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…

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…

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…

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…

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.

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.