Ladies and gentlemen, thank you for standing by. I am Sicily, your PGI operator today. Welcome, and thank you for joining QIAGEN's Q3 2020 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 would like to introduce your host, John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir. .

Yes. Thank you very much, and welcome to our conference call today. The speakers today are Thierry Bernard, the CEO of QIAGEN; and Roland Sackers, Chief Financial Officer. Also joining us is Phoebe Loh, Director of Investor Relations..

We moved forward the release of the Q3 report along with this conference call in light of the ad hoc announcement issued on Tuesday with our increased outlook for 2020. We appreciate your understanding for these changes and glad you could join us today..

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 press release is also available in the same section..

Before we begin, let me cover our safe harbor statement. The discussions and responses to your questions on this call reflect management's view as of today, October 28, 2020. 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 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, which are also available on our website..

We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of these figures to GAAP in the press release and the presentation for this call..

As a last point, you have seen in our Q3 report that we are planning to hold a virtual deep dive on Tuesday, December 8. An invitation to register for this event will be sent out soon, and further information about this event will be available on our IR section or just contact the team..

I'd like to now turn over the call to Thierry. .

Thank you, Joe, and good morning, good afternoon, good evening to some of you, and welcome all of you to our conference call today. As a first remark, on behalf of the QIAGEN team, Roland and myself, I wish you and your families good health and all the best during this period of great uncertainty..

Our teams at QIAGEN continue to rise to the challenges of supporting the response to this public health crisis. This underscores the directives to our employees that is to leave no country behind and also to constantly work on better, faster ways to test.

This outstanding effort is also reflected in the results for the third quarter and the first 9 months of 2020. In fact, it reflects not only our response to this pandemic but also the tremendous impact of the initiatives we have launched to enhance our market leadership and strengthen our differentiated position..

QIAGEN teams are responding to this public health crisis in a way that our solutions are becoming increasingly relevant to customers in the Life Science and Molecular Diagnostics. This pandemic and our year-to-date results are proving that QIAGEN is COVID-19 relevant, but QIAGEN is not COVID-19 dependent. Let me go through our key messages for today..

First, our teams far exceeded the outlook for sales growth in the third quarter and achieved the high end of our range for adjusted EPS. As you have seen, sales grew a dynamic 26% CER to $483 million, and this was well above the outlook we gave at 16% to 21% CER growth. Adjusted EPS was $0.58 CER.

This is a 61 increase -- 61% increase from the third quarter of 2019 and again at the high end of the range we had set for $0.52 to $0.58 CER..

This performance in quarter 3 comes after QIAGEN already exceeded the outlook set for the second quarter, where we were at 19% CER growth and also delivering -- after delivering 9% CER growth for the first quarter. As you all know, we see an ongoing high level of revenues in the third quarter of 2020 from product groups used in COVID-19 testing.

These sales reached $164 million and grew more than 300% from the third quarter of 2019. Sales in the rest of the portfolio declined 8% CER to $320 million from the same period last year. However, this was an improvement sequentially from the second quarter of 2020..

This leads to our second key message. As you have seen, we have increased our outlook for the full year 2020 based on our conviction to deliver an ongoing high level of sales and adjusted EPS growth in the fourth quarter of 2020. Our updated outlook for 2020 now calls for sales growth of about 20% CER.

This compared to the prior outlook for about 15% to 18% that we gave in July..

For the fourth quarter, we are expecting sales growth of about 24% to 27% CER over the same period in '19. This is based on expectation for a higher level of COVID-19 product sales that in the third quarter of 2020 and also reasonably good trends in the rest of our portfolio on a sequential basis..

For adjusted EPS, we have set a new outlook for full year '20 of about $2.07 to $2.09 CER. This would be a 45 increase -- 45% increase over 2019 and also an increase for the prior outlook for at least $2 per share CER.

We are, therefore, moving into the final quarter of 2020 with an increasing level of confidence supported, one, by strong demand for COVID-19 products, improving trends in our business and the benefits of new product launches..

As a next point and as said by John, we are planning to hold a virtual deep dive in December. It is clear that 2020 has been a year of big developments for QIAGEN. This event will be an opportunity for us to update you on our strategy and provide more perspective on the path forward as we navigate through this pandemic.

The key focus will be providing more insights on our focus on 5 pillars of growth, which we'll discuss later..

I would also like to add that we have appointed a new leader for our Molecular Diagnostic business area. Jean-Pascal Viola is taking up this role and continue as a member of the Executive Committee. You are probably aware that Jean-Pascal is a long-lasting member of QIAGEN. He has worked in Asia, the U.S.

and Europe, and has been extremely key in several of our latest acquisitions, Cellestis, STAT-Dx, NeuMoDx or our partnership with Formulatrix for digital PCR..

As a quick summary, QIAGEN is, therefore, on the right track for an outstanding finish to 2020, and this is reflected in the improved full year outlook..

I would now like to hand over to Roland. .

Thank you, Thierry. Hello, and thank you from me as well for joining us on this conference call. I would like first to provide some additional comments on our financial results and will later provide some perspectives on the improved outlook for 2020 that we just announced..

For the third quarter, our net sales growth at 26% CER did not include any incremental sales from the acquisition of the remaining stake in NeuMoDx that was completed at the end of September. Currency movements had a minimal impact on results.

As just mentioned, sales on product groups used in COVID-19 testing totaled USD 164 million in the third quarter and represented about 1/3 of total sales..

We have broken this COVID-19 sales down further into several categories. First, RNA sample technologies, consumables and related instruments made up 56% of these sales in the quarter. The next category involves PCR testing, led by our QIAstat-Dx and NeuMoDx solutions, which represented 23% of these sales in the third quarter.

In the third category, we have OEM reagents that are sold to other companies for use in their own COVID-19 tests. These sales represented 21% of COVID-19 product sales this quarter..

For the first 9 months of 2020, net sales were USD 1.3 billion and rose 18% CER over 2019. This shows our results at the high end of the full year range we HAD set said for 15% to 18% CER. These strong results prompted the upgraded outlook.

As for the split of COVID-19 and non-COVID sales for the first 9 months of 2020, our results showed that COVID-19 sales amounted to USD 418 million. For the rest of the portfolio, the sales were USD 881 million and declined 12% CER from the 2019 period..

Moving down the income statement. The adjusted gross margin fell 2 percentage points to 69.6% of sales in the third quarter of 2020 from 71.6% in the year ago quarter. This was due to a higher share of instrument sales as well as the significant cost for the ongoing expansion plans, which here are mainly related to the QIAstat-Dx cartridge production.

For the first 9 months, the adjusted gross margin was 69.7% compared to 70.7% in 2019. It certainly remains at a strong level, but again reflects the change in product mix for the period..

Adjusted operating income rose 60% to USD 170.3 million in the third quarter, delivering significant improvement over the same period in 2019 due to 2 factors. First, we saw an overall reduction in operating expenses as a percentage of sales.

This was partially due to the impact of the COVID-19 pandemic on sales and marketing expenses given the restrictions due to lockdowns. The second factor was the saving from the decisions we announced in October 2019 to change the orientation of our NGS strategy and implement targeted efficiency programs..

As a result, the adjusted operating income margin rose more than 7 percentage points to 35.2% for the third quarter of 2020 from 27.8% in the prior year period. For the first 9 months of 2020, adjusted operating income rose 52% to USD 430.3 million with a margin of 33.1% for the first 9 months of 2020.

This margin is up significantly from 25.4% in the same period of 2019..

Moving to adjusted EPS. Results for the third quarter of 2020 rose 61% to $0.58 CER. This, again, was at the high end of our outlook for $0.52 to $0.58 CER. For the first 9 months of 2020, adjusted EPS was $1.49 at CER, rising 55% over $0.96 in the same period of 2019.

The results for 2020 at actual rates were $1.47 or $0.02 lower due to currency headwinds..

Moving to results for cash flow for the first 9 months of 2020. We saw a decline in operating cash flow to USD 188.1 million from USD 221.4 million in the same period of 2019.

Keep in mind that we had about USD 119 million of payments for the discontinued tender offer and also about $50 million of cash payout in 2020 for the restructuring measures initiated in October 2019. Excluding these 2 factors, operating cash flow was about $358 million in the 2020 period.

These 2 factors also impacted free cash flow, which declined to USD 101.3 million in the 2020 period from $135 million in the 2019 period..

Moving to the balance sheet. Our leverage ratio stood at 1.8x net debt to adjusted EBITDA at the end of the third quarter in 2020. This was slightly higher than 1.7x at the same point in 2019. We continue to pursue a disciplined capital deployment policy, one that has worked well for us in recent years.

This involves investing in business while seeking ways to increase returns to shareholders..

I would like to now give you an update on sales results for our product groups, our customer classes and our geographic regions. In terms of the 2 product groups, sales of consumables and related revenues rose 22% CER to USD 420 million in the third quarter and were 87% of sales.

This was well above the trend for the first 9 months of 2020, with sales up 14% CER to USD 1.12 billion..

Instrument sales maintained an extraordinary growth momentum in the third quarter, again driven by the COVID-19 pandemic. These sales were up 56% CER and reached USD 64 million in the third quarter of 2020 and represented 13% of total sales. For the first 9 months, instrument sales were up 46% CER to USD 178 million over the same period in 2019..

This growth is coming on the back of significant demand for many instruments and automation solutions being used in the COVID-19 response. It is worthwhile calling out here that all of these instruments have strong customer applications beyond the pandemic response..

As examples, a total of 290 new placements of the QIAsymphony automation system were made in the first 9 months of 2020. This was a 50% rise over the same period of 2019 and builds on over 2,500 cumulative placements at the end of 2019. We also had over 1,000 new placements of instruments from the QIAcube family in the first 9 months of 2020.

This was about double the number of placements in the same period of 2019. We also reached over 1,800 cumulative placements of the QIAstat-Dx syndromic automation solution, a number that could be and will be much higher during '21 once we have overcome cartridge manufacturing constraints..

For NeuMoDx, we now have 110 placements of this integrated PCR testing solutions, including U.S. placements gained through the acquisition on hand. NeuMoDx is clearly seeing unprecedented demand, and the ramp-up is accelerating faster than our pre-pandemic plans..

Moving to our 2 customer classes. Sales for Molecular Diagnostics customers grew 30% CER to USD 237 million in the third quarter over the year ago period. Here, we saw solid double-digit CER gains in sales of consumables, while instrument sales growth was about 80% CER.

This was, again, driven by demand for COVID-19 products, while sales in the rest of the business were lower compared to the third quarter of 2019..

As an example, sales of the QuantiFERON-TB test declined 20% CER in the third quarter compared to the same period 2019 but is better than the 46% CER year-on-year drop seen in the second quarter of 2020.

We also saw weaker trends in Precision Medicine, in particular, due to a 25% CER drop in revenues from companion diagnostics co-development projects compared with the third quarter of 2019..

Sales to Life Science customers also rose at a dynamic pace, growing 22% CER to USD 247 million and representing 51% of our total sales. Just as in Molecular Diagnostics, we saw very good demand for COVID-19 test solutions, in particular, for sample preparation and OEM products sold to other companies for their own tests.

Life Science sales outside of COVID-19 tests recovered compared to the second quarter of 2020, but still remained below levels in the third quarter of 2019..

Moving to our geographic results. The Europe, Middle East and Africa region led the third quarter of 2020 with a 40% CER increase to USD 164 million. Here, we saw growth in all areas and, in particular, double-digit CER growth in Germany, France, United Kingdom and Italy. The Americas region also did well.

Sales in the region rose 19% CER to USD 227 million in the third quarter. Excluding QuantiFERON, sales in this region rose at much as faster 30% CER rate..

The Asia-Pacific/Japan region also experienced solid growth, with sales growing 21% CER and reaching USD 92 million for the third quarter of 2020. China delivered growth above 20% CER, a sharp acceleration from flat sales in the first half of 2020.

Japan continued to deliver double-digit CER gains in the third quarter and reached nearly 20% CER growth for the first 9 months of 2020..

I would like to now hand back to the Thierry. .

Thank you, Roland. And I would like now to give you a quick overview on our focus on 5 pillars of growth. We have chosen these important product areas as catalysts to drive our growth in the coming years.

As we have said in our discussion with you over the last few weeks, as we resumed our investor relation activities, we are moving forward, not with a new strategy, I don't think we need one, but with a sharpened focus. I would say, even ruthless focus on our reinvigorated portfolio..

We are learning from our experiences in the past. One of those experiences is that QIAGEN as a mid-cap company cannot do it all. So we must choose wisely where we want to be a top leader and then resolutely direct our investment and commercial energy and resources into those areas to achieve our ambition.

These are areas with excellent market potential and, in addition, different waves of growth ahead in the coming years..

We believe we have chosen wisely. And here, you can see our 5 pillars of growth. These are all areas where QIAGEN is well positioned to capture growth opportunities because we launch differentiated solution..

The first area involves sample technology. Here, we want to leverage the strength of our roots in sample prep, the first step, as you know, in many lab processes. Retaining focus here helps to ensure we continue to innovate with our customers in both research and clinical applications and apply those learnings to our downstream application..

The second pillar involves QuantiFERON, our technology for the detection of latent diseases. The primary focus now as you know is on tuberculosis screening with QuantiFERON-TB Gold. This continues to build out its position as the modern gold standard for latent TB testing.

Our automation partnership with Diasorin is bearing fruit, particularly in the United States, as customers convert to using QuantiFERON on this automated testing platform in a win-win situation for both companies..

As Roland said, the COVID-19 crisis is obviously weighing on latent TB testing. Sales for 2020 are expected to be below the '19 level of about $240 million. At the same time, we have very strong conviction about resuming growth once the pandemic subsides..

Moving to the next 2 growth pillars. The pandemic has brought a new emphasis on the importance of molecular testing, and we are here in an excellent position to ramp up commercialization of our 2 novel solution we have in clinical PCR testing. First of all, as you saw in our press release, we fully acquired the remaining 80.1% of NeuMoDx in September.

This provides direct access to the U.S. market and ideally completes the creation of installed base that we did in Europe. With the U.S. placement, we are now at 110 installed system worldwide, and we are still growing this..

NeuMoDx platforms across the world are being used obviously for COVID-19 testing, but the future is clearly going to be about offering a broad range of clinical tests.

If you look at Europe, we already have a menu of 13 other infectious diseases test, and we are planning investments as we speak to register a similarly strong menu in the United States in the coming years..

Also for PCR testing, our QIAstat diagnostic system are being deployed for syndromic testing when patients are tested for multiple pathogens from a single patient sample.

As we are moving into the flu season, the respiratory panel on the QIAstat diagnostic is being utilized for detection of influenza, SARS-CoV-2 and also around 20 other respiratory pathogen.

This is a truly dynamic market segment with potential way behind -- beyond the pandemic, especially as we expand the menu with GI, gastrointestinal, and other panels..

Right now, for QIAstat, we have to tackle supply chain constraints and invest to make step changes in cartridge production. Those investments are expected to really bear fruit during the first half of 2021. Our fifth pillar is the QIAcuity family of digital PCR system.

We are extremely excited about the initial customer feedback which is way above our expectation and translated into a fairly good level of purchase orders already. We began commercialization in September, and the first meaningful sales contribution are expected in this quarter..

I would now like to give you an overview of the QIAGEN products being used in COVID-19 testing and the recent development. We have been building probably the most comprehensive portfolio of COVID-19 solutions on the market. First of all, our RNA sample technologies are being used worldwide in testing workloads in both manual and automated formats.

These are now complemented by our lineup of automation platform involving systems like QIAsymphony, QIAcube or EZ1. As we mentioned earlier, we are seeing placement rates in 2020 that are dramatically above levels from recent years..

We are also expediting the development and release of new products. This include, one, sample prep kits that can be used on third-party instrument system and help addressing the bottlenecks that our customers are facing. It also includes the launch of QIAprep&.

This is a truly novel product developed by our R&D teams that integrates sample prep and PCR detection. The benefit is very clear. The workflow helps address key bottlenecks by reducing time to result and requiring less disposable plastic.

It can be completed in less than 1 hour, compared to about 3 hours to standard -- for standard extraction-based PCR processes. It is also able to address high volume up to 2,600 samples per 8-hour shift on PCR cycler. We will be seeking CE-IVD and FDA EUA clearances.

But what is making us very optimistic is that we do not see manufacturing capacity issues for this product..

Moving to the next category. As I just mentioned, the QIAstat diagnostic and NeuMoDx solution are being fully utilized for COVID-19 testing. Both are tests that include targets for the SARS-CoV virus. NeuMoDx, as you know, has the monoplex assay already launched in Europe and in the U.S.

We are going to complete that assay with the short-plex, 4-plex, flu, A&B, RSV, SARS-CoV in the coming weeks, and we will also register a claim extension for saliva testing..

Another contributor to our COVID-related sales is our business involving OEM components. This involves the sales of reagents and enzyme to other companies for use in their own test kits. This is a business that existed way before this crisis and obviously will continue afterwards..

And as the last product group, which will be a new offering from QIAGEN during the fourth quarter, we are about to launch antigen and antibody rapid tests that have been developed in partnership with the Australian diagnostic company Ellume.

Those tests are processed on a very simple QIAGEN e-hub, which provides automated results in about maximum 10 to 15 minutes. We are seeing very good customer interest in terms of using it to scale testing at point-of-care location.

The fact that results are processed digitally removes a key barrier versus other antigen tests, meaning those tests require someone to monitor the test progresses and try to visually determine the outcome of the test. Ours with Ellume does not..

The QIAreach SARS-CoV-2 antigen test is expected to be submitted for FDA, EUA in the very coming days and the same for CE marking. First revenue contribution are expected in the fourth quarter of this year..

Moving now to provide some more details on our COVID-19 product portfolio, how it has performed during the course of 2020 so far and some perspective on trends we currently expect for the fourth quarter.

As a reminder, as Roland said, we expect dramatically higher sales for the COVID-19 product groups in the fourth quarter of 2020 over the year ago period. We also expect sequentially higher sales in the fourth quarter than in the third quarter of 2020. This comes after a sequential decline in COVID-19 sales in the third quarter of '20.

Why? This was, again, due mainly to lower sales of OEM products and reduced demand from manual RNA sample extraction kits that reflects changes in market trends..

Let me give you some more context here. As you know, during the second quarter of '20, there was a dramatic spike in demand for RNA sample tests as the pandemic gained momentum. This demand was mainly focusing on manual extraction kits.

Given our leadership position in this market, QIAGEN mobilized and rapidly scaled up production capacity for those manual RNA extraction kit. Again, as you remember, 24/7 shifts, redeploying capacity from our DNA sample prep, which we have to highlight makes up the vast majority of sample prep kits sales in a usual year..

However, during the course of the third quarter of 2020, we started to experience a combination of 2 trends. First, we saw customers once again asking us to produce non-COVID-related products on a significantly higher scale.

They were suffering with tremendous need for DNA extraction, not RNA, and related product use in areas such as oncology and other important non-COVID-related application. And this is very important because we had to invest here again. This is key for the growth of QIAGEN in the coming years and in the coming months..

Second, our customers were shifting demand in COVID-19 testing from manual RNA extraction to automated kits. In terms of the customer demand trends for RNA extraction, back in the second quarter '20, about 70% of the demand was for manual kits.

Now we expect this to swing to about 65% demand for automated kits, therefore drastically reducing the share of manual demand. This means that, as we speak, we currently have sufficient capacity for manual sample prep demand, but we are still expanding capacity for automated kits..

In terms of automated sample prep capacity, we have been working to address supply bottlenecks, especially plastics. We expect those investments to start coming online in early 2021 and, therefore, see continuous output improvement.

This increase in automated capacity is needed as we seek to address the growing demand for automated COVID-19 sample prep kits as well as the recovering demand for DNA kits. Again, securing this customer relationships for DNA is critical for our long-term business beyond the pandemic..

And this was reflecting in the fact that we had a double CER gain in total sample prep consumable sales in the third quarter on a year-on-year basis as well on a sequential basis for the second quarter of 2020..

As with every new production -- new product launch, I'm sorry, the first quarter can bring forecasting challenges. However, we still are very excited about the potential for QIAprep&, the potential for the antigen testing, and we believe that we can scale rapidly to meet demand..

In PCR testing, which again represented about 23% of our COVID-19 sales in the third quarter, we are accelerating the ramp-up of NeuMoDx and QIAstat-Dx ahead of the plans we had set for those acquisitions. Demand for PCR testing products remain at a high level in the third quarter of '20 and rose sequentially from the second quarter.

We, therefore, expect a further increase in sales in Q4..

On QIAstat, as we said before, we are overrun by demand from customers. It is not a demand issue. It is a supply issue for us. We now have over at 1,800 placements in the field. Instrument supplies are going well as we were able to secure significant supplies going forward.

However, our constraint is the ongoing expansion of our cartridge manufacturing, where we do expect a significant change in the first half of 2021. We expect to end 2020 with around $50 million of sales for this product..

Turning to NeuMoDx. Here also, we are seeing very strong demand for the different solutions. We are saying now that we have acquired NeuMoDx, this product, on a global basis. We are now integrating NeuMoDx into QIAGEN and are implementing plans to significantly scale up not only production capabilities, but also the test menu, especially for the U.S.

COVID-19 at this moment for NeuMoDx is clearly the growth driver. But as we said before, we have a very broad menu in Europe, and we will have this menu in the U.S. as well. We are investing to ramp up production capacity for both consumables and systems..

Now for OEM products, this is by nature, and we highlighted that in different communication, a volatile business driven by tenders to other companies and can also involve large governmental tenders under OEM brands. As we noted earlier, we saw lower sales in the third quarter that came after a significant surge of sales in the second quarter.

Those orders can be received on irregular intervals..

As for our antigen and antibody test, we want first to gain the FDA and CE-IVD markings before giving more concrete supply expectation. At the same time, you have to remember that our partner Ellume has received a significant grant from the NIH to help ramp up production capacity.

Again, what makes us optimistic is that the initial feedback from customers is extremely encouraging. This is a differentiated test for the market that is growing..

In summary, we are really looking for a strong showing from our COVID-19 portfolio in the fourth quarter and, indeed, a sequential improvement from Q3 2020. We will share more on the developments in our portfolio at the deep dive event. .

Back to Roland now. .

Thank you, Thierry. I would like to now review our increased outlook for 2020 and provide some perspectives on the outlook for the fourth quarter..

As noted earlier, we have increased the full year outlook for net sales to about 20% CER growth, and this compares to the prior outlook for about 15% to 18% CER growth. For adjusted EPS, we have increased the outlook to $2.07 to $2.09 CER, and based on a full year weighted average of about 235 million shares outstanding..

For the fourth quarter, we anticipate another quarter with very elevated sales growth of about 24% to 27% CER, driven by dynamic gains from COVID-19 test sales. Adjusted diluted EPS are expected to be about $0.58 to $0.60, and this is based on 237 million shares outstanding..

As for currencies, based on rates as of October 26, 2020, on a full year basis, we expect a currency headwind of about 1 percentage point on sales results at actual rates. For adjusted EPS for the full year, we expect a currency headwind of about $0.02 per share.

For the fourth quarter, however, we expect a tailwind on net sales of up to 1 percentage point and a largely neutral impact on adjusted EPS..

I would also like to note that the outlook for adjusted EPS for Q4 and for full year 2020 excludes a pretax capital gain from QIAGEN's minority investment in ArcherDX, which was acquired by Invitae in October 2020. QIAGEN held an investment since 2018 in ArcherDX.

Based on the current share price of Invitae, QIAGEN estimates a pretax capital gain could be approximately USD 110 million or about $0.35 per share on after-tax basis. QIAGEN also has the right to receive up to 2.1 million additional Invitae shares upon achievement of certain future milestones..

With that, I would like to hand back to Thierry. .

Thank you, Roland, and we want to have enough time for the Q&A. So as a quick summary. First, we had outstanding results for the third quarter as we exceeded the outlook with 26% CER sales growth. And we were at the very top end of the range for adjusted EPS at $0.58.

This was the second quarter in a row with very high sales contribution from COVID-19, but we also saw encouraging signals for the rest of our business..

Second, we are very energized to support the global response to the COVID-19 pandemic in line with our directive to leave no country behind. Our forecast points to high COVID-19 sales in the fourth quarter and a sequential improvement from the third quarter..

Third, we are laser, and I insist on laser, focused on making the right investment to support the COVID-19 response. But again, we are a COVID-19-relevant company. We are not a COVID-19-dependent company. And we need and we are also positioning QIAGEN for the day when the pandemic subsides.

This is why we are prioritizing investments into the 5 pillars of growth, once again, sample tech, QuantiFERON, QIAstat, NeuMoDx and the QIAcuity digital PCR platform. We will discuss this more in detail at our upcoming deep dive event..

And as the last point, we have increased our outlook for full year 2020. We are optimistic to the -- to this forecast and end this year with another quarter with outstanding results and help to achieve full year sales growth of about 20% CER and adjusted EPS between to $2.07 to $2.09..

In closing, our commitment to value creation for our shareholders and stakeholders remains as strong as ever, especially as we navigate through a year of significant changes for all of us. Let's all stay safe. And with that, I would like to hand back to John and the operator for the Q&A session. Thanks a lot for your attention. .

[Operator Instructions] We will now take our first question from Daniel Wendorff from Commerzbank. .

I have a question on the cartridge manufacturing constraints you talked about.

Can you maybe provide a bit more details here, how you want to tackle that? And how should we think about a relief to that -- to these manufacturing constraints? And maybe also with regards to cartridge revenues maybe looking into 2021, how should we think about cartridge revenues per annum for QIAstat in 2021?.

So thanks for the question, and I assume as you just said that you refer specifically to QIAstat diagnostic. So you perfectly can imagine that fantastic cartridge which is combining amplification and detection for not 1 pathogen but 20 pathogen in a single cartridge is not easy to fully automate.

So what we have done already in 2020 is that we have doubled the lines of manufacturing, both in Germany and in Spain. But those are still semi-manual automated line. We want to move to a greater automation capacity, and this will be operational by Q2 of 2021..

So the way you should see it is that, as we said before, we wanted to double our production capacity by Q4 of 2020 and double it again in Q2 of 2021. This is what we want to achieve.

So that would help us, first of all, answering the growing demand for those kind of syndromic tests driven by COVID-19, but it will also help us answering the demand beyond COVID-19. Because let's not forget that we have also GI cartridges at our menu in Europe. We want to launch it in the U.S. by the end of Q2 of 2021..

We also want to launch the meningitis cartridge by the end of Q2 2021 in Europe and then by the end of the year in the U.S. So combining, first, increase our production capacity, we are going to continue to grow the consumption of cartridges on QIAstat way on the first semester of 2021.

And then if the pandemic subsides, I'm sorry, then we will have the relays of the waves of growth coming from the GI cartridge, both Europe and in the U.S. and then the meningitis mainly in Europe in 2021 and by the end of 2021 in the U.S. as well. .

We will now take our next question from Tycho Peterson from JPMorgan. .

This is Julia on for Tycho. So maybe starting off of QIAprep& kit.

How much of your current sample prep volume do you expect to convert to integrated kit? And how quickly do you expect that to happen? I know in the slide deck, you said 65% of the demand is shifting to integrated testing, but just wondering if that's the approximate mix that you expect to convert your own existing sample prep customers as well..

And also, do you expect sales of the new kit to be mostly to third-party platforms? Or do you expect this new kit to also significantly accelerate placement of your own QIAsymphony instrument, particularly the RGQ model?.

Well, I believe it's going to the mix of all the data on your question. I mean, first of all, I mean, we are currently launching the product. It's under evaluation in more than 50 customers all over the world, both in Europe and in the U.S. with extremely good feedback.

The way we see it, first of all, it's not necessarily cannibalization of what we have on the market already. There might be some, but the demand of test is still growing. So this is answering basically this new demand, first of all..

Sometime also, it can be interesting, and we have concrete example of customers using, for example, NeuMoDx, where we do not have the possibility to supply as much as they would want in COVID PCR NeuMoDx test, and then we complete our offering with the QIAprep&.

And we have several cases in Europe because, as we said during this call, we still have constraints on manufacturing on NeuMoDx..

So the ratio we gave manual automated, 65:35, in favor of automated will probably continue. With the help of a QIAprep&, we will probably move to more than, let's say, 70:30. It all depends. I would say, at the moment, I insist, it's rather answering an extra demand than cannibalizing our current offer. There will be some cannibalization, no doubt..

Acceleration of our own instruments, yes, of course, we are relying on that. But again, we consider the overall launch of the QIAprep&, including what it could have as a consequence for RGQ, for example. .

We will now take our next question from Doug Schenkel from Cowen. .

This is Chris on for Doug today.

First, could you just talk about the recovery trajectory of QuantiFERON? Will it be reasonable to believe that it could return to at least 2019 revenue levels in 2021? And just given the logistical advantages of IGRA test, do you believe the current pandemic could help catalyze conversion over from skin tests? And what's your longer-term view of QuantiFERON revenue now?.

And for somewhat unrelated follow-up, could you just update us on the status of your sales and marketing infrastructure for QIAstat and NeuMoDx in the U.S.? What incremental investments do you need to make on this front?.

So first to QuantiFERON, and thanks for the question. You have seen already an improvement in the quarter 3 result trend. Compared to Q2, significant improvement.

I think you are aware, and we explained that in previous calls, that we are monitoring on a daily basis in every state in the U.S., but also in every major country in the world, the daily shipment and sales of QuantiFERON or, I would say, of every non-COVID..

And we see since the end of Q2 that the demand is back on QuantiFERON, not to the level of 2019, obviously, because part of QuantiFERON testing is driven by immigration testing or by some massive community testing, such as university or school students testing. This is not happening as we speak, but there is an improvement..

So to your question, we will see, again, an improvement in Q4. We will still finish the year 2020 negative on QuantiFERON compared to '19. But you will see that the magnitude of that negative growth rate is really going down. And we expect indeed to come back to our 2019 level in 2021. This is part of our plan. First part..

Second, and the perspective on this range of products, we are still optimistic. Why? First of all, the partnership with Diasorin was the right partnership. It is working and is working, giving win-win results for both companies. So automation was good.

Second, as you know, we said we would launch a new product for QuantiFERON, which we call the QuantiFERON reach, which is products based on our partnership with Ellume, to access the high-burden, low-resources country. You will see the first impact of this product in 2021. We are on track for the launch..

For the overall QuantiFERON franchise, you remember as well that we decided to tackle the unmet testing need of Lyme disease, again, in partnership with Diasorin. We are on track to launch that Lyme solution on QuantiFERON in 2021. It will impact also our result in Europe.

So I would say as a summary, compared to what we disclosed in New York in our last Investor Day, I see no reason to go lower than what we said at that time..

Now moving to QIAstat diagnostic and NeuMoDx in the U.S. First, we are integrating NeuMoDx and the NeuMoDx people, so the NeuMoDx people that are relevant to continue the growth of that product as we speak into QIAGEN. We believe at the moment that we do have the sales and marketing network necessary to address NeuMoDx and QIAstat in the U.S.

with the addition of the NeuMoDx people, plus the investment we did before for QIAstat in the U.S., first part, where we have invested starting end of Q3 and -- end of Q2 and Q3 is on customer support because anytime you place, obviously, a reader for QIAstat and anytime you will place more NeuMoDx, you need to make sure that you have the field service engineers.

So this is where we have to invest..

So I believe that we do have the -- when we will be coming out of 2020, we will have the infrastructure to push those products.

But we also clearly said in the latest meetings we had with you since August 15 that if we see any opportunity to accelerate the growth of 1 of our 5 pillars of growth, be it a marketing investment, a medical affair investment, a regulatory investment, we will not hesitate to do it and come back to you with numbers to justify it as long as it accelerates 1 of our 5 pillars of growth and therefore QIAstat and NeuMoDx as well.

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We will now take our next question from Scott Bardo from Berenberg. .

So I think that by the end of June, you communicated capacity of around 10 million kits for RNA extraction. And I think the broader messaging was a ramp-up to 20 million RNA extraction kits.

Can you help us understand, please, how much demand of that capacity you saw in the third quarter and what the expectation is for the fourth? And as the world has become more automated, is there anything to fear for your traditional DNA extraction kits?.

Quick follow-up then for Roland, please. I appreciate lots of moving parts.

But given all of the new launches you referred to and some of the ramp-up plans discussed, is there any reason to alter your early assumptions for 2021, which included then double-digit top line growth and around 18% earnings growth?.

You want to take that one, Roland, to leverage this -- the second half of the question, and I will take the manufacturing output?.

Yes. Sounds good. Thank you. And I can kick it off. No, I do think, Scott, fair question. I do believe, as we said before, we see clearly an acceleration also in the fourth quarter compared to third quarter. Nevertheless, I do think there is, right now, particularly in Europe, I think good reasons to be a little bit more cautious.

We see a lot of regional lockdowns either coming up or at least being discussed. And again, we're still early in the quarter. So I do think having here a certain cautious view is probably reasonable on a quarterly level..

Mid-term for next year, I do believe, given what we all discussed, in particular the growth around our 5 growth pillars, in particular, given also growth we still experiencing overall from COVID, in particular, from the longer-term providers like QIAstat and NeuMoDx, we're still quite optimistic.

It's quite obvious that there is a lot of moving parts in the environment, and again starts with vaccination. And again, goes down all the way to political reactions. But with the guidance right now on the revenue growth for next year, I would say, as of today, very comfortable. .

So to go on your question on manufacturing output. So first of all, I'd like to insist that when we said 20 million, we were talking the total sample prep capacity. If it had to be a total RNA, for example, we would have been able to do it. That was -- that's how you need to see the 20 million. We are not at 20 million yet. We are below that.

We are closer to 13 million to 15 million. .

And as we have said, because we have seen 2 movements. First of all, customers saying as we have more needs now for DNA, we need to start again testing for oncology and so on, we readjusted the balance towards more DNA.

And also, it is clear that customers now for RNA testing are moving much more into automated, and this is what we are readjusting to be able to answer that demand for automated solution..

So this is the way you should see it. And if you look sequentially, where we declined in sales Q2 to Q3 for manual COVID-19 sample prep, we increased already for automated COVID-19 sample prep. And we expect that increase to continue in Q4 and Q1 of next year as we are improving basically some of the challenges, for example, the plastic supply.

And the DNA part will continue also to increase in Q4, but also in early 2021. .

We will now take our next question from Dan Arias from Stifel. .

Just maybe going back to QIAstat, do you guys have a sense for the utilization levels that you think customers might see once we get past the worst of the respiratory season and flu-COVID differentiation needs this year? I'm just kind of curious about the extent to which you have -- you kind of have confidence in a multi-year pull-through rate, just given that you're presumably starting off at a pretty elevated level here in 2020.

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Yes. But what we have to keep in mind is all this needs to be balanced with the improvement of the menu. Again, QIAstat is the menu play. It would be folly to believe that we can just have a respiratory panel even with the COVID-19 test. So what is key, and we always said that, is that we need to continue the rhythm of launching new menu..

I said for 2021, GI and meningitis. GI is already in Europe, will come to the U.S. Meningitis needs to be launched first in Europe and then in the U.S. and then we will continue after. We have plan for 2022 around, for example, pneumonia. We have plan around UTI. We have plan around also what we call direct identification of positive blood culture.

So menu play, clearly..

Second, as we said, we are currently constrained by supply. We could be selling much more of QIAstat as we speak. So currently, our model is thinking around, on average, 2 cartridges, 3 cartridges per installed base per day. This is what we have because of our supply capacity.

The way we see it in the future, once we have a more complete menu is that when you are not in flu season, for example, in the winter season, you will be on an average of between to, I would say, 3 and 4 cartridges a day, and it can move up to 6, 7 cartridges a day on a given system when you will be in a kind of winter season.

That's the model you should put in mind -- you should have in mind. .

We will now take our next question from Brian Weinstein from William Blair. .

Actually, a couple of them. The first is you talked about no country left behind. I'm curious, as we're sitting here in the States and a little bit more U.S. focused, what you are seeing in key countries in terms of products that they're using, how things are developing there, price point differential between various countries.

Just any kind of color that you're seeing about COVID-19 testing dynamics across the globe..

And then one for you, Roland.

Can you talk a little bit about long-term margin improvement opportunities and where those come from in the post-COVID-19 world?.

Roland, why don't you take the -- yes. .

Yes, let me take it on the second. No, I think it's quite obvious that we have seen a stellar margin improvement over the last 2 quarters and also the fourth quarter is clearly with the actual guidance on track for, again, another outstanding performance.

At the same time, of course, it's obvious what Thierry just discussed, and I think we were always quite upfront with that is we clearly are preparing our portfolio also for post-pandemic scenarios, and therefore, particularly on the NeuMoDx side, we're building on the portfolio.

We do believe we have a very strong portfolio ready for Europe, but we're still missing a couple of approvals for the year. So there will be a focus point around that in the next couple of quarters..

Other than that, again, there's clearly leverage opportunities for us, just think about other incremental costs we are right now facing with the QIAstat build-out and then, again, all the valuation and related consulting work and so on. So you can see, once we have that out of our way that should have an impact.

Same is true, I also believe, that the overall setup we have for sales and marketing is quite efficient..

There will be, I think, also changed approaches after the times of the pandemic scenario, meaning by that is we have, as you can see in our implementation numbers, a significant number of placements done over that time period, which clearly lead to ongoing recurring revenues which, by definition, again, will be very helpful in getting more efficient because your sales force can do a lot of other things and again working on leads, but not on recurring sales.

So the area we're going to invest is dedicated on R&D, but clearly giving us enough room for margin improvement. .

And to your question on basically geographic diversity regarding consumption or regarding pricing. So I'm trying to make it as simple as I can. The way you should see it, when you consider extraction of nucleic acid, U.S. and Europe have definitely moved to automated solution.

And I do not expect increases even if there is still increased cases and increased contamination, this will not be primarily answered by manual extraction..

Emerging countries, there is still potentially more opportunities with manual, but those countries are also moving very quickly to automated extraction. We need to be clear on that. So the needs or the increased needs, if there is new waves of contamination, will have to be answered by automated product not with manual.

If you look at PCR first of all, it's still the golden choice in every geography..

I know that many people are saying, is antigen cannibalizing? There will be a bit of cannibalization, but I much more believe that it will add up to the testing capacity because, again, needs are increasing. I see a split, especially in the developed countries, Europe and U.S. of 50% antigen, 50% PCR in 2021.

And price-wise, I see no clear differences of prices for extraction worldwide. There are differences of prices in PCR between the developed market and the less-developed market. But again, you know that QIAGEN doesn't want to play on prices. And on antigen, there are significant differences of prices between developing countries and developed market.

But again, on our antigen launch, we will play on ease of use, medical added value rather than on pricing. .

We will now take our next question from Steve Beuchaw from Wolfe Research. .

I wanted to follow-up on 2 points that have come up a number of places here in the Q&A. I just want to be really basically simple about -- in the way that I tackle it. One is on STAT-Dx. So there's clearly a lot of demand here.

It's difficult to know, though, given the supply constraints that you're addressing here for 1H '21, just what the volume demand looks like..

I wonder -- and I appreciate the $50 million statistic that you gave earlier. But where do you think that $50 million would be if in current operating environment, you had unlimited supply of cartridges? So I appreciate it's hypothetical, but I think it would be really helpful for us as we think about, let's call it, 2H of '21..

And then I think there's -- and this has come up on this call and in other calls, a bit of a confusion or concern as it relates to your competitive positioning in automated versus manual extraction.

I wonder if you could speak to that and say, hey, if the world goes more and more automated, are we just to put it all the way down in a stronger competitive position? Or is that something where we have some work to do to address our position... .

Hello?.

[Technical Difficulty].

So are we all still online, John? Or can we continue or not?.

Yes, we're here. We just lost Steve. Let's keep -- it's the last question. .

Okay. Very good. So very quickly on automated and manual. It is very clear that we don't have an automated extraction solution that is scalable very quickly. Our spin columns, manuals are very scalable quickly, but we don't have, for example, the scalability that a company like Thermo or PerkinElmer could have in an automated system.

And therefore, it poses the strategic question for QIAGEN for the coming months and years. It's a long-term investment, it's not just for the pandemic, to see whether we should address that higher throughput extraction automated system in our portfolio..

But you have seen that sample tech is in our 5 pillars of growth. So having an extra investment here will perfectly, perfectly fit in our strategy of ruthless focus on the 5 pillars of growth. To the question on STAT-Dx, I would quickly say that whatever we would have at the moment from a volume standpoint, we would sell it.

Let's be very clear, we would sell it. I'm not going to dare giving the numbers. We could be much higher than that..

Does it mean that we are losing opportunities that we will not recover? I don't believe so either. First of all, because this market, we estimated it at $800 million a couple of years ago, total growing at 20%. It's probably already at $1.3 billion, $1.2 billion, still growing at 22% -- 20%.

And in addition to that, that pandemic is showing the need for other sites of testings that I'm not sure are going to disappear after the pandemic. The fact that you can have testing solution in airports, in cruise company, in leisure activities and so on.

So I believe that the market for a product like STAT, especially when it's differentiated, is still extremely dynamic. .

So with that, I would like to end the call here, and thank you very much for your participation. If you have any follow-up questions, please do not hesitate to contact Phoebe and me, and we can do a follow-up with you. That ends the call. .

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