Conference Transcript - QGEN 2026-09-14

Aisha Noor, Host

All right, welcome everyone to our fireside chat with KIAGEN. I'm Aisha Noor, Head of European MedTech Research at Morgan Stanley. It's my pleasure to host KIAGEN CEO Jonathan Pratt and CFO Roland Sackers today, as well as IR Domenica Mortarana. Before we start, I'm obligated to inform you to check ms.com forward slash research disclosures for important disclosures and to check with your MS sales rep if you have any questions. With that, welcome John and Roland. It's great to have you here in New York, and Jonathan, for the first time as CEO of Kyogen, very pleased to have you. If we kick off with your recent joining of Kyogen, it's great that you've decided to join us here today. Could you briefly introduce yourself and why you decided to join this organization, and what do you see as the biggest opportunities in this business?

John Pratt, CEO

Okay, well, thank you, Aisha. Hello, everyone. Good to be here. Briefly introduce myself, as you can probably tell by the accent. I'm a Brit. I grew up in Europe. I moved to the States in 2001. In the industry, I spent a lot of my career at Paul Corporation, where I ran their laboratory businesses, some of the instrumentation businesses, and their food and beverage businesses. From Paul, I ran as president of Beckman-Coulter Life Sciences as part of Danaher, and did that for a few years, moved to Florida in the process. After Beck McColder Life Sciences, I led what we called the Waters Division at Waters Corporation, which was about 90% of the corporation at that time. And from Waters, I actually took an opportunity to run Filtration Group, which was a life science process tech and industrial enterprise that we were going to take public. But as it happened, we had strategic interests and sold that company about, we closed it about two weeks ago, two and a half weeks ago. So the KIAGEN board had approached me to join earlier in the year, and we eventually were able to join as CEO two weeks ago. The next part of the question was what attracted me to the KIAGEN. So I guess the first thing to say is I'm a scientist. I'm an undergrad chemist. I first used KIAGEN in the lab, and from there, in each of my career steps, the kind of ever-present KIAGEN blue boxes were in the labs, be it in Waters, be it in Paul Corporation, Beckman, et cetera. So I knew the brand. I knew the reputation of the brand, which was pretty much deep customer intimacy and high-quality product. When I joined, I was intrigued, so I went to speak to the board. And then the portfolio itself is very interesting. In sample prep, we touch kind of every part of the healthcare space, and so we're exposed to everything in sample prep, and it's a kind of deep-rooted part of the organization. recent interesting acquisitions and bolt-ons in NGS we also have the digital PCR franchise as well as the recent pass acquisition and also there's a diagnostic play which each have the niched kind of two stools you've got the Chiastat and Quantiferon so interesting portfolio and then you look at that and say what can I bring to it if there's been a theme in my career it's been simplifying the complex you know capital allocation focused on one or two things not six or seven things um it's kind of a theme and then bringing that right down through an enterprise in terms of choice and simplicity sounds easy but it's kind of what i tend to try and bring to it from a strategic choice perspective make sure you're structured to execute on that strategic choice um but i'm a front end guy really a commercial guy um you know i i think if there's a theme again through beckman and waters and others It's improving that commercial execution, you know, really bringing commercial excellence, sales funnel management, demand generation, product launch excellence, everything to a business. And in a business like ours, which I love because it's razor to razor blades, every single placement matters, every single instrument matters. And so having a great front-end commercial enterprise can really serve you very, very well. So I thought I could bring a lot of that to it as well. And so here I am at Kaigen.

Aisha Noor, Host

If you think about your principles as a CEO, what do you consider the most important priorities for an organization, public listed? Is it top-line growth, profitability, EPS growth, free cash flow, returns? Think about that.

John Pratt, CEO

At the end of the day, in the situation we're in right now, I think growth is a priority. We have some sensible market expansion opportunities as well. I think some of those come from wonderful things like price and growth. and instrument choice, etc. Roland, perhaps you want to comment on where you see Kaizen from a capital allocation perspective right now.

Roland Sackers, CFO

No, I think, as I know, we have since 2012, I would say, long-standing capital allocation policy. First and foremost, we're happy to invest in organic growth opportunities. I'm quite sure that also our focus on board, on acquisitions, is still there. I don't think they'd be looking for anything larger in terms of transformative deals. but of course we do have excess cash and if there's an opportunity once we more or less continue to have excess cash and the current net debt to AVID as you know is below one there's opportunity also to continue with share buybacks most important is we ask on the latest AGM for the approval so if the board decides to move forward we can do it at any time I'll add as well in terms of Bolton acquisition we do something tomorrow if it made sense But I think strengthening the core, strengthening our execution, being the best owner of an asset comes from how strong you execute in many ways as well.

John Pratt, CEO

So I think there's a lot of focus I'm bringing to it on organic execution as well.

Aisha Noor, Host

Okay, excellent. I wanted to start the discussion around AI. You recently announced an AI partnership in testing with the Kaya Symphony Connect. Just talk us through the AI-driven automation opportunity and any benefits you see or are hoping to see in your kind of early tests?

Roland Sackers, CFO

Yeah, I think you're referring to the announcement where it is on Tropic because, again, together with the MHS part of the business, I think it's a very nice opportunity for Kaizen to extend its standardization even in the days of AI because at the end of the day it is about automation of our instrument in a lab environment. It's about standardization. It's about early detection of troubleshooting. There's more and more workflows in all labs, from research all the way to clinical, which are very data-rich. And, of course, having here an opportunity to be early-stage involved, again, that is just one part, there's more to come, makes a difference. We started here with the Kaya Symphony. There's for sure an opportunity to go left and right.

Aisha Noor, Host

Okay. If you think about the software integration layer used to monitor the Kaya Symphony Connect today, Would this be applicable across your fleet of the sample tech instrumentation? And could you talk about the use cases or customer types that make most sense to adopt these automation layers? And when do you see that translating into a financial opportunity?

Roland Sackers, CFO

Just to remind everybody, we have more than 30,000 sample machines out there, so there's a lot of opportunities for us as well for our customers. I do think it makes sense for large-scale customers because, as I said, there's a lot of data generated, and, of course, workflow automation, LIMS embeddedness is key to them. But even in smaller settings, having walk-away solution, having opportunities to control that, even if you're not in the environment, makes significant opportunities, having automation being standalone operated. So I don't think there's any specific limit to the size of a customer, nor to the kind of origin of the customer, if it is a clinical environment, a research, or a pharma company. We're seeing interest coming from all different groups. Again, we're early stage. It's a research preview. Nevertheless, I do think given the speed of AI in these days, there's an opportunity to get that hopefully in some way out next year.

Aisha Noor, Host

And in terms of use cases, what types of applications are you seeing AI being used today beyond this, you mentioned troubleshooting. What types of commas of pharma? Are you having those discussions with the biopharma customers at the moment, or is it academia?

Roland Sackers, CFO

As you know, we have a lot of different areas where AI is already embedded into our revenue streams. First and foremost, clearly all our QDI solutions have an integrated AI part because at the end of the day, everything that comes out of a sequencer has a significant data size. But the same is also true for Chaiacuity, for example, because at the end of the day also here there's a quite data-rich process and qualification and validation is an important part of that and AI can play even a more important role going forward as well. But that is only one part of the business. There's another offering which comes around Quantiferon. We talked about that, enabling our customers or the healthcare providers at the end of the day with the interpretation of the data. Is somebody going from Latin to ActiveDB? Where is he on his path? We are the only company having these hundreds of millions of different data points which enables the interpretation. But AI, of course, is not only something that we do in the revenue side. We do it also in-house, operations. We have AI embedded validation processes, for example, for identifying scrapping. If you talk about KayaStat, AI plays an important role for us if it comes, for example, to customer care, first-level support, more than 50% of all answers in the meantime getting AI answered on the first level. So there's a lot of opportunities for us. Kaizen has more than 300 software developers in the company, quite sure that they're all looking forward, that their life gets easier, more effective using this kind of tools. AI is changing also our world.

Aisha Noor, Host

Yeah, perfect. Okay, if we take it back to kind of 2026 and 2027, if we start with the sample tech business, so the organic growth per your guide is going to accelerate for sample tech quite significantly in the second half. How confident are you in achieving this and how much of that is pricing versus volume? We know you're launching some new products, Connect, Mini. Can you provide some KPIs on how that's gone so far?

Roland Sackers, CFO

First and foremost, we have seen already with the start of this year, a nice underlying acceleration of the sample prep business. We have now, I think, the third quarter in a row with a 3% growth rate, X-PAS, which again speaks for itself. PAS, of course, is on top. We were very clear that PAS, when we moved into the year, we were expecting around $40 million in revenues. Right now, we're rather at $45 plus million, so it's moving in the right direction. Under organic business, I would say also here, the pipeline is building quite nicely. The good news is Kaya Mini is now also on the market a few days earlier than they thought, which is always good news, and we're quite optimistic on that contribution going forward. Nevertheless, it's also fair to say the overall academic market, while improving in the U.S., is clearly not in a normal environment. It is clearly something where still confidence building has to happen. Nobody knows what the next week brings in terms of election results on which whatever kind of communication from any politician might change. So there's a lot of factors which we can't control. Nevertheless, on the product side, we believe it goes in the right direction in terms of placements, but also in terms of consumables.

Aisha Noor, Host

Just on the U.S. academic and government segment specifically, how has the academic budget been trending so far by your estimates. The NIH data would suggest there is money flowing in, but it's not being spent. What do you think the customers need to see to start investing into R&D once again?

John Pratt, CEO

Caution is the word I would use. It's improving, but slowly in the right, there seems to be a disconnect between available funds and spend. It is very slow to ramp. I think in the U.S., you've got some midterms coming up, and whilst they won't have any direct impact, I think there's a confidence factor that may come from results, depending on how those midterms go. It'd be in the U.S. and all that. So I think there's just a sense of what's next, and so there's a little bit of caution on spend. Does that result in some sort of end-of-year flush? We haven't factored that in, so to speak, but I think the midterms will play an even emotional component on the way money is being spent at the moment. Some of the instruments we're launching, like the Mini, for example, will probably have no real impact on that in a good or negative way because the price is a capital point that tends to be a bit more of a fast spend rather than a true capital spend. So, you know, we've got some offsets to that depending on that, but I think fundamentally the midterms will have some emotional effect.

Aisha Noor, Host

Okay. If we touch on the PARS acquisition currently, is this business being impacted by the current weak market conditions or the Middle East disruption, and can you size the midterm growth opportunity here for PARS?

John Pratt, CEO

I'd start by saying, I'll hand it to Roland, but I'd start by saying that PARS is ahead of FLAN as we head through this year.

Roland Sackers, CFO

Yeah, and just also to frame it a bit in terms of numbers, 24 was $20 million in revenues, as we said, 26, probably, let's say, 45 plus. So you can see the acceleration, and we're quite sure that we will continue to see that. The current environment might be even somewhat helpful for PaaS because, as you know, it is automation-free. So, again, it's for sure a nice alternative. Clearly a good benefit is that now being able to integrate PaaS also in our pharma sales force, which by a factor is larger and then what PaaS had as a standalone company is being quite helpful. So a lot of success from PaaS comes out of the BioPharma connection, and we do not see any reason why that should change. So we're also a very optimistic look now into 2017.

Aisha Noor, Host

Okay. Maybe a last one on your launches in SampleTech, specifically the Mini, the Connect, and the Symphony. Where are you at in the ramp and sales contribution for those products? Are we just at the early innings, or are you halfway through? We're just going to talk through that.

John Pratt, CEO

It's just at the early innings. I'd start by that. Roland can have some color. And we haven't really launched the Mini yet, so there's really no material revenue at all from that. Having said that, the Mini has hundreds of thousands of potential placement opportunities, so you will see a ramp from it. But on the others, I would say it's fairly early stage. You see a little bit of it in the back half, but it's really a 2027 ramp. The sales funnels are growing, building, stronger, but it's really early in any other color.

Roland Sackers, CFO

Yeah, not good in U.S. sports, so big job. But nevertheless, just compare with Kaya Symphony. We sold Kaya Symphonies in 2008, so you clearly see it. It takes some time. Nevertheless, the pipeline is filling quite nicely. I think we are, again, right now we are well on track.

John Pratt, CEO

I'm not very good at U.S. sports either, so if I've got it wrong. We're at lunch on the second day of the cricket test for anybody that's interested in that analogy.

Aisha Noor, Host

If we move on to Quantiferon, so how is the U.S. latent tuberculosis testing market trending versus your expectations? Is the immigration de-stock that we saw earlier in the year fully behind us? Just give us some color there.

Roland Sackers, CFO

Just to remind everybody, What we said earlier this year is that the $50 million global immigration testing market or for TB testing clearly was seeing some changes. $30 million of that was U.S.-based, and with the change in immigration laws in the U.S., we more or less have seen this business collapsing at the end of the day, and we also do not believe that it comes any time soon back because the policies in immigration in the U.S. probably will stay as it is. in particular legal immigration. It's legal immigration. It's only very true, a very small part about illegal immigration. We don't believe that it goes back to the levels we have seen before. Five million we took out, which was related to the Middle East TB testing. Here we do believe that is probably coming back over time because quite sure either the war there stops or we will see any other kind of opportunities that these areas go back into a more normalized environment because there's a lot of construction going on, a lot of people from Pakistan, Bangladesh, India are working in this environment and once they go back they have to get tested again. So that is rather a question of time. Now, ex-immigration, I think there's a general understanding that the overall market is growing somewhere between 4% and 5%. There's no reason that that is going to change. Skin test is still the majority of the overall market, somewhere between 50% and 60% of the global late TB testing is still the literally 120-year-old skin test. There's an ongoing penetration that should benefit collagen going forward.

Aisha Noor, Host

Okay, perfect. And then with respect to Roche TB competition, we know this product is now in the European market. U.S. market launch is TBD, although rumors say it's a few years out from now. Have you seen any signs of competition or customer preferences post Roche's launch in Europe?

Roland Sackers, CFO

I think there nothing really has changed. I think there was clearly, I would say, a good set of clarity provided on the Roche Capital market there about their product. I think there was a good education done about what are clearly some of the workflow issues they're going to face. Just to remind everybody, it's quite obvious that they can't cover CD4, CD8. It's quite obvious in the meantime that they do have a requirement for a refrigeration step in between. And it's also quite obvious, looking on their own documentation, that the indeterminate rate is by a factor of five higher than our, which means 1 in 20 patients has to come for retesting actually even worse has to be re-blooded which is a significant topic for any kind of lab if you have labs with 100,000 and plus tests per year having this kind of magnitude to be again re-blooded is an important topic so I would say there was quite some education coming out of that it's still too early to see what it means for the European market because they are just starting it.

Aisha Noor, Host

And with respect to, you have a high throughput product for Quantiferon coming out in the coming years. Could you remind us, you know, what segment of the market this device is going to, or this product is going to serve and what portion of your, you know, total, you know, sales could see a benefit from this product launch?

Roland Sackers, CFO

You're talking about the Impeco automation, which probably comes out by end of 27. so it's a quite decent future. First and foremost, a fully automated workflow available for LatentDB, which I do think is important, particular for a segment, I would probably call it mid-throughput to higher throughput. It's a very large lab that's typically also invested in their own automations. Again, there's a lot of documentation available. For example, what Quest did with Rantecaigen Automation Solution a couple of, actually two CMDs ago, They featured it quite prominent on their own Capital Market Day. So I would argue there is a significant group in between which loves to get these walk-away solutions.

Aisha Noor, Host

Moving on then to Kaya Stat. It's been quite a bumpy ride for a lot of respiratory multiplex sales providers this year, given the lower flu testing dynamics. What are your assumptions for the intensity of the flu season this year, given Australia data has been trending weak and CDC data doesn't show much signs of improvement either?

John Pratt, CEO

It depends what you call improvement. But they're seeing a pretty normalized flu season, not a particular peak flu season.

Roland Sackers, CFO

Yeah, I'm always glad that a lot of analysts are following the flu seasons around the world. Again, our assumption is, while it's a normal environment, last year as we all know the first half of the year we had a very strong flu season, that was the reason why we had also clearly a significant headwind this year, we do believe that rather than a second half of the year we had back to double digit growth rate for Kaya Stat and I do think that is probably the better way to look at that business.

Aisha Noor, Host

And with respect to Kaya Stat competition have you seen any signs of more aggressive pricing from competitors like Diasorin Have you seen the third-generation gene expert platform launched by Cepheid in ADLM? Do you think that could present a more credible competition in the U.S. market?

John Pratt, CEO

I'll say on the Cepheid product, it's limited on its multiplexing. It's probably 10 or 11, so it's not in the same category, but commentary on competition beyond that?

Roland Sackers, CFO

I don't think the competition has in any way changed since more or less the last two or three years. At the end of the day, it's two parties, which is Biomareur and us. The others are around, but I wouldn't say not even close to be as visible. If you look at Cefit, for example, again, the GI panel has, I think, different pathogens. It's not even half of what we're having and what the industry standard is. So they're not catching up, but they're not in any way close. The strength of the KayaStat was anyway the automation, the cartridge, the ease of use. That is still unparalleled in the whole industry.

Aisha Noor, Host

You've launched for KayaStat several non-respiratory panels in the U.S. in recent years, like gastrointestinal, meningitis, blood culture. How are these helping the placement trends? Are you winning share? And if so, who from?

Speaker 3

So it's always good to have a broad menu. We started with the core three panels, which is respiratory, GI, and meningitis. And I think I need to steal this example from you, Roland, the Nespresso machine, right? Usually you have only a couple of flavors that you like and that you regularly use. But, of course, the more flavors, the more attractive the platform. And that's basically what we're focusing on. To add menu, we added two black culture panels in Europe and also one in the U.S., One more to come by the end of this year. And that's basically how we are completing our menu or extending our menu. Complicated UDI is going to be a key differentiator for us because we would be the very first one offering a syndromic panel on complicated UDI. and also a pneumonia panel is in our pipeline. The other thing is also KIA-STAT is able to do qualitative and quantitative detection, which also opens up the companion diagnostics field for the KIA-STAT, and we have three partnerships in that running and also continue to build that pipeline.

Aisha Noor, Host

Okay. Now moving on to KIA-ACUITY and digital PCR. are. So this end market has also seen a slowdown in parallel with the weaker trading environment in the first half. How is your platform performing versus competitors like Biorad in particular, given their last PCR acquisition?

Roland Sackers, CFO

It's always a definition of slow and wild. I think we're at now two quarters with more or less close to 20% growth for it. So we're quite happy with that. Nevertheless, it's a fair comment, Aisha, that of course, the last two years were very difficult, as we talked about for capital expenditures, and that was clearly also affecting digital PCR. Nevertheless, therefore, we are even more excited that things are getting, again, more normal. We are not 100% normal, but more in a normal direction. But what is driving growth right now, a very fair observation, is clearly generating pulse. If you go back now over the last few years, I would say it was always quite obvious that Kaizen had the better workflows, the better machines. It hasn't really changed. But for clearly some time, we had a smaller menu. There was clearly other companies or one other company who had a broader menu. But I do think we closed that gap quite nicely. We pushed very hard last year to have hundreds of additional panels and essays out there. This year, it's even probably more than 1,000 editions. So there is a significant menu expansion. So that gap is closed, and that helps us right now quite nicely.

Aisha Noor, Host

Okay, perfect. And then moving on to QDI or Kaigen Digital Insights, how is the license to SaaS subscription transition progressing and could this still persist as a headwind in 2027?

Roland Sackers, CFO

Just to remind everybody, historically Kaigen was typically signing three-year-plus license agreements with a summer company. So just by definition, if that goes into SaaS, it is a three-year cycle before you have worked through that. now using your U.S. sports probably in the last inning somewhat but we still have to go through it so that's probably where we are I hope that the overall AI momentum also will help us to get at least to high single digit and hopefully soon back to double digit do I go to promissor today for next year absolutely not but is it the right business to be in absolutely yes okay and then moving on to margins Can you run through the cost inflation and tariff headwinds you expect to impact the margin this year?

Aisha Noor, Host

And how should we think about how this evolves as you go into 2027 versus your more than 31% margin target by 2028?

Roland Sackers, CFO

First and foremost, let me remind everybody that we will end this year probably with an EBIT margin. Again, a load of 29%, probably a constant exchange rate of 29.5%. If I compare that apples to apples with our CMD of 2024 target for 28 with 31%, we're actually going to meet it this year already. Why? Because when we have given the capital market data, 100 basis points dilution from past was not in it. the 150 basis points tariffs had wind was not in it and there's clearly also a bid on FX so we are already literally apples to apples to 31% for this year doesn't mean that I'm telling you today no we're done we're finished absolutely not we're going to continue to improve our margins we have this what we call career efficiency program it has 40 different efficiency programs initiatives within the company we're going to continue with that. And there's, I think, a clearly laid out plan for further margin improvement. Take tariffs, for example. While it is a relative hit for us, clearly we were able to protect EPS, actually, to a larger degree. Why? Because we were more or less sharing the payments with our customers. But, of course, if you pay 50 and you get reimbursed 50 by your customers, the margin is still relatively zero. but EPS outcome is still quite well protected.

Aisha Noor, Host

Could you maybe just talk through, you know, the main cost headwinds that you're seeing right now, which buckets that you're seeing kind of inflationary headwinds, so whether it's freight, plastics, metals, anything like that, and where you're seeing most kind of pain, I guess.

Roland Sackers, CFO

Inflation in general is a topic, nevertheless, and I'm quite sure that this John now are having an increased focus around pricing and seeing opportunities there that might probably become even a tailwind for us at some point in time. But also, so far, we were able to, given our overall gross margin structure, to protect a margin in that regard, like any other company in our industry, roughly half plus of our costs are headcount-related, so inflation is a topic.

John Pratt, CEO

On the price side, the more and more instruments we sell, the sticky nature of our solutions, our consumables, pretty openly, internally, and externally said that we certainly have pricing opportunity and it's a commercial negotiation skill, contract by contract, but I think we can certainly offset that going into 27 quite comfortably.

Aisha Noor, Host

Moving on to buyback and capital allocation then. So you've announced a mega buyback this year worth 10% of share capital and then 200 million on top. When could you start executing on this?

Roland Sackers, CFO

We announced that the board has arrived to do so because the shareholders approved that. again there was clearly some time we had to wait which is more or less in this day it's over so technically there is an opportunity to go into the market there's clearly a couple of other factors we have to embed in that decision again there's clearly enough publication around that there's a strategic review going on so probably nobody expects during such a time frame any kind of share buyback is going to happen. But the good news is we do have the flexibility to do a regular share buyback. We still also can do another $200 million synthetic share buyback, which is very much favored from particular retail shareholders and European shareholders. So I think there's enough opportunities for us to do so. And as I said, in terms of net debt to EBITDA, we also feel very comfortable around debt.

Aisha Noor, Host

Okay. And then on M&A, so you've been quite consistent with the M&A pipeline, almost one bolt on every year since I started covering Chiagen, which is great, and the most recent one being Parse. So you're generating about half a billion in free cash flow a year. So technically, even with the buyback program, you still have some optionality left. So what interests you in the market, and where do you see white spaces in your portfolio?

John Pratt, CEO

I can answer that quite clearly. I'm not going to obviously name targets, but I'm still getting my teeth into the areas of interest, shall we call it, acquisition vectors. And that fits in with the strategy choices, right? Can we simplify the enterprise? Can we focus our attention in two areas, not five? So I think that it's our areas under review. Of course, there are targets in pipeline, and if the right acquisition was available tomorrow, we can make that acquisition.

Aisha Noor, Host

And then I would love if you could address the elephant in the room with respect to the M&A headlines that have been there for KIAGEN this past year without commenting on the rumors directly. Just talk through the pros and cons of KIAGEN operating as a standalone business and whether it would make more sense to leverage the resources and scale of a larger entity in the market.

John Pratt, CEO

I think you're asking the question that's with the supervisory board right now as well in the longer future. I think it's important, Cullet, to add from my seat, I agreed to join KIAGEN early in this year. We just had to wait a while until we could close the other transaction and I could join the company. And so this recent strategic review was a late fly-in to my equation. I came here to build Kyogen as a standalone. I think it's important to know that our plan A is that and subject to any strategic review of the board. It is a finite strategic review, and we're talking weeks rather than months as to where we can conclude where we are with that. But, of course, we're still traded, so what means closed? But, yeah, all I'd say is the process is running in the background. I'm not personally involved in it. I'm here for Plan A to build Kiogen. Pros and cons, I'll leave that for the others if you want to comment on it.

Aisha Noor, Host

That takes us to the end of the session. John, Roland, Domenica, thanks so much for the insights today. And to the audience, thanks for participating. Thank you very much.

John Pratt, CEO

Thank you for the questions. Thank you, everyone.