Biomerieux SA

PAR:BIM

Earnings Call Transcript 2018-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the bioMérieux Second Quarter 2018 Business Review Conference Call. [Operator Instructions]I would like to turn the conference over to Mr. Sylvain Morgeau. Please go ahead, sir.

[Sylvain Morgeau]

Thank you. Good day, everyone. Thank you for joining us to review bioMérieux's performance for the second fiscal quarter of 2018. As usual, I am on the line with Mr. Alexandre Mérieux, Chairman and CEO of bioMérieux; and Mr. Guillaume Bouhours, who is CFO. Alexandre will start the call by a short introduction to give you his main takeaway 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. I would like to remind you of the usual disclaimer 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 environments, notably those that are described in the 2000 (sic) [ 2017 ] registration documents, including, but not limited to, economic condition, financial exposure to currency exchange fluctuations, change in government policies or regulation, third-party reimbursement policies, timing of the onset, length and severity of 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 second quarter of 2018 business review 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 directly.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, in the Press Release section.And now, I will hand the call over to Alexandre Mérieux.

[Alexandre Mérieux, Chairman & CEO]

Thank you, Sylvain, and a good day or good afternoon to everyone. I would start with a few words about this quarter, which again, showed a very good performance of bioMérieux with a 8.4% organic growth, which leads the company to 10.4% organic growth after 6 months of activity in 2018. As anticipated, the revenues reported in euro are still impacted by negative ForEx effects. Those effects are in line with our forecast and reduced as compared to Q1. As a reminder, they reached about EUR 15 million in Q1, whereas it accounted for about EUR 30 million during this quarter, and we expect further decrease in the next quarter if ForEx stabilize at the current spot rates.So the good performance of the quarter was achieved by a well-balanced contribution of all regions. 9% growth in Americas; 10% in Asia Pacific; and 7% in Europe, Middle East and Africa. It was also steered by the solid growth of industrial applications, growth of molecular biology and microbiology for clinical applications.Before going to the Q&A session, I would like to take a few minutes to cover many [ difficult ] thing that seem important contributed to the quarter. First one being molecular biology; second one, industrial microbiology; and third being, Europe and Middle East and Africa.So let's start with molecular biology. As you remember Q1 was a positively strong quarter driven by the high demand for respiratory panels during the flu season. And after the strong quarter, we are pleased to report a solid 30% growth over the strong quarter, which leads to 40% growth year-to-date. This growth was obviously driven by the U.S. development, which accounts for about 85% of total FilmArray sales, but also by the international deployment where we recorded a sustained or rapid rise in the sales. The augmenting of FilmArray currently diagnosing 4 disease conditions remains a key efficient factor. About 70% of customers use more than 1 panel, hence, the importance of start menu but only 20% use the full panel, which shows that there is still room to increase our customers' consumption. On top of this, further gain is expected if and when the [indiscernible] will be available. This is subjective to the approval of the FDA, which is currently evaluating this product. As expected, the install base grew by about 300 new systems during the quarter, to reach a total cumulative install base of around 7,000 systems throughout the world.On the payer side, as we know that this is a topic closely followed by the investor community, there is so far no change in the reimbursement scheme of outpatient linked to the drafted decision of Palmetto. So our strategy to make syndromic testing a standard of care and to lead this fast-growing market is progressing. It creates interest for other payers in the field that we believe that FilmArray has unique features to remain the reference on the market.Now let's switch to industries, that has delivered a strong performance during this -- the second quarter with almost 11% growth. This rapid uptake was fully utility-driven by the pharmaceutical segment, rising double-digit year-on-year. The [ comparability ] of the bioMérieux portfolio being able to absorb both reference and alternative quality control method is switching well the needs of the traditional pharma players as well as newer customers' need driven by the rise of biopharmaceutical and cell therapies. The development of the endotoxin offering that we announced in June is also supporting the growth of this segment.In the field of the food business, the development of the activity relies on the need to get faster results, which is fulfilled by several bioMérieux solutions, such as GENE-UP with molecular biology, VIDAS in the Immunoassays and VITEK in microbiology. We believe that the industrial and microbiology controlled activity is poised to grow high-single digits and that bioMérieux is well positioned to grasp this growth opportunity, thanks to its broad offer in this segment.Before concluding, I also wanted to comment on the EMEA region. In the first quarter, we reported a very decent performance with sales up about 3%. Our sales growth accelerated during the second quarter to reach about 7%. This trend was supported by the healthy gain, we just commented on the industry, but also by undertaking Africa, Turkey, and Middle East, driven by different product lines and applications. In Europe, sales also benefited from the onetime boost driven by the invoicing of the contract from the micro lab automation in France. Excluding this contract, sales would have been on par with previous growth rates.So that was my introduction, and with this I propose, we can move for the Q&A session. Thank you. Q&A session.

[Sylvain Morgeau]

Can you introduce the first question please?

[Operator]

[Operator Instructions] Our first question today comes from Scott Bardo of Berenberg.

[Scott Bardo, Analyst]

So the first question just relates to the molecular diagnostics business. And I know that you called out still a continued impressive growth in FilmArray of more than 30%, but you highlighted, I think, in your release that the overall molecular biology business only grew -- or grew 23.5% in the second quarter. So that would imply to me that the business outside of FilmArray, molecular diagnostics, you're seeing some sharp declines. I just wonder if you could confirm that then please? And then just to discuss or maybe give us some sense as how that continues? The second question relates to the Immunoassay business, or here, I think, we see some signs of negative performance, although you highlight volumes are still growing for some of your products. But could you please give us some indication of what degree of price pressure you face in North America related to PCT, whether that has stabilized or if it still continues to decline? So they are the first 2, and I have a follow-up.

[Alexandre Mérieux, Chairman & CEO]

Okay. So your first question is linked to the sales outside of FilmArray in molecular. No, we cannot talk about the sharp decline, it's just that we have a nice growth on FilmArray on the rest of the activity, with a maybe less push by our sales force, is moderately growing or slightly -- it's about being flat, I would say, and is declining, but very slowly, I would say, on this segment. Regarding the question on the -- on immuno, basically, yes, we are facing pressure in North American market. We are actually growing in terms of volume, but this is more than offset by the price decrease that we are seeing this recent months with the entry of new competitors. So growing in terms of volume, but declining in terms of sales revenue.

[Scott Bardo, Analyst]

Understood. And just on that latter point. Is there any evidence that the pricing environment is stabilizing? Or is it continuing to decline? I just wonder if you could give us a better picture for how you see your immunoassay business performing this year and in the interim?

[Alexandre Mérieux, Chairman & CEO]

I think this year will be impacted mainly by North America. I think we need to let the year pass to see what could be the full impact, and we are growing in some of the regions, mainly in Asia Pacific. So it will be better if we wait till the end of the year to see if the price pressure is stabilizing or not. But we are still growing in volume on the immunoassay range.

[Scott Bardo, Analyst]

And lastly, a question on the filed Pneumonia Panel, and I appreciate this is something that you are looking forward to having as part of your portfolio and represents an opportunity. But it appears to me that you -- the filing has been quite ambitious in so far as trying to cover community-based pneumonia, including sample materials like sputum and also trying to get proportional quantification claim. And my question for you is that it appears to me that there has been no precedent FDA approvals for these later indication or areas that I speak about. So I just wonder whether there is a prospect for these -- this regulatory approval to go to a panel discussion? Or whether it could cause some delay or disappointment for your broader expectations for pneumonia? So maybe we could just have a little talk about what you hope to achieve and what is the likely scenario?

[Alexandre Mérieux, Chairman & CEO]

Then also -- we have submitted the panel to the FDA. There are some questions, we are going back and forth. But for us, the value we see, we believe that this test has a high medical value, and we believe it's quite expected from the patients and mainly from the doctors also. And the value we bring with this test is comprehensive with bacteria, viruses working on the co-infections, also on the ideals that it would be working with different type of samples, SBA as you mentioned on the -- on sputum, so we are -- I would say, we're really promoting the medical value of this new panel. But then again, hard for me to comment. It's the -- we are expecting or waiting for the FDA decision.

[Scott Bardo, Analyst]

Understood. So there is nothing baked within your financial forecast this year for the Pneumonia Panel?

[Alexandre Mérieux, Chairman & CEO]

No, no. Nothing this year.

[Operator]

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

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

First off, I appreciate the comment with respect to Palmetto and reimbursement. I was curious it looked like the comment period for that draft closed a couple of months ago. Is that your expectation that we should have some sort of update from Palmetto here relatively soon? Or perhaps you're hearing something different?

[Alexandre Mérieux, Chairman & CEO]

To be frank, we also expected news sooner, but nothing -- we have not heard anything from Palmetto at this stage. So we continue our strategy working on the HEOR or high medical value, but no news on that front.

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

Okay. Very good. And then two additional ones from me. First is, it really doesn't look like this is the case, but are you seeing any hesitancy in some of your U.S. customers in terms of new instrument acquisitions due to PAMA? And then also just a clarifying question with respect to the onetime deal in Europe. Forgive me, I think, I may have misheard you in your prepared comments. But could you quantify the impact -- I think that was to the overall microbiology business. I heard flat, but I wasn't certain if that was just a European comparison. I'm assuming it's not for the entire business.

[Alexandre Mérieux, Chairman & CEO]

No, no, not us. Your question on PAMA, so PAMA, we are not directly impacted by PAMA. We said it's going to bring, I would say, maybe more pressure on the laboratories. To be frank, we are used to this type of pressure. There is a no direct impact, maybe more pressure on the market in general, but we are used to work, I would say, in this type of environment. The question on Europe, no, nothing specific. I think what we said that the Q2 was quite strong in Europe, it was a 3%, I would say, on the first quarter and 7% on the second quarter. We're just seeing that we had a nice growth, boosted by industry, boosted also by Middle East and Africa, and there was an impact of 1 big sales line of microbiology lab automation to a French customer, which also, I would say, impacted positively on the sales in Q2. That was the main comment we have.

[Guillaume Bouhours, Executive VP & CFO]

What we mentioned is that excluding this lab automaton contract, the sales growth would have been similar to previous growth rates for the region.

[Operator]

Our next question today comes from Romain Zana of Exane.

[Romain Zana, Research Analyst]

I have two remaining questions. The first one is a follow-up question on Immunoassay. We've seen some volatility on a quarterly basis, over the past few quarters. Is it linked to contractual negotiation? Or -- I mean, can you give us more clarity about the sequential growth? That will be the first question. And maybe also more color on the PCT year-on-year growth on a standalone basis. And the second question is regarding NEPHROCHECK and the new guidelines that you highlighted in the press release. Would you expect kind of a boost to the prescription linked to this new guidelines? Or do you expect whether the adoption should remain gradual?

[Alexandre Mérieux, Chairman & CEO]

Regarding NEPHROCHECK, so you know, we have done the acquisition about 2 months ago, maybe 3 months ago. It was quite recent. We mentioned it will take time to work on the adoption because we have to work on the clinical, I would say, education. We invest also, in what we call, HEOR studies. Today, we have -- we just mentioned the fact that it's recommended in term of linked with cardiac surgery. So it goes in the right direction for us. But it's -- it will take time. [ Complicated stuff ]. We are working on this now. We believe in this high medical value market. Also you have to know so that it's not yet under VIDAS now. Today, it's -- we're working with the Astute Meter range. So we are still working on putting the NEPHROCHECK test on the VIDAS. Regarding PCT, do we give the PCT growth?

[Guillaume Bouhours, Executive VP & CFO]

No, we don't.

[Alexandre Mérieux, Chairman & CEO]

No, we don't. That's okay. I think that -- -- no, no, Immunoassay -- no, I think the main impact we're having this year as anticipated is mainly North America, it's mainly North America, just what you need. But I keep saying that the volume of FilmArray was 2 million and that the PCT market will grow in the U.S., but as we say every time that more players on a bigger market.

[Romain Zana, Research Analyst]

And if I may, what is driving the volatility? I mean, we saw a decline later -- late '14, then following quarter was actually up again at 3%, now 1% down. So is it linked to some contractual negotiation where you see a more tougher pricing pressure? Or is there another reason?

[Alexandre Mérieux, Chairman & CEO]

No, no, it's -- I would say sometimes, if you look at the history, it might depend sometimes on renewing tenders in some specific regions such as Middle East, sometimes also in link also to working with distributors, sometime in China, we have this in the past. I would have said, there is a specific -- the main trend which today is the pressure on PCT, but not -- I would say, not all that specific, I would say, events or trend on the rest of the business.

[Operator]

[Operator Instructions] We will now take a follow-up question from Scott Bardo of Berenberg.

[Scott Bardo, Analyst]

Yes, so I noticed that there was no particular reference to your full year sales guidance within your release today. So I just wonder if you could share comments is it still your full expectation that you realize 8% to 9% organic growth this year? Or is there potential to reassess positively or negatively at the upcoming results in September, the full results?

[Alexandre Mérieux, Chairman & CEO]

In fact, we're going to be -- sorry.

[Scott Bardo, Analyst]

Please go...

[Alexandre Mérieux, Chairman & CEO]

Okay. I go. No, the dynamic of bioMérieux, it is quite good as you can see in terms of our internal -- [ international ] sales dynamic. What we'll do, as you know, maybe in September, we will update you and everybody, if needed, if we need to do some update on the guidance.

[Guillaume Bouhours, Executive VP & CFO]

Just -- the question was about organic growth, and I think, Alexandre, just answered on organic growth. I can give an update on the foreign exchange impact. I think that year-to-date, we are minus EUR 83 million, which is in line with our expectations. We have guided on FX impact on sales of EUR 120 million negative for the year-to-date, or let's say, latest estimate with the current rates is a reduced impact or slightly better. So an impact negative between EUR 100 million and EUR 110 million as compared to previous guidance of EUR 120 million for the FX impact on sales.

[Scott Bardo, Analyst]

Very good. And just following on to that again, Alexandre, so it's fair to say then that the transactional impact that you expect will be less then because I think you guide historically for EUR 40 million. So if the revenue impact is less, could we assume slightly less impact to profitability for the company?

[Alexandre Mérieux, Chairman & CEO]

Slightly less, but we will be potentially more precise in September, when we give our half year results.

[Scott Bardo, Analyst]

Very good. And last question, please, on the Asia Pacific performance. If my memory serves me, you dissolved the longstanding collaboration distribution agreement with Sysmex in Japan. And what I wonder was, one, how is that progressing now that you go your own way? Two, is that some of the revenue growth that we see in Asia Pacific just related to better end realized price for bioMérieux rather than price and volume? And is this growth in Asia Pacific then costing more because you have to invest yourselves rather than use distributors?

[Alexandre Mérieux, Chairman & CEO]

Okay. As you mentioned, yes, it's true that end of last year, we changed the organization of bioMérieux in Japan and are coming back to resetting full operations, including sales and customer service, which were before performed by our partner. So yes, we are investing, and we have invested in Japan to bring back team to full -- to a full size, which we believe is a good move to be closer to the customers, a good move also to the direct promotion of FilmArray. And adding more investment, but there is a topic, and I would say the ambition is to drive higher sales growth for the company and now the team is operational in Q2, I think, this was a terrific start for bioMérieux in Japan.

[Operator]

We now take a question from Hugo Solvet of Bryan, Garnier & Co.

[Hugo Solvet, Equity Research Analyst]

Just a follow-up on profitability, and we've seen the weakness in the U.S. Immunoassay sales offset by Asia Pacific growth in Q1. Could you give us some indication on the profitability of the Immunoassay business in Asia Pacific when compared to the U.S.?

[Alexandre Mérieux, Chairman & CEO]

I don't think we [ give ] that what -- sorry, what?

[Guillaume Bouhours, Executive VP & CFO]

We cannot -- I would say, of course, we don't give figure out by region on profitability, but we can for sure mention that the profitability of our U.S. Immunoassay is higher than our profitability of Immunoassay in Asia Pacific and China as a trend, relative one to another.

[Operator]

[Operator Instructions] As it appears, we have no further questions. I would like to turn the call back over to Mr. Morgeau for any additional or closing remarks.

[Sylvain Morgeau]

Okay. Thank you. So we just wanted to thank you all of you for your participating to this call and for your questions. And so our next release will be on September 5th, with a webcast. And so we wish you a very nice summer break, and we are looking forward to talking with you in September. Thank you. Bye.

[Alexandre Mérieux, Chairman & CEO]

Thank you.

[Operator]

Thank you, ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.