Qiagen NV (QGEN) 2023 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I am Katie, your call operator. Welcome, and thank you for joining QIAGEN's First Quarter 2023 Earnings Conference Call and 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.

So thank you, operator. And thank you as well to all of you for joining us today. On the call, we have Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. Also joining us is Phoebe Loh from the Investor Relations 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. A copy of the quarterly results press release and presentations are also available on this website. Today, we will first have some remarks from Thierry and Roland and then move into the Q&A session. Before we begin, let me briefly cover our safe harbor statement.

This call discussion and responses to your questions reflect the views of management as of today, May 4, 2023. We will be making statements and providing responses to your questions that state 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. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors. These include those discussed in our filings with the U.S. Securities and Exchange Commission. These are also filed with the SEC and available on our website. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. 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 these non-GAAP financial measures to the most directly comparable GAAP measures are available in our press release and the presentation.

So with that, I'd like to now turn over the call to Thierry.

Thank you very much, John. And a very warm welcome to all of you. And obviously, thank you for joining us. As you have seen from our release yesterday, QIAGEN has had a very solid start in the first quarter. Our teams all over the world remain focused amid uncertain macro conditions and did a great job executing on our goals, delivering 12% CER growth in our non-COVID product groups, even better than expected. Now let me get to the top messages for today.

First, we exceeded our outlook for net sales growth and adjusted EPS, driven by strong sales in the non-COVID based business. Net sales at CER for the first quarter were $502 million and exceeded our outlook for at least $490 million. On the other hand, due to Q1 2022 being an exceptionally strong quarter for COVID testing, we had sizable headwinds as expected, in COVID product sales in the first quarter of 2023. As a result, total sales declined 20% CER to $485 million at actual rates. Adjusted earnings per share were $0.52 CER, also above the outlook for at least $0.47 CER.

Our second message. Our teams are executing on our 5 pillars of growth strategy. In Sample tech, first, we are pleased to report double-digit CER growth continuing in the non-COVID portfolio. This is driven by strong consumable sales across the business and also supported by our ongoing instrument upgrade program. The QuantiFERON latent TB test also delivered another quarter of double-digit CER growth with strength all across the regions.

QIAstat Diagnostic and NeuMoDx, our PCR clinical testing system, both made good progress in transitioning to non-COVID use. NeuMoDx, for example, delivered underlying double-digit CER sales growth, while QIAstat Diagnostics saw significant sales gains for the GI and meningitis panels in Europe. The QIAcuity portfolio of digital PCR system and application kits delivered double-digit CER sales growth with solid instrument placement and an increasing uptake of consumable all across the regions.

Our third message, we are maintaining a good level of profitability. We continue to make investments into our business organically or non-organically while actively managing cost with a high level of discipline. And as a last message, we are reaffirming our full year outlook for 2023. Our teams are determined to deliver on our goals for the year. We remain proactive, agile in addressing any new developments.

For 2023, we continue to expect sales of at least $2.05 billion at CER and for adjusted EPS of at least $2.10 CER again. Of course, key to this outlook is our goal to deliver for the full year double-digit CER sales growth in the non-COVID portfolio, just like we did in this first quarter. We are also forecasting for a significant incline in COVID-19 sales. Remember that those sales compared to the pre-pandemic level of around $150 million of sales in 2019 from those products that were then redeployed for COVID testing. We do have a strong portfolio, a solid pipeline of instruments and a solid customer knowledge to support our growth ambitions, and we have the team worldwide to deliver.

As a last point, I would like once again to welcome Steve Rusckowski to our Supervisory Board. Many of you know Steve from his long tenure as Chairman, President and CEO of Quest Diagnostics. Steve has indeed a remarkable career in the diagnostic industry and we look forward to his valuable contribution to the future success of QIAGEN. I would like to now hand over to Roland for a review of our results in greater detail.

Thank you, Thierry. Hello, everyone, and thank you as well from me joining us today on this call. Let me first review our results for the quarter and later provide some perspectives on the outlook. First quarter 2023 net sales were USD 485 million. These results, as expected, were down 20% at constant exchange rates compared to the first quarter of '22, which was a period of sizable COVID-19 revenues. The decline at actual revenues was 23%. At the same time, our teams delivered strong 12% CER growth in the non-COVID product groups to USD 434 million.

Among the areas that outperformed were Sample technologies and the QuantiFERON latent TB portfolios. Instrument sales were lower on a year-over-year basis. Also, we saw overall good placement trends across most of our platforms. The reagent rental business was more robust than capital sales. There are benefits to this approach since the placements are linked to multiyear visibility and commitments for consumable purchases. In terms of sales among the 4 product groups, let's start with Sample Technologies.

This product group represents about 1/3 of total sales. Sample technologies sales continued to trend from '22 with solid growth in non-COVID applications that represented over 80% of the product group and also supported by instrument sales gains.

Diagnostic Solutions is our second product group and also represents about 1/3 of sales. The QuantiFERON latent TB test was the main driver with sales rising 19% CER on growth in all regions. We continue to see strong conversion from the tuberculin skin test to QuantiFERON as a modern blood-based gold standard. Among other products in this group, sales of the QIAstat-Dx system for syndromic testing declined due to the drop off in COVID-19 testing. The same was also the case for NeuMoDX at the same time, as Thierry mentioned, sales for other applications were higher in the first quarter of '23 over the year ago period.

Moving to the PCR nuclear acid amplification product group Sales for non-COVID product groups rose at a double-digit CER rate, but this was more than offset by the significant decline in COVID-19 testing. The QIAcuity digital PCR system maintained a sales growth above 20% CER on further growth in instrumentation sales and growing consumables utilization. In the Genomics NGS product group, which represents over 10% of total sales, non-COVID product group sales growth at a mid-single-digit CER rate over the first quarter of '22.

These were supported by solid growth in sales of universal NGS kits for use by any sequencer and in the QIAGEN Digital Insight bioinformatics business. Looking at sales on a geographic basis. All 3 regions had lower overall sales in the first quarter of '23 over the year ago period and again due to the decline in COVID-19 sales. However, sales in the Americas and Europe, Middle East, Africa region, both grew at a double-digit CER pace, excluding COVID-19 product groups compared to Q1 '22.

The Americas benefited from the solid trends for QuantiFERON as well in Life Science. In the EMEA region, the top-performing countries were Germany, the United Kingdom, France and Italy, at this growth across both customer classes. In the Asia Pacific, Japan region, non-COVID sales were largely unchanged compared to the first quarter of '22. This reflected a significant decline of over 30% CER in China due to COVID headwinds from the first quarter of '22. We continue to closely monitor the situation in China and expect to see improvement trends in the non-COVID product groups over the course of the year.

Let me also comment on the rest of the income statement. Adjusted EPS for the first quarter of '23 was $0.52 at constant exchange rates and above the outlook for at least $0.47 CER. Results at actual rates were $0.51 due to the small adverse currency headwinds. The adjusted tax rate for the first quarter was 19%, which was in line with our outlook, and it's the same as the first quarter of '22. Adjusted operating income reflected a significant decline in COVID related sales, along with higher R&D investments over the first quarter of '22.

The result was an adjusted operating income margin at 25.6% of sales. Among the key factors, the adjusted gross margin came in at 67.3% of sales and this is a good start for the year. For the full year in '23, we are likely to see a level in the range of about 66.5% to 67% of sales. This is due in part to utilization of the product capacity that we built up to address the pandemic and now transitioning to other applications. R&D investments rose over the same period in '22 and were on the high end at 11.3% of sales due to investments into the 5 pillars of growth.

Here, we expect a full year level of about 10% of sales. On the other hand, we had lower levels of expenses in other categories. Sales and marketing was 23.6% of sales as we increased our digital customer engagement. General and administrative expenses were also lower than in Q1 '22 and represented 6.8% of sales. This is a mix of gaining efficiencies through scalable teams while making investments into IT systems, including an upgrade of our SAP system and into cybersecurity.

Turning to cash flow. Results for the first quarter of '23 also reflected the lower sales and profit levels from the same period of '22. Results for the first quarter of '23 included higher working capital requirements, in particular for an increase in inventories to ensure product availability. At the same time, accounts receivables were lower across all regions than in the first year of '22 with a level of about 50 days of sales outstanding compared to about 59 days in March '22.

In terms of our balance sheet, total consolidated net debt stood at USD 592.6 million as of March 31, '23 compared to USD 443.1 million at the end of '22. Our liquidity position was $1.3 billion at the end of the first quarter, and this compares to $1.4 billion as of December 31, '22. As a result, our leverage ratio was 0.8x net debt to adjusted EBITDA compared to 0.5x at the end of '22. Also keep in mind that we have approximately USD 400 million of debt reaching maturity in the third quarter of this year. We are using our healthy balance sheet to strengthen the business through investments and targeted M&A.

A recent example is the acquisition of Verogen to expand our human identification and forensics business and build up a top offering with sequencing related products. We continue to review additional acquisition opportunities with a keen focus on strategic fit and financial discipline in terms of prices.

I would now like to hand back to Thierry.

Thanks a lot, Roland. And now please allow me to give you a few details on some of the portfolio progress made by our teams in the last quarter. First, in Diagnostic solutions, our syndromic testing platform, QIAstat diagnostic has been launched in Japan, starting with our respiratory panel. This entry into Japan, adds to the more than 100 other countries where QIAstat diagnostic instruments are already being used for the diagnostic of various diseases in near-patient settings. At the end of the first quarter, we now had over 3,700 QIAstat systems placed worldwide. A key driver for new placement includes the strong offering in Europe and in many other countries with the respiratory, GI, gastrointestinal and meningitis panel.

We all saw good demand in the U.S. where our teams continue to work on expanding the menu. As an example, we expect an FDA decision in the middle of this year on the gastrointestinal panel and we also expect to submit the meningitis panel in the second half of this year. Now that we have made good progress on these 3 important panels, we are developing new applications, such as panels for blood infections, pneumonia and complex urinary tract infections. Also in Diagnostic solutions, the QuantiFERON TB test has successfully gained new certification in Europe under what we call the revised In Vitro Diagnostic Medical Device Regulation, IVDR.

The upgraded IVDR certifications means that QuantiFERON-TB Plus joins the group of all the QIAGEN products that have already received this new status, including the NeuMoDx integrated clinical PCR system and related assays. We also very much welcome the reaffirmation this week of the positive B recommendation by the U.S. Preventive Services Taskforce for latent TB screening in certain adult population. This is extremely important because it means that screening by primary care physicians continues to be available without copayment.

Our companion diagnostic portfolio and Pharma co-development revenues are also in this product group. This is indeed an important area of our portfolio. And we added to our list of partners through a new agreement with Servier, a global pharmaceutical company. Together with Servier, we are developing a companion diagnostic for TIBSOVO as a treatment for acute myeloid leukemia. Under this agreement, QIAGEN will develop and validate the PCR test that can be used to detect IDH1 gene mutation in acute myeloid leukemia patients in all blood and bone marrow aspirate.

As a reminder, QIAGEN has more than 30 master collaboration agreements with global pharma and biotech companies. And as another reminder, QIAGEN is probably as of today, the only company offering companion diagnostic in PCR, NGS and also digital PCR formats. In our genomics and next-generation sequencing product group, among the recent development, we launched a group of QIASeq targeted cfDNA (inaudible) for use on any sequencer. Those new panels allow customer research in cancer and other diseases to turn liquid biopsy samples into libraries ready for sequencing in less than 8 hours.

Those kids further strengthen the position of QIAGEN as a key provider of universal NGS consumables. You therefore can see that all over the world, our empowered teams are working hard to build additional value through portfolio advancement. As we move through the year, we have still some key expansion plan, such our more digital PCR application for use on QIAcuity and submissions for additional test on QIAcuity diagnostics and NeuMoDx.

And now back to Roland for more details on our outlook, Q2 and 2023.

Yes. Thank you, Thierry. Let me provide more perspectives on our outlook for '23 and also for the second quarter. As mentioned earlier, we have reaffirmed the full year sales outlook for at least USD 2.05 billion at constant exchange rates and for double-digit CER sales growth in the non-COVID product groups. The share of sales from non-COVID products is clearly growing as we work through the pandemic headwinds. One of our strengths is our portfolio with a high share of recurring revenues from consumables which represent over 85% of total sales.

As you have heard from other companies, we are also seeing some caution among various customer groups in terms of instrument purchases. At the same time, we are seeing positive trends in placements and the level of customer interest. This is clearly due to the value proposition that our new platforms have to offer. In terms of regions, we are keen and we are keeping an eye on trends in China and how has it developed during the year. Another area we are watching closely is our OEM business. This involves larger orders from other industry suppliers and as we have seen in the past, this is a business where ordering can be volatile.

In terms of profitability, we also reaffirmed the outlook for adjusted EPS of at about $2.10 at constant exchange rates. This includes the $0.03 of dilution for the Verogen acquisition. Moving to the second quarter. We have set an outlook for net sales of at least USD 490 million at constant exchange rates. Adjusted earnings per share are expected to be at least $0.50 per share, also at constant exchange rate. This outlook for the second quarter of '23 has to be seen against the healthy noncore results in the same period of 2022, which was marked by increased customer demand after pandemic restrictions were eased.

As for currency movements and based on rates as of May 1, we expect a neutral impact on both, NET sales and adjusted EPS for both the second quarter and for the full year '23.

Now I would like to hand back to Thierry.

Thanks a lot, Roland, once again, and we are coming back to the end of our preliminary comments. So let me provide you with a quick recap of our key messages before we move into the Q&A session. First, our results for the first quarter show a solid start of the year. We exceeded the outlook for sales, driven by double-digit CER gains in the non-COVID base business. As a reminder, this is the ninth quarter in a row we have delivered double-digit CER growth in our non-COVID product group. We also exceeded our outlook for adjusted earnings per share while continuing, of course, to invest in key areas of our business.

Second, our teams are focused on execution and committed to delivering on our goals. We have a number of important developments ahead of our product across our portfolio for 2023. Third, we are maintaining a strong profitability profile and using our healthy balance sheet to strengthen our business. Our disciplined capital allocation policy has proven its value in supporting internal investment but also targeted M&A and increasing returns to shareholders. And lastly, we are reaffirming our full year outlook for 2023. We continue to expect full year double-digit CER sales growth in the non-COVID portfolio against a significant decline in COVID-19 product group sales.

In closing, we are off to a strong start this year while addressing uncertain macro trends with, as usual, a sharp eye on cost management and discipline in our investments. Our teams are following through on the goals for the year with determination and agility to deliver. We see this progress as important to setting QIAGEN on course for a solid midterm growth trajectory.

And with that, I would like now to hand back to John and the operator for the Q&A session. Thanks a lot for your attention.

(Operator Instructions) The first question comes from Andrew Brackmann with William Blair.

Maybe just to start on guidance here. I appreciate all the commentary. I think it's straightforward and no real surprises. But maybe if I could just ask on Sample tech. Obviously, nice growth in the quarter. But how should we sort of think about some of the durability of that low double-digit non-COVID growth?

I think you called out instrument upgrades as assisting there, but can you maybe help quantify where we are in that upgrade process and how much runway is left there?

Thanks a lot, Andrew. And as a very quick comment, I would say, we have no reason to change what we have been saying for a year. First of all, Sample tech is part of our DNA. This is where we have a clear leadership on manual and also on automated solutions. And therefore, what we said back in 2021, which was expecting mid-single-digit growth for this portfolio is still perfectly our target. Why?

First of all, because COVID-19 has strengthened our leadership and helped us to gain market share. Second, because we are probably the only company in this domain, where we have systematically upgraded our instrument offer for the last 4 years, and we will continue to do so. As a reminder, QIAcube became QIAcube Connect, EZ1 became EZ2 and every time with differentiated features for our customers. We will have an upgraded version for QIAsymphony our flatting instrument as well. And third, because we have continued to launch innovation.

COVID, for example, gave us the opportunity to launch a completely revolutionary liquid waste protocols. We continue to invest in very useful research application, microbiome, for example, Sample tech for liquid biopsy, plant analysis, soil analysis. So this was, all in all, I believe we have strengthened our Sample tech dominance with COVID-19 and post-COVID 19 we continue to believe in the mid-single digit growth for this portfolio.

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

Just one on pricing. Could you comment on the pricing levels you've been able to put through in the quarter? And secondly, in Japan since the launch in April, what kind of pricing you are expecting for QIAstat in Japan.

Thanks for the question, Aisyah. So on the pricing, first of all, it's worth highlighting again that price increase is a tradition at QIAGEN every year. It starts in preparation around November, December and its past and communicated to customers on January each year. Last year, was a bit exceptional because we had an inflationary also specific context.

Therefore, in addition to the traditional 2.5%, 3% price increase that we passed every year around January, last year in June, July, we passed another price increase much higher around 6% to 7%. And in January of this year, we passed a new more normalized price increase of around 2.5% to 3%. And this is paying off. We have a clear objective in numbers for the year. This number obviously is fully factored in our guidance for 2023. And we monitor our progresses against this guidance every week. I'm talking the price objective.

To your question in Japan, QIAGEN sells on innovations and on quality. Our syndromic panel for respiratory has a lot of value, an unprecedented level of automation for syndromic testing, as you know, the ability to deliver (inaudible) values compared to just yes and no answer. So there is no reason we would basically decrease the price in Japan and the price in Japan will be basically in the framework of the global price, which is, as you know, for a respiratory panel between EUR 90 to $100 per panel.

We'll take our next question from Dan Arias with Stifel.

Thierry or Roland on NeuMoDx, this is a platform that's obviously in the middle of the transition from heavy COVID use to lower COVID use, but it does sound like you're making some progress with the non-COVID adoption. So would you be able to put some context the utilization today or just where you think you end up for the year compared to the levels that you saw at the COVID peak?

I know you don't talk about things in terms of annualized pull-through, but it would just be really helpful if we can understand where usage is on a relative basis and what the trajectory back up looks like for that platform?

Thanks a lot, Dan. And as a quick reminder, first of all, number one, NeuMoDx addresses mid- to high throughput volume in laboratories in PCR infectious diseases mainly, which means that the full utilization of a pneumatic system is supposed obviously, to bring meaningful pull-through per system. I'll come back to that.

Second, we already are in a positive situation in Europe, where we already have one of the largest available menu for infectious diseases on NeuMoDx. It includes blood-borne viruses, HIV, hepatitis B, Hepatitis C, sexually transmitted diseases and other applications. It is true, as we already disclosed for the last 2 years that NeuMoDx was obviously very much driven by COVID utilization in 2021 and a bit less in '22, but we said in some geographies, especially in the U.S., that up to 70% of the performance of NeuMoDx during COVID was driven by COVID.

This is why we are very pleased to see the non-COVID usage progression, which is up by more than 50%, obviously, where we have the menu, which is in Europe. In the U.S., we continue to forecast submissions every year. For example, at the moment, CT/NG in the U.S. as we speak. But do not forget that in the U.S., we can leverage also the fantastic feature of NeuMoDx, which is to be the only system on the market at the moment where our customers can use randomly the platform either for regulated assays or for laboratory developed tests. So that's the strength. And obviously, we want to continue to submit every year to the FDA. That's the key success factor for NeuMoDx.

Now precisely to your question. And you need to understand that we have 2 configurations of NeuMoDx, the 96 system, mid volume and the 288 system, higher volume. But when the system is in the full utilization of a complete menu, which once again starts to be the case in Europe. It's still not the case in the U.S., expecting an average full flow on a normal platform of around $10,000 per year plus is what we should have in mind.

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

This is John on for Derik. I wanted to ask on the margin progression. Could you update us on your expectations for the operating margin for the rest of this year? And how should we think about that going into 2024? And in terms of China, you're seeing headwinds there still, of course, how is this quarter compared to your expectations? And if you have any outlook given that you're reinvesting in the region, that would be great.

Thank you, Derik (sic) John. What I propose, Roland, would you like to take the question on margin, and then I can chime in on China.

Yes. Happy to do so, John. Yes, I know it's quite obvious that we do expect actually a healthy margin improvement more of sequentially over the course of the year. I do think what we have said before is that there is clearly leverage opportunities for us in general on the operational side. R&D, we clearly continue to invest into our 5 pillars of growth. Nevertheless, also here, Q1 was probably a bit higher than what you should expect to be normal for the course of the year. So I think that is going to normalize around, let's say, 10% of revenues.

We will continue to see operational benefits on SG&A. Our digitalization strategy still has some lean way to go and will have an impact. And of course, scale in general will be important for us. So we clearly expect margin progression, not only moving into '24, but clearly also over the course of '23.

Thank you, Roland. Regarding China, first of all, I mean, we need to remind everybody that our exposure to China, which is around 6% to 7% of our global sales is probably more limited than some of our peers. However, we do consider China as an important market. It's probably the second market in the world in size, but it's a very specific market. It's a market which is under significant pressure from the authorities to make sure that people are localizing activities in China. So it's not about selling to China, it's about manufacturing and even more doing research and development in China.

How do we address that at QIAGEN. First of all, we do have a site in Shenzhen for local R&D and manufacturing. So we are equipped to localize part of our portfolio. Second, which is probably a bit more specific and original and differentiated. We also have a second brand in China, selling made-in-China products, it's a second brand which is fully consolidated in our global revenues, but which is behaving from a sales marketing standpoint, completely independently in China and from QIAGEN China.

So to come back to Q1, first of all, we have a base effect. We had quite some impact in Q1 of 2022 in Diagnostic, but also in Life Science from some COVID sales in China. This has very much gone down. If you look at the non-COVID sales in China, it's slightly positive for Q1, but it doesn't compensate obviously, the base effect of the non-COVID. However, we remain positive that the non-COVID activities should improve sequentially quarter after quarter.

For 2 reasons. First of all, because of the nature and strength of our portfolio locally. And second, because we believe that the overall Chinese economy will also improve sequentially quarter after quarter. So attention, adjustment to local specificities and little exposure to ups and down of the market. This is how I would summarize.

We'll take our next question from Odysseas Manesiotis with Berenberg.

I've got 3, please. On QIAsymphony boost your next platform here. Could you please share a bit more color on the time lines and the key specifications that you'll be upgrading and seeing that a few other digital upgrades for your other Sample tech platforms have been received quite well. Would it be sensible to think that this could help a lot with taking your growth trajectory at the high single digits for a couple of years for Sample tech?

And then a couple of quick ones for Roland. So on the interest dynamics, I understand you're guiding around $60 million for the full year. But what dynamics do you expect to not be as pronounced in the following quarters? And lastly, for your coverage-related sales this quarter, could you please give us a rough description of how these sales are split between divisions and essentially which coverage-related product groups have been more resilient than others.

Thank you. Roland, would you like to take the interest and COVID split, and then I'll move to the QIAsymphony and Sample tech.

Yes, happy to do so. And also hello from my side. Yes, on the COVID, as I said, I think we haven't done so in the past as well. We're not going to break that down. We are looking forward that we have to stop about, but we can stop talking about COVID latest end of this year because it is rather sometimes even more confusion than others. So again, you've seen the total COVID numbers released and I don't think that you really want to break it down further.

On the interest income, I think you clearly have seen recent developments here as well. And you have seen the Q1 performance. As you said, there is probably an expectation for the full year out, but have also in mind I think I said in the script as well that we have a $400 million repayment in the third quarter where right now, we most likely are not planning to refinance it. So there's clearly a cash drawn to QIAGEN as well. So I think that probably explains how do we get to our numbers.

Thank you, Roland. And coming back to QIAsymphony boost and Sample tech. So first of all, thank you for the comments. Yes, indeed. The market is really accepting and acknowledging the value of the 2 precedent upgrades QIAcube Connect and EZ2. Regarding QIAsymphony boost, first of all, let us highlight that the current QIAsymphony, which is a leading platform of the market, is still having a healthy number of placements per year, which is remarkable for a dealing platform.

And we want to upgrade it probably launching the new solution by the second half of 2024. We have different features. One of each is -- one of which, I'm sorry, being higher volume input which is going to be extremely key for application around liquid biopsy. In our mind and without disclosing too much for today, we believe that continuing to invest in even higher throughput system could be an option for our company.

We'll take our next question from Dan Brennan with TD Cowen.

Great. Maybe just a 2-parter. First one just on sequencing. Just there's been obviously a lot of new instruments being launched, been some kind of volatile trends during the back half of last year. But there's a lot of excitement on the clinical side, obviously, with MRD. I'm just wondering, from your positioning, sample prep informatics, just kind of give us a flavor for like the type of growth that you envision for QIAGEN and the strategic focus there. And then just secondly, I had a question on the balance sheet. You're very underlevered. You've been pretty prudent with modest tuck-in deals. Just kind of wondering what's the plan for kind of capital deployment as we look out.

Roland, do you want to take the one on the balance sheet? And clearly, yes, underlevered, but and then we'll move on to strategy on capital deployment and then we'll go to sequencing and UNGS. Ronald?

Yes, happy to do so. Dan, no, I think it's a fair comment that clearly, we had, I would say, and still have an exciting stretch of performance at QIAGEN also generating significant cash flows. At the same time, of course, we more or less believe that our actual capital allocation policy, which actually since 2012 is serving us quite well, is also the one we want to continue with.

So it will be a combination of investing into the business organically. It will be more or less added by also targeted mainly bolt-on acquisitions. And last but not least, also reviewing on share buyback opportunities. And if you will review, for example, also now for example, in the documents for our next AGM, we will again also asking for giving the opportunity to do a larger share buyback going forward as well. So I do think the mix so far served us quite well, and we want to continue with that.

So coming to the question on UNGS and sequencing. First, I'd like to remind that I really believe that at the end of 2019, when we decided to become fully platform-agnostic. Not only for bioinformatics where we were already platform-agnostic, but also in chemistry, we took the right decision. Again, as a mid-cap, we cannot go everywhere and we need to try to invest anywhere we can take leadership between the #1 and the #3 position on the market. And this is exactly what we have been doing in universal NGS. And the market is proving us strong.

I mean if you talk to all the newcomers in platform, the Element, PacBi, Singulex as well as the established one, Lumino, obviously, BGI, they will all tell you that to a different level bioinformatic or chemistry, they do work with QIAGEN solutions. If you were at JPMorgan, you probably saw the presentation of PacBio, for example, or Element, highlighting again their satisfaction with their collaboration, especially from a chemistry standpoint with QIAGEN.

So I think it was the right decision to take and the market is confirming it. As a result, for the overall UNGS portfolio at QIAGEN, we see that a reminder again, the mix of bioinformatics solution and chemistry solution, I don't see why we should not continue to grow at double digit. We continue, as we explained today to invest in new chemistry solution, and we are clearly at the moment, the #1 in bioinformatics solution. And as you know, we want to continue to give that activity and new means to grow even faster. This is why I think that expecting a double-digit growth is what we should have in mind.

Thank you. We'll take our next question from Casey Woodring with JPMorgan.

So you mentioned you're seeing some cautious spending from customers on instruments. Curious to hear from what customers in particular you're seeing this cautiousness from and then what specific instruments would feel the impact there? And maybe can you just talk towards your order book trends, particularly in Europe, given the macro?

Thank you, Casey. And I think, obviously, Roland, feel free to chime in whenever you want here. But as a quick first hint we said that it was clearly in the part from Roland, that placement or reagent rentals are now a bit more favored than pure capital sales. But we have been saying that for the last at least 1.5 years when we were asked, do you believe that post-COVID, there will be a significant slowdown of instrument sales. We always said, no, the market will continue to renew platforms and invest, but the way to do that might change in favor of reagent rentals.

QIAGEN is a company which is very much used to reagent rental. We have been doing that for many years, we will continue to do so. As Roland explained today, it gives clear visibility on the expected pull-through and consumption normally on a pre or annual basis. And the key success here -- the key success factor is clearly monitor, obviously, every site where you have a reagent rental in place.

I think that, that movement is going to continue probably for the coming year to 1.5 years. This is a comment which -- this is a movement which is clearly true in clinical diagnostics. In Life Science, most of customers are primarily still buying. I'm not saying that it will be always the case, but they are primarily still buying. And so -- when you look at the performance of instruments in the quarter, I think it's healthy, whether it's placement or capital sales, it's a healthy one and a healthy progression across the line. Sample tech, QiaStat, QIAcuity. This is the situation as of today.

Thank you. We'll take our next question from Patrick Donnelly with Citi.

Thierry, maybe one on QuantiFERON another really strong quarter there. Can you just talk about what you're seeing in the market? I mean the conversion has obviously been going on for years, but it seems to be getting stronger, if anything. So maybe just what you saw and then the durability there? And maybe a quick one on just the competitive dynamics, if you're seeing any change, but really just the core strength of that market and how you're thinking about it going forward?

So thanks for the question, Patrick. Yes, QuantiFERON is obviously a matter of satisfaction. So what do we see at the moment across the globe. It's really across geographies. In the very developed countries, Europe, North America, the main lesson is, one, the partnership with DiaSorin is working. Anytime we convert the normal QuantiFERON, traditional [4G], for example, customer to automation on Yeso. We do it, one with a premium price and second, most of the time, it translates into an increase of volume.

Second, the potential for conversion of skin test, and I remind you, antiquated technologies, cumbersome technology, just the fact that for a patient, you need to go twice to a clinician still represent a significant potential. And that's a good segue to your question on competition, by the way, because, yes, there has been rumored we know that Oxford Immunotec has been acquired by PerkinElmer. We know that bioMérieux launched a system on the VIDAS. But the main competitor here is still the number of skin tests that we have to convert all over the world.

And we estimate this number to be around 60 million skin tests all over the world, 6-0. If you take a geography like North America, it's already 16 million, 1-6 million of skin test. And part of the performance in Europe and North America is clearly the conversion of skin test.

Geographically, in less mature countries, we continue to make progress because here, we leverage 2 things. One, the unprecedented level of publication around the value of QuantiFERON. There is no other product with that level of publication. Second, years of medical education, medical investment into, for example, pushing for guidelines. And this works. You have seen, for example, what we published in Brazil, extending guidelines to, for example, health care workers, we see that in many other countries.

All these makes us believe that we continue -- we can continue to have a double-digit growth profile for QuantiFERON. Obviously, we bet on the more, let's say, low double-digit growth for one reason, not that we are becoming pessimistic, is just that at the end of the year, we still target $360 million for this activity and continue to grow at double digit when you reach $360 million is already a performance.

Thank you. We'll take our last question from John Sourbeer with UBS.

Just a couple here digging into on the QIAensemble digital PCR platform. Sales continue to be strong there. Can you just talk a little bit on customer mix across research, pharma and clinical and potential menu expansion there? And then any thoughts on the competitive landscape with a few others entering the digital PCR market as well?

Thanks, John. And starting with the second half of your question, the market dynamics. I continue to believe that the market is probably around $40 million total at the moment. But what is important is the growth of this market. And it's clearly a very dynamic growth I really believe that in the coming 3 years, this market will already be around $1 billion. And if you go beyond 3 years, we confirm that this is a total value that we see at around $3 billion for this market.

So it's a very dynamic one. One, we can take really significant market shares and including leadership. When you refer to the mix now for QIAcuity of customers. First reminder, at this moment, QIAcuity is a life science product on our portfolio. So mainly, we are targeting 3 kinds of customers: research, academia, where you will see mainly placement of what we call our 1 plate and 4 plate system.

And since the second half of last year with the launch of our biopharma menu, the pharma market, where here, we will be targeting higher throughput and obviously, the sales of our 8-plate system. As we have disclosed to the market, we are preparing the launch of QIAcuity to the clinical market as well. In other words, we want to make it a regulated platform and we are perfectly on track.

At this moment, as we have said at JPMorgan, we believe that we will be able to submit the platform QIAcuity to IVDR and the FDA by Q1 of 2024, and our strategy there is to start with application in oncology. We believe that's the biggest at the moment, the most quickly addressable market in clinical.

The first assay that will be launched on the regulated QIAcuity platform will be BCR-ABL for basically liquid-based or blood, bone -- blood-based cancers. We are well aware that there might be little by little also interesting opportunities for application, for example, in infectious diseases or even new neurologic -- neuro diseases as well. There, we are, at this moment, completely open to different strategic options, including partnership. But the key message, so far, Life Science, growing contribution of pharma because we have launched the biopharma first part of the menu last year, moving to clinical also solutions starting Q1 of 2024 and with oncology as a priority, first step.

Okay. Thank you, Thierry. And with that, I'd like to end the call here and appreciate your support for QIAGEN. If you have any questions or follow-up topics, please do not hesitate to contact Phoebe or me. Thank you again. Bye-bye.

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