Can everyone hear me? Yeah? Excellent. All right. Welcome, everyone, to our fireside chat with QIAGEN. I'm Aisyah Noor, Head of European MedTech Research at Morgan Stanley, and it's my pleasure to host QIAGEN CEO, Jonathan Pratt, and CFO, Roland Sackers today, as well as IR, Domenica Martorana. Before we start, I'm obligated to inform you to check ms.com/researchdisclosures for important disclosures, and to check with your MS sales rep if you have any questions.
With that, welcome, Jon and Roland. It's great to have you here in New York, and Jonathan, for the first time, as CEO of QIAGEN, very pleased to have you. If we kick off with your recent joining of QIAGEN, it's great that you've decided to join us here today. Could you briefly introduce yourself and why you decided to join this organization, and what do you see as the biggest opportunities in this business?
Okay. Well, thank you, Aisyah. Hello, everyone. Good to be here. Briefly introduce myself, as you can probably tell by the accent, I'm a Brit. I grew up in Europe. I moved to the States in 2001. In the industry, I spent a lot of my career at Pall Corporation, where I ran their laboratory businesses, some of the instrumentation businesses, and their food and beverage businesses. From Pall, I ran as president of Beckman Coulter Life Sciences as part of Danaher, and did that for a few years. Moved to Florida in the process. After Beckman Coulter Life Sciences, I led what we called the Waters division at Waters Corporation, which was about 90% of the corporation at that time. From Waters, I actually took an opportunity to run Filtration Group, which was a life science process tech and industrial enterprise that we were going to take public.
But as it happened, we had strategic interests and sold that company. About, we closed it about two weeks ago, two and a half weeks ago. The QIAGEN board had approached me to join earlier in the year, and we eventually were able to join as CEO two weeks ago. The next part of your question was what attracted me to QIAGEN?
Yes.
I guess the first thing to say is, I'm a scientist. I'm an undergrad chemist. I first used QIAGEN in the lab, and from there, in each of my career steps, the kind of ever-present QIAGEN blue boxes were in the labs, be it in Waters, be it in Pall Corporation, Beckman, et cetera. I knew the brand. I knew the reputation of the brand, which was pretty much deep customer intimacy and high-quality product. When I joined, I was intrigued, so I went to speak to the board. The portfolio itself is very interesting. In sample prep, we touch every part of the healthcare space, and so we're exposed to everything in sample prep, and it's kind of deep-rooted par t of the organization. Some recent interesting acquisitions and bolt-ons in NGS. We also have the digital PCR franchise, as well as the recent Parse acquisition.
Also, there's a diagnostic play, which each have their niche two stools. You've got the QIAstat-Dx and QuantiFERON. So, interesting portfolio. Then you look at that and say, well, what can I bring to it? If there's been a theme in my career, it's been simplifying the complex. Capital allocation focused on one or two things, not six or seven things. It's kind of a theme. Then bringing that right down through an enterprise in terms of choice and simplicity sounds easy, but it's kind of what I tend to try and bring to it from a strategic choice perspective. Make sure you're structured to execute on that strategic choice. But I'm a front-end guy, really, a commercial guy. I think if there's a theme again through Beckman and Waters and others, it's improving that commercial execution.
Really bringing commercial excellence, sales funnel management, demand generation, product launch excellence, everything through a business. In a business like ours, which I love because it's razors and razor blades, every single placement matters, every single instrument matters. So having a great front-end commercial at commercial enterprise can really serve you very well. So I thought I could bring a lot of that to it as well. So here I am at QIAGEN.
Mm-hmm. If you think about your principles as a CEO, what do you consider the most important or the priorities for an organization?
Yeah.
Public listed? Is it top-line growth, profitability, EPS growth, free cash flow, returns? Help us think about that.
Yeah. At the end of the day, in the situation we're in at QIAGEN right now, I think growth is a priority. We have some sensible margin expansion opportunities as well, and I think some of those comes from wonderful things like price and growth and instrument choice, et cetera. Roland, perhaps you want to comment on where you see QIAGEN from a capital allocation perspective right now.
No, I think, Aisyah, we have since 2012, I would say, a longstanding capital allocation policy. First and foremost, we're happy to invest in organic growth opportunities. I am quite sure that also our focus on bolt-on acquisitions is still there. I don't think they would be looking for anything larger in terms of transformative deals. But of course, we do have excess cash, and if there is an opportunity, once we more or less continue to have excess cash and current net debt to EBITDA, as you know, is below one, there is opportunity also to continue with share buybacks. Most important is we asked on the latest AGM for the approval, so if the board decides to move forward, we can do it anytime.
Yeah. I would add as well, in terms of bolt-on acquisition, we would do something tomorrow if it made sense. But I think strengthening the core, strengthening our execution, being the best owner of an asset comes from how strong you execute in many ways as well. So I think there is a lot of focus I am bringing to it on organic execution as well.
Mm-hmm. Okay. Excellent. I wanted to start the discussion around AI. You recently announced an AI partnership in testing with the QIAsymphony Connect. Just talk us through the AI-driven automation opportunity and any benefits you see or are hoping to see in your early tests.
Yeah. No, I think you're referring to the non-somatic design topic because, again, together with the MHS part of the business, I think there's a very nice opportunity for QIAGEN to extend its standardization, even in the days of AI. Because at the end of the day, it is about automation of our instrument in a lab environment. It's about standardization, it's about early detection of troubleshooting. There's more and more workflows in all labs, from research all the way to clinical, which are very data-rich. And of course, having here an opportunity to be early-stage involved, again, that is just one part, there's more to come, makes a difference. We started here with the QIAsymphony. There's for sure an opportunity to go left and right.
Okay. If you think about the software integration layer used to monitor the QIAsymphony Connect today, would this be applicable across your fleet of the Sample Tech instrumentation? And could you talk about the use cases or customer types that make most sense to adopt these automation layers? And when do you see that translating into a financial opportunity?
Just to remind everybody, we have more than 30,000 [inaudible] machines out there, so there's a lot of opportunities for us as well as for our customers. I do think it makes sense for large-scale customers because, as I said, there's a lot of data generated, and of course, workflow automation, LIMS embeddedness is key to them. But even in smaller settings, having walk-away solution, having opportunities to control that even if you're not in the environment, makes a significant opportunities, having automation being standalone operated.
I don't think there's any specific limit to the size of a customer, nor to the kind of origin of a customer, if it is a clinical environment, a research, or a pharma company. We're seeing interest coming from all different groups. Again, we are early stage. It's a research preview. Nevertheless, I do think, given the speed of AI in these days, there's an opportunity to get that, hopefully, in some way out next year.
Okay. In terms of use cases, what types of applications are you seeing AI being used today beyond the [audio distortion], you mentioned troubleshooting? What types of companies, of pharma, are you having those discussions with the biopharma customers at the moment, or is it academia?
As you know, we have a lot of different areas where AI is already embedded into our revenue streams. First and foremost, clearly all our QDI solutions have an integrated AI part because at the end of the day, everything is what comes out of a sequencer, has a significant data size. But the same is also true for QIAcuity, for example, because at the end of the day, also here, there is a quite data-rich process, and qualification and validation is an important part of that, and AI, again, plays an important, can play even more important role going forward as well. But that is only one part of the business.
There is another offering, which comes around QuantiFERON. We talked about that, enabling our customers or the healthcare providers, at the end of the day, with the interpretation of the data. Is somebody going from latent to active TB? Where is he on his path? We are the only company having this hundreds of millions of different data points, which enables the interpretation. But AI, of course, is not only something what we do on the revenue side. We do it also in-house, say, on operations.
We have AI-embedded validation processes, for example, for identifying scrapping, or if you talk about QIAstat-Dx. AI plays an important role for us if it comes, for example, to customer care, first-level support, more than 50% of all answers, in the meantime, getting AI answered on the first level. So there is a lot of opportunities for us. QIAGEN has more than 300 software developers in the company. Quite sure they are all looking forward that their life gets easier and more effective using this kind of tools. AI is changing also our world.
Yeah. Perfect. Okay, if we take it back to kind of 2026 and 2027, if we look at, start with the Sample Tech business, so the organic growth per your guide is going to accelerate for Sample Tech quite significantly in the second half. How confident are you in achieving this, and how much of that is pricing versus volume? We know you are launching some new products, QIAsymphony Connect, QIAmini. Can you provide some KPIs on how that has gone so far?
First and foremost, we have seen already [business] start of this year, a nice underlying acceleration of the Sample Tech business. [We acknowledging] the third quarter in a row with a 3% growth rate ex PATH, which again, speaks for itself. PATH, of course, is on top. We were very clear that PATH, when we moved into the year, we were expecting around $40 million in revenues. Right now, we are at $45+ million, so it is moving in the right direction. On the organic business, I would say also here, the pipeline is building quite nicely. The good news is QIAmini is now also on the market a few days earlier than we thought, which is always good news. We are quite, I would say, optimistic on that contributions going forward.
Nevertheless, it is also fair to say the overall academic market, while improving in the U.S., is clearly not in a normal environment, right? It is clearly something where still confidence building has to happen. Nobody knows what the next weeks bring in terms of election results, on which whatever kind of communication from any politician might change. So there is a lot of factors which we cannot control. Nevertheless, on the product side, we believe it goes in the right direction in terms of placements, but also in terms of consumers.
Okay. Just on the U.S. academic and government segment specifically, how has the academic budget been trending so far by your estimates? The NIH data would suggest there is money flowing in, but it is not being spent. What do you think the customers need to see to start investing into R&D once again?
Caution is the word I would use. It is improving, but slowly. There seems to be a disconnect between available funds and spend. It is very slow to ramp. I think in the U.S., you have got some midterms coming up, and whilst they will not have any direct impact, I think there is a confidence factor that may come from results, depending on how those midterms go, it being the U.S. and all that. So I think there is just a sense of what is next, and so there is a little bit of caution on spend. Does that result in some sort of end-of-year flush? We have not factored that in, so to speak. But I think the midterms will play an even emotional component on the way money is being spent at the moment.
Some of the instruments we are launching, like the QIAmini, for example, will probably have no real impact on that in a good or negative way because the price is a capital point that tends to be a bit more of a fast spend rather than a true capital spend. We have got some offsets to that, depending on that. But I think fundamentally, the midterms will have some emotional effect.
Mm-hmm. Okay. If we touch on the Parse acquisition currently, is this business being impacted by the current weak market conditions or the Middle East disruption, and can you size the midterm growth opportunity here for Parse?
I'll start by saying I 'll hand it to Roland , but I will start by saying that Parse is ahead of plan as we head through this year.
Yeah. Just also to frame it a bit in terms of numbers, 2024 was $20 million in revenues, as we said, 2026 probably, let us say, $45+ million. So you can see the acceleration, and we are quite sure that we will continue to see that. The current environment might be even somewhat helpful for Parse because it is automation-free. So again, it is for sure a nice alternative. Clearly, a good benefit is that now being able to integrate Parse out in our pharma sales force, which by factor is larger than what Parse had as a standalone company, is being quite helpful. So a lot of success from pharma right now, actually from Parse, comes out of biopharma connection, and we do not see any reason why that should change. So we are also very optimistic looking now into 2027.
Mm-hmm. Okay. Maybe a last one on your launches in Sample Tech, specifically the QIAmini, the QIAsymphony Connect, and the QIAsymphony Connect. Where are you at in the ramp and sales contribution for those products? Are we just at the early innings or are you halfway through? Just talk through that.
It's just at the early innings. I'd start by that. Roland can add some color. We haven't really launched the QIAmini yet, so there's really no material revenue at all from that. That being said, the QIAmini has hundreds of thousands of potential placement opportunities, so you will see a ramp from it. But on the others, I'd say it's fairly early stage. You see a little bit of it in the back half, but it's really a 2027 ramp. The sales funnels are growing, building stronger, but it's really early innings. Any other color?
Yeah, I'm not good in U.S. sports, so being Jon. Nevertheless, just compare with QIAsymphony. While we sell QIAsymphonies in 2008. So you clearly see it takes some time. Nevertheless, the pipeline is filling quite nicely. I think right now we are well on track.
I'm not very good at U.S. sports either, so if I got it wrong. We're at lunch on the second day of the cricket test for anybody that's interested in that analogy.
Okay. If we move on to QuantiFERON, how is the U.S. latent tuberculosis testing market trending versus your expectations? Is the immigration destock that we saw earlier in the year fully behind us? Just give us some color there.
Yeah. Just to remind everybody, what we said earlier this year is that the $50 million global immigration testing market or for TB testing clearly was seeing some changes. $30 million of that was U.S.-based, and with the change in immigration laws in the U.S., we more or less have seen this business collapsing at the end of the day. We also do not believe that it comes any time soon back because the policies in immigration in the U.S. probably will stay as it is. In particular legal immigration. It is legal immigration. It is only to a very small part about illegal immigration. We do not believe that it goes back to the levels we have seen before. $5 million we took out, which was related to the Middle East TB testing.
Here we do believe that is probably coming back over time because quite sure either the war there stops or we will see any other kind of opportunities that these areas go back into a more normalized environment because there is a lot of construction going on. A lot of people from whatever, Pakistan, Bangladesh, India, working in this environment, and once they go back, they have to get tested again. That is rather a question of time. Now, Ex immigration, I think there is a general understanding that the overall market is growing somewhere between 4% and 5%. There is no reason that that is going to change. Skin test is still the majority of the overall market. Somewhere between 50% and 60% of the global latent TB testing is still the literally 120-year-old skin test. There is an ongoing penetration that should benefit QIAGEN going forward.
Okay. Perfect. With respect to Roche TB competition, we know this product is now in the European market. U.S. market launch is TBD, although rumors say it is a few years out from now. Have you seen any signs of competition or customer preferences post Roche's launch in Europe?
I think there nothing really has changed. I think there was clearly, I would say, a good set of clarity provided on the Roche capital market there about their product. I think there was a good education done about what are clearly some of the workflow issues they are going to face. Just to remind everybody, it is quite obvious that they cannot cover CD4, CD8. It is quite obvious in the meantime that they do have a requirement for refrigeration step in between.
It is also quite obvious, looking on their own documentation, that their indeterminant rate is by factor of five higher than our, which means one in 20 patients has to come for retesting. Actually, even worse, has to be re-blooded, which is a significant topic for any kind of lab. If you have labs with hundred thousands and plus tests per year, having this kind of magnitude to be again re-blooded is an important topic. I would say there was quite some education coming out of that. It is still too early to see what it means for the European market, because they are just starting it.
Mm-hmm. Okay. With respect to, you have a high throughput product for QuantiFERON coming out in the coming years. Could you remind us what segment of the market this device is going to, or this product is going to serve, and what portion of your total sales could see a benefit from this product launch?
If you are talking about the Inpeco automation—
Yes.
—Which probably comes out by end of 2027, so it's quite distant future. First and foremost, a fully automated workflow available for latent TB, which I do think is important, particularly for a segment, I would probably call it mid throughput to higher throughput. So very large labs typically also invested in their own automations. Again, there's a lot of documentation available. For example, what Quest did with around the QIAGEN automation solution a couple of, actually two CMDs ago. They featured it quite prominent on their own capital market day. So I would argue there is a significant group in between which loves to get these walk-away solutions.
Okay. Moving on then to QIAstat-Dx. It's been quite a bumpy ride for a lot of respiratory multiplex sales providers this year, given the lower flu testing dynamics. What are your assumptions for the intensity of the flu season this year, given Australia data has been trending weak and CDC data doesn't show much signs of improvement either?
It depends what you call improvement. But they're seeing a pretty normalized flu season, not a particular peaked flu season, can't remember.
Yeah. I'm always glad that a lot of analysts following the flu seasons around the world. Again, our assumption is, rather than normal environment, last year, as we all know, the first half of the year we had a very strong flu season. That was the reason why we had also clearly a significant headwind this year. We do believe that rather than the second half of the year, we are back to double-digit growth rate for QIAstat-Dx, and I do think that is probably the better way to look at that business.
Mm-hmm. Okay. With respect to QIAstat-Dx competition, have you seen any signs of more aggressive pricing from competitors like DiaSorin? Have you seen the third generation GeneXpert platform launched by Cepheid in ADLM? Do you think that could present a more credible competition in the U.S. market?
I'll say on the Cepheid product, it's limited on its multiplexing. It's probably 10 or 11, so it's not in the same category. But commentary on competition beyond that?
I don't think the competition has in any way changed since more or less the last two or three years. At the end of the day, it's two parties, which is bioMérieux and us. The others are around, but I wouldn't say, not even close to be as visible. If you look at Cepheid, for example, again, their GI panel has, I think, 12 different pathogens. It's not even half of what we're having and what the industry standard is. So they might catching up, but not in any way close. The strength of the QIAstat-Dx was anyway the automation, the cartridge, the ease of use. That is still unparalleled in the whole industry.
Mm-hmm. You've launched for QIAstat-Dx several non-respiratory panels in the U.S. in recent years, like gastrointestinal, meningitis, blood culture. How are these helping the placement trends? Are you winning share, and if so, who from?
It is always good to have a broad menu. We started with the core three panels, which is respiratory, GI, and meningitis. I think I need to steal this example from you, Roland, the Nespresso machine, right? Usually, you have only a couple of flavors that you like and that you regularly use. But of course, the more flavors, the more attractive the platform, and that is basically what we are focusing on to add menu.
We added two blood culture panels in Europe and also one in the U.S., one more to come by the end of this year. That is basically how we are completing our menu or extending our menu. Complicated UTI is going to be a key differentiator for us because we would be the very first one offering a syndromic panel on complicated UTI, and also a pneumonia panel is in our pipeline. The other thing is also QIAstat-Dx is able to do qualitative and quantitative detection, which also opens up the companion diagnostics field for the QIAstat-Dx, and we have three partnerships on that running, and also continue to build that pipeline.
Okay. Now moving on to QIAcuity and digital PCR. This end market has also seen a slowdown in parallel with the weaker trading environment in the first half. How is your platform performing versus competitors like Bio-Rad in particular, given their last PCR acquisition?
It is always a definition of slow and wide. I think we are now two quarters, we are more or less close to 20% growth rate, so we are quite happy with that. Nevertheless, it is a fair comment, Aisyah, that, of course, the last two years were very difficult, as we talked about, for capital expenditures, and that was clearly also affecting digital PCR. Nevertheless, therefore, we are even more excited that things are getting, again, more normal. We are not 100% normal, but more in a normal direction. But what is driving growth right now, a very fair observation, is clearly generating pull-through. If you go back now over the last few years, I would say, it was always quite obvious that QIAGEN had the better workflows and better machines. It has not really changed. But for clearly some time, we had the smaller menu.
There was clearly other companies, or one other company, who had a broader menu, but I do think we closed that gap quite nicely. We pushed very hard last year to have hundreds of additional panels and essays out there. This year, probably more than 1,000 additions. There is a significant menu expansion. That gap is closed, and that helps us right now quite nicely.
Okay. Perfect. And then moving on to QDI or QIAGEN Digital Insights, how is the license to SaaS subscription transition progressing, and could this still persist as a headwind in 2027?
Just to remind everybody, historically, QIAGEN was typically signing 3+ license agreements with some company. Just by definition, if that goes into SaaS, it is a three-year cycle, before you have worked through that. Now using your U.S. sport term, you are probably in the last inning somewhat, but we still have to go through it. That is probably where we are. I hope that the overall AI momentum also will help us to get at least to high single digit and hopefully soon back to double digit. Do I go to promise that today for next year? Absolutely not. But is it the right business to be in? Absolutely, yes.
Okay. Moving on to margins. Can you run through the cost inflation and tariff headwinds you expect to impact the margin this year? How should we think about how this evolves as you go into 2027 versus your more than 31% margin target by 2028?
Yeah. First and foremost, let me remind everybody that we will end this year probably with an EBIT margin, again, north of 29%, probably a constant exchange rate, 29.5%. If I compare that apples to apple with our CMD of 2024 target for 2028 with 31%, we are actually going to meet it this year already. Why? Because when we have given the capital market data, 100 basis points dilution from Parse was not in it. The 150 basis points tariffs headwind was not in it.
There is clearly also a bit on FX. So we are already literally apples to apples with 31% for this year. Doesn't mean that I am telling you today, now we are done, we are finished. Absolutely not. We are going to continue to improve our margins. We have this, what we call, QIAGEN Efficiency program. It has 40 different efficiency programs, initiatives within the company.
We are going to continue with that. There is, I think, a clearly laid out plan for further margin improvement. Take tariffs, for example. While it is a relative hit for us, clearly we were able to protect EPS actually to a larger degree. Why? Because we were more or less sharing the pain with our customers. But of course, if you pay 50 and you get reimbursed 50 by your customers, the margin is still relatively zero. But EPS outcome is still quite well protected.
Okay. Could you maybe just talk through the main cost headwinds that you are seeing right now? Which buckets that you are seeing inflationary headwinds? So whether it is freight, plastics, metals, anything like that, and where you are seeing most pain, I guess.
Inflation in general is a topic, nevertheless, and I am quite sure that with Jon now having an increased focus around pricing and seeing opportunities there, that might probably become even a tailwind for us at some point in time. But also so far, we were able to give our overall gross margin structure to protect our margin in that regard. Like any other company in our industry, roughly half plus of our costs are head count related, so inflation is a topic.
Okay.
Yeah, on the price side, the more and more instruments we sell, the sticky nature of our solutions and our consumables, yeah, pretty openly, internally and externally said that we definitely have pricing opportunity, and it is a commercial negotiation skill, contract by contract. But I think we can certainly offset that going into 2027 quite comfortably.
Okay. All right. Moving on to buyback and capital allocation then. You have announced a mega buyback this year worth 10% of share capital and then $200 million on top. When could you start executing on this?
We announced that the board has the right to do so because the shareholders approved that. Again, there was clearly some time we had to wait, which is more or less, in these days, over. So technically, there is an opportunity to go into the market. There is clearly a couple of other factors we have to embed in that decision. Again, there is clearly enough publication around that there is a strategic review going on in QIAGEN, so probably nobody expect during such a timeframe any kind of share buyback going to happen.
But the good news is we do have the flexibility to do a regular share buyback. We still also can do another $200 million of synthetic share buyback, which is very much favored from particular retail shareholders and European shareholders. So I think there is enough opportunities for us to do so. As I said, in terms of net debt to EBITDA, we also feel very comfortable around that.
Okay. On M&A, you have been quite consistent with the M&A pipeline, almost one bolt-on every year since I started covering QIAGEN, which is great, and the most recent one being Parse. You are generating about $500 million in free cash flow a year. Technically, even with the buyback program, you would still have some optionality left. What interests you in the market, and where do you see white spaces in your portfolio?
Oh, I can answer that quite clearly. I am not going to obviously name targets, but I am still getting my teeth into the areas of interest, shall we call it, acquisition vectors. That fits in with the strategy choices. Can we simplify the enterprise? Can we focus our attention in two areas, not five? I think that it is high areas under review. Of course, there are targets in pipeline, and if the right acquisition was available tomorrow, we can make that acquisition.
Okay.
Yeah.
Then would love if you could address the elephant in the room with respect to the M&A headlines that have been there for QIAGEN this past year. Without commenting on the rumors directly, just talk through the pros and cons of QIAGEN operating as a standalone business and whether it would make more sense to leverage the resources and scale of a larger entity in the market.
I think you are asking a question that is with the Supervisory Board right now is what is the longer-term future? I think it is important, color, to add from my seat, I agreed to join QIAGEN early in this year. We just had to wait a while until we could close the other transaction, and I could join the company. This recent strategic review was a late fly-in to my equation. I came here to build QIAGEN as a standalone.
I think it is important to know that our plan A is that, then subject to any strategic review of the board. It is a finite strategic review, and we are talking weeks rather than months as to where we can conclude where we are with that. Of course, we are still traded, so what means closed? All I would say is the process is running in the background. I'm not personally involved in it. I'm here for plan A to build QIAGEN. Pros and cons, I'll leave that for the others if you want to comment on it.
Okay. That takes us to the end of the session. Jon, Roland, Domenica, thanks so much for the insights today. To the audience, thanks for participating. Thank you very much.
Thank you for the question.
Thank you.
Thank you, everyone.