Earnings Call: Q3 2022

Nov 8, 2022

Ladies and gentlemen, thank you for standing by. I am Sarah, your PGI call operator. Welcome and thank you for joining QIAGEN's Q3 2022 Earnings Conference Call Webcast. At this time, all participants are in a listen only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. The prepared remarks will be followed by a question and answer session. At this time, I'd like to introduce your host, John Gallardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir. Thank you, operator, and welcome to our call. The speakers today are Terry Bernard, our Chief Executive Officer and Roland Sackers, our Chief Financial Officer. Also joining us is Phoebe Lowe from the Investor Relations team. Please note that this call is being webcast live and will be archived on the Investors section Today, we'll first have some remarks from Teri and Roland and then move into the Q and A session. A presentation with details on our performance is available in the IR section of our website along with the quarterly release. We will not be showing the slides during this call. Before we begin, let me cover as usual our Safe Harbor statement. This conference call discussion and responses to your questions reflect the views of management as of November 8, 2022. We will be making statements and providing responses to your questions that state our intentions, beliefs, These constitute forward looking statements for the purpose of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intentions or obligations We advise any forward looking statements. For more information, please refer to our filings with the U. S. Securities and Exchange Commission, Which are also available on our website. We will also be referring today to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS or earnings per share. A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures is available in our press release and the presentation. And again, these are both available on our website. I would like to now turn over the call to Thierry. Thank you, John, and good morning, good afternoon. Welcome to our conference call today, and thank you to everyone for joining. We are very pleased to report a strong performance in the Q3 of 2022. We indeed saw Solid ongoing market trends with broad based demand for both our molecular research and clinical diagnostic solutions across the business. So let me get right to the top messages for today. First of all, we again exceeded our quarterly outlook for net sales growth And adjusted EPS. This was driven by the top performance in our non COVID portfolio and also Higher than expected sales from product used in COVID testing. Net sales for the Q3 of 2022 were 5 $33,000,000 at CER and exceeded our outlook for $510,000,000 These results were largely unchanged from sales of $535,000,000 in the Q3 of 2021, A period of high COVID testing demand. Our non COVID product groups delivered 18% CER sales growth over the Q3 2021 and represented more than 80% of our total sales. Adjusted diluted earnings per share were $0.55 CER and above the outlook for at least $0.48 Those results demonstrate that our portfolios are performing very well. In fact, this is the 7th consecutive quarter of double digit CER growth in our non COVID portfolio. This clearly underlines the strength of our business and the execution mindset across QIAGEN. 2nd key message, our teams have been delivering on key goals as we advance our 5 pillars of growth. The performance for the 9 months of 2022 underscore the strength and agility of QIAGEN in a very dynamic micro environment. I am definitely very proud of our teams. They have done an outstanding job this year remaining Proactive and staying focused on executing our 5 pillars of growth strategy. This is creating a very solid All of our 5 pillars of growth are on track to achieve And some are even likely to exceed significantly the sales goals we set for 2022. Our Sample Technologies product group is benefiting from a new wave of instrument upgrades. This is helping QIAGEN to leverage our leading position in sample prep, the first step in any molecular biology lab. We are driving consumables growth in non coding application, which is the larger portion of this business and by far. Remember that DNA kits and non viral related RNA prep make up more than 70% of sales in this group With COVID relevant viral RNA kits making up about $150,000,000 of sales in 2019. The QuantiFERON TB franchise for tuberculosis testing is performing very well as well. With year to date growth well above our target for more than $310,000,000 the demand for TB testing is on the rise As noted in a recent report by the WHO that TB depth and disease prevalence rose significantly during the COVID-nineteen pandemic. For our integrated clinical PCR testing platform, NeuMoDx, 2 new tests were launched for use in areas Such as transplant diagnostic. This bring the CE IVD menu now to 16 tests on NeuMoDx, One of the largest available from any competitor. We are tracking well on system placement and seeing encouraging indicators on the transition from COVID to non COVID utilization. For QIAstat Diagnostics, Our offering for Seidromine testing, the QIAGEN teams have responded to the monkeypox outbreak with the rapid development of the QIAstat Dx Viral vesicular panel. Placements are continuing to grow worldwide and it is worth noting That more than 50% of sales for QIAstat are now for non COVID application. In terms of QIAQUITY, our offering for digital PCR, we recently launched 13 new biopharma assays. This is an extremely important step in our entry into the biopharma area of the market where we see as an important customer Segment involving pharma companies around the world and it creates a strong base for future growth in 2023. So as you can see, we are making good progress in our 5 pillars of growth. This fits very well into the overall strategy maximize the value of our portfolio through our ability to address a broad range of customers in the continuum of life science to molecular diagnostic. 3rd key takeaway message for today. We have increased our outlook for the full year 2022 based on another Quarter of solid results. We are now expecting sales of about $2,250,000,000 for the full year 2022 With the reaffirmation of the goal for double digit CER growth in our non COVID portfolio. As for EPS, We are now expecting about $2.40 CER for adjusted EPS and this is up from our prior outlook For at least $2.30 CER. As always, we will stand ready to support the needs for COVID-nineteen testing and surveillance and this also goes for all the public health emergencies like we are seeing for monkeypox. As for COVID trends, testing volumes have dropped significantly in most countries around the world. We are continuing to take a very conservative view of demand trends for COVID. But as we have said before, QIAGEN remains relevant for COVID testing, but we are not dependent on those sales. Indeed, We continue to believe it was the very right decision to decouple our performance from COVID trends and QIAGEN was in fact among the first, if not the first To do so. But our overriding focus remains on advancing our strategy based on our non COVID portfolio While continuing of course to have our eyes open to the changing micro environment. Roland will be providing more details on the outlook later on this For now, let me hand over to him for the financial update on the quarter. Thank you, Thierry. Hello and thank you for me as well for joining this call. Let me first start with a review of our results And then I will come back later to discuss our outlook. In terms of net sales, it actual rates They declined 7% in the 3rd quarter on a year over year basis to US500 $1,000,000 This was due to about 6 points of currency headwinds in light of the strong U. S. Dollar against the euro and other currencies such as the yen. The sales result at constant exchange rates were $533,000,000 and ahead of the outlook for at least $510,000,000 CER. We had a much better than expected performance in our non COVID product groups With these sales up 18% CER. The COVID product group sales were also better than expected, Even so, sales were down 43% CER over the year ago period. Sales of consumables and related revenues And also instruments were unchanged at constant exchange rates. Excluding the COVID-nineteen headwinds, Sales for consumers and related revenues were up 17% CER, while instrument sales rose at a faster pace, About 20% CER. In terms of sales among the 4 product groups, let's start with Sample Technologies, Which represents about 1 third of total sales. Here we saw solid double digit CER growth in the non COVID portfolio That represented 75% of sales in the Q3 of 2022. However, the significant decline in COVID-nineteen testing Demand led to the overall decline of about 2% at constant exchange rates over the year ago period. Diagnostic Solutions is our 2nd product group, and this represented about 30% of sales. The key driver behind the growth in this group was the QuantiFERON franchise. Sales for the QuantiFERON TB test rose 14% CER In the Q3, on double digit gains in all regions. Take into account that sales for the 1st 9 months of 'twenty 2 We're at $256,000,000 at constant exchange rates. We are clearly set to exceed the full year target for over $310,000,000 CER. In fact, we have now seen 7 consecutive quarters of double digit CER growth for QuantiFERON. The sales trends for the QIAstat and Neuromodx clinical PCR testing system continued in line with our full year expectations. In terms of QIAstat Dx, we are seeing increasing demand and new customer interest following the launch earlier this year Of the new CE IVD meningitis panel. The addition of this panel has established a strategic critical mass in terms of menu That is necessary for adoption by many customers in this region. In the PCR Nucleate Acid Amplification Product Group, Sales declined 5% CER in the 3rd quarter. We saw a strong contrast here with significant double digit CR growth in the non COVID product group against likewise significant double digit CR decline in the COVID product groups. The Genomics NGS product group, which represents about 10% of total sales, delivered sales growth of 6 percent at constant exchange rates as COVID related revenues continue to be soft. Moving on to sales on a geographic basis. The Europe, Middle East, Africa region led with 3% growth at constant exchange rates For the Q3, among the top performing countries were France, Germany, the Netherlands and the United Kingdom Driven by sales in non COVID product groups. In the Americas, non COVID product group sales rose at a robust Double digit CER rate, especially due to QuantiFERON and expansion of the QIA QUTI franchise. This more than offset the significant decline in COVID sales that were seen across all areas of the COVID portfolio. In the Asia Pacific Japan region, sales at constant exchange rates were down 9% from the Q3 of 2021. In this region, we saw lower sales in a number of countries that had COVID-nineteen sales in the year ago period, Such as Thailand, the Philippines and Indonesia. This weighted on the overall performance and overshadowed double digit CER growth In Australia and India, sales in China declined about 3% CER in the 3rd quarter, But have risen at a mid single digit CER rate on a year to date basis. We continue to see good underlying trends, But are closely monitoring the situation as the pandemic evolves. Moving down the income statement. The adjusted operating income margin came in at 28.7% of sales. This was mainly due to our decision To accelerate investments into the business in light of the higher sales trends. This margin compares to 30.8% in the Q3 of 2021, Which was clearly a period with exceptional sales growth for COVID products. Turning to the components. The adjusted gross margin rose by 1 percentage point to 67.6% of sales in the year ago period. This included favorable margin developments for QIAstat Dx due to higher utilization and improvements in consumables production As well as contributions from product mix due to the Sample Technologies and Genomics NGS product groups. The investments rose to 9.8% of sales in the 3rd quarter from 9% in the year ago period As we are accelerating these investments during the second half of twenty twenty two. Sales and marketing expenses also rose in the Q3 of '22, rising about 1.8 percentage points to 22.9% of sales from the same period in 'twenty 1. As mentioned, we have stepped up investments into the 5 pillars of growth in light of the strong results in 2022. And like others, we are also facing higher freight costs and also higher commissions in line with the strong sales performance. In terms of general administrative expenses, this rose about 1 percentage point to 6.2% of sales. This is mainly due to investments into IT systems and cybersecurity. Adjusted EPS for the Q3 was $0.55 At constant exchange rates and again, above our outlook for at least $0.48 Results at actual rates were $0.53 Due to the strong currency headwinds, the adjusted tax rate was 18%, at the high end of the range we had set for about 17% to 18%. We continue to expect a full year rate of about 18% to 19%. Turning to cash flow. We saw strong trends in the Q3 of 'twenty two and continuing the trends from earlier The year in terms of both operating cash flow and free cash flow. Thanks to the solid business expansion, Operating cash flow rose 34 percent to US591 $1,000,000 over the 1st 9 months of 2021. Free cash flow rose at an even faster 67% pace in the 1st 9 months of 'twenty 2 over the year ago period. This was due to lower purchases of property, plant and equipment in 2022 following the completion of important investments during 2022 2021 To expand production capacity, these investments fell to 5.2% of sales in the 'twenty two period From 8.3% in the 1st 9 months of 2021. In terms of our balance sheet, Our total consolidated net debt stood at $402,000,000 at September 30, 'twenty Compared to US876 million dollars at December 31, 'twenty one. This has decreased due to the cash, cash equivalents and short term investments held at of the end of the third quarter. Based on this, our leverage ratio stood at 0.4 net times net debt to adjusted EBITDA at the end of the third quarter. For your information, during the month of October, We have used US480 million dollars of our cash balance to repay a number of debt maturities from the U. S. Private placement issued in 2012 And the short chain issued in 2017. We are reviewing different ways to put the balance sheet to work And continue to take a disciplined view on capital deployment. This policy has been in place for a decade and has served us well. It involves both targeted both on M and A deals along with share repurchase programs. With that, I would like now to hand back to Thierry. Thank you, Roland. And please now allow me to go over some of the key updates our teams have made in the progress of advancing our 5 pillars of growth Within our overall growth strategy, starting first of all in SampleTech. Here we are working in tandem To update our instruments and automation system in combination with new kits to further develop application in key areas. Just as an example, in the Q3, we released a new workflow leveraging the new easy to connect instrument with the QIAQUITY digital PCR instruments For liquid biopsy applications. This workflow combines the key features of these two platforms, The very high quality sample prep with EZ2 and Kayaquity's high sensitivity in order to handle the demands of high volume Liquid biopsy samples. This unique power of 2 offers optimized detection and quantification For successful biomarker profiling. This also builds on QIAGEN's comprehensive liquid biopsy portfolio. In fact, QIAGEN is one of the only providers able to master all liquid biopsy analytes. Those include circulating DNA, Circulating tumor cells and exosomes. Our teams have also expanded the range of kits for the Karya XCellConnect instrument That is used for quality control analysis. Those new kits make QIAXA even more attractive for analysis of DNA And RNA in next generation sequencing application. Our second growth pillar involves QuantiFERON TB, The modern gold standard for detection of latent tuberculosis. We remain extremely committed to bringing TB testing solution to as many countries around the world as possible. As for Kaya Reach, the test version launched earlier this year for high burden, Low income countries, our partner Illume has recently entered insolvency proceedings. We still are working on new options for this product and are also very much open to new solution to improve TB testing in emerging countries. But keep in mind that the KAYA Reach sales expectation have no impact on the midterm QuantiFERON growth plans. As regard to QIAstat Diagnostics, I mentioned the new QIAstat panel for viral vesicular detection. This is a panel for detection of monkeypox and all the viral pathogens for research and epidemiological surveillance. These panels confirm once again our ability to remain extremely agile and responsive to public health needs. It is another example of the flexibility we have with the QIAstat diagnostic system and the growing use for syndromic testing. During 2022, we have added the meningitis panel to the CE IVD menu in Europe And we are now able to offer along with the respiratory and GI panels. As you know, We already offered a respiratory panel in the U. S. And have submitted the gastrointestinal panel to the FDA. We are expecting a decision during 2023. The MENA ANGIE spinal is planned to be submitted to the U. S. Approval in 2023 as well. In terms of placement, we are seeing solid trends for QIAstat diagnostic modules and in particular a very good interest among European Customers for the higher throughput QIAstat Rise version. So even after the demand during COVID, We continue to see very encouraging placement trends. For NeuMoDx, we launched 2 new CE IVD test during the Q3, A test for the Epstein by various ABV and a test for human hyper virus 6. We can now offer 16 CE IVD test on the NeuMoDx system and this addition strengthens our offering for transplant patients. Another achievement was the certification of the NeuMoDx platform under the new European Union in vitro diagnostic medical devices regulation. This replaced the previous IVD rules and is impacting companies across the healthcare sector with additional R and D and regulatory costs. And in terms of placement, we are also continuing to see robust demand around the world, especially given the ability of labs To use NeuMoDx to automate the processing of LDTs, laboratory developed tests. In the PCR and nucleic acid amplification group, The new biopharma assays for Kayaquity are being well received in the market. Kayaquity systems are increasingly adopted To enhance drug safety and efficacy in order to leverage the higher level of sensitivity and accuracy offered by digital PCR technology. This new group of QIAQUITY assays are designed to address key application areas, especially for cell And gene therapy topics. The 8 plate Kaya Quity platform is proving to be popular in those customers' application as well Since it delivers high throughput capacity not offered by other platforms. Finally, In genomics and NGS, a new group of KAYASIC panels has been launched to expand our offering involving universal NGS solution. This portfolio can be used to prepare and analyze samples on any sequencing system. The new panels are designed for rapid processing to cut library prep time in half and to enable ultra sensitive variant analysis. Those new kits are confirmation that we are continuing to launch innovative chemistry to help customers optimizing NGS workflows worldwide. As part of this strategy, we continue to partner with sequencing instrument provider to ensure access to our solution. At this point, let me hand it back over to Roland for more details on our new 2022 outlook. Thank you, Thierry. Based on the better than expected results in the Q3 and also the solid outlook for the Q4, We have increased our full year sales outlook to about US2.25 billion dollars at constant exchange rates. This is an increase from the prior outlook for at least US2.2 billion dollars and compares to US2.2 billion dollars of sales in 2021. In the 1st 3 quarters of 2022, we delivered 14% CER growth in our non COVID product groups And expect double digit CER growth to continue into the Q4, putting us on track to achieve our full year goal. We are maintaining our conservative view on COVID testing and for these sales in 2022 to be below the 21 level of $704,000,000 In the 1st 3 quarters of 'twenty two, we had $427,000,000 of COVID product group sales at constant exchange rates. Our latest planning is for COVID product group sales to be about $500,000,000 At constant exchange rates. We clearly were also able to absorb within our full year outlook The impact of losing about 1% of annual sales due to the Russian invasion of Ukraine and the suspension of our business in Russia. In terms of profitability, we have upgraded our outlook for adjusted EPS to be about $2.40 At constant exchange rates, this is an increase of $0.10 from the prior outlook for at least $2.30 and this compares With our initial 'twenty two outlook for adjusted EPS of about $2.05 at CER. The progress in our business, however, is increasingly impacted by adverse currency movements against the U. S. Dollar. Based on exchange rates as of October 31, 'twenty two, currency movements against the dollar are now expected to create an adverse impact Of about 6 percentage points on net sales. The adverse headwinds are also expected to reduce adjusted EPS At actual rates by $0.09 to $0.10 per share. At actual rates, this implies sales of about $2,100,000,000 And adjusted EPS of about $2.30 to $2.31 For the Q4, We have set an outlook for sales to reach at least $520,000,000 at constant exchange rates and for adjusted diluted EPS of at least $0.50 also at CER. It takes into consideration the acceleration of investments in light of the strong performance And also our decision to make one time payments to support QIAGEN employees in light of the current high inflation environment. We expect currency headwinds in the Q4 to have an adverse impact of about 7 percentage points on sales At about $0.03 on adjusted EPS. At actual rates, this implies sales of at least $483,000,000 And adjusted EPS of at least $0.47 I would like to now hand back to Thierry. Thank you, Roland, and thank you, Raul, for your attention. I think it's time to go to a quick recap of our key messages before We moved into the Q and A session. First, our results exceeded the outlook for the Q3 of 2022, Driven by the 18% CER growth from our non COVID product group and adjusted earnings per share of $0.55 CER Well above the previous outlook of $0.48 Second, our teams remain fully engaged And continue to execute on our 5 pillars of growth strategy. And lastly, we have increased our 2022 full year outlook To reflect the better than expected sales and profitability in the Q3. With that, we are reaffirming our commitment for double digit Growth of our non COVID portfolio in 2022. And as we look into 2023, Based on what we see today, there is no reason why QIAGEN non COVID product group should not continue At a double digit CER growth rate in the New Year as well. I now would like to hand back to John Ladies and gentlemen, at this time, we will begin the question and answer session. To ensure we can accommodate as many people as possible, please limit yourselves to only one question And if necessary, one follow-up. Your microphone will also be muted after finish asking the questions. And our first question comes from Odysseus Manasiotis of Berenberg. Odysseus, please go ahead. Thanks for taking my questions. I've got 2, please. First of all, I think you've been communicating high single digit Low double digit growth in the non COVID business potentially rolling on to next year. I wanted to ask the dynamics here between different divisions, Particularly your growth pillars. Would it be fair to assume mid term guidance growth, for example, double digit growth For all growth pillars except sample prep for next year? And secondly, on QIAstat, Could you please ensure give us a confirmation of whether you're still planning to launch the GI meningitis And BCID panels in the U. S. For next year, is this plan still on track? Thank you. Thanks a lot, Odysseo. And for your first question, first on the let's say mid term growth profile. So first of all, I'd like highlight that we are not in the mid term basically guidelines, but as we said based on the results That we are seeing today based on our knowledge of the current environment, we see no reason indeed to see the non COVID portfolio Of QIAGEN not growing at double digit next year. And if you want to focus on the 5 pillars, you are perfectly right. We see indeed QuantiFERON, QIAstat, NeuMoDx and QIAQUITY continuing to grow at double digit. And as we said, Back in December 2020 in the QIAGEN Investor Day, we see our SampleTech Portfolio growing at mid single digit indeed. Now to the question on QIAstat. We have submitted GI For the U. S. Approval, we expect, as I said before, an approval in 2023. Our plan is to submit the meningitis panel before the end of 2023. You also mentioned BCID. The BCID Plan L is not planned to be submitted in 2023. We want first to launch it in Europe and then we will submit it in the U. S, but probably around the end of 2024. Operator, let's move to the next question. Thank you. The next question comes from Casey Woodring of JPMorgan. Casey, please go ahead. Hi, guys. Thanks for taking my question. How should we think about the setup for 2023? Is the strong performance This year creating a tough non COVID comp for next year. And then how should we think about the moving parts to gross margins next year as well with COVID assay revenue rolling off and Higher input costs and balancing that out with pricing. Can we expect gross margin expansion next year? Thanks. I think we can take this Roland and I and I will ask Roland to chime in also on the gross margin. On the overall perspective, you have seen probably that We have raised our guidance for COVID sales 2022 to around $500,000,000 We continue To take a conservative approach on COVID evolution post 2022, we do not want To have our P and L depending on COVID's volatility and therefore we expect basically those COVID sales 2022 23%, I'm sorry, to decrease by more than 50%. This is our current assumption. This being said, our focus is on the non COVID Part of our portfolio and this I repeat, based on what we have enhanced today, we see no reason to have that Non COVID part of our portfolio growing at less than double digit for 2023. This being said, I would like to invite Roland to comment on the gross margin. Yes. And as Thierry said before, we're clearly not in the guidance call right now for 2023. Nevertheless, I think what we are willing So we confirm today's, as you talked about the revenue side, I think it's also fair to say that the comments we made before on profitability are still very valid, which As you know, we always said that we want to be post COVID stronger than we were pre COVID, and you'll recall that Pre COVID, we had an adjusted EBITDA margin of 27 plus 6%. And We clearly do believe that also now moving into 23%, we should be nicely about the 27%, right? Look, exactly is clearly also a question of certain things are moving from price increases to inflations. Overall, I would say, the trend right now over the last couple of weeks were rather positive. So I do think we will move quite strong into the year 2023. Our next question comes from Derik De Bruin of Bank of America. Derik, please go ahead. Hi, good morning. Thanks for taking the question. Hey, can you talk a little bit about your genomics portfolio, Specifically, the demand that you're seeing for sample prep in some of your panels and such, There's obviously been a little bit of choppiness in the genomics market to be sort of seeing some results. So some of what you're feeling there. And just your overall thoughts on How you're viewing Europe and demand there going into the end of the year and in 2023? Thank you. Derek, can you repeat the second part of your question on Europe please? I didn't get that. Your voice was a bit muted. I apologize. Sorry. Yes, sorry about that. No, just basically what your expectations are for Europe as you look into the Q4 and into 'twenty three? So sort of like do you expect to see That region softening and the headwinds there. Thank you. Okay. So first addressing the genomics. Obviously, we follow carefully the evolution of the market. Follow obviously the reporting and publication of our competitors. I'd like to remind our audience today that QIAGEN since 2019 Has chosen a completely platform agnostic strategy. Our chemistry is universal And our bioinformatics is universal and can be used on any different kind of platforms, be it a Illumina, Thermo, Element, PGI Allroses. So I believe that not being involved into the platform sales, We are less exposed than potentially some other companies because of the market evolution at the moment. Now, Our universal NGS consumable saw a single digit growth against high sales in the Q3 of 2021. And if you remember, we have this kind of small base effect because last year in Q3 of 2021, we had a double effect. First, there was higher consumption of normal UNGS customers were coming back and at the same time We had government still investing in sequencing of positive PCR for COVID To try to detect the evolution of the mutation of the virus. And so this is why we are in Q3 in that single digit growth. That being said, overall, I do not see a reason to go lower than double digit Good for our U. S. GAAP portfolio as we did by the way pre COVID. 2nd, your question to Europe. Once again, we are not in the guidance call or in the 2020 call. You have seen that Europe, Middle East and Africa had Kind of leading growth in Q3. We have strong basis there. We have direct subsidiaries in most of the countries. We are obviously extremely, extremely attentive to the economic situation. Europe is part of the geography where we have and we are passing a second set of price increase in July of this year. We will now pass a 3rd set of price increase starting January 2023. So this is what I can say at the moment, Very attentive to the economic environment at the same time, very solid in our organization in this geographic area. The next question comes from Falco Friedrichs of Deutsche Bank. Falco, please go ahead. Thank you. Good afternoon. Two questions, please. Firstly, can you quantify the price increases that you pushed through this year for us? And what do you Expect for next year on top of the ones you pass through this year. And then secondly, on digital PCR where you showed a pretty good performance again. How do you see that market developing going forward now? And do you see Roche's new device as a bit of a risk to your device? Thank you. Thank you so much, Falco. And very quickly and Roland, obviously, if you want to chime in on the price increase, obviously, feel free. So We always explain that we have a normal established policy of a yearly Price increase that happens normally in January of every year between December of the previous year and January. This year, starting July, we have decided in light of inflation on a selected number of countries To pass a second price increase and we disclose in our Q2 results That we were targeting overall lease price 6% to 7% price increase for that second wave. Now, obviously, once this objective is set, we negotiate customer by customers to see what we can obviously achieve Net net and we are still basically living through that at the moment. We explained to you as well That when we say 6% to 7% price increase, you should not consider on the total base of customers. Why? First of all, because as we said, it's on selected geographies, obviously in our main markets, but also because we are In a contract, pre annual contract with some customers and therefore in those pre annual contracts, We have a guaranteed volume that normally price are already locked for 1, 2 or 3 years. Nonetheless, as I disclosed also in our Q2 call, I said that given the specificities of higher inflation this year, we are also visiting those pre annual customers to try to negotiate something. So it's too early to give you a definitive impact. What I can I'll tell you is that obviously we have a net net positive impact of those price increase. For next year, we are working on the increase. We take into account obviously what we have passed in January of 2022 what we have passed in July and then we will determine the best number possible together with our customers. Roland, would you like to add something on the price increase, PRAPS? No, I think it was really well answered. Thank you. On the digital PCR, we continue to see that market growing. You remember Falco that we said Stricto Sansu at this moment, this is probably a $350,000,000 to $400,000,000 market, but the market we need to consider the total Accessible market is rather the total qPCR market, which is above €3,000,000,000 So we see it as a very growing market, Dynamic market, especially for QIAGEN because we believe that with QIAQUITY, we have a highly differentiated solution, I remind you, 3 different workflows, 3 completely integrated boxes, whereas with competition at this moment you have to Piecemeal basically a workflow to get your final digital PCR result. And this is the case of Roche. We obviously observed the entrance of Roche in that market. It proves once again that this market is dynamic. We believe that Roche will help us growing the interest of customers in digital PCR, but I must say They come with an offer which is not fully integrated, which is made of 2 components. So I never criticized competition, but I still believe That given its specificities, Kaya Equity is well placed to take a leading position on this market. The next question comes from Hugo Solvay with BNP Paribas. Hugo, please go ahead. Hi, hello. Thanks for taking my questions. I have 2 on supply chain. Some of your peers have been impacted by shortages of electronics and chips, Mainly in life science instrumentation. What is the situation for QIAGEN at the moment as it does not seem to have An impact on instrument for life science customers. And second on new modalities, thanks for the update on the European menu. Can you update us On the recent progresses that have been made on the broadening of the U. S. Menu. Thank you. Very good. Thank you, Hugo, on the supply. And I think Ronald also discussed that extensively during our Q2. First of all, we highlight that TRAPS, unlike other companies, we have been prepared of tight supply situation by COVID. You remember that at the beginning of COVID in 2020 and on 2021, there were extremely difficult Supply situation in some key components such as biologics or plastic. What does it mean? It means that our company, Our supply and purchasing team is extremely prepared and exit extremely on the ball, I would say, For more than 2 years now on those supply issues, we have taken some very specific measures Such as not hesitating for example to take purchasing commitment with suppliers of around 1 year Because we don't want to put our customers in our difficult situation. So I do not want to say that There is absolutely no pressure on our supply chain. Of course, there are. But I think they are managed at QIAGEN Because we have taken proactive measures and it's very also interesting for us to see that our back order that were normal back order level at CalGen Is back to the level that we had to the pre at the pre COVID situation and this is very encouraging. Roland, a word on supply chain PRAS? Yes. Overall, I would say the benefit we had is clearly that because of the volatility we have seen in some of our markets, COVID, but also in some of the growth opportunities we have in the non COVID side, we decided quite early, even as early as in 2020 To increase our more or less inventory on the semi finished goods, and I think that is very helpful right now. Of course, in all fairness, Most of the challenges companies see in this industry is also coming out of logistic challenges and with a relatively good inventory level, I think you can write that out a bit. Now we go moving to your second question, which is basically the status of the U. S. Menu expansion for NeuMoDx. If you remember, Hugo, we have talked several times Since 2021 about the regulatory situation in the U. S. For NeuMoDx. First of all, I'd like to highlight that our midterm growth Profile for this solution is not changing and we still expect a double digit growth profile for NeuMoDx worldwide. Our first priority has been first to answer the global call for testing during the COVID pandemic. Let us remember that the development of a Single plex or the development of a 4 plex on NeuMoDx was absolutely not forecasted initially. The pandemic also started during the initial launch of the system. And like you have seen with any new system on the market, There is always a period of work where you improve the stability of the system. And this basically was given a priority by Theragen And also led to delays in FDA handling submission. At the end of 2022, We are now back in a position to dedicate more resources, more emphasis, more focus on developing the U. S. Test menu in the coming years And you will see more submissions starting again in 2023. Remember also for the U. S. That NeuMoDx benefit from One very unique capability, which is it's still the only system able to run regulated assays and SDTs on the system at the same time in a random way and this is unique and this is why we can still continue to sell in the U. S. Even if obviously we have less menu than in Europe for the moment. The last question comes from Ed Ridley Day of Redburn. Please go ahead, Ed. Thank you. Congratulations on the excellent quarter. Do you see any certain ramp of wage inflation and labor shortages? And to what extent I do feel you're positioned to help them with those challenges. And just a quick follow-up on China. If you just remind us now as a current run rate Percent of sales in China. And if you can give us any more color on what the current trading environment is in China that would be helpful. So Ed, I do apologize once again. I don't know if it's coming on my hand, but I did not understand the first part of your question. I heard words like concession and wages. Perhaps you might want to repeat that one? I think Question to you was on more or less what we are doing for our employees there and in the fight Do you want to take that one, Roland, before I move to China, Piyush? Sure. No, let's do that. No, and I think what I was Trying to say on the in our prepared minutes is that QIAGEN decided in countries Where inflation has clearly a larger than average increase to help our employees with one time payments here in the 4th quarter. So it will overall affect roughly more than half of our employees. And that's clearly something what we're doing for this year. We Clearly, also morning the situation for next year. We clearly expect also that seller increases in next year overall We'll be probably higher than what we have seen before because of, again, on the one hand side, we are having a good performance, but clearly also That inflation challenges are going to stay. So I think it's one way to really taking also our ownership here and our responsibility Thanks a lot, Roland. And moving to China, Ed. So clearly, Ratio wise, I would say China, remember, it's around 6% to 7% of our sales. So we don't The same kind of exposure than some of our peers. At the same time, I would highlight that I think organization wise, we are quite well prepared To answer the challenges of the Chinese market, you remember in the past we mentioned localization, nationalization of Some Healthcare segment, remember that we have a site in Shenzhen for a local manufacturing and development and we have also a second brand in China. So obviously, we follow extremely carefully the very unpredictable situation with lockdown because it's a very moving situation. And so results wise, as we have said today for the 1st 9 months of 2022, Our sales are up 4% CER over 2021 same period, But in Q3, we saw a sales decline of 3%. It was completely factored in our new guidance that we gave already In the Q2 call, we continue obviously to see opportunities in the China market. Let's never forget That whatever the challenges, it's still the 2nd market in the world from a size standpoint. But compared to probably the pre COVID period, We see those opportunities at a lower rate than before 2019. Okay. Thank you very much, Terry. And with that, we want to end the call here. We appreciate your interest in QIAGEN. If you have any follow-up questions topics to discuss, please reach out to Phoebe and me and we're available to help you out. Thank you very much. Ladies and gentlemen, this concludes the conference call. Thank you for joining and have a pleasant day. Goodbye.