Qiagen N.V. (QGEN) Q4 2021 Earnings Report, Transcript and Summary

Please standby, we're about to begin. Ladies and gentlemen, thank you for standing by. I am Jessica, your PGI call operator. Welcome and thank you for joining QIAGEN's Q4 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. The prepared remarks will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to introduce your host, Mr. John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

Thank you very much, operator and welcome all of you to our call. Speakers today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. Also joining us today 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. Today, we will first have some remarks from Thierry and Roland and then move into the Q&A session. A presentation with the details on our performance is available in the IR section of our website along with the Q4 release. We will not be showing the slides during the call. Before we begin, let me cover the traditional Safe Harbor statement. This conference call discussions and responses to your questions reflect the views of management as of today, February 9, 2022. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions of the future. These constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligations to revise any forward-looking statements. For 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 making reference 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 is available in our press release as well as the presentation. And again, both of these are on the website. I would like to now turn over the call to Thierry.

Thank you, John and good morning, good afternoon, everybody. Welcome to our conference call today and thank you, everyone, for joining. It's always a pleasure to have those regular exchanges and meeting. Our very solid results in the fourth quarter of 2021 capped a tremendous year for QIAGEN. The highlight was clearly the 22% growth at constant exchange rates, or CER, in our non-COVID product portfolio and this really underpins our confidence in double-digit growth for 2022 in these areas of our portfolio. We also achieved a very important milestone with over $2 billion of sales for the year. I would like to take opportunity of this call to thank our teams for their tireless execution to continue showing as I've been saying very often that QIAGEN is COVID-relevant but not COVID dependent. So what are our key messages for today. First, we exceeded the outlook set for net sales growth and adjusted EPS both for the fourth quarter and for the full year. Net sales for the fourth quarter of 2021 grew 4% CER to $582 million over the same period in 2020. This was well above the outlook for a decline of 9% CER. Our non-COVID product sales advanced 10% CER which was ahead of our expectations. COVID-19 product sales were also better than expected due to the surge in testing related to the Omicron variant. This COVID-19 sales, however, were down 7% CER from the fourth quarter of 2020. For the full year, we also exceeded our outlook with net sales rising 19% CER to $2.25 billion against the outlook for at least 15% CER growth. Our non-COVID business again delivered outstanding results ahead of our goal for 20% CER growth and those products represented about 70% of our total sales. The strong business expansion led to earnings growing at a faster pace. Adjusted earnings per share for the fourth quarter rose 10% to $0.75 CER and this was again above the outlook for at least $0.60 CER. For the full year 2021, adjusted EPS grew 22% over 2020 to $2.63 CER and this was well above the outlook for at least $2.48 per share at CER. Another very key highlight was that the strong business performance led to a record year of cash flow. Operating cash flow for 2021 rose 40% to $639 million while free cash flow increased 38% to $449 million over 2020. Those results highlight once again our ability to generate strong cash flow from the business while investing to support our growth ambitions as part of a very disciplined capital allocation strategy. This leads to our third message. QIAGEN enters 2022 as a stronger, more focused and balanced company. The last two years have been a period of implementing our strategy as a new management team. That strategy is focused on helping customers around the world gain access to valuable molecular insights from molecular research to clinical health care. We are targeting segments in the market with promising growth opportunities while making sure we execute quarter after quarter. At the core of this new strategy is a focus on our five pillars of growth. Those are opportunities to maintain and create top three leadership positions in highly attractive markets. The five pillars built on our absolute leadership in Sample technologies, the first step in any laboratory process. Against this backdrop, our focus translates into two keywords: recurrence and balance. What do I mean by recurrence? Recurrence means our razor blade business model, building up the revenues coming from our highly recurring business involving consumable and associated services. This reached 88% of sales in 2021. This also means building revenue streams from the significant increase of our installed base of instruments. We saw, indeed, a dramatic acceleration in the installed base for COVID-19 over the last two years. As we move into 2022, we want to focus on transforming this installed base into new sources of growth. And for this, we are obviously developing new test and applications across our portfolio. We made significant progress in 2021 on this front, especially with QIAstat diagnostic for syndromic testing and the QIAcuity digital PCR system. This focus is reflected in the fact that more than 65% of our R&D investment are dedicated to our five pillars of growth. We also continue to step up our manufacturing capacity for consumables that are essential for future growth of our systems which also include QIAsymphony for automated sample prep and NeuMoDx for integrated PCR clinical health care testing. The second keyword is balance. It means balance in serving customers in both the Life Sciences and Molecular Diagnostics. As a reminder and the point that I believe is often overlooked, about half of our sales involve life science customers. These are attractive end markets given the very robust funding environment and our differentiated offering, as well as long-tail customers. As a second reminder, balance also across our geographic regions, about half of our sales in the Americas, about 1/3 in Europe and the remaining 20% in the Asia Pacific region. Balance is also ensuring we operate sustainably and responsibly with commitments towards important ESG goals. For example, reducing our carbon footprint to reach net 0 carbon emissions by 2050. We have strengthened our dedication by setting targets in areas such as improving access to health care, increasing diversity and inclusion, maintaining responsible governance just to name a few. Our focus in '22 is clearly on continuing those important ESG investment. This is how we become a stronger QIAGEN in 2022 and in the coming years, continuing our clear focus on execution. As a last message, our outlook for 2022 calls for a strong growth in sales of our non-COVID portfolio. For the full year, we expect sales of at least $2.07 billion and led by double-digit CER growth in our non-COVID portfolio. We also expect at least $2.05 CER for adjusted EPS. We have done in 2021. We take a conservative view on COVID-19 testing demand trends. Given the volatile trends expected for 2022, we anticipate a significant decline in those sales compared to 2021. Our focus in '22, as I said before, is clearly on the non-COVID portfolio to deliver solid mid-term growth trends while again, remaining ready as ever to support the global response to the pandemic, however, it may develop. We will provide more details on the outlook later in this call but now I would like to hand over to Roland for the financial update.

Thank you, Thierry. Hello and thank you as well from my side for joining the call. Let me begin by walking you through our sales in more detail. For the fourth quarter, net sales rose 4% at constant exchange rates. This was against a very tough comparison to the fourth quarter of 2020 which was the quarter with highest levels of sales for that year. Also in the fourth quarter of '21, non-COVID sales grew nicely over the third quarter '21, reflecting the positive trends in our core business going into '22. Consumables and related revenues for the fourth quarter rose 7% CER over the same period in 2020 and represented 89% of sales. While instrument sales in the fourth quarter '21 declined 14% CER, this was against the highest level of quarterly instrument sales for 2020 and also a sequential increase over the third quarter '21. For the full year, consumable sales were up 21% CER based on solid growth trends throughout the year, while instrument sales rose 2% CER. In terms of sales among the four product groups, let's start with Sample technologies. These sales were up 4% CER for the full year and reflected the volatility in COVID-19 demand trends. Sample technologies represented about 40% of total QIAGEN sales and the vast majority of these sales are in the Life Sciences. We were very pleased with the double-digit CER growth in the non-COVID product groups for '21, especially in DNA sample prep which is benefiting from the strong research funding environment. Sales in Diagnostic Solutions were up 37% CER for the full year over 2020. The key driver was QuantiFERON, with sales rising 47% CER to US$281 million for the year and this is even without testing levels returning to pre-growth demand trends. The two PCR clinical testing systems, QIAstat-Dx and NeuMoDx provided important incremental growth contributions while revenues in our Precision Medicine business benefited from the resumption of many pharma R&D projects. In the PCR Nucleic acid amplification product group, full year sales rose 18% CER in '21 and were supported by the QIAcuity digital PCR system as well as consumables used by other companies. This performance was even more encouraging given the fact that the growth was driven by double-digit CER gains in the non-COVID portfolio that more than absorbed a significant decline in COVID product group sales. Genomics/NGS sales were up 47% CER in '21 over 2020 and represented about 10% of total QIAGEN sales. This performance came against weaker sales trends in 2020 due to the adverse impact of the pandemic on customer activities. This trend clearly reversed during '21 as many laboratories resumed a higher levels of operations after shutdowns were lifted. Sales for universal consumables used in next-generation sequencing as well as bioinformatics revenues from QIAGEN Digital Insights, both advanced at double-digit CER growth rates. The sales performance across the region in '21 also highlighted the balance of our geographic presence and reach into key markets. Just to highlight some of the key full year figures here. The Americas delivered 22% CER growth in '21. These results benefited from 25% growth in the U.S., including growth in QuantiFERON-TB and Life Science sales. In the Europe, Middle East and Africa region, sales for the year grew 17% CER, led by Austria, the United Kingdom, Italy, Turkey and Switzerland. The Asia Pacific, Japan region also enjoyed double-digit CER growth in '21 with sales up 17% CER over 2020 and supported by more than 20% CER growth in non-COVID product groups. China rose above 20% CER, while Japan, Australia and South Africa also had solid results. Moving down the income statement. The decline in adjusted gross margin in '21 involved several factors. This included a change in product mix as well as investments that are being made to build up consumables production capacity, meaning we can improve economics of scale in the future as volumes grow. As a result, the adjusted gross margin for the full year declined to 67.9% of sales from 69.6% in 2020. We continue to make significant R&D investments into menu expansion and new applications, especially for the five pillars of growth. These investments rose in '21 to 8.4% of sales from 8.0% in 2020. At the same time, we were able to gain leverage in other operating expenses. Sales and marketing expenses declined to 20.3% of sales in '21 from 22.1% in 2020, especially as COVID-19 drove a significant shift to digital channels for customer engagement and marketing activities. And as a last point, general and administrative expenses fell to 5.7% of sales in '21 from 6.0% in 2020. The outcome was a 20% increase in adjusted operating income for '21 to US$755 million from $627 million in 2020 and the adjusting operating income margin remained steady at 33.5% of sales in both years. Adjusted EPS for '21 was again well above our outlook and came in at $2.63 CER. Results on an actual basis were $2.65 and reflected $0.02 of currency benefits. The tax rate and also the adjusted tax rate for both years was steady at 18%. Additionally, the share count was in line with our expectations for about 232 million shares. Adjusted EPS results for both years -- for both full year periods and also for the fourth quarter of 2020 excludes the gains from the sale of our minority investment in ArcherDX and shares received from Invitae in connection with acquisition of this company. Turning to cash flow trends for '21. We saw dynamic results in both operating cash flow and free cash flow, thanks to the strong business expansion. For '21, operating cash flow rose 40% to US$639 million and this included the payment of US$53 million to resolve a patent infringement. We also had significant higher tax payments than in 2020, rising more than 50% to US$102 million. The results for 2020 also included the payments for the discontinued tender offer. Free cash flow also rose at a robust 38% rate to US$449 million in '21 and absorbed a 43% increase in purchase of property, plant and equipment in '21. These were primarily investments to expand consumable production capacity for key growth products at sites in Europe and the United States. In terms of our balance sheet, our net debt position decreased to US$876 million at the end of '21 compared to net debt of US$1.2 billion at the end of 2020. This was due to the strong cash flow trends and higher levels of cash, cash equivalents and short-term investments held at the end of '21. The combination of reduced net debt and higher EBITDA resulted -- results led to the leverage ratio falling to 0.9x net debt-to-EBITDA at the end of '21 compared to 1.5x at the end of 2020. We are reaffirming our disciplined capital allocation strategy that involves investing organically in the business, completing value-creating M&A transactions and increasing returns through share repurchase programs, such as the $100 million program completed in '21. As we have said before, we are reviewing various M&A targets that would strengthen and complement to our portfolio across the life sciences and molecular diagnostics but continue to take a disciplined view on valuation. At the same time, we also faced debt maturities in '22 and are considering various debt refinancing opportunities. I would like to now hand back to Thierry.

Thank you, Roland. Let me now give you an update on our key portfolios and in particular, the five pillars of growth. As I said at the JPM conference, in '21, we have ticked the boxes for all the commitment we gave you on further menu development in our five pillars of growth and delivered solid progress on building sales in those portfolios. First, Sample technology. Sales for the full year 2021 reached $851 million, beating our expectation for $750 million at CER. This was driven by strong demand for DNA extraction kits as labs returned to work. We also saw a very good sales our QIAprep and liquid sample prep solution for COVID-19 testing. In terms of portfolio development in Sample tech, we have just launched the EZ2 Connect system as part of our program to upgrade our automated sample preparation instruments. Both instruments built on the success of over 4,800 EZ1 system in the market and are specifically designed for molecular diagnostic and human identification. For 2022, we are expecting the non-COVID products to deliver low single-digit growth in the Sample technology portfolio and for total sales of more than $750 million at CER compared to $851 million in 2020, as we again anticipate headwinds in COVID-19 product group sales. Second, our QuantiFERON franchise sales rose to $281 million in 2021, exceeded the target for at least $255 million at CER. As back-to-school testing and health care screening programs are resuming, demand for TB testing returned strongly across all regions in the world. The QuantiFERON portfolio has seen multiple expansion in 2021. This includes the CE marking of our QuantiFERON SARS-CoV-2 T-cell test, a very useful tool in COVID immunity surveillance. Additionally, QIAreach QFT TB gained CE marking as a new battery-operated device developed specifically for using high-burden, low-resources countries. It was very recently approved by the Global Fund’s Expert Review Panel Diagnostics. This allows procurement by public health programs and institution in more than 100 countries all over the world qualifying for global fund or unit add resources. Moving into 2022, we are expecting over $310 million of sales from our QuantiFERON franchise, so once again, another year of double-digit CER growth. Third, our integrated PCR platform. First, our QIAstat diagnostic syndromic testing platform performed very well last year with a total of $75 million in sales, also exceeding the '21 target for at least $60 million at CER. Cumulative instrument placement for QIAstat rose to about 2,900 placements at the end of January 2022. Important progresses were made this year in bringing new panels into the platform. This included a 4plex respiratory panel to support the diagnosis of four diseases, Flu A, Flu B, respiratory syncytial virus, RSV and COVID-19. This is key to distinguish the diagnosis among these common respiratory diseases. As promised, our team successfully completed the CE-IVD marking of the Meningitis panel and submitted on time the gastrointestinal panel for FDA approval in the U.S. Our teams are also preparing the 2022 launch of QIAstat Diagnostic Rise, the new high throughput model for large volume laboratories interested in syndromic testing. We just passed an important development milestone this week with the CE-IVD launch in mid-2022. This system will significantly enhance our scalable offering to labs. QIAstat diagnostic Rise has random access capacity to hold up to 18 different tests for processing and leading up to 56 tests in an 8-hour shift, so 160 tests per day with 8 analytical modules. We have no time today for the video but you would see as well a key differentiation. It will be the first system of this generation embedding what we will call a smart drawer, a fully automated loading and unloading of the cartridges. Our expectation for full year 2022 are for over $85 million in sales for QIAstat-Dx as those new panel and instruments support the transition into the non-COVID world. NeuMoDx sales rose to $105 million in 2021, ahead of our target of $100 million at CER. Cumulative placement for NeuMoDx grew to about 220 platforms as of January 2022. With the addition of the human adenovirus asset, we now have 15 CE-IVD marked assays running on NeuMoDx, making one of the largest menu of it's kind. In the U.S., COVID is currently the driver for consumable pull-through with four FDA-approved tests and these systems are also leveraging the capability to batch in laboratory developed test for 2022. We therefore anticipate over $70 million in sales as we focus on expanding the menu to the FDA-approved test. In our fifth pillars of growth, digital PCR, we achieved a placement goal for QIAcuity digital PCR system as we now stand over 730 placements. We also saw quarter-over-quarter sales growth in 2021. At the same time, however, we did not reach our full year sales goal for more than $45 million at CER. We have now set a new goal for 2022 for more than $55 million of CER for QIAcuity based on plans for more placements and to ramp up consumable utilization on the installed base. To help drive utilization, we are expanding the application into new areas of research and testing. As an example, we recently announced that about 70% of all American states in public health are using QIAcuity for wastewater surveillance. In addition, we recently entered into collaboration with Actome and Atila BioSystems to offer new solutions for protein quantification and noninvasive prenatal testing. We are really determined to make QIAcuity the number one digital PCR system in terms of placement and drive the conversion of the quantitative PCR market to this new technology standard. And now, let me hand it back over to Roland again.

Thank you, Thierry. Let me now provide some additional perspective on the outlook for '22 and also for the first quarter. Our expectation is for sales of at least US$2.07 billion at CER for the full year '22 and this is driven by double-digit CER growth in non-COVID product groups. As we confirm once again, we do not want to make aggressive assumptions on the course of COVID-19 sales. Our view remains for a significant decline in these sales in '22 from '21, while again, remaining prepared to support the pandemic response. We expect adjusted EPS of at least $2.05 at CER. This takes into consideration continued plans for investments into our portfolio and in particular, the five pillars of growth for new tests and applications. Based on exchange rates as of January 31, 2022, currency movements against U.S. dollar are expected to create an adverse impact of about two percentage points on net sales growth and about $0.04 per share on adjusted EPS for full year '22. For the first quarter, net sales are expected to grow at least 7% CER and adjusted diluted EPS is expected to be at least $0.72 at CER. We also expect currency headwinds in the first quarter against U.S. dollar our reporting currency and for an adverse impact of about three percentage points on sales and about $0.01 on adjusted EPS. I would like to now hand back to Thierry.

Thank you, Roland. And as we have said many times, Roland, John, Phoebe and by myself, we are really committed to a lot more time exchange and discussion. So let me provide you with a very quick summary before we move into the Q&A session. First, our team delivered an outstanding year in 2021 with sales growth and adjusted EPS exceeded outlook. This was driven by sequential growth quarter-over-quarter in 2021 for our non-COVID sales and supported by a volatile demand for COVID-19 testing. Our teams continue to execute and deliver on our commitment. Second, we entered 2022 as a company with a solid business case that combines a recurring stream of revenues with balanced market opportunities. We have made tremendous progress in growing our installed base and have entered the next phase of our growth ambitions after delivering on our 2021 goals. Our five pillars of growth finished the year with a strong performance. Third, we maintained a very strong level of profitability as a healthy cash flow enabled us to invest in our growth drivers while delivering value to shareholders. And as a last point, we are increasingly confident in this stronger QIAGEN which is reflected in our outlook for 2022, a year to be driven by double-digit CER sales growth for our non-COVID portfolio. We have a motivated team of empowered QIAGENers with a focus on execution, ready to deliver on our commitments. With that, I'd like to hand back to John and the operator for the Q&A session. Thank you.

[Operator Instructions] The first question comes from Patrick Donnelly with Citi. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. Thierry, maybe one for you. Just on that underlying COVID bucket, obviously, really encouraging to see the base business. But on the COVID piece, I think $350 million for this year, how do you think about the durability there because you guys are pretty unique in the fact that you tied COVID revenues even kind of broke it back to 2019 when you had this bucket that essentially touched anything that then became COVID. So how do we think about that going forward? I mean, it feels like a more durable number than others that are really pure COVID. So would love if you could just kind of parse through that, maybe if you could, kind of break out that previous COVID number on that revenue. I think it was $140 million or so. And what that could look like going forward beyond this year?

Thank you, Patrick. So the first thing I would like to say is that even if the market reacted at that time, I believe that we were absolutely right and quite courageous back in July 2021 to fully decouple the QIAGEN sales result on our P&L from the COVID volatility. And we always said, systematically, since then, that we would not take new assumptions for COVID development. We added and we continue to confirm this, that our priority is to make sure we remain relevant in any kind of surge of demand. So we constantly adjust our manufacturing output and we told you, by the way, that we are obviously using a lot of contractors for that but the focus clearly is on the non-COVID. Now directly to your question. Systematically, we have said that for 2022, we were expecting to have our COVID result that we obtained in 2021 -- in '21. We believe in this $350 million that most of it is going to happen in Q1. We do not want to take longer-term assumption for Q2 or Q3 or Q4. We believe that it's going to go down progressively. And you were right to remember that we always give a comparison with 2019, the pre-COVID period where we said that equivalent testing solution, not applied to COVID at that time, obviously, because COVID was not existing, was around $150 million. For this $150 million of pre-COVID, I don't see any reason why it should go lower than the pre-COVID period. We are now and we will be back in normal non-COVID utilization for [indiscernible]. So the real basically difference is the remaining part. And we believe most of it is done in Q1. It is mainly in Sample tech, the rest of the platform, we really want to dedicate them to the non-COVID growth. Am I answering your question?

Yes. No, that was great. And then a quick one for Roland on the guidance. Obviously, 1Q came in well above consensus. How should we think about the level of conservatism baked in for the rest of the year? Was it that you guys had visibility into a really strong 1Q? And then to Thierry's point there, certainly, COVID gets stripped out but the back half you were a little more conservative with. Can you just talk through the levels there as you look for the full year guide relative to the really strong 1Q?

Yes. And I think it goes hand in hand with what Thierry just described but very much driven clearly by two things. But clearly, one is the overall assumptions for COVID. And I think as we said on the call and just reiterate it, we're really focusing on that what is more or less on hand and very visible, that's clearly in Q1. And we don't want to take any larger or even aggressive assumption for the second half of the year. And again, if you put all the numbers together with just the year described in assumptions for the -- full year assumption for Q1 and what is anyway this kind of bottom line RNA-related products which we even had before 2020. So in 2019, you can clearly see that expectations on that are, I would say, quite moderate. Nevertheless, we want to be ready. If the market picks up, we are on standby. We have clearly the production capacity we have shown in Q4, we can react quickly. In terms of expenses, moving on to the second part of the answer, it's quite obvious that we use some of this as we did in '21. Some of the initial proceeds which we are gaining to invest and probably even to focus on timing here a bit more on R&D projects to get things quicker done. And I guess you know us quite well that we have typically our hands well around the operational expenses. So we clearly try to make also here some use from more or less the incremental opportunities we're seeing short term while still believing that a long term -- or mid and long term, we are on track also to improve our margins.

Very helpful. Thank you, guys.

The next question comes from Tycho Peterson with JPMorgan. Please go ahead.

Hey, thanks. Question on QIAstat and NeuMoDx. QIAstat grew revenues in the quarter, NeuMoDx declined. They're both COVID beneficiaries. So can you maybe just talk to why NeuMoDx declined? Is that getting replaced by rapid antigen testing or other PCR in the quarter? And why is your NeuMoDx sales target for '22 below what you had laid out for '21?

There is a clear impact for NeuMoDx and we have said that Tycho over 2021 already, a clear impact from the year before which was the full integration of NeuMoDx in our portfolio. Second, because previously, the quarter -- quarter four of 2024 had been very strong also for NeuMoDx because it is when it started to become really relevant in the U.S. as there was a real need for COVID testing. And so we have always been very clear in the second half of 2021 to explain that a very strong part of the NeuMoDx revenue is still COVID-19 driven. We have made no mystery of that. So as we are basically now moving post COVID and given the importance of COVID testing in the U.S., where we still do not have for NeuMoDx the menu that we have in Europe is going to be more difficult for NeuMoDx to quickly catch up with the performance that we achieved in 2021. So this is why we had this ambition of $80 million, at least dollars revenues for 2022. It's just that differential. And now we need to transfer, obviously, the customers that we have acquired on NeuMoDx to the rest of the menu in Europe and obviously move customers in the U.S. to the LDT capabilities and to the menu that we are going to continue to get FDA approved. That's the only reason. For QIAstat, because you have already more menu available in Europe and now also because we submitted the GI, we expect this to start selling in the second half of 2022. It's a bit easier, basically and we guided on QIAstat at more than 85. QIAstat sales are still heavily driven by COVID at the moment. But both instruments, as we have explained many times, Tycho, are menu driven. They were in our portfolio before the pandemic, they will be in our portfolio way beyond the pandemic. There is still a phase of catch-up because of the headwind of the COVID. Does it answer your question, Tycho?

It did, yes. That's helpful. And then one follow-up on the COVID commentary earlier. Have your profitability assumptions around the COVID business changed for '22, given pricing dynamics in the market? Can you maybe just talk about how you're thinking about drop through from the revenue contribution this year.

So, first of all -- okay. I'm going to take this one. And Roland, please feel free to chime in, obviously. So we don't see a clear pressure on prices in our COVID portfolio, Tycho, because, first of all, I believe that PCR testing is much more immune to significant price that we see, for example, on home testing or on antigens. So this is not, as you know, relevant for QIAGEN. We obviously as repeated before, so never took advantage of the COVID situation to try to work on [ph] prices, so it's pretty neutral for us.

Okay, thank you.

The next question comes from Daniel Wendorff for ODDO BHF. Your line is open. Please go ahead.

Yes, thanks for taking my questions. And my main question is looking at the non-COVID-related revenue growth you guided for 2022. Can you talk a bit more about what is driving this? Is it the general very healthy market environment? Is it certain product lines. So any more color you can provide here would be helpful. And then I would have a small follow-up question on the operating and free cash flow development. Maybe one for Roland. How should we think about this going into 2022? Is there any major developments we should take care of.

If you remember at JPM, we had -- at JPMorgan, we had interesting slide that was describing what we consider to be our market environment. First of all, this slide highlighted that for life science, we believe on a rather healthy level of funding from public institution. I'm referring to the NIH in the U.S. We gave also data on funding in the U.K., for example. And so this is obviously reassuring and allowing us to be optimistic. We also gave you some data from expert and independent institution on diagnostic, showing that in many testing, like oncology, for example, like non-COVID infectious diseases, we were progressively returning to a level that was pre-COVID-19 in any case, way above the level of February 2020. That was mentioned in the slide where we were very hit by the COVID impact. So there is very good, let's say, positive market environment. Second, even if I don't want to be complacent and I don't want to be over optimistic here, I believe that COVID-19 has since demonstrated and proven the critical value of diagnostics, both life science and research or clinical diagnostics in the health care valuation. And for a company like QIAGEN more importantly even it has proven the superiority and the value of molecular testing in the health care valuation. Sure, at the moment, you have many government talking about antigen but I always said the same. First of all, it's not about antigen versus PCR because when you have so many -- such a surge of demand for testing, every technology is welcome. But I said many times last year and I'm sure of that, that when COVID will come back to, let's say, more acceptable level, more kind of endemic phase, if you want, I am very convinced that PCR will remain, again, the gold standard because there will be less need for emerging -- for urgent result. Laboratory will be able to test in batch as well. So this is really looking down for molecular biology. Then in our own portfolio, as we have said since last year, we said we would take a commitment for double-digit growth for the non-COVID portfolio. We can say that because of what I said in the environment but also because of the trend in some of our key products. As we have said today, for example, we believe that QuantiFERON will continue in a double-digit growth TAM. Outside of the non-COVID -- outside of the five pillars of growth, sorry, you have key activities such as, for example, oncology or universal chemistry for next-generation sequencing. I see no reason for those activities to grow less than double digit. They were growing double digit before COVID. There is no reason that they grow less than this after COVID. If you look at the non-COVID part of our Sample tech, we confirm what we said already in December of 2020 when we did the QIAGEN Day which is we will go back to, let's say, mid-single-digit growth rate and we confirm that. The non-part -- the non-COVID part of menu added for NeuMoDx, for QIAstat will always fuel that will already -- will also fuel that double-digit growth. So it's a combination of a favorable environment. Second of what we said for the last two years, we have with the five pillars of growth, plus the rest of the portfolio waves of growth in our development that can help us sustaining double-digit growth for the, let's say, five pillars of growth, as we said but also for the non-COVID for 2022 and potentially as well 2023.

Daniel, you had a question about cash flow as well.

Yes, a question on cash flow, Daniel. Again, very much, of course, depending on how we see the full year developing, in particular, given the volatility around COVID. If you look at our guidance right now, I would assume that we'd probably be around or above our 2020 cash flow development. I think that is probably the ballpark, I would think, we feel comfortable around right now.

Thank you.

The next question is Jack Meehan of Nephron Research. Please go ahead.

Thank you. Hi, guys. I wanted to start and ask about the QIAstat utilization, just reflecting on the numbers you put up in 2021. So you did $75 million of sales. If I assume that's all consumables which probably isn't accurate but just roll with it, I think that it implies about $30,000 of average utilization per box which is about one test per day. So my question one is, does that math check out? How do you think about it? And then question two, can you just talk about the range of utilization you're seeing in the field? What's like the max, what's the min? How are you seeing customers use these in the field?

That's a very good question, Jack. And we gave data on that in the past month saying 1 to 1.5 test a day is an accurate math, clearly, when you only refer to 1 assay which is respiratory or in this case, COVID. The way I see it for a syndromic system, you need to take into account seasonability -- seasons in a year. When you have, for example, a high flu season during the winter time, I think having or expecting an average of 2 to 2.5 test a day per module is something which is perfectly reasonable. In a normal situation, 1 to 1.5 is a good number to factor in. For the coming utilization, it will all depend on our menu progression and we have always been clear on that. This is why we always said that QIAstat like NeuMoDx, by the way, is a menu play, it's not a COVID play. So we have two good things this year. First of all, for the first time, we are in the real position to answer any kind of tender in Europe which was not completely the case before. Why? Because the minimal expected menu to be competitive in a tender on a syndromic is at least respiratory, GI and meningitis. We have it now in Europe. So we were already competitive without meningitis. We will become more competitive with meningitis. Second, in the U.S., basically, at the moment, we have two assays. We have the respiratory normal and the respiratory plus, i.e., with COVID. Adding GI and now we are expecting the FDA obviously to approve the test, will help and we want also to submit meningitis to the FDA in the U.S. before the end of 2022. So if we continue to increase that menu, moving to an average of two tests on average is something that we can keep in mind, yes, per day, yes. It depends also on the specialization on the hospital or the site you are in your QIAstat, Jack. Some will never do anything else than respiratory. Some we -- will combine the menu. So that's why, by the way, adding also the Rise to our portfolio on QIAstat is extremely important because it will help us go into greater laboratory hospitals of 400 beds plus and those normally are using multi-targets with the syndromic, not just one assay. So you're correct. Your math is correct at the moment. With more menu, I would try to factor much more 2 to 2.5 test a day.

Great. And then as an unrelated question, I wanted to talk about digital PCR. Was curious if you could give some color, how much the U.S. wastewater contract just as a percentage of the sales you generated in 2021 for the business? And 70% of U.S. state sounds pretty broad. Can you just give us maybe a sense for what you think your market share is of the opportunity? And what type of tail of revenues this could generate?

I mean, first of all, it was not a big part of the sales in 2021 for QIAcuity for one single reason, is that we close that contract at the very end of Q3, the time to implement the system into the public health lab in the U.S., it's most of Q4 2021. So basically, the impact revenue-wise is not huge. Why is it important to get that contract, Jack? First of all, because the public health lab in the U.S. are very representative and significant institution. There is normally one public health lab for -- per state. If we don't have all the states with QIAcuity wastewater, it's not because we have lost the rest of the labs to a competitor, it's because those remaining states are not doing wastewater. So basically, the real market share is 100% clearly. This will develop in 2022. But clearly, I don't even expect a huge flow of revenues because it will depend on the utilization. This is going to be mainly surveillance. So it will go with COVID but why am I optimistic? First, because that shows a signal to many other governments and countries in the world to say wastewater is something to be taken seriously. And I think and I believe that we have the possibility to install more of those contracts in other countries, first. Second, because wastewater testing is going to be proven relevant not only for COVID but for a lot of infectious diseases. You can think about wastewater for malaria, for -- even for tuberculosis and things like this. So our ambition will be to develop a menu beyond COVID around wastewater. So as of today, what I can tell you is that I confirm what we said in 2021, Jack, that barely 10% of our instrument placements are driven by wastewater testing, clearly and we don't expect more for an increased percentage in 2022. And therefore, QIAcuity is really, really not depending on COVID-19 at all. Does it answer your question, Jack?

It did. Thank you.

Sure, Jack. Thanks.

We'll go next to Dan Arias at Stifel. Your line is open. Please go ahead.

Hey, good morning, guys. Thank you. You already touched on it with meningitis but for the other assays for QIAstat and NeuMoDx, are you able to put some revised time lines around them within 2022, just with respect to submittals and launches for those assays, blood culture and gastro for QIAstat and then CT/MG and I believe, Strep for NeuMoDx.

So for QIAstat, we have already submitted a GI to the FDA. However, as you are well aware, there is a significant backlog of approval request at the FDA. So in all transparency, we are not expecting sales of GI in the U.S. and QIAstat before the second half of the year and I would say even before Q4. If it comes before, that's perfect. We have ticked the box of the commitment we took which is submitted. Now we depend on the FDA. For meningitis in the U.S., our ambition is to submit at the latest in Q4 of 2022. For Strep and CT/MG we want to submit to the FDA in the second half of the year 2022. For BCID, we want to submit to the CE marking authorities before the end of 2022. This is the current time line. And we also continue to believe that we should be able to launch on QIAstat our urinary tract infection assays in the second half of 2023 in Europe. This is the current time line.

Okay, that is very helpful. And then Roland, on gross margins, if you mentioned this in the prepared remarks and I missed it, I apologize. But I think towards the end of the year, it sounded like gross margins were best thought of as being flattish in 2022. Is that still the right outlook? And if so, what would keep you from seeing a bit of a rebound there, especially given that COVID testing revenues don't seem like they carry out significantly higher gross margin profile.

I do think it's a fair assumption for this year and mainly driven by two factors. One is clearly that we -- as we discussed invested heavily in production expansion. That's clearly something what also led right now that we are not running on the best economy of scale. So we need an increased utilization and that is clearly something what we expect to come in over time. And therefore, again, being helpful. Second is clearly also a bit on the margin side in terms of product mix. I would also assume that, that will be a bit more helpful over time as certain portions become a more significant share. So again, that's probably the two reasons why this year we see the margins more or less flattish and then going forward, for the improvement.

Okay, very good. Thank you, guys.

Our last question comes from Falko Friedrichs at Deutsche Bank. Please go ahead.

Thank you. So my question is a follow-up on Daniel's question earlier for you, Thierry. It's on the growth guidance for the non-COVID business. So if I look at consensus expectations, it looks like the market is expecting a high single-digit growth for the non-COVID business post 2022. Now if I listen to your comments correctly, it did sound like this double-digit growth this year could be a bit more sustainable also over the next few years. So can you maybe clarify if I understood that correctly or if I'm getting carried away because that would obviously be a very important message.

So I don't think you're being carried away, Falko. Thanks for the question. Two things. In 2021 already, we took that commitment of double-digit growth for the non-COVID. We confirm this in that guidance. And what I said today exactly as we said in the December '20 QIAGEN Day, December 8, is that post COVID and excluding obviously COVID base effect, we think that four of our five pillars of growth have definitely a double-digit profile. So QIAstat, NeuMoDx, digital PCR equity, QuantiFERON. And we said Sample tech would be to low- to mid-single-digit growth profile. There was a slide on that on that December and we confirm that today, clearly.

Okay. With that, Thierry, I'd like to end the call here and thank you again for your interest in QIAGEN. If you have any questions or comments, please do not hesitate to contact Phoebe and me. Thank you. Bye-bye.

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