Biomerieux SA

PAR:BIM

Earnings Call Transcript 2019-Q1

[Operator]

Good day, and welcome to the bioMérieux First Quarter 2019 Business Review Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to Mr. Sylvain Morgeau. Please go ahead, sir.

[Sylvain Morgeau, Investor Relations]

Thank you, John. Good day, everyone, and thank you for joining us to review bioMérieux's performance for the first quarter of 2019. As usual, I'm online with Mr. Alexandre Mérieux, CEO; and Mr. Guillaume Bouhours, CFO. Alexandre will start this call with a short introduction to give you his main messages about the quarter, and then most of the call will be dedicated to the Q&A session.Before I hand the call over to management, please note that this conference call will include forward-looking statements, and I would like to remind you of the usual disclaimers saying that forward-looking statements are based entirely or partially on assessments or judgments that may change or be modified due to uncertainties and risks related to the company's environment, notably those described in the 2018 registration documents, including but not limited to economic conditions, financial exposure to currency exchange fluctuation, change in government policies or regulation, third-party reimbursement policies, timing of the onset, length and severity of the flu season and competition. Accordingly, we cannot give any assurance as to whether we will achieve these objectives. bioMérieux issued its press release related to the first quarter of 2019 this morning at 7:00 a.m. French Time. If you have not received our communication or if you would like to be added to the company's distribution list, please feel free to contact me. And I also remind you that today's call is being recorded and that a replay will be available on the website, www.biomerieux-finance.com.And with this, I hand the call over to Alexandre Mérieux.

[Alexandre Mérieux, Chairman & CEO]

Thank you, Sylvain, and good day to everyone. So let's start with the global overview of the sales performance for the first quarter of 2019. I will then address some specific topics.So at the end of these first 3 months, bioMérieux recorded sales of EUR 632 million as compared to EUR 587 million a year before. It implies reported growth of 7.7%, including favorable FX impacts for the 290 basis points and consolidation of recently acquired companies for about 100 basis points.As you probably remember, we -- when we disclosed our financial targets for 2019 in the February, we highlighted that Q1 was expected to be soft and more specifically, softer than the full year target for organic growth. And as expected, the organic growth of Q1 came below full year guidance at 3.8%, in line with our forecast. Now digging into more details, I think it's worth commenting on the 2 strategic ranges, VIDAS and BIOFIRE. So let's start with the immunoassay line but mostly it was VIDAS which makes the bulk of the immunoassay sales. It's just probably worth reminding that VIDAS has a dual positioning in the immunoassay space. First positioning as a complementary platform to the main instrument in the lab, mostly running specialty and high medical value test. This is typically the use we can see in developed and natural settings. Second positioning as the main platform in the lab running both routine and specialty testing, and this is a use which we're also seeing in emerging or developing settings.The routine testing now accounts for less than half of the sales on an annual basis, with very different dynamics depending on the geographical areas, growing in developing countries while decreasing in developed countries.For high medical value markers, we have seen a strong increase over the past few years, shooting the growth of immunoassay at a high-single-digit space. Since about 3 years now, we experience more competition on one of those high medical value marker, namely PCT, in one specific market, the USA. This increasing competition has created price pressure on the U.S. market since about 2 years, which is a something we've already discussed with you over the past quarters. The new impact that we have seen during this quarter is a strong revenue decrease in Europe in Q1, both on routine markers and on high medical value markers, while high medical value markers used to be slightly negative. Both are mostly volume-driven with limited impact from prices. In parallel, several growth areas such as North Africa or Asia Pacific still has a slower growth than usual for one-off reasons, such as custom clearance or management of receivables. All these drivers combined led to a quite decent performance on the immunoassay line on the Microbiology, in bioMérieux opportunity force to the new tests on the VIDAS platform, such as NEPHROCHECK for acute kidney injury to keep differentiating through the menu and also to support the development of Hybiome, which performed very well in the first quarter, offsetting the decrease of VIDAS.Let's talk now about BIOFIRE. On the molecular front, BIOFIRE continued to perform well, particularly in the context of a less severe flu season. As you remember, bioMérieux enjoyed an extremely strong growth in Q1 '18 at plus 12.5%, which was largely driven by FILMARRAY growing nearly 60% year-on-year. This performance has established a strong basis of comparison and with a much less flu season this year, the FILMARRAY range reached EUR 157 million in sales, up 13%. This softer growth had very different situations. For RP panels, the growth obviously slowed down naturally because of this base effect whereas the growth of the GI, meningitis and BCID panels remained pretty steady, in line with last year trends.It is also important to mention that we have not seen any major impact from the recently changed regulation landscape for outpatients. GI panel growth remained very solid and RP was mostly impacted by the lower flu season.Respiratory and gastro panels also in positive coverage decisions from private payers, which is encouraging us to continue to collect HEOR studies to demonstrate value of syndromic testing for infectious disease as our duty convinces that this is the way to go for a more efficient patient care.On the instrument front, installations have been very solid, with about 500 new placed or sold instruments over the quarter, and this growth has been notably driven by the U.S. and by the U.K., Italy and Spain. About the geographical deployment of BIOFIRE in Q1 '19, sales outside of the U.S. reached to about 16% of the total FILMARRAY sales as compared to 13% for the same quarter in 2018 resulting in strong growth in France, Greece, India, Singapore and South Africa.Overall, it has been a very satisfying performance for our BIOFIRE FILMARRAY despite unfavorable flu context.So as a conclusion to the short introduction, I would like to reiterate that this soft quarter is not coming as a surprise and does not question our 2019 objectives. The recurring business of reagents did go well in most of our strategic business lines, except VIDAS, which was partly offset by some volatility on instrument sales and by one-offs in certain countries. With this, I propose to move on to the Q&A session. Thank you.

[Sylvain Morgeau, Investor Relations]

John, could you introduce the first question, please?

[Operator]

[Operator Instructions] And we will now move on to our first question from Romain Zana of Exane.

[Romain Zana, Research Analyst]

Can you hear me?

[Alexandre Mérieux, Chairman & CEO]

Yes.

[Romain Zana, Research Analyst]

Yes. First question regarding the full year guidance. And correct me if I'm wrong, but from my understanding, the full year '19 guidance range was closely related to the magnitude of the flu season. Is it accordingly fair to expect rather the bottom than the top of the range? Or do you think that the upper range is still realistic? That would be my first question. Second question is more big picture regarding the diagnostic markets. If we look at Roche, Abbott and even [ Novartis ] overnight, they all seem to point to a weakening demand. So even if it's different segments, so I was wondering if you would have any comment that could give us more color on what is happening in the industry and could explain the weakening demand.

[Alexandre Mérieux, Chairman & CEO]

Okay. Yes to your first question, we maintain the guidance for this year. We were expecting to have a softer Q1 knowing that the flu season this year is much lower than the one we had last year. So at this stage, looking at the dynamic, we reconfirm the guidance for the year. I'm not giving a higher or lower range, we confirm the guidance. In term of dynamic, yes, I have seen a few results also coming from other companies. I cannot say we see a decrease of demand. And when you look at bioMérieux at least on the -- when you look at the reagent sales, I think this is quite, quite, quite positive on our side. It's only Q1. It's too early to do a conclusion, and I surely cannot talk about the competition.

[Romain Zana, Research Analyst]

Okay. And just a follow-up question, if I may, on VIDAS. What kind of visibility do you have on the pickup of demand in the coming quarters? I'm thinking especially about Europe where you seem to have experienced more difficulties maybe related to a consolidation of labs, how do you see the trend evolving looking forward this year?

[Alexandre Mérieux, Chairman & CEO]

I would say that the lab consolidation is affecting Europe for many years. I think that this is continuing. It has impacted us on VIDAS for some years. So we believe consolidation will continue. But strategically, we used to have a [ metro ] region, also Asia Pacific with [ strong competitive ] last year, catching up with that. That's something we are following. I don't see a complete change of the landscape at this stage. The consolidations keep happening. The thing that we need to monitor is that the price decrease of PCT in the U.S. that we have to see and watch and wait for that or do something. We are, I would say, evaluating and assessing.

[Romain Zana, Research Analyst]

Because would you say that, that further deteriorated this quarter on pricing?

[Alexandre Mérieux, Chairman & CEO]

The price has not stabilized yet in the U.S. regarding PCT testing.

[Operator]

We will now take our next question from Maja Pataki.

[Maja Pataki, Head of Med Tech Devices Sector]

This is Maja from Kepler Cheuvreux. I have a couple of questions. First of all, Alexandre, you said that you don't really see an impact from Palmetto on the respiratory volumes in the U.S. And I was trying to understand whether you can walk me through the thinking process behind that? I mean you do have -- if we can say that 2019 flu season was similar to 2017, if we look at the CDC data, you do have a significantly higher number of instruments in the market. How do you -- I mean how has the test per machine developed? Has it been -- if we compare it to '17 to the existing installed base? I mean just trying to understand how strong is your confidence that Palmetto has not had an impact in Q1. That's the first question. Second question, you talked about the high medical value test on VIDAS. And QIAGEN has been pretty vocal about you entering the TB market to investors. So I was wondering if you can give us an update on that. I believe that QIAGEN is actually talking about that 12- to 24-month range of possible bioMérieux TB test coming to the market. Anything you can add to that?

[Guillaume Bouhours]

Okay. To your first question, I'm not sure if I can remember the -- you want me to compare '17 with '19. I mean it was -- maybe what we can say on the flu season effect -- sorry, this is Guillaume. What we can say on the flu season effect is that it is indeed slower than the last year, lower than last year. It's actually lasting a bit longer so there will be a bit of effect on -- for the March -- an improved March already and April. But the effect that we see in Q1 is about -- it's difficult to evaluate. So, again, it's only an assessment. Gross assessment is about EUR 15 million of impact of 2019 flu season sales compared to 2018. Again, take it as an estimate just to give you a rough order of magnitude. And -- so that's part of the bridge that you were expecting in your question. And then on Palmetto, I think our view and Alexandre will complement is more on the customer feedback, and what we see from customer behavior that we don't see in major or any significant impact of Palmetto on the customers in the U.S.

[Alexandre Mérieux, Chairman & CEO]

This is something we are monitoring, but it's true that the Palmetto so far we believe that syndromic is well positioned. As you remember maybe, a Palmetto is only for outpatients covered by Medicare, so it's a limited number of population, plus the pricing was only concerning the valuable targets, VIDAS, FILMARRAY and bacterial targets. That's the beauty of syndromic. So we are monitoring this, but our statement, which is the right one at this stage, that we don't see an impact, I would say, slowing down the penetration of RP panels in the U.S. But what we are monitoring.Your question on TB, yes, it's true, certain competition are talking about our development. I prefer to talk when the product is developed and approved. But it's true that yes, we have R&D work being done on TB, but it's too early at this stage to communicate around results or around the date. Just tell you that working on it on R&D front. Thank you.

[Operator]

We will now take our next question from Del Le Louet of SocGen.

[Delphine Le Louet, Equity Analyst]

Delphine Le Louet speaking here. Can we get, Alexandre, a better vision regarding the U.S. growth considering the good performance of BIOFIRE and finally, the 0.4% growth that you've seen in North America? Second question deals with the industrial application and possibly here, can you give us some uptake regarding the business developments during the quarter? And third question will deal with the immunoassay division and specifically, regarding the volume. You mentioned the fact that you have lower volume in Europe. How is it compared to the U.S.? Meaning that just to get a filing of the pricing pressure and the mix between volume and pricing.

[Alexandre Mérieux, Chairman & CEO]

Okay. So the first question was on the U.S. So U.S. has a very nice growth on BIOFIRE. For the rest, there was a dynamic in North America. I would say, an immediate impact with a slow start in term of equipment. I would say not only America, I think Q1 has been a slow in term of equipment. We rather see it as a delay or postponing. I think it's too early to say if it's going to be a trend or not, and we believe it's mainly slow Q1 on the placement and installation and selling of our instruments. You're right that the main impact in the U.S. -- within America, the U.S. is coming from the price pressure we had on PCT, on the immunoassay. I would say this is the main factor. Then to be -- essentially, the flu season lower than last year have also global impact on the dynamic, that's to be assessed on the microbiology front. That's what I can say. Regarding industry, if you look at the performance of industry, also slow start in term of equipment, but when you look at the reagent growth, we are -- on the worldwide level, we are around 7.5%, which I would say is in the high single digit which is into our objective. So we can see how the instrument ramp up, the dynamic and the reagent which is the consumption of our tests by customers is quite okay.The last question was on immunoassay in Europe. Immunoassay is not so much a question of price decrease is mainly a question, as I said in the beginning, around lab consolidation in the European part of finding the assay, Western or Central Europe, this is happening. And usually we tend to balance this consolidation in Europe with higher growth in [indiscernible] although this quarter, we have been a bit delayed because of one-off reasons, also I would say, such as customs on the -- on clearance. But a different dynamic in the U.S. and in Europe. Europe is around lab consolidation. And in the U.S., this is quite linked to PCT.

[Operator]

We will now take our next question from Bill Quirk of Piper Jaffray.

[William Robert Quirk, Managing Director and Senior Research Analyst]

So first question I guess just staying on immunoassay for a moment. I appreciate that the pricing trends are difficult in the U.S., in particular. Any way to think about how long this may last? And I guess what I'd like to think about this is just bigger picture, you tend to have longer-term contracts. And so do we need to think about immunoassay being kind of a multiyear negative headwind in the U.S.?

[Alexandre Mérieux, Chairman & CEO]

I wish I knew. But the figure is still -- or the pricing are still decreasing. It's not a cliff.

[Guillaume Bouhours]

It's a steady, I would say, decrease of price. The thing as we mentioned to you, I think, in the past, we believe that the PCT market is still growing in the U.S. and it's still -- the test is not used, I would say -- we believe at its right level, at its right recognition, which is growing market. But I cannot tell you at this stage. We are working on developing also our business on VIDAS with all the type of customers. They're not the bigger labs, but this is thing, we keep on promoting as well as AKI. So we are assessing the market. I would say that we are fighting with others also to push the recognition of PCT, which is still underutilized, we believe.

[William Robert Quirk, Managing Director and Senior Research Analyst]

Understood. And then just on the European trends, European market trends, excuse me, is there any way -- Alexandre, you mentioned obviously a slow start to the year. Is there any intra-quarter commentary? In other words, do we see any improvement as -- in the business as we headed into March or even perhaps in April? Or was it fairly consistent throughout the quarter?

[Alexandre Mérieux, Chairman & CEO]

I need to remember that. No, I think, to be frank, it's good to see Q1 as Q1. I'm not sure we can really differentiate different trends between January, February or March. But it's a -- it looked like a slow start for the industry.

[William Robert Quirk, Managing Director and Senior Research Analyst]

Okay. Understood. And then just lastly for me. Just thinking about some of the positive coverage decisions within the commercial payers that you mentioned concerning both respiratory and GI. Certainly, we track that as well. Curious, are you having -- maybe you can help us think about the number of discussions that you're having with some of the other commercial payers? Should we expect more positive decisions in the coming quarters concerning specifically respiratory and GI within the commercial insured population?

[Alexandre Mérieux, Chairman & CEO]

We find that this is not exactly in our hands. But what we do since the beginning is to promote the value of syndromic, not only the medical value, but also the economical value for the hospital, for the lab and for the patient. And I believe that we are stuck to this type of HEOR approach. But we're not the one to take the decision. We can only keep on doing what we do, is promoting the value of syndromic.

[Operator]

We will now take our next question from Mike Ruzic of Berenberg.

[Michael Ruzic-Gauthier]

Just a couple for me on BIOFIRE, please. Firstly, I appreciate it's still early with the Pneumonia Panel. But I was hoping you can give some sense of what the uptake has been there thus far? And did it contribute to growth at all this quarter? And secondly, I saw at ECCMID last year, you did a presentation with a bone-and-joint panel. I was wondering if that is progressing. And if so, when you think that may come to market?

[Alexandre Mérieux, Chairman & CEO]

Your question around the CHEMUNEX that we launched for pneumonia in Q3 or Q4, I believe, at this stage, we still believe it is a very, very sophisticated dynamic in a nice way because of the -- it provides, I would say, very rich information in term of viruses, bacteria resistance. So it's a soft launch, I would say, at this stage, and it's got a very good recognition within the medical hospital community. Now we have to keep on doing our reports on I would real life evidence of the clinical value with CHEMUNEX. We still believe that pneumonia will be a strong seller, I would say, for BIOFIRE. It's going to take time because of its sophistication if it's on the U.S. [indiscernible], I don't know. So we need to do some mutation of it, but it's very, very promising. But at this stage, I would say, very limited impact on the growth of Q1. Sorry, the second question was around...

[Guillaume Bouhours]

BGI.

[Alexandre Mérieux, Chairman & CEO]

BGI. I look at -- we know the BGI is to be the next one, but [indiscernible] sorry, if we don't give it for -- clearly [indiscernible] close yet in the United States.

[Operator]

[Operator Instructions] We will now take our next question from Maja Pataki of Kepler Cheuvreux.

[Maja Pataki, Head of Med Tech Devices Sector]

Yes. I'd like to have 2 follow-up questions. First of all, can you give us an update on what you see in the year competitive environment for BIOFIRE? I believe that the QIAGEN instrument hasn't really made any inroads. But what do you see from other players in the U.S., like GenMark or another [indiscernible] Accelerate Diagnostics, do you hear anything from your customers? That will be question one.

[Alexandre Mérieux, Chairman & CEO]

Okay. Accelerate, we don't - they are not in the field of syndromic so it's more of the fast ID with [indiscernible] it's more for them to comment than for us. Today, we, I think, testing the implementation phase understand. Well, we don't see them so much. Regarding the other competition in syndromic, we know it's coming, and it's very, very attractive space. To be frank, I have not seen the recent results of GenMark. They are not published yet. On QIAGEN, I think that they have announced that they should have an FDA filing approval in Q3 or Q4 in the U.S. So we are watching them, but to be frank, there is no real change. We know that more competitors will come. We believe there was room for more also. The idea, we keep the same ideas is to keep developing and, I would say, owning the syndromic space for next generation of panels, improvement on the instrument, we will keep having the same strategy. We want to keep on leading the race through our R&D and our commercial investment.

[Maja Pataki, Head of Med Tech Devices Sector]

Okay. It's great. And then just a quick question on NEPHROCHECK. And where are you in the process of having NEPHROCHECK running on VIDAS?

[Alexandre Mérieux, Chairman & CEO]

So R&D work at this stage, we start selling the NEPHROCHECK test on the Astute reader today. But it is still in development for VIDAS. And I don't know if we gave a date around this one, and it should be around -- during 2020. Sometime in 2020.

[Operator]

We will now take our next question from Bill Quirk of Piper Jaffray.

[William Robert Quirk, Managing Director and Senior Research Analyst]

Great. Just one quick follow-up for me. You had an announcement back and I think it was late in 2017 about an arrangement with Banyan Diagnostics for a concussion immunoassay marker. I'm just curious where we are with this particular product? Is it on market? Kind of what the trends have been? It certainly strikes us as being fairly novel.

[Alexandre Mérieux, Chairman & CEO]

Yes. No, it's not on the market. It's on development. Also, the idea is to put it on the VIDAS platform. This marker is for detection of traumatic brain injury, but still in R&D work.

[William Robert Quirk, Managing Director and Senior Research Analyst]

Understood. Any comments on when we might see that reach the market.

[Alexandre Mérieux, Chairman & CEO]

I gave the date for AKI. It's already a lot for me. We don't give a date yet on Banyan.

[Operator]

[Operator Instructions] It appears there are no further questions via telephone at this time. I would like to turn the conference back to you for any additional remarks.

[Sylvain Morgeau, Investor Relations]

Thank you, John. Thank you to all of you for participating in today's call and for your questions. So our next formal release will be for the first half of 2019. It will be on September 4, with the webcast to present those results. By then, we remain at your disposal if you have any question. And of course, we are looking forward to meeting with you in the next conference or roadshow by September. Thank you very much. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.