Qiagen NV (QGEN) 2022 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I am Katie, your PGI call operator. Welcome, and thank you for joining QIAGEN's Q4 Full Year 2022 Earnings Conference Call Webcast.

(Operator Instructions) Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site.

(Operator Instructions) At this time, I'd like to introduce your host, John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

Thank you, Katie, and welcome all of you for -- and thank you for joining our call today. The speakers are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. And -- also joining us today is Phoebe Loh from the IR team.

Please note that this call is being webcast live and will be archived on the Investors section of our website at www.qiagen.com. Today, we'll first have some remarks from Thierry and Roland and then move into the Q&A session.

A presentation with details on our performance is available on the IR section of our website along with the quarterly release. We will not be showing the slides during this call, but we encourage you to review the slides in conjunction with the discussion.

Before we begin, let me cover as usual, our safe harbor statement. This call discussion and responses to your questions reflect the views of management as of today, February 8, 2023. We will be making statements providing responses to your questions that state our intentions, beliefs, expectations or predictions of the future. 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 intention or obligation to revise any forward-looking statements. For more information, please refer to our filings with the U.S. Securities and Exchange Commission, and these are also available on our website.

We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release and the presentation. With that, I'd like to now turn over the call to Thierry.

Thank you, John. And obviously, welcome, everyone, and a big thank you all for joining us. We are pleased to report a solid close to the year with the performance in the fourth quarter of 2022 that, again, exceeded our outlook.

Our teams at QIAGEN are doing a great job in showing their capabilities to proactively respond to new developments with agility and to execute successfully in a volatile environment. As a very important point before we move on, our quarterly report, including the news that Rick Bright has been appointed as a new member of the Scientific Advisory Board of QIAGEN.

As many of you may know, Rick is an American immunologist who is an expert in vaccine, drugs and diagnostic development with a significant public health track record. We are pleased to add his deep expertise to our team of advisors. Now let me go through the top messages for today.

First, we exceeded our outlook for net sales growth and adjusted EPS, both for the fourth quarter and for the full year 2022. Once again, the primary driver was double-digit CER sales growth in our non-COVID product groups. And 75% of the outlook bit for both the fourth quarter and full year 2022 came from sales in non-COVID product groups.

While sales for product use in COVID testing declined as expected for both the fourth quarter and the full year over the 2021 period. Net sales for the fourth quarter were $531 million at CER and exceeded our outlook for at least $520 million sales.

Our non-COVID product group delivered 15% CER growth over the fourth quarter of '21 and represented 87% of our total sales. For the full year 2022, we also exceeded our outlook for net sales with result of $2.26 billion at CER. This was above our outlook for about $2.25 billion.

Our non-COVID business performed well throughout the year with 14% CER growth for 2022. Sales of products used in COVID testing, as expected, declined significantly and finished the year at $498 million CER compared to $704 million in 2021.

Adjusted earnings per share for the fourth quarter were $0.55 CER, above the outlook for at least $0.50 CER. For the full year 2022, adjusted EPS was $2.46 CER, and this was also above the outlook for about $2.40 per share at CER.

Roland will later cover the results at actual rates. And as you saw in the press release, this is impacted by significant currency headwinds. Our second key message. Our teams executed on key goals in 2022 to advance our Sample to Insight portfolio.

We are very pleased to report that all 5 pillars of growth exceeded their respective sales goal. Our 3 new platforms, QIAstat Diagnostics, NeuMoDx and QIAcuity, all achieved the goals we set for instrument placements.

We also saw solid demand trends for consumables and instruments in our Sample Technology portfolio. Our QuantiFERON franchise continued to grow and broke through the milestones of $300 million of annual sales and exceeded the 2022 target as well. I will later walk you through an update on the 2022 achievement later.

As a third key takeaway message, our cash flow continued at a high level for the year, allowing us to invest into the business to increase shareholder value. Operating cash flow for 2022 rose 12% to $715 million, while free cash flow increased 30% over 2021 to $586 million.

Those results highlight our ability to generate strong cash flow while investing to support our growth ambitions as part of a very disciplined capital allocation strategy. A prime example is the recent acquisition of Verogen. QIAGEN, as you know, has been very active in human identification for the last 20 years, primarily thanks to our Sample Technologies portfolio.

Adding Verogen means that we are creating the most complete workflow from sample prep to genomic analysis for human identification and forensics based on next-generation sequencing. This is really the type of merger and acquisition that we are focusing on deals that are extremely synergistic with our portfolio and enhance our growth profile.

Lastly, we have taken a prudent approach to our outlook for 2023, given the macroeconomic trends, while continuing to expect double-digit CER sales growth in the non-COVID portfolio. For 2023, we expect sales of at least $2.05 billion at constant exchange rates and for adjusted EPS of at least $2.10 CER.

We continue to feel confident in achieving the double-digit CER growth target for our non-COVID product group for the new year 2023, while also planning for a significant decline in COVID-19 sales. We also recognize the volatility of the current environment and the impact it can have on some parts of our business.

So while we recognize this ongoing volatility in the market, we are confident in this outlook for the full year 2023. Our teams all over the world are ready to again deliver on our full-year goals with a great portfolio, a solid pipeline of instruments and customer knowledge to support our growth ambitions.

I would like now to hand over to Roland for a review of our financial performance for the year 2022.

Thank you, Thierry. Hello, everyone, and thank you from me as well for joining us today. Let me start with a review of our results for the fourth quarter and the full year '22 and then move on to the outlook later in the call.

For the fourth quarter, net sales were USD 498 million at actual rates. These results over the year ago period represented a 14% decline at actual rates due to the expected currency headwinds of about 5 percentage points.

In the fourth quarter, we again saw better-than-expected growth in our non-COVID product groups with these sales up 15% CER over the year ago period. For the full year '22, non-COVID sales were up 14% CER and in line with our outlook for double-digit CER growth.

As expected, sales from the COVID product group declined over 60% CER from the fourth quarter of '21, and they're also down about 30% for the full year to USD 470 million at actual rates. Consumables and related revenues fell 11% CER in the fourth quarter over the year-ago period, showing the impact of the decline in COVID-19 product sales.

Instrument sales were much stronger in the fourth quarter of '22, rising 6% CER. This shows traction of our new systems are gaining in the post-pandemic environment. In terms of sales among the 4 product groups, let's start with Sample Technologies.

This product group represents the heart of our portfolio and contributes about 1/3 of total sales. This product group continued to trend of solid growth in non-COVID sales throughout '22 and this sales rose at high single-digit CER rate in the fourth quarter over the year-ago period.

For '22, non-COVID sales in this product group rose at a mid-single-digit CER rate and represented a large majority of full year results. This result exceeded the '22 overall sales target for at least $750 million at CER.

Diagnostic Solutions is our second product group and represented about 1/3 of sales in '22. The key driver of this group was the QuantiFERON franchise. These sales rose 15% CER in the fourth quarter in all regions, and supported the 21% CER growth for the full year '21.

This led to our teams exceeding the full year sales goal for at least USD 310 million at CER. We also reached a milestone for QuantiFERON in '22, surpassing $2 billion of our cumulative sales since acquisition in 2011.

For QIAstat-Dx, we continued to see increasing demand for system placements and growing consumables usage around the world. More than half of the QIAstat-Dx sales in '22 came from the healthy non-COVID demand. Full year sales for QIAstat-Dx exceeded the target for at least USD 85 million at CER.

For NeuMoDx, the decline in sales for '22 reflected the fact that about 2/3 of sales came from COVID-19 testing. However, NeuMoDx sales still exceeded the '22 target for at least $80 million at CER, and driven by sequential quarterly growth in non-COVID applications from the third quarter to the fourth quarter of '22.

In the PCR/Nucleic acid amplification product group, which represents more than 15% of total non-COVID product group sales was about 20% CER compared to a significant decline in the COVID-19 product groups. QIAcuity is our entry into digital PCR and is included in this product group.

These sales grew at a strong double-digit CER pace for both the fourth quarter and the full year as full year sales exceeded the '22 target for over $55 million at CER. A key driver was the ongoing solid placement trends that reached over 1,300 total placements at the end of '22.

We also saw increase in consumables, which was supported by the recent launch of new assets for biopharma customers. In the genomics/NGS product group, which represents more than 10% of the total, non-COVID product group sales were also higher over the fourth quarter of '21. This performance was led by our QIAGEN Digital Insight bioinformatics business and the expansion of our offering in terms of universal NGS for use with any sequencer.

Looking at sales on a geographic basis, all 3 regions had lower sales in the fourth quarter of '22 over the year ago period and also in most regions on a full year basis for '22. This was due to the significant decline in COVID-19 sales. However, all 3 regions had solid non-COVID sales growth trends at constant exchange rates.

In the Americas, non-COVID product group sales in the fourth quarter rose more than 10% CER over the year ago period, and led by solid gains in the U.S. In the Europe, Middle East, Africa region, it was a similar situation with non-COVID product group sales rising over 20% CER. The top-performing countries in terms of non-COVID sales included Germany, France, Spain and the United Kingdom.

In the Asia Pacific, Japan region, sales in the non-COVID product groups was about 7% CER in the fourth quarter, and were also up 8% CER for the full year over '21. Sales in China rose in '22, and this is a big achievement by our teams given that the country was essentially in lockdown during most of the year. This was driven by sales of sample preparation kits and enzymes in the first half of the year related to the COVID environment. We continue to closely monitor the situation as the local market landscape evolves. For the rest of the income statement, I would like to focus on results for the full year of '22.

The adjusted operating income margin was 30.6% of sales in '22 compared to 33.5% in '21. This was mainly due to our decision to accelerate investment into the business to support further growth opportunities. Turning to components, the adjusted gross margin was 67.7% of sales in '22, down slightly from 67.9% in '21.

The trends for '22 included favorable margin developments for QIAstat-Dx due to higher utilization and improvements in cartridge production. At the same time, we have opportunities to improve the gross margin, in particular, by driving better utilization of production capacity. R&D investments rose to 8.9% of sales from 8.4% in '21, as we continue our investments during '22, especially into new tests for our systems.

Sales and marketing expenses rose in '22, reaching 22.1% of sales compared to 20.3% in '21. The '22 results reflected a higher level of commercialization activities after the slowdown during the pandemic as well as incremental investment into the 5 pillars of growth in light of the strong non-COVID sales trends.

In terms of general and administration, these expenses, these rose slightly to 6.1% of sales from about 5.7% in '21 as we are seeking efficiency gains while making significant investments into our IT infrastructure and cybersecurity. Adjusted EPS for '22 was $2.46 at CER and above the outlook for at least $2.40 CER.

Results at actual rates were $2.38 due to the strong currency headwinds. The adjusted tax rate for '22 was 18% and at the same level as in '21.

Turning to cash flow for full year '22. Operating cash flow rose 12%, over '21 to USD 750 million, thanks to the solid business expansion. Free cash flow rose at a faster 30% pace to USD 586 million. This was due to a combination of the higher operating cash flow, along with a reduction in the level of purchases of property, plant and equipment after a period of higher levels in 2020 and 2021. These investments fell to 6% of sales in '22 from 8.4% in '21.

In terms of our balance sheet, our total consolidated net debt stood at USD 443 million at the end of 2020 compared to USD 876 million at the end of '21. This reflects the solid cash flow trends while at the same time repaying debt at maturity. As a result, our leverage ratio stood at 0.5x net debt to adjusted EBITDA at the end of '22 compared to 0.9x at the end of '21.

In terms of capital deployment, we continue to take a disciplined approach that has served us well. We are using our healthy balance sheet to strengthen our business through investments and targeted M&A while also considering ways to increase returns through share repurchase programs.

In terms of M&A activities, we have completed 2 bolt-on acquisitions recently. This involves the purchase of BLIRT in '22 to further develop our enzyme production capabilities and the acquisition of Verogen in January of this year to advance our human identification and forensic capabilities.

We continue to review additional acquisition opportunities with a keen focus on strategic fit and financial discipline in terms of prices. We also review ways to increase returns through share repurchase programs and will consider these options as the year progresses.

I would now like to hand back to Thierry.

Thank you, Roland. And I would like now to provide you with some more details on the progresses of our teams in 2022 and the goals for 2023.

First of all, let's talk about Sample Tech. As you may have seen, we recently launched another instrument upgrade with the release of the new easy-to-connect molecular diagnostic.

This version is specifically registered for use in diagnostic laboratories in Europe and other areas accepting the CE-IVD mark. This launch expands the easy-to-connect line of instrumentation, which was first in 2021 to address research and forensics customers.

Even in light of the instrument placement during the pandemic, we continued to see good trends during 2022. This is a very positive signal about the value of our portfolio and should support future consumable trends. As an example, at the end of 2022, we reached a new milestone with over 3,200 cumulative placement of the flagship QIAsymphony system. The QIAcuity family surpassed 14,000 cumulative placement, while the EZ1 and EZ2 family reached over 5,000 cumulative placement.

And the strong instrument placement trends were also seen among our clinical testing platform. Talking, for example, about QIAstat-Dx, we surpassed 3,500 cumulative placements at the end of 2022. We saw good demand for respiratory testing at the end of the year driven by the need to distinguish between influenza and RSV infections as well as for the SARS-CoV virus.

This really once again shows the value of syndromic testing beyond COVID. In core lab testing, NeuMoDx is also making progress transitioning to non-COVID use, especially outside of the U.S., where we have one of the broadest menus with 16 CE-IVD tests.

About 300 platforms have been cumulatively placed in laboratories worldwide, which we see as already about more than 10% of the market share of the leading competitor, a result that QIAGEN achieved after only 2 years of active launch of NeuMoDx. Our last focus on instrument placements involves QIAcuity, our solution for digital PCR.

This system are making solid market share gains based on achieving over a 1,300 cumulative placements in just over 2 years since launch. This is a very strong base for future consumables growth as we focus on expansion with research and biopharma customers.

As you know, we are also preparing for important regulatory submission by the end of 2023 to bring the power of QIAcuity to clinical customer. Of course, our strategy around our 5 pillars of growth does not exclude the fact that we are also seeing good growth trends in our core business. Favorable advancements in those portfolios are worth mentioning as well.

For example, in our companion diagnostic program, the FDA has approved a new therascreen assay for non-small cell lung cancer to identify patients eligible for treatment with a drug from Mirati Therapeutics. This adds to the portfolio of more than a dozen FDA-approved oncology assays that QIAGEN has developed with a range of pharma partners. In this business of companion diagnostics, we are expanding beyond oncology with a new partnership with Helix, which was announced at the start of 2023.

Together, we want to advance companion diagnostic for use in improving outcomes for patients with hereditary diseases. This comes on the heels of a new partnership, for example, with Neuron23 signed in 2022 for the development of a companion diagnostic for Parkinson disease. As a reminder, QIAGEN currently has more than 30 master collaboration agreements with global pharma and biotech companies. In fact, QIAGEN is probably the only company in precision medicine offering technologies and solutions ranging from NGS to PCR and digital PCR.

In our Genomics/NGS product group, our decision to offer platform-agnostic consumables and bioinformatics is serving us and our NGS customers quite well. For example, in QIAGEN Digital Insights, which is our bioinformatics business, we have announced a partnership with ATCC to launch a new database that allows biopharma researchers to select relevant sale lines for drug development.

Both the Universal NGS consumable and QIAGEN Digital Insight bioinformatics portfolio have historically grown at double-digit CER rates.

And we continue to building their capacity to generate ongoing solid growth. So as you can see, our teams have been working hard to build value in our portfolio and execute on our overall strategy to progress not only our 5 pillars of growth, but also leverage our core expertise. And now back to Roland for our 2023 outlook.

Thank you, Thierry. Let me provide more perspectives on our outlook for '23 and also for the first quarter. We have initiated a full year sales outlook for '23 for at least USD 2.05 billion at constant exchange rates. As noted earlier, we are planning for double-digit CER sales growth for the full year in the non-COVID product groups, and these represented USD 1.67 billion in '22.

At the same time, we expect COVID-19 product group sales to decrease to about USD 200 million to USD 210 million at CER in '23 from the '22 level of USD 470 million. As a reminder, in 2019, we had about USD 150 million of sales from various product groups that got redeployed for COVID-19 testing.

So this forms a baseline to consider for the future. Our strength is that we have a resilient portfolio, particularly with the high share of vectoring consumables that will help us to achieve the double-digit CER target. We also recognize in the short term that we are facing a more volatile environment. This involves some areas of the world such as China and also some areas of our portfolio such as our OEM business.

However, we are not seeing any signs that life science research funding is decreasing now that the clinical reimbursement environment is more challenging than usual. This is why we foresee a sales acceleration during the year. In terms of profitability, we have initiated an outlook for adjusted EPS to be about $2.10 at constant exchange rates.

This includes the $0.03 dilution from the Verogen acquisition. We are intensifying our initiatives to drive our adjusted operating income margin above the pre-pandemic levels. Our teams are focusing on continuous operational improvements such as expanding our digital customer engagement while also investing in the business and supporting our employees in the current inflationary environment.

In light of these factors, we have set an outlook for the first quarter of '23 for net sales of at least USD 490 million at constant exchange rates. Adjusted EPS is expected to be at least $0.47 per share, also at constant exchange rate.

As for currency movements, we currently expect adverse trend against U.S. dollar, for at least the first half of the year, but to become more positive in the second half. Based on these expectations, using exchange rates as of February 1, '23, currency movements against the USD are expected to have a neutral impact on both net sales and adjusted diluted EPS on a full-year basis. For the first quarter, we expect currency headwinds to have an adverse impact of about 2 percentage points on sales and about $0.01 on adjusted EPS. I would like to now hand back to Thierry.

Thank you, Roland. And as we are coming to the end of our call, let me provide you with a quick recap of our key messages before we move into the Q&A session.

First, our results for both the fourth quarter and full year 2022 exceeded the outlook for sales, driven by double-digit CER gains in the non-COVID group of QIAGEN product.

We also exceeded our outlook for adjusted earnings per share and delivered another year of strong cash flow. Second, our teams made excellent progress this year on advancing our Sample to Insight portfolio, especially, but not only in our 5 pillars of growth.

All of the 5 pillars exceeded their 2022 targets in terms of sales and saw solid gains in instrument placement. Third, we are continuing our disciplined capital allocation policy that has served us well for many years. We have a healthy balance sheet that will enable us to continue investing our business while considering ways to increase returns and create greater value.

And last, we have announced an outlook for 2023 that continues the trend from 2022 in terms of double-digit CER non-COVID sales group for the full year, while taking a prudent view on the current macro trends.

Obviously, again, today, we have conveyed to you our determination to continue to execute and deliver on our commitments as usual with humility, but with a clear determination. So while we recognize the ongoing volatility in the market, we are confident in our outlook for the full year.

Our teams are ready to again deliver on our 2023 full-year goals with a great portfolio, a solid pipeline of instruments a solid customer knowledge to support our growth ambitions. With that, I'd like to hand back to John and the operator for the Q&A session. Thanks a lot.

(Operator Instructions)

The first question comes from Patrick Donnelly of Citi.

Thierry, maybe one for you, and I'm sure, I'm sure Roland can jump in as well. Just in terms of the cadence throughout the year for 2023, it sounds like 1Q is going to be the low point for growth in margins, then you're going to ramp from there.

Obviously, the comp dynamic explains some of that. But can you just talk through some of the near-term headwinds. Obviously, China, it sounds like it's a piece, the OEM side, maybe the impact there? And then just your visibility into the growth and margin improvement as the year progresses, what are the key drivers there?

It sounds like the end market health is right where you want it, just kind of navigating through some of these near-term headwinds and comp dynamics. But would love a little more perspective there.

Thanks, Patrick. And as you said, obviously, Roland can chime in. So first of all, talking Q1, I think Roland and I both alluded to the rationale behind our guidance for Q1. First of all, obviously, we very proactively look and consider and recognize our economic and financial environment. That's number one.

Second, as you know, there is a significant base effect Q1 2023 compared to Q1 2022, where, by the way, in Q1 2022, COVID testing was still extremely, extremely strong. Second -- and third, I'm sorry, we highlighted 2 elements. First of all, we take a prudent look at the Chinese market for many reasons because over the last 3 years, we have constantly fueled some Chinese company with components for their own COVID testing. This is disappearing.

It's particularly sales around enzymes and other components. And we know that the current market in China is impacted by different factors. First, obviously, COVID recovery, still affect in some regions of lockdown. So it's better than I think for you and for us to take a prudent look. We still consider China as an important market, but we are cautious.

Second, and nothing surprising because we have kept saying that in the past, we see a more volatile OEM business in Q1. This is not a surprise. This is the nature of our OEM business, which has always had those volatile features.

Over the rest of the year, we see, as Roland highlighted, the constant acceleration of our business. First of all, because as you have seen last year, starting Q2, most of the bits quarter-after-quarter were coming from non-COVID. So this is also obviously going to help us in the rest of the quarter.

The impact of COVID itself will decline. So the comp is going to be better. Second, as we said, we have a clear vision of our pipeline of instruments. Therefore, we have also some vision on the potential recurring consumption on consumables under the instruments.

Last but not least, do not forget what we have given as a number for Q4. More than 75% of the bit of Q4 is coming from the non-COVID portfolio. So this allows us as well to believe that there will be this acceleration quarter after quarter.

On the gross margin and the EBIT margin, I think Roland also alluded to that in the presentation today, we continue to believe that we have a pocket of efficiency, especially around our investment around digital.

Second, as you know, part of our portfolio, especially in the 5 pillars is made of very new products who have not -- that have not achieved the optimal ratio between cost of goods and volumes. We have seen QIAstat really improving well in 2022. We need to continue there. And so this is why we are also confident that we can improve those 2 dimensions, both on the gross margin and the EBIT margin.

Roland, do you want to add something?

No. It's well said.

We'll take our next question from Aisyah Noor of Morgan Stanley.

I hope it's not only me, but I do not hear the question. Hello?

Operator, let's move to the next person.

Can you hear me?

No, we can.

Can you hear me?

Yes, we can. Thank you so much. Yes.

Great. Excellent. Yes. Just one around the bioinformatics news last week. Could you confirm (technical difficulty) and what would be the aim of the stake sale or outright sale of the business? Would you -- will it be means to free up some capital towards other investment priorities? Could you just talk through that?

Your voice was breaking up -- so breaking out. So I hope that I captured the question. I believe that you asked around the news that we were potentially considering alternative for our bioinformatics portfolio. So clearly, what we can say today is that it's not just about bioinformatics.

For every part of our portfolio, we constantly look at alternative to offer better potential of growth, better return on investment, better optimization of this portfolio. And so that includes as well bioinformatics, a market where clearly QIAGEN is a leader. Well, a market, but also a market where we believe that significant investments are needed to fully break the code, if I may say so, of the value of those bioinformatic solutions, both in diagnostic, in research, in oncology or hereditary.

So we are open for many scenarios. It involves potentially different options. What is sure is that we want to basically continue to develop and contribute to the growth of that market but we are open to different solutions. It's a bit premature to say which one will be retained, but that's the situation as of today.

We'll go next to Odysseas Manesiotis with Berenberg.

One on your molecular instrument installed base. Obviously, a strong year in terms of placements despite COVID-related weakness here. Could you give us some color on how you expect your installed base to expand over 2023 particularly for NeuMoDx, QIAstat and QIAcuity?

I mean, would it make sense to expect the installed base growth to sort of normalize to a lower level compared to '23? Or would it make more sense to assume that growth will be led more by higher utilization? And then I have a small follow-up.

So this management, Roland, myself, we have not changed here. We continue to have what we call a realistic ambition and that includes obviously the growth of our installed base. We see no reason not to continue to take market shares for QIAstat, for QIAcuity, and for NeuMoDx for different reasons.

First of all, because for those 3 instruments, it's a menu play. It's not a COVID play, it's a menu play. So we have added biopharma application for QIAcuity. It will help the growth of the installed base in 2023. We continue to add new registration for NeuMoDx, especially in Europe.

We are going to see new ones in the U.S. as well this year. It's going to help also the growth of the installed base. And QIAstat, as I did meningitis in Europe last year, we expect -- we hope to have GI registered in the U.S. this year. So that would help as well.

What we always said to your question is that pivot, one of the changes post COVID for probably a year or 2 on the market is that the ratio capital sales versus placement will evolve much more in favor of placement in the coming years. But we are used to that.

We are used to that because once again, we are used to sell instruments, where we plan on selling consumables. So we are used to place instruments as well. Last but not least, you have heard also this morning that we expect the evolution of QIAcuity, our digital platform solution, from life science to clinical diagnostics to happen at the end of 2023. So that would help as well because we open a new market which is the clinical market in oncology for the digital platform.

We'll take our next question from Derik De Bruin with Bank of America.

So two, one is a housekeeping question. Roland, what's the assumptions for interest income and interest expense? Your assumptions there on overall net interest expense for fiscal '23? And on your companion diagnostic business, what was that in 4Q and your assumptions in '23?

I'm trying to also just sort of think about what percentage of the pipeline is PCR, NGS versus digital PCR? Just trying to get a sense on how the companion diagnostic technology landscape is evolving. And sort of are you starting to see tailwinds from your switches or your other NGS strategies and some of those products that were delayed coming back on?

Roland, do you want to take the first part of the question?

Sure. Yes, happy to do so. Derik, yes, on interest -- on the net interest income side, I think the delta between '22 and '23, I probably would take somewhere I would say, probably an additional $30 million compared to last year, depending on the cash flow and also the interest development.

So I would say that's probably the delta between '22 and '23. Again, 2 for both in terms of reported interest but also on the adjusted results from the net interest side. In terms on the companion diagnostic team, yes, I mean thanks for the question. I mean we are, and we want obviously to remain a clear leader in that market.

First of all, as we highlighted today, we leverage a unique network of more than 30 agreement with pharma companies. So you can imagine that any time we come up with a new technology, be it NGS, thanks to our partnership with Illumina or be it digital PCR, obviously, it triggers interest and constant discussion.

So far, our portfolio is mostly PCR based. We are clearly a leader. We are not only a leader on numbers of companion diagnostics, but numbers of companion diagnostics that are regulatory approved, especially at the FDA. But what is very interesting is that we are perfectly on line to deliver what we told you 3 years ago on companion diagnostic NGS-based.

And obviously, for the last 1.5 years, we see a significant traction with pharma of companion diagnostic, digital PCR base. One thing which is also very important for us and gives us confidence to maintain this leadership is the agreement signed with Helix because if you look at our portfolio of companion diagnostics, up to now, it is mostly oncology driven.

And with this partnership with Helix, we offer a pharma company with a very interesting set of solutions for hereditary diseases. We started to implement that with Parkinson's disease. We have other projects. So leadership, we want to maintain it. And this is why we invest in other solutions like NGS and digital PCR.

And Derik, the combined number is $40 million for last year on constant exchange rate.

The next question comes from Matt Sykes with Goldman Sachs.

I just got two quick ones off on both upfront. First, on Sample Technologies. Looking at that '23 guidance of $685. I'm sure there's some COVID still in there. Could we -- could you kind of help provide more color on the non-COVID Sample Technologies growth that you see on the high-single digits last year? Is that kind of the trend that we should be expecting for Sample Tech? And then just secondly, on margins for '23. Should we be thinking more about sort of the pre-COVID [27%, 28%] on the EBIT margin side going forward and then expanding from there?

Thank you, Matt. And I will ask Roland to answer on the gross margin and confirm what we have been saying for some time. On the Sample Tech non-COVID, yes, obviously, 2022 proved relevance of this portfolio and our leadership because you have seen extremely healthy numbers, growth numbers for the non-COVID part of the portfolio.

For 2023, we come back to what we have said as early of December 2020, which was we expect the Sample Tech portfolio overall to have a growth between basically around mid-single digits and this is what we want to deliver on the market year after year. Roland, on the gross margin or on the EBIT margin?

Yes. So happy to add on that. Yes, on the gross margin side, I think, as we said before, overall, we have seen nice improvements within '22 actually on some of the areas where we expected improvement as well, which is QIAstat with our large-scale production line now at least initiated here in Hilden.

We clearly have seen a nice improvement in terms of cartridge costs. And again, even future increases on volume will be very helpful. Same is expected over time for NeuMoDx. As we said before, NeuMoDx is clearly a business where we do expect double-digit sequential growth on the non-COVID side. At the same time, clearly, we have still a good number of COVID revenues in that business in '22, which has to be normalized.

So I would say that is an impact, which we probably will see then in '24 beyond and helping us in overall utilization of our production environment. I think the other topic where we are going, as any company has to work on is clearly also on what we see on the inflationary side.

I think it looks like right now that things are getting a bit easier in the world, but who knows how it looks in 6 months. So that clearly has an impact as well.

We'll go next to Andrew Brackmann with William Blair.

Maybe just to go back to the Sample Technologies business there. Can you maybe just give us the state of the union on sort of where things stand with the automation upgrades for that portfolio? And then I guess just relatedly to that, how should we think about the impact of instrument automation on growth, just sort of what you're seeing in terms of utilization post these upgrades?

Thanks for the question, Andrew. I think as you have seen over the last 3 years, it's not arrogant to say that QIAGEN is a company that has launched potentially the most ambitious program of updates in our implementation. You have seen QIAcuity becoming QIAcube Connect. EZ1 become EZ2. And any time we launched the life science version and after an MDx version, the clinical version.

So obviously, this is helping the growth because customers, in my view, have average 5 years rolling period where they start reviewing and renewing potentially their platform and that it has helped. Second, any time we upgrade those platforms, they come with new features, be them around bioinformatics connection, a new opening of business. For example, EZ2 is a better platform, for example, for forensic.

So we open new segments. We now want to focus on the upgrade of our flagship system, QIAsymphony. We expect this to come probably in the second half of 2024. And it's obviously -- it's, of course, for us clear that if we want to remain a leader in Sample Tech, which is once again the key first step for any kind of biological run, we need to continue to invest both in application but also in instrumentation and this is why it's definitely one of our 5 pillars of growth.

We'll take our next question from Falko Friedrichs with Deutsche Bank.

So my question is whether you expect any potential softness in the demand for equipment this year end? And I'm just asking because one of the larger lab chains in Europe sounded a bit more cautious on this week. And then my follow-up is if you can confirm that everything is fine from a funding environment perspective?

So once again, the question where Roland could also give his view. What I can say, again, is highlighting that Roland, myself, John, Phoebe for the last three years we talked about realistic ambition.

So we really believe in the guidance we gave you for this year. One of the evolution I said on the market is that probably for the coming 2 years, we will see more placement of instruments than pure capital sale, and this is clearly an impact of the COVID time.

But we are used to do that. You see, we basically make sure that we contract with customers based on the volume of consumables, and we need to execute on those contracts. We are used to do that. Funding-wise, as Roland said in his own comments, if we look at the main health care system in the world for research, the U.S., Germany, the U.K., France, we don't see any signal that their budget will be decreased. We continue to plan, for example, for a 3% increase of the NIS or CDC budget in the U.S. So this is factored in our numbers.

And as Roland said himself as well, we have not seen any more challenging reimbursement decision than usual. And reimbursement are something that we factor also in our forecast. So this is what I can say at this stage we want to be humble, cautious. There is a difficult environment, but we believe in our guidance and we believe in our portfolio.

We'll take our next question from John Sourbeer with UBS.

Actually, just two-parted one. One, would you provide a revenue number on where you see the bioinformatics business? I appreciate that double-digit growth, but could you just frame that from a revenue perspective?

And then second, when you look across the 5 pillars of growth and the guidance you provided this year, which one of those do you think has the most potential upside versus your guidance in 2023 and why?

So going first to the 5 pillars, I think I'd like to say, first, let's execute on what we tell you, especially in the context where some of those 5 pillars, namely QIAstat, NeuMoDx, Sample Tech have a COVID base in their 2022 numbers.

So let's execute on what we have. I think that as we said for the last 2 years, with QIAcuity, we have really an exceptional solution for digital PCR. But as you have seen, the growth compared to 2022 is quite significant. So let's execute on that. For bioinformatics, I'm pleased to report that for the year 2022, this is an activity that has achieved around $100 million, which makes us clearly the #1 in the market.

I mean, twice as big as our immediate #2 and 5x as big as the #3 in the market. So that gives you a magnitude of this activity.

We'll go next to Casey Woodring of JPMorgan.

So just maybe on COVID, the guidance calls for COVID revenue between $200 million and $210 million CER. That's slightly below the $220 million you pointed to at a conference last month and below the $250 million, give or take, you've been pointing to prior to that during 3Q call. So just curious as to how much that COVID number is derisked now in your view here for 2023?

I mean, with all due respect, I mean, being accurate to the million on COVID is a kind of crystal ball. We have seen that in '21. We have seen that on '22. And this is why I remind you all that QIAGEN was really the first company as early of July 2021 to fully decouple our P&L from the COVID volatility.

And yes, I mean, we believe that -- and Roland alluded to that, slightly over $200 million for the full COVID taking into account pre-COVID number of $150 million, which is a number which is growing probably between 2% to 3% per year. It gives you around, yes, $60 million or a bit less.

Is it fully derisked? We believe that it's an appropriate view of what COVID could be this year. If it's less, we will have to compensate as well. if it's more, we will have to be relevant and continue to provide customers with COVID solution. This is the way we see it. But once again, the real priority and the obsession of this management is on the non-COVID portfolio.

And probably, Casey, to allude to that a bit more, I think the way we look at it from a quarterly perspective, it's clear that Q1 is probably a larger number on the COVID side, and it really then goes down to what Thierry describing was a normalized level. So I would say, over the course of the year. we probably approach what you were asking for.

We'll take our next question from Hugo Solvet with [BNP].

Question. I have one on QuantiFERON TB, which I will split in 2 parts. First, maybe can you talk to the contribution of market share gains in IGRA testing to QuantiFERON to reach sales growth? I know it's evolved over the past few years.

And second, when you strike the deal with your partner back in 2017, we were left under the impression that the exclusivity was for a specific period of time. Could you please give us some details around that and options that you have at the moment?

On market share, Hugo, thanks for the questions. You know the numbers, those are numbers that we have given many times. With the growth that we are showing to the market once again above double digits, it's clear that we are taking market shares.

We are taking market shares against what? Mostly against skin tests. And I remind you all that there is still a significant market to convert here, probably around 60 million, 6-0 million skin tests all over the world. If you just focus on the U.S., it's 16 million, 1-6 million skin tests in the U.S. So this is where we need to put the priority. We obviously take market share, obviously, from competition, but the main focus is on skin test.

We have a tremendous respect in this company for the partnership with DiaSorin. It has helped QuantiFERON, think it has helped DiaSorin as well. And you are perfectly right. In 2023, we need to discuss exclusivity. QIAGEN is very open. We have no dogma here. We need to start the discussion with DiaSorin, considering their perspective, their growth perspective, the investment that they are going to put in that product and the evolution of the market. This is what we can say at this stage. Nothing is dogmatic, everything is open, but we respect tremendously the partnership with DiaSorin. Roland, would you like to add something to that?

No, I think it's very clear that QuantiFERON is a great success story for QIAGEN, and we clearly still see that overall the conversion from skin test is quite low, while the overall market is still growing. So it's clearly a market where we stand alone. But of course, also, as you said, in combination with DiaSorin, had great success in converting it from skin test away. And I think that's a big thing for us.

The last question comes from Ed Ridley-Day of Redburn.

First question, another success for you has been QIAstat, as discussed today. Can you just update on what you estimate the addressable market was in 2022 than last year? And also what the each of the underlying growth of that market was? And also, can you remind us of the time line for approval of the GI and meningitis panels, please?

Thanks. I hope I captured all the questions because once again, the line was not very good. So the addressable market for us, we confirm that we believe that this is already a market probably around $1.3 billion to $1.5 billion. It's growing in our statistic above double digit, probably between 13% to 15% per year.

And this is how we see the market for the years to come. It is clear that the key success factor for QIAstat is going to, as we said before, to bring on a regular basis, new menu and new applications. We have now the 3 key assays or syndrome that allows us to participate in any kind of tenders in Europe, respiratory, GI and meningitis.

We need to build this in the U.S. In our numbers for 2023, we expect our GI to be approved for the second half of the year, and we will submit meningitis in the U.S. before the end of 2023. So that means that we have no numbers, meningitis because then you have obviously the time for approval.

And for the other years, we need to continue to bring new menus that are in our R&D portfolio, namely direct identification of positive blood culture and a unique development, which is around urinary tract infection, complicated urinary tract infection that we are expecting for those 2 developments to come in the coming 2 years.

So this is how we see it. It's a menu play. And the current situation, respiratory between flu RSV, and COVID is proving the relevance in our portfolio to be able to offer not only a monoplex solution, NeuMoDx; a short-plex solution for analyze, NeuMoDx and QIAstat; and the large-plex syndromic solution, QIAstat.

Okay, Thierry. Thank you very much and with that, I'd like to end the call and also just remind you if you have any questions or comments or follow-up issues to resolve, please give Phoebe and me a call. We're always available. Thank you very much. Bye-bye.

Thank you.

Ladies and gentlemen, this concludes the conference call. Thank you for joining, and have a pleasant day. Goodbye.