Welcome, everybody. I'm Tycho Peterson from the Life Science team. Pleased to have Roland with us from QIAGEN. Welcome. Maybe let's do a quick recap of 3Q to kick things off. You had 6% core growth, better than expectations. Sample tech, QuantiFERON, PCR, a little bit of a drag. Just maybe talk about the gives and takes, and also on the operating margin side.
Yeah, but first of all, thanks for having us, Tycho. I think you organized everything well, other than the weather. But again, as you said correctly, I think QIAGEN was clearly off to a good start into year 2026. We had, I would say, a good growth. We had 7% in the first quarter, 6% in the second quarter, 6% in the third quarter, given the market environment, which is clearly challenging. And again, I am not only have to refer to certain regions like China or now recently the shutdown situation in the U.S . But unfortunately, there is always something going on in some parts of the world. And so I think we have to deal with that. Nevertheless, I do think it is fair to say that the focus of the company is paying off. As you know, since a couple of years, we are focusing around five growth drivers.
They're all delivering quite well. I do think what clearly stands out, and you were alluding to that, Tycho, in the last quarter, was clearly that also the sample preparation business, which is by definition anyway our largest product, has seen a nice underlying acceleration to 3%, which I think was convincing for us, particularly as this was happening ahead of three major instrumentation launches, which will come up now end of this year, probably more two of them actually mid of next year. I would say we feel quite comfortable in general. We still do not like the overall macro environment too much. It is also a reason why I would say guidance-wise, moving into the fourth quarter, we probably took it on a more conservative side because there are clearly some challenges still ahead of us.
Yeah, and maybe just to jump into that, you did take a little bit more of a cautious approach in the fourth quarter. We'll talk about the government shutdown in a minute, but are there particular areas or segments where you're embedding more softness?
I think this is really particularly related to the U.S. situation and the academic environment in general, because I do think it's important that also here we have to look on two different levels of impact from the overall shutdown or actually overall funding situation. While the shutdown is now over, the funding situation is still not clarified. What I mean by that is there's still one layer which is related to the straight funding situation. Is there a budget or is not? While there was clearly always a certain limitation over the last couple of months, there was still always some funding available, which helps us quite nicely with the majority of our business, which is our consumable business. People could fund and finance their ongoing operations.
As you know, products like our sample prep solutions are a day-to-day must-to-have in any kind of lab, not only academic environment. It is true in a clinical setting as well. There is a second layer. The second layer has to do with the perception on funding mid and long term. That, of course, has a direct impact to instrumentation because even if now the funding situation for at least two months is now clarified, the question is, do scientists believe that they have a secure basis for mid and long term so that they can invest in new instrumentation? If you invest in new machine, you, of course, by definition, have to think through. It does not mean that I have to hire another operational guy.
Do I have to, by definition, have an incremental cash flow or cash out in terms of consumable stream? I do think it will take some time before things settle and normalize because right now we do not have an approved U.S. budget yet.
You made some comments in September that I think sales to the NIH and NSF had actually not decreased year over year. Did things deteriorate significantly after that? Just thinking ahead to next year, how quickly could things snap back once we have a budget in place?
We feel comfortable on our consumable business, as I said before, and you were alluding to that. Again, it is a daily part of the daily routine. As long as people are going into the lab, and it does not matter if it is a clinical lab, a pharma company, or even an NIH lab, they are going to burn our consumable, and that is going to continue. Of course, we always like if they have more money because they can invest more, but I do not think that is not even necessary for us to gain momentum here. The more critical part is the instrumentation part of our business, which is probably around 10%. Here, I would say normalization will probably take some time because while hopefully soon they have an approved budget, I am not sure that the confidence level will snap back on the same space.
If that now takes another three months or so, that's hard to judge. We have to see. That's also the reason why probably also this year and probably also then for next year, we rather take a more conservative stance when we give guidance and rather doing a bit better if things clear up sooner.
Maybe just spend a minute on margins. The guide moved a bit lower. That was mostly FX. How do we view this as a jumping-off point? You said, I think, to expect a similar level of underlying margin expansion next year, but tariff impact will be less, I think about 90 bps , and then you have dilution from Parse. Maybe just talk on the gives and takes.
Good question. First of all, I think when we move into the year, we said we will end somewhere between 29% and 30%. So we will end at 29.5%. I would say given that year, we still feel quite good about that. It is anyway one of the industry leading margin profiles. It is a significant improvement of more than 300 bps over the last three years. I would say there is also, I think, a good momentum. We also do believe that midterm, we will see more margin expansion. You all know that you and we are happy to do so. Waiting for us to increase our midterm margin, which we are going to give for 2028, and that will happen at some point next year. More or less in the next 12 months, we will continue to see margin improvements on the growth side.
We will see more leverage opportunities. I'm happy to go through some more details in time. At the same time, of course, as you said correctly, we have some headwinds to face. One is past acquisitions with short term is dilutive to us. 2028 is going to be accretive. There will be 100 basis points margin headwind for us next year. Using the currency rates, more or less, which we see right now, we probably also would have a 50 basis points headwind in terms of currency. Also tariffs will be, while staying at 90 basis points, of course, will be a 12-month impact. There is some headwind as well. Nevertheless, we still believe there is operational margin impact, which should offset all of that. Again, I can't tell you because we're not giving guidance today how much we will be above that.
I would say, from my view today, we probably at least stay flattish. From there, we move forward north of 31%. Again, the target was 31% for 2028. We are clearly hitting that much earlier. If the new target then is, I do not know, is 33%, 34%, 35%, we will tell you at that time.
These are additional cost-out programs that are in flight at this point?
There's a couple of areas where we see still quite some opportunities. Two big ones are within gross margin. One is a better utilization of our QIAstat production environment. Having in mind that the German government was very kind during COVID to pave our production environment. Therefore, we still have to grow into the utilization because post-COVID utilization is different. That has quite a standard cost impact to us. The second one is a product mix in general will be more profitable. Higher margin products are growing faster than lower margin products for us. Within operational expenses, I would expect that R&D stays around 9% of revenues going into R&D. It's a kind of a comfort zone for us in terms of in and output. There's quite a lot of operational opportunities within SG&A. Think about digitization.
Right now, we have probably 60% of our revenues coming through digital channels. We see that there's an opportunity going up to 75%. All our new instruments really have embedded digital workflows for our customers to order. I think there's opportunities for us.
Maybe we'll shift over to Parse. Interesting deal, instrument-free, single cell. You said on the 3Q call, you've been looking at this since 2017. Maybe talk about why this was the right asset and this was the right time.
Yeah, let me kick it off and then my colleagues can take it over. As you said, we know that company more or less from the beginning. What we always liked is that they were very diligent in what they promised and what they delivered. Again, while we know them since 2017, 2018, we clearly closely followed them more or less over the last two years. If you look on the revenue realm, they had last year around $20 million in revenues. As you know, we believe for next year it will be at least $40 million in revenues. What we also like is that their solution is very much a consumable-based solution.
You do not have to invest into an instrument, which I think in the current environment, we see a clear plus in the customer areas, which we are going to focus on, which, as you know, is particular on the academic/pharma side. I think there is a benefit around that as well. There are other scientific opportunities, but Daniel and John, please.
Yeah, so what I also would like to stress is the unmatched scalability of Parse's Evercode technology. The Parse-Tahoe Therapeutics data set of more than 100 million demonstrates clearly the potential and goes into the direction of virtual cell modeling, which is a very attractive area. Eventually, this also points to strong synergies we see with QIAGEN Digital Insights. You need end-to-end workflows for these massive single-cell data sets. This is a particular feature of the Evercode technology. Basically, Parse serves a very attractive piece of the overall single-cell market.
Maybe just to finally click on that, can you just talk about the adjacency to Sample tech? I know they've got over 3,000 customers, including a lot of the top pharma. How do QIAGEN and Parse come into contact in labs today? How will that evolve?
Yeah, so we share many of the same customers, including all top 10 global pharma companies, NGS-enabled labs, and also translational centers. It actually is a logical part of Sample tech, given that it's a further upstream of nucleic acid isolation, the core of our Sample tech business. Yeah, that's what I want to answer to that.
I guess just thinking about synergies, anything to flag kind of out of the gate on the cost synergy side? Then as we think about maybe revenue synergies, how much is cross-selling versus innovation in the pipeline from Parse?
I think Daniel just touched on it. I do think the focus is clearly on revenue synergies because, again, there's a significant overlap in customers' opportunities. Again, given our franchise on the bioinformatics, which is clearly the single largest one globally, and also our footprint in sample prep, we do believe that we talk to these customers more or less on the daily routine. There are, of course, certain cost synergies. By definition, we're not touching R&D efforts. We're rather scaling down on that and doubling up there. Of course, on the sales and marketing side, on the administration side, QIAGEN has a significant benefit. Just think on some cost structures. Have in mind that QIAGEN probably has somewhere between 15% and 20% of its people in global shared service centers. There is significant also cost leverage we can gain there as well.
Maybe just it's a good segue into Sample tech more broadly. Obviously, the three new launches you touched on earlier, you've got some nice tailwinds around liquid biopsy. Maybe just help us think about these growth drivers and the path back to kind of 3%-4% CAGR by 2028.
Yeah, as I said, Sample prep is clearly the product QIAGEN is well known for. I would say most analysts, and I'm not sure your number, Tycho, but believe that we are a market leader and have some market share. Therefore, it is even more important for us that we drive the innovation in that market as well. Nevertheless, there were certain boxes within sample prep where we did not have any presence. One is clearly the high throughput sample prep market. For historical reasons, we never were in that market. Now, with a new instrumentation launch, QIAsprint , probably around the second half of next year, we are moving into that market. That is a nice opportunity because we do expect, first of all, that the instruments which are sold in that market are rather variable.
I think there's no innovation in that market over the last five to eight years. We will come up with an instrument which has all the features the customers want to have from continuous load and random access, fast turnaround times, and so on, with a broad menu. I think QIAGEN has a menu anyway, so it's not a problem for us to bring the menu to these machines. That creates both instrument new placements and, of course, consumable pull-through. The second machine, which we just launched this week, as you know, to the market, was our QIAsymphony Connect platform, which QIAsymphony was our flagship platform now since 2008. A couple of facelifts in between. Now, a significant step forward, again, also in terms of workflow, in terms of integration and turnaround, and also throughput.
Here, we, of course, have a significant number of customers who use the machines for, I don't know, five, ten years and looking for the next generation. Here, I would expect rather instrumentation sales. I'm not sure it will have a short-term impact on consumables because, again, a lot of the instruments are quite well utilized, but we're happy to take the instrument sales as well. Last but not least, a great machine coming also probably in the second half of next year is the QIAmini. It's rather also a quite unique machine in our industry. We haven't set a price point, but it's probably a machine, a couple of thousand dollars, which automates sample prep in a very effective way.
If you're now sitting in an academic environment, for example, where you are squeezed on funding, where you're struggling and want to keep up the same workflow, but clearly can't finance new people, having now for, I don't know, $3,000-$5,000 a machine where you can do a fully sample prep step and as a walk-away solution, I think that finds an attractive market opportunity as well. In addition to that, of course, we clearly also believe with normalization of the academic environment, particularly also sample prep should see, I would say, a certain boost. I'm not afraid of the numbers we just raised.
I guess on the high throughput side, how much of that opportunity? How should we think about the ramp? How much of that opportunity is displacing competitive systems versus just kind of overall market growth?
Again, we clearly see that the volume is in general growing. I think there is a natural green field opportunity. By definition, there are also clearly certain customers who, after, I do not know, five, six, seven years, want to have a new machine. I am quite sure it will be a mix of both. Certain segments of these high throughput markets are clearly reagent rental markets. That will take some time before you see it in your P&L. There is also a significant part of customers who are straight payers because they are budget-driven. I would say it is a fair mix between both. I would say you will see impact in the second half of next year.
Maybe shift over to QIAGEN. You had solid growth and up 11% in the third quarter, but it was a slowdown from the first half of the year. A lot of that's respiratory, obviously. How do we think about the menu evolution over time? You've got GI, meningitis, growing double digits as you push into UTI and blood. You're diversifying away from respiratory. How do we think about the volatility in that business and the growth outlook?
Yeah, let me kick it over. And then Daniel probably can extend here a bit. As you said, QIAGEN is clearly a very successful product launch for QIAGEN. I think we always said, if we place more than 150 instruments per quarter, that was a good quarter. We had significantly more in Q1. We had significantly more in Q2. We had significantly more in Q3. I am not surprised that Q4 will have a similar trend, right? Despite that, Q3 in general was probably not as much respiratory as people believe. We see the clearly benefits of our launches in the U.S. still coming through. Have in mind that we end of last year got four incremental new launches in the U.S., particularly GI and meningitis are important. They are therefore important because we can play now in the tender business. What does it mean?
In the U.S. there's a significant group of customers where you have to offer at least three or four different assets. In the past, we only had in the U.S. respiratory. In the rest of the world, we had more or less a menu. We could not play and enter certain parts of the market. That is now different. Unfortunately, not every tender gets to the market every year. Typically, three or four years tender. Only 1/3 , 1/4 of the market gets accessible every year in the U.S. Of course, right now, we are able to participate and we are winning them. We more or less had our placements numbers from 2024 for the U.S. already done in 2025 mid of this year, just to show how quickly we are growing in that market.
I would say we feel quite confident that we grow that going forward. On the menu?
Yeah, I think what is really key for us in the U.S. is to have the broad menu, as just Roland pointed out. Have in mind that we are expanding our menu for QIAstat-Dx. We are on track to submit in blood culture until the end of the year. We are also working in urinary tract infection to submit next year, both in the U.S. and also in Europe. Menu expansion for the QIAstat-Dx is also a key growth driver over the midterm.
I guess as we just think about traction in the U.S., are these similar questions I had on the kind of sample properties, head-to-head wins versus competition, greenfield. Where have you kind of seen the most uptake?
What kind of is that, you mean? To be honest, it's still a global product for us. While the U.S., of course, is catching up to a certain extent, we still see double-digit growth also in the rest of the world. I don't think that we see anything fading away. It's clearly also a market where sometimes you win larger contracts with governmental institutes and whatever. That sometimes makes a comparability not easier quarter- by- quarter. Again, for Q4, we clearly see that respiratory is probably normalizing a bit more, which is good. I think that will be helpful. Over time, the new launches are important for us because right now, it's no secret for us, as for many other companies, it is about respiratory. All others are clearly growing quite quickly as well.
Have in mind that pre-COVID, a long time ago, this kind of business was like 1/3 respiratory, 1/3 gastro, 1/3 all other assets, right? COVID clearly put it in a very different spectrum that probably respiratory is, I don't know, probably 70% today. That will normalize over time. I don't think it will go down to 30% again, but I don't think it will stay. Hopefully, not always at 70%. We will have other things to test for.
QIAcuity, so digital PCR, overall market, a bit challenged on the instrument side, but you've grown the business nicely. Two areas, I think, companion diagnostics and pharma particularly standing out. Maybe can you talk about each of those as growth drivers?
I think the long-term trend hasn't changed. Digital PCR has a lot of opportunities, but clearly two big opportunities. One is replacing qPCR, which is a $2.5 billion market opportunity. It's just much more insight for a very similar price point for scientists. At the end of it, it's the same story. Why is nobody using a Nokia anymore? Because you can do so many more things with an iPhone. Most people don't use it for calling anymore, right? Similar for digital PCR. You get so much more information for similar price points why you shouldn't use it. Same is, of course, we see it with the pharma companies. Digital PCR is a nice opportunity for them to reduce costs, which is, I think, important in these days for them as well. Because for pharma research, you don't have to do sequencing all the time, right?
If you can do it for a fraction of the cost in a fraction of the time, most people forget about the time components. Sequencing does not go overnight, as we all know. It is an alternative opportunity. It also is used a lot for quality control and review. Yes, it is still growing quite nicely. Not as good as we thought in instrumentation because academic budgets, as we talked about, are somewhat limited. I am quite sure it is one of the first areas to snap back because it helps customers at the end of the day to accelerate and to save. I am not worried about that returns. Also in the instrumentation side, to a double-digit growth rate, consumables will stay anyway on that.
Maybe aside from a recovery in academic, what are some of the kind of the other growth drivers in terms of newer markets opening up for digital PCR in particular?
Digital PCR, really where we see the opportunities are moving more and more into pharma in terms of QA, QC, manufacturing steps. I think the real opportunity is going to be coming into clinic. If you think about what we talked about, our capital markets today. Take an example of a customer like St. Jude Medical using our systems to do CAR-T therapies for kids for pediatric conditions. We are going to move into oncology. The fact that we have been able to increase the multiplexing power of our system, which means how many targets can you look at simultaneously? We are now at around 12, 13, and we are going to increase that some more. You see these opportunities that we can really hit the sweet spot between quantitative PCR in terms of keeping speed, but higher level precision.
On the other side, next-gen sequencing, we can get stuff done in hours, which they take days to weeks. We are really in a sweet spot. This is an important relay of growth for us going forward.
What's the timeline for clinical to really open up for digital PCR in your view? Is it next couple of years?
It's next couple of years.
Maybe in the last minute or so, we'll just touch on QDI. You had double-digit growth here. Can you maybe just unpack the trends there across discovery and clinical? What was the contribution from Genoox? Are you seeing any synergies there?
As you know, bioinformatics for QIAGEN is clearly one of our focus areas, more than $100 million in revenues. I would say also last couple of quarters, again, good growth momentum. While we're going still in a transition, a lot of customers in the past were buying licenses about three plus years. So we had a one-time revenue went. Now we're transferring that as customers want to have that as well into a kind of a SaaS kind of business model. There is clearly a different revenue recognition and therefore one-time impacts where we have to go through, despite the impact also double-digit last quarter. Genoox clearly had a few certain contribution to that, but I think it was not a big differentiation factor yet. Do you think that will be different for next year? Because we're still integrating into our sales channels.
Nevertheless, the one thing what, of course, is being very helpful, we believe that the Genoox particular front end will help us also to have a revenue impact on the larger profile because we have, I would say, a nice front end opening to smaller accounts, which was not really addressable for us in the past. I would assume that that helps us quite a lot to keep that franchise also growing double-digit. As you know, it is also quite profitable business for us with above-average EBITDA numbers. I would say overall, we feel quite comfortable while we go into a transition in terms of revenue recognition.
Great. We're at time. We'll leave it at that. Thanks.
Thank you, Tycho.
Thank you.