. We're technology neutral. We will work with you what best fits your approach. You see with NGS, what we announced with Foresight Diagnostics. You'll see more of those types of agreements coming. There are certain scientific needs where NGS is a better clinical fit for a companion diagnostic. There are others where digital PCR works very well. You see with QIAcuity what we announced with Lilly for an Alzheimer's test, AstraZeneca for chronic conditions.
We're neutral that way.
I guess just to hone in on that a little bit, you're saying in pharma there's a clear trend, more digital PCR over sequencing. You're not calling that on the clinical side. Is that?
I would say right now we're seeing interesting deal flow on both sides, clinical in terms of companion diagnostics with next-gen sequencing and also with digital PCR. It's more driven by what are you looking for, what's the magnitude of the data, what's the best way to skin the cat.
How is pricing of digital PCR? I mean, we've kind of flagged you're a big competitor there. Bio-Rad's gotten fairly aggressive, 70% discounts and the like. I mean, they're the incumbent. How do you feel about pricing of digital PCR?
Pricing is quite stable. Actually, we increased it quite a bit this year as well. So no discounts at us.
Maybe do you want to just touch on the Foresight deal? I mean, I know this is a strategy to kit up more for international markets, but talk a little bit about that.
This is our approach to help improve access to technologies and platforms that you have an LDT-type test that's available. We are working with Foresight to be able to, like you said, kit it up and make it available to other labs that want to be able to do it in-house in their own places. We have taken this approach before in the past, and it is part of our wheelhouse of being able to improve access to tests.
You have put out a target for $250 million by 2028. Maybe just talk a little bit about how much of that will be clinical, how much is pharma, what are the steps to get there?
Much of it will be clearly life science. I would say clinical is probably something, as Jon just laid out, probably more kicking in 2027, 2028. It might be 80/20, we'll see. I would say it's probably in that kind of a ballpark. Right now, as the growth clearly comes from biopharma, I would say academica has, as I said, an underlying double-digit consumer growth rate I would expect at some point in time. If there's more visibility on academic spending in general, we would also expect that the instrumentation growth returns to double-digit growth rate. I think it's different drivers getting us there.
Are there any catalysts that could really jumpstart that S- curve for QIAcuity specifically?
Again, in terms of instrumentation placement, it's just the same what we see in the general industry. We need clear targets or rather our customers need clear targets. Again, if that is a -5%, -10%, -15%, I think it doesn't matter too much, just a clear number to work with. Because again, most of our instruments, as I said, are $20,000, $30,000, also the differentiation factor to some of our competitors. I think the customers can deal with that, but you want to know where you are.
How about the companion diagnostic opportunity for QIAcuity ? Can you just talk a little bit about that? You hit pause in the IVD program, but.
We hit pause there because we see LDTs as a better way to go right now as the technology is still in some early days in terms of development. You're going to see more deals coming on QIAcuity in the next 12- 18 months that we have in the pipeline in terms here. You're going to see them coming on NGS as well. It is going to take some time. We're not allowed right now to talk about the three partnerships that we've already signed for QIAcuity in terms of companion diagnostics. Those are unfortunately confidential.
Can you maybe just talk about pipeline and what that funnel for similar deals looks like?
The area for this area is clearly on oncology, whereas with QIAstat-Dx right now, it's non-oncology applications. It's interestingly that way. And then in NGS, it's clearly going to be on oncology topics.
Maybe QuantiFERON, you did a deep dive on that, kind of spotlighting the platform. Obviously, Roche did their analyst day. Talk a little bit about what you're seeing in the market out there and any feedback you had from the Roche presentation.
I think fundamentals have not changed with any of these events. I would say it is very clear that the most important message to understand is that 60% of the market is a literally 120-year-old skin test and that even this underlying 60% market is growing roughly by 4% every year just by the overall population growth, but also by more and more mandatory testings started around the world. Since the IGRA testing where QIAGEN is participating in is, of course, doing quite well. We had another strong first quarter, significant double-digit growth rate. Midterm target is a 7% CAGR, so we are doing clearly much better than we expected for our midterm target. I think that is good news. Competitive-wise, we are by far the market leader in that environment, but we are not the only companies as well within the market as we are moving in the market.
There are a couple of Asian players in the market. It is expected that Roche comes at some point in the market. I think their update was more or less what was as expected. They believe that they're in the U.S., in Europe in the market, sometimes in 2026. Interesting enough, they haven't called out any launch for the U.S., which was different than before. Let's see what that means. Overall, we feel quite comfortable in our situation.
Maybe just you talk geographically, I think you've called out some kind of newer countries that are opening up, Oman, places like that. I mean, where are you kind of seeing the newer growth?
It's actually a global business for us. The growth rate doesn't differentiate too much. US is around about half of our revenue. The rest of the world is split as usually as well. I would say particularly the Western world is driving the growth rate. I would say Asia outside China is participating there quite as well. Of course, you have areas like in the Middle East you just called and other areas who are trying to participate as well. Again, clearly incremental volume, but the big growth comes from the Western world.
You put out longer-term targets for that business, 7%. You're going double digits now. Maybe kind of talk about what's embedded in that longer-term target.
7% is out because you would not have believed us 10% anyway if we had told you that last year. Again, right now we feel quite comfortable with the double-digit growth rate.
If Roche is delayed further, is that upside?
The market is 60% unconverted. I do not think I have to convince anybody that IGRA has a better test. Nevertheless, we are in a sticky environment, right? It is quite obvious that converting a clinical customer to a new technology takes some time. That is what we are doing every day. It is clearly also a quite diverse market. As you know, we have everything from healthcare worker testing to armies of this world to legal immigration-related work. It is also, again, a different set of customers we have to deal with every day.
I think you've talked about how this is very different than the HPV dynamic, right, where everybody shared the same IP. You didn't necessarily have a lot of automation differences. I mean, how do you feel about pricing having Roche when they do enter that market? And how do you protect your share?
I think the best answer is probably stating some facts, right? I think we closed with, I would probably say, 60+% of our customers in the last 12-18 months, new agreements typically going from somewhere between three and five years. I'm not recalling anything major with a price discount.
The automation advantage with the DiaSorin partnership?
I think it's very well known that the Liaison platforms are the best platforms in the market, particularly if you go into mid and higher throughput areas. If you will, again, I would argue every competitor has a fair chance if it comes to greenfield opportunity, meaning you don't have any automated solution and you have an existing instrument and you want to test it, I think you might use that. At the same time, I think it's important to understand that if you really want to go serious into larger volume, you go for the best platform available. I do think the DiaSorin platforms are clearly absolutely state of the art and we see they're quite successful. Some of you might also follow just a different example, Quest, right? If you go back to their capital market, they're just a few days away.
They've fully future-proofed the automated solutions they had, right? And it's all on a QIAGEN test. I would say you can't get much more endorsement.
You can see our deep dive. We started a series of TV shows that you can find on our website. The first one was on QDI. The second one was on QuantiFERON. And like we're almost talking about, you hear directly from Quest about what they're doing, how they're automating that test. They're doing at least 3 million QuantiFERON tests a year. They are not a Roche customer, just to point that out. But to your point, three things that matter to customers: automation, clinical profile, but also total cost of ownership against what they're going to get reimbursed, where can they make the biggest profit spread. And we've really addressed all three of those key issues with QuantiFERON as opposed to what we went through with HPV, which was one test, one machine, targeting one type of group, heavily pushed into the United States, like Roland was saying.
QuantiFERON sales, very complex customer group you have to address, very global tests. We have top automation. We have a great clinical profile, and we offer customers a very attractive, cost-efficient test.
Is picking a second automation partner an important part of that strategy or no?
It's an additional angle we can take. Once we have done so, we might inform you about that, but right now it's an option.
I guess last one there, just pipeline. Like you've got Lime, you've got some other stuff in development. I mean, how important is that to the long-term QuantiFERON strategy?
QuantiFERON for sure is the leading franchise there. As I said, with 60% market, existing market, not penetrated, it is probably also a prime target. Lyme is a nice opportunity. It is also a $300-$400 million market opportunity where we see the current solution. Clearly, we are waiting for enhancements. We do expect that the good news is also it is filed with the FDA. As you know, it is going with our partner DiaSorin. We are waiting for some feedback here. It is on top.
Just to remind you, TB, we talk about MRD, all these kinds of markets and big sky numbers. TB today is a $1.5 billion-$1.7 billion market opportunity to convert. And we're only at $500 million right now. And this is already the biggest diagnostic out there in the world. This is also not a new technology. It's been around for at least two decades. It's just as old as the HPV test. But we're constantly innovating. We're working now on the fifth generation of the test, building on what we did with the fourth. So there's still opportunities. But again, this is the market we're going after.
I want to, Roland, go back to your pricing comment. You talked about it for digital PCR. A, are you able to quantify how meaningful that price increase was? Then B, what's baked into the guide for this year around pricing overall? Where's your greatest ability to push pricing in the portfolio?
I would say in general, as you know, during COVID, there was clearly also different inflation scenarios. I would say most companies, including us, were clearly a bit more aggressive in price increases during COVID, more or less to keep the balance that we do not have to carry too much cost by ourselves, but shared fairly with our customers. I think that we did quite well. Therefore, I would argue that this year we probably did it more or less with local inflation rates, somewhere between 100-150 basis points. Again, tariffs and again, changed the picture a bit as well. You tried again here also finding the balance on what you can carry and what you cannot carry. I would say I would expect here a normalization that we stick around inflation rates over time.
You know, typically people do not associate you with the replacement cycle, but you have started to talk about that a little bit more. I think in particular around sample prep. You mentioned at the B of A conference. How big is that opportunity? Is it starting to pick up?
I think it's much more than a replacement cycle. I think what you're referring to is that QIAGEN is going to launch starting end of this year, probably more important than for 2026, three new instrumentation platforms. I think all three instrumentation platforms address different segments of the market. While I would say you, as many analysts, expect that QIAGEN overall has a 60% market share at IGRA, it's probably also your number in sample prep. We are clearly, for example, not part in all of the segments. In particular, we're not part of the high throughput segment. With the QIAs print, which is a new instrument we're going to launch, we will for the first time move into that segment. That should be a nice opportunity for us to gain actually both instrumentation revenues, but clearly also a nice consumable pull-through.
Because I would expect that everybody expects that a QIAGEN solution into that market should be state of the art. We were waiting for quite some time to move into the market because we clearly wanted to have an instrument which is a kind of a generational shift. We believe that that is going to come with QIAGEN now next year. I would say we will update the market more or less moving into that timeframe. The second instrument is for the mid-throughput solution. That's our QIAs ymphony. It's an instrument which we have for many years in the market, a couple of thousand. Here, a very new QIAs ymphony gets launched, much more than a facelift, a lot of incremental features.
Yeah, I would expect that while we will gain significant instrumentation tailwind, I don't think it will give us, at least at the beginning, much more consumable one way because most of the symphonies are clearly utilized today as well. I would expect that it's more an instrumentation plan and over time probably gaining more consumables. The last one is an instrument which I think we are very excited about is QIAm ini. It's low throughput. As you might know, sample prep, still the majority of the market is actually a manual test. If you go in a typical lab, and it doesn't matter if that is academic, pharma, or any kind of clinical environment, they use somewhere between 6, 10, 15 different sample prep solutions. Let's take QIAGEN's typical market share of 60%.
Let's say 6 out of 10, you now suddenly can automate with a machine, a couple of thousand dollars, so break even in a few months, and you can work away. Quite sure over time you ask yourself, why am I not buying all my 10 solutions from QIAGEN? I would assume that we have the portfolio. It should help us to gain penetration into that market and therefore actually drive both consumable growth rate as well as instrumentation growth. It is an important step forward for us. Was clearly a couple of years in the market in the making because developing new instruments takes some time. We are quite excited that next year actually three of them are coming to the market.
I know we're close to time. I guess two quick ones to close with. M&A, you just did the recent bolt-on. You did get mentioned in a Financial Times article about a bigger transaction. Talk about how you're thinking about M&A, your bandwidth to do bigger deals, and anything you're willing to say on that situation.
I think nothing really has changed since 2012. We have a very detailed capital allocation policy, which is a combination investing into our business. We feel quite comfortable with 9%-10% going into our own R&D. I think we have a track record of doing acquisition on everything but enhanced value. We're happy to look at it. I think it's fair to say that in the past we had a mixed set of deals, smaller, mid-sized deals. QuantiFERON is also a good example. When we acquired that in 2012, it was clearly a rather tiny company, and you gave us a hard time on that. I still recall that, but I think it worked out quite nice. Last but not least, we continue to do share buybacks. We started with $100 million installments. We then did over the last two years do $300 million installments.
We are now going to ask, I think week after next week on the AGM, to size that up again to a $500 million share buyback. We will continue to drive all three parameters.
Just last one, margins. You talked about pulling forward that target. Is there any natural kind of ceiling as you think about operating margins? And should we think about 70%-ish gross margins?
I think the nice thing is offering you a different way to look at it. I would say this year, next year, majority, as I said before, of the gross margin expansion comes from operational leverage. We will see more leverage going forward, but on top of that, we will see gross margin expansion. Give you one number, which I think is important to realize. As you know, we launched a couple of instruments, QIAs tat and others, a couple of years ago, QIAcuity, [audio distortion]. If I take out these instruments and the related consumables, our gross margin is nicely in the 70s. What does it mean?
If you launch a new instrument, typically you don't have the utilization on the consumable instrumentation, which again gives you the overall margin impact because typically the instruments at QIAGEN have a 40-60% gross margin, whereas the consumables are nicely above that. You need a different mix in that, of course, you go in over time. Second, of course, some of our, as I said before, production equipment is right now underutilized. Having also here better utilization is going to help us. I would say you will see both drivers helping us quite some time. Is there any? I see companies with a 35% margin in some industries, and why not over time?
Great. We'll leave it at that. Thanks.