Earnings Call Transcript - QGEN Q3 2023

Operator, Operator

Ladies and gentlemen, thank you for joining us. I am Jess, your Global Meet call operator. Welcome to QIAGEN's Q3 2023 Earnings Conference Call Webcast. All participants are currently in listen-only mode. This call is being recorded at QIAGEN's request and will be available on their website. We will begin with a prepared remark followed by a question-and-answer session. Now, I would like to introduce your host, Mr. John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please proceed, sir.

John Gilardi, Vice President, Head of Corporate Communications and Investor Relations

Thank you, Jess, and thank you all for joining us today for this call. We appreciate your interest in QIAGEN. Our speakers today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. We also have Phoebe Loh from the IR team joining us as well. This call is being webcast live and will be archived on the Investors section of our website at www.qiagen.com. You can also find a copy of the quarterly results press release and presentation on our website. We'll begin with remarks from Thierry and Roland and then move into a Q&A session. Before we start, let me briefly go over the safe harbor statement. The views expressed during this conference call and in response to your questions represent the perspectives of management as of today, October 31, 2023. We will be making statements and providing responses to your questions that convey our intentions, beliefs, expectations, or predictions for the future. These statements fall under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. They involve risks and uncertainties, and actual results may differ materially from those suggested by these statements. Factors that could influence results are mentioned in our filings with the SEC. These are also available on the SEC website and on our own website. QIAGEN disclaims any intention or obligation to update any forward-looking statements. Additionally, we will refer to certain financial measures not prepared following generally accepted accounting principles or GAAP. All references to EPS refer to diluted EPS. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in our press release and presentation. I'd like to now hand over the call to Thierry.

Thierry Bernard, CEO

Thank you, John. Good morning, good afternoon, or good evening, depending, of course, on where you are in the world, and thank you for joining us. We delivered another quarter of solid results that exceeded our outlook in an increasingly volatile macro environment. This confirms again the resilience of our portfolio. Our performance continues to be driven by our strategy of focus and balance, focus on our pillars of growth and balance in serving over 500,000 customers in the Life Sciences and Molecular Diagnostics with our broad geographic presence. At the same time, we are closely monitoring the increasingly challenging geopolitical and macro environment and taking actions to reduce as much as possible the impact on our business. We believe that we are very well positioned to finish this year strongly, committed to delivering solid sales growth and improved earnings in the fourth quarter as we prepare for more growth and expansion in 2024 and the years ahead. Let me quickly go to our top messages for today. First, we exceeded our outlook for net sales and adjusted EPS for the third quarter, driven by solid growth in the non-COVID base business and a high level of profitability. Net sales were $470 million at constant exchange rates, which exceeded our outlook for at least $465 million. Our non-COVID product sales rose 5% CER, and this was supported by 10% CER growth in sales of highly recurring consumables revenues that accounted for well over 85% of total sales. For the first nine months of the year, those sales grew 8% CER. Overall results showed a decline of 5% to $476 million reflecting, of course, the significant drop off in COVID testing revenues from 2022. We continue to track towards $160 million to $165 million of sales for 2023 in our COVID-19 product group. Remember that we had $143 million of sales from this group in 2019 before the pandemic. In terms of profitability, adjusted earnings per share were $0.50 CER and once again, above the outlook for at least $0.48 CER. Our second key message. Our key pillars are driving the solid underlying performance. Just to call out a few. The QuantiFERON TB test maintained the momentum we have seen during 2023, growing 25% CER over the third quarter of 2022, and delivering the second consecutive quarter of saleable $100 million. What are the key drivers? Obviously, once again, the strong conversion trends from use of the tuberculin skin test. Another example, the QIAcuity digital PCR system delivered over 40% sales growth at constant exchange rates, driven by new placements and increasing biopharma consumable sales. The QIAstat diagnostic syndromic testing platform also did well this quarter with a combination of growth in consumables, driven by double-digit CER gains in non-COVID testing and placements above the same level achieved in the third quarter of last year. Our third message, we continue to maintain a high level of profitability as we invest into research and development that will help drive future growth trends. The adjusted operating income margin was 26.6% in the third quarter, and we achieved this level while investing around 10% of sales into research and development. We see those investments as an important way to create new relay of growth for tomorrow. And our last point for today, we are reaffirming our full year outlook for 2023. Our outlook for 2023 remains for net sales of at least $1.97 billion at constant exchange rates, and for adjusted earnings per share of at least $2.07 CER. We are, of course, closely monitoring the increasingly volatile geopolitical and macro trends, inflation, the war in Ukraine, and now in the Middle East, supply chain issues, and the economy in China. Those are a lot of moving parts to observe in terms of macro trends. Before I hand over to Roland, I would also like to mention a change in our leadership team. After leading our molecular diagnostic business since 2020, Jean-Pascal Viola has been appointed Senior Vice President, Head of Corporate Strategy and Development. He remains a member of the Executive Committee. We here want to capitalize on Jean-Pascal's contribution to QIAGEN since 2007 and his proven track record in business development. After a rigorous selection process, we would like to welcome Fernando Beils as our new Senior Vice President, Head of Molecular Diagnostics business area and member of the Executive Committee. Fernando joined QIAGEN after more than two decades in the Life Sciences and Molecular Diagnostics industry. He most recently led the Genetic Testing Solution Business at Thermo Fisher Scientific and previously spent over two decades at Siemens in his last role as Global Head of the Molecular Diagnostics business unit at Siemens Healthineers. We welcome Fernando to the team and are convinced that his passion for innovation and customer focus will help us achieve our ambitions. And now, I'd like to hand over to Roland for a review of our results in greater detail.

Roland Sackers, CFO

Thank you, Thierry. Hello, everyone. Thank you as well for joining our call. Let me first discuss our results for the third quarter and first nine months of the year and then share some views on our outlook. As you saw in our press release, net sales for the third quarter of '23 were US$476 million at actual rates and US$470 million at constant exchange rates. We saw a modest impact from currency movements against the U.S. dollar, so sales declined 5% compared to the year-ago period, while a result at constant exchange rates was down 6%. As has been the trend during '23, this was again a quarter with a substantial decline in COVID-19 revenues. Instrument sales led the performance, rising 1% CER as our teams generated growth despite more conservative customer spending trends. Even in this environment, we still saw solid placements of lower price point instruments such as QIAcuity and QIAstat-Dx. We continued to see good placement trends for reagent rental agreements. This agreement among molecular diagnostic customers involved placements linked to multiyear consumable contracts and helps secure future consumable commitments. Among our four product groups, let's start with sample technologies, which represent about 1/3 of total sales. Here we had growth at a low single-digit CER rate for the non-COVID products, and this represented nearly 90% of sales within this product group. Overall, sales declined 13% CER, and this was due to the very tough comparison against '22 results and the drop-off this year in COVID-19 testing demand. Diagnostic Solutions, our second product group, also represents about 1/3 of sales. The QuantiFERON latent TB test was the main driver with all regions delivering sales growth of about 20% CER or better. The strong conversion trend from the traditional skin test is continuing across the world, but this is still a market that is well below 40% penetrated. Diagnostic solution also includes the QIAstat-Dx system for syndromic testing, this sales rose 4% CER as non-COVID applications delivered solid growth of 16% CER, which more than compensated for the COVID-19 testing headwinds from '22. We continue to see excellent non-COVID utilization in Europe with underlying growth at a double-digit CER rate for non-COVID applications that represented about 30% of total sales. NeuMoDx, our integrated clinical PCR testing platform, saw a sales decline in the third quarter. This was due to headwinds against the high level of COVID testing revenues in Q3 '22. Moving on to the PCR nucleic acid amplification product group, these sales declined 25% CER in the third quarter. As we have been discussing on these calls during '23, the reason was a sharp drop-off in sales to our OEM third-party customers that use our reagents for their own products. Excluding this factor, non-COVID sales for this product group rose at a single-digit CER rate. At the same time, QIAcuity digital PCR continued to deliver growth above 40% CER and is tracking well towards the '23 goal of at least $70 million of annual sales. This growth is coming from a combination of increasing consumables pull-through along with solid trends in new placements. In Q3, these levels were above the year-ago quarter and for all three versions involving the 1-plate, 4-plate, and 8-plate systems. Genomics NGS is our last product group, and that involves our QIAGEN Digital Insight Bioinformatics business and our products for use with any next-generation sequencer. The QDI business had another solid performance with sales growth at about 20% CER in the third quarter and maintaining a double-digit CER growth rate for the first nine months of the year. Here, we are seeing the fastest growth in our clinical applications complemented by double-digit growth as well in discovery and research applications. Moving to sales on a geographic basis, the Americas again delivered growth in terms of total sales rising 1% CER and at a faster 4% CER rate for the non-COVID business. The key driver was clearly QuantiFERON and supported by the sample technologies and QIAcuity portfolios, and discontinued the trends seen in the second quarter. The Europe, Middle East, and Africa region grew at an even stronger pace than the Americas, with sales rate for non-COVID product groups rising at a double-digit CER rate. Among the top-performing countries for non-COVID results were France, Switzerland, and the United Kingdom. The Asia Pacific Japan region had a decline at low single-digit CER rates for non-COVID sales. Non-COVID sales in China declined at a low single-digit CER rate as well. Let's now review the rest of the income statement. Adjusted operating income declined 12% to US$126 million from the third quarter of '22, reflecting the lower sales base due to the pandemic revenues last year. The adjusted operating income margin for the third quarter was 26.6% of sales. Keep in mind that in the third quarter, we faced currency headwinds of at least 50 basis points on the margin. The key driver was a decline in adjusted gross margin to 66.1% of sales. Among the factors was the lower levels of capacity utilization and the change in product mix. At the same time, we continued to make significant investments in R&D, which remains at about 10% of sales and in line with our full-year goals. Sales and marketing expenses benefited from improvements in the quality and efficiency of customer engagement. These expenses were 23.4% of sales in the third quarter, up from 22.9% last year on a significantly higher COVID-driven sales base. General and administrative expenses were 6.0% of sales and slightly lower than in the third quarter of '22, at 6.2% of sales. To close out the income statement, adjusted EPS for the third quarter was $0.50 at constant exchange rates and above the outlook for at least $0.48 CER and also $0.50 at actual rates. In terms of non-operating net income factors, we have seen incrementally higher interest income during '23 in this high-interest-rate environment. At the same time, our interest expenses have declined due to QIAGEN having repaid nearly $900 million during the last 12 months of maturity, maturing debt from existing cash reserves. Turning to cash flow, results for the first nine months of '23 reflect the lower sales and profit levels compared to '22. Operating cash flow was US$308 million for the first nine months of the year, while free cash flow was US$210 million. As we have mentioned on earlier calls in '23, we are in a period of higher working capital requirements due to our decision to increase inventories in light of the challenging geopolitical and macro environment. We want to ensure that QIAGEN has adequate product availability to serve customers. This is also seen in the balance sheet in terms of the increase in inventories. At the same time, accounts receivables have been trending in a positive direction with days of sales outstanding or DSOs at 54 days at the end of September '23, down from 58 days a year ago. This is due to the operational improvements achieved by our receivables teams. Continuing with the balance sheet, our liquidity position was about $1 billion at the end of the third quarter, which is down from $1.4 billion at the end of '22. As a result, our leverage ratio at the end of the third quarter stood at 0.7x net debt to adjusted EBITDA, an increase from 0.5x at the end of '22. One of the drivers for improving our leverage and capital efficiency was a decision to repay about $900 million of debt from existing cash reserves, as I mentioned. Of this amount, $400 million of convertible notes were paid out in September '23. Looking ahead, we have an additional $100 million of debt reaching maturity next June and another $500 million in November '24. Another $500 million of convertible notes could require repayment in December '25. We continue to review ways to deploy cash within our disciplined allocation strategy that involves targeted M&A as well as share repurchase programs. Given our healthy balance sheet, we want to continue our approach to create value by investing in the business and increasing returns. I would now like to hand back to Thierry.

Thierry Bernard, CEO

Thank you, Roland. And if you allow me, I'd like to take a moment to run through some of our progress in advancing our portfolio this quarter. First, we continue to sharpen our focus on our pillars of growth and expand in our key areas of expertise to drive sustainable growth in various applications. While we are directing investments into growing our new pillars of growth such as QIAstat diagnostic or QIAcuity, we are obviously not complacent in our established leadership in Sample tech or QuantiFERON. First of all, in our market-leading sample technology portfolio, we continue to make progress on automation upgrades with the recent launch of the TissueLyser III instruments. This instrument is used as a key tool in sample disruption of difficult-to-isolate samples in early steps of DNA isolation such as those involving bone, tissue or environmental samples like soil or plant matter. The prior generation of this instrument has been cited in over 14,000 publications and is part of a comprehensive lineup of automation that well positions QIAGEN to answer a broad range of customer demand for sample processing. Through the complete upgrade of our sample preparation systems, we have ensured these platforms are not only delivering state-of-the-art technology for the highest quality processing but also modern solutions for connectivity, which is used for real-time monitoring of runs, cloud management of data, and remote service monitoring. Another example is the next update that will come with the release of an upgraded version of our fledging platform, QIAsymphony, which will onboard connectivity elements and additional features to even better enable high-volume applications such as liquid biopsies. We also continue to leverage our deep sample prep expertise through some of the more dynamic growth applications such as expanding our microbiome portfolio. Our teams recently launched a comprehensive workflow like the microbiome whole genome sequencing six sets to enable diverse microbiome research, including gut health, soil microbiology and antibiotic resistance. Those complete kits leverage our leading microbiome DNA extraction and include library preparation for whole genome sequencing and dedicated bioinformatics. Another notable sample tech expansion is the launch of our kits in our QIAwave’s portfolio. The QIAwave RNeasy and multianalyte DNA RNeasy kits were added to the collection of alternative versions of the most popular QIAGEN kits which have been redesigned to use considerably less plastic and cardboard. Those sustainable kits versions are part of our broader initiative to reduce our environmental footprint and achieve milestones toward our SBTi validated target of net zero by 2050. Moving now to the QuantiFERON franchise. We continue to see strong expansion into the market for this product led by the leading QuantiFERON TB Gold Plus test for latent Tuberculosis testing. As you have seen in our results, the TB test continued to see strong demand from the continued successful conversion from the tuberculin skin test alongside with our strong solution for automation with DiaSorin. This underlines the power of QuantiFERON differentiation in the latent TB testing market as an established and proven technology with unparalleled automation options. Our team's ongoing public health work leverages established relationships to promote the importance of a test and treat strategy for eradicating deadly TB infections across the globe. This month, for example, QIAGEN once again hosted the Annual Tuberculosis Summit, bringing together experts, healthcare professionals, policymakers, and disease survivors to discuss emerging tools and strategies for TB management. This accredited event saw record-breaking participation with over 2,500 people attending through our webcast or in person in London. This summit works to drive significant investment in the fight against TB and empower healthcare professionals and policymakers by providing them with the latest knowledge, insights, and best practices. While QuantiFERON plays an essential role in the global fight against tuberculosis, we are also leveraging the QuantiFERON technology to assist in the exploration of cell-mediated immune response in oncology and autoimmune diseases. Just recently, as you have seen in our press release, we launched the QuantiFERON-EBV assay for research use only to facilitate research in building the understanding of Epstein-Barr virus infections and related malignancies. This builds on the existing portfolio of IVD tests for monitoring CMI response and cytomegalovirus, a line disease assay and the research use-only T cell response assays. So you can see we are building on a strong base in our QuantiFERON franchise. We see a solid road to continued double-digit growth in the next few years by leveraging this highly differentiated proprietary technology through well-established commercial channels. And now back again to Roland to give you more details on our outlook for 2023.

Roland Sackers, CFO

Let me provide more perspectives on our outlook for 2023 and also for the fourth quarter. We have reaffirmed our full year sales outlook for at least $1.97 billion at constant exchange rates. For COVID-19 sales in 2023, we continue to expect approximately $160 million to $165 million. In 2019, we had $143 million of sales from products repurposed for pandemic use, mainly sample technologies for obtaining RNA. We view 2023 as the last full year of significant COVID-19 challenges. Our OEM business is projected to reach around $90 million for the year, compared to pre-COVID OEM sales of over $70 million, and we expect this business to return to that level next year. We are closely monitoring rapidly changing geopolitical and macro trends globally, maintaining a cautious outlook on China where conditions have not improved, as seen in our third quarter results. In the Middle East, we are actively supporting our distributors during these difficult times. Regarding profitability, we have reiterated our adjusted EPS outlook of at least $2.07 at constant exchange rates. A significant portion of our cost structure is variable, allowing us flexibility in cost management while we continue to invest in the business, a top priority as we aim for solid midterm growth. Based on rates as of October 27, we anticipate a negative impact on full year net sales of about 1 percentage point and at least $0.02 per share negatively affecting adjusted EPS results. For the fourth quarter, we expect net sales of at least $500 million at constant exchange rates, with adjusted earnings per share projected to be at least $0.53 per share, also at constant exchange rates. Based on rates as of October 27, we foresee a neutral to slightly negative impact on both net sales and adjusted EPS for the fourth quarter. I will now hand it back to Thierry.

Thierry Bernard, CEO

Thanks, Roland. We are now coming close to the end of our presentation. So let me provide you with a quick summary before we move into the Q&A session. First, amid the ongoing volatile macro environment, QIAGEN has delivered another solid performance in the third quarter of 2023. We achieved our outlook for both net sales and adjusted EPS with good demand for our technologies in our non-COVID base business. Second, those results were driven by resilient performance for our key pillars in both Life Sciences and Molecular Diagnostics. Our strength in sample tech and QuantiFERON are complemented by the solid progress the team is making in expanding our footprint in QIAstat diagnostic and QIAcuity digital PCR systems. Third, as always, we continue to maintain a high level of profitability and are using our healthy balance sheet to create value through organic and inorganic investment. And lastly, we have reaffirmed our full year outlook for 2023. As we move through the end of the year, we are diligently keeping an eye on the global landscape to understand all these dynamics carry into 2024. Despite the currently challenging environment, we see a solid midterm outlook for both the Life Sciences and Diagnostics market and are well positioned to continue delivering sustainable growth in the coming years. With that, I would like now to hand back to John and to the operator for the question-and-answer questions. Thank you.

Operator, Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Catherine Schulte with R. Baird. Your line is open. Please go ahead.

Catherine Schulte, Analyst

It's great to see these results amidst a lot of pressures on the space. I wanted to start on the Life Sciences side of your business. We've heard some peers talking about pharma spend caution intensifying throughout the quarter. Meanwhile, academia has been pretty healthy. I think NIH outlays were up over 20% in the third quarter. Can you just talk through the trends you saw throughout the quarter in those customer groups and your expectations for those end markets going forward?

Thierry Bernard, CEO

Thanks, Catherine. Thanks for the questions. Yes, obviously, we are following also what some competitors are saying on the market. It is obvious that funding for the biotech industry is a bit under tension. However, we still see a very good demand for the life science product of QIAGEN, especially in Life Science. What you have to understand is that especially in Life Science, whether we talk sample tech or NGS that are self-directed to either the research of the academic sector, we are not a very high budget in those spending, but we are a fundamental part of those spending. So it's difficult to eliminate QIAGEN even in times of difficult economic environment. Sample tech is the first and crucial step for any biological run, yet it is not the most expensive part of activities in those labs. And this is why I think we are pretty protected. That doesn't mean that our company is immune to adverse economic events, but we are monitoring this very carefully. As an example, we keep a line on the government shutdown in the U.S. and we are carefully analyzing what will be the budget increase, if there is an increase for organizations like, for example, the CDC and the NIH, but we have it under control.

Patrick Donnelly, Analyst

Terry, maybe as you look at some of these lingering headwinds, whether it's the OEM piece, instrumentation, and maybe a little bit in China, I guess how do you think about the potential for these to continue into 2024 and impact the growth there? Obviously, we've got some commentary from peers about the first half maybe being a little more subdued given some of these headwinds. And then on the same topic for Roland, just how you think about the margin setup into next year if some of these headwinds do persist, just the leverage you guys have in the P&L?

Thierry Bernard, CEO

Thanks, Patrick. I'll address the question regarding OEM instrumentation in China before we move on to the margins. It's tough to predict with the current volatility, but we believe that our OEM business is normalizing towards pre-COVID levels. I anticipate revenue in a normal situation to fall between $70 million and $80 million. A lot of market players were hoping for improvement in the Chinese market starting in Q1, but that hasn't materialized. The anticorruption campaign in healthcare initiated by President Xi is adding to the challenges faced by foreign companies, including localization pressure and delays in permission and registration due to the VBP policy. Despite this, China remains a vital market for life sciences and clinical diagnostics, potentially the second-largest in the world. I don't expect significant market improvements in the next six months, but I remain optimistic about its long-term potential due to local population and patient needs. Foreign companies will need to adjust their strategies to align with Chinese priorities. It's a crucial market, and while we shouldn't expect an immediate rebound, the long-term outlook is promising. Regarding instrumentation, QIAGEN has indicated that the influx of instruments during the COVID period will shift the focus in the post-COVID phase toward instrument placements rather than capital expenditures in diagnostics. QIAGEN is accustomed to this trend and generally, labs update their instrumentation every five years, which is a widely accepted benchmark in our industry. Regardless of whether it’s capital sales or placements, QIAGEN has the financial solutions to accommodate all options, though it’s somewhat more constrained right now. Nevertheless, we believe the diagnostic life science and clinical markets are robust and will experience solid growth in the coming months. Roland, let’s move on to the margin discussion.

Roland Sackers, CFO

I believe that despite the current market volatility and increasing uncertainty, we have effectively managed our expenses in the past, and I expect that to continue. Even if we face a more challenging growth scenario from 2023 to 2024, I am confident that we can achieve a reasonable improvement in our margins. Right now, we are increasing our R&D investments because we see good opportunities for this. We're also finding more leverage in our sales and marketing efforts, and we have significantly reduced our administrative expense ratio over the last 24 months, even with lower overall revenues. There is still potential for further improvement in this area. Overall, I believe we have room to improve margins on the EBIT line, even in a difficult environment.

Paul, Analyst

It's Paul on for Dan. Just in terms of kind of getting a sense of your comfort level heading into 2024, you talked a little bit last quarter about being more or less comfortable with a sort of high single-digit growth trajectory, just kind of baseline expectation. Should we expect that that's come down since what we were kind of talking about three months ago? And do you have a sense for as inflation is normalizing and so forth, what the pricing realization might be just in terms of directionality for next year?

Thierry Bernard, CEO

Thank you, Paul. So, I'm not sure that I have ever seen a number like high single-digit growth for 2024. But what we have always said, we believe that we have the people and the product portfolio for QIAGEN, both life science and clinical diagnostic to be above market growth. And I still believe in this, wherever in that market. Once again, that market might be experiencing some pressure those days, but it's a good market. I believe that COVID-19 has definitely proven the relevance of life science diagnostics and clinical diagnostics in the health care value chain. This is not disappearing. So even if the market is a bit softer, it's still a growing market. And what we feel at QIAGEN is that regardless of the level of market growth, we have the portfolio to be above that market growth. At the moment, we are clearly focusing on achieving 2023 and our guidance in a volatile environment. As you know, we give our guidance for the year around early February. This is what we are going to do this year. But we strongly believe that we have the people and the product portfolio to systematically beat the market growth. On inflation, yes, it has receded compared to 2022. However, QIAGEN didn't start to implement price increase because there was hyperinflation last year. QIAGEN has a systematic policy of price increase every year around January well shared with our customers because we sell value. We sell innovation, and we invest in R&D. In a normalized environment, we believe that normal price increases of between 2.5%, 3.5% per year according to different geographies is what we need to look for. And as I said before, I always think that net-net a company like QIAGEN in a normalized environment should expect a net impact of price increase of around 50 to 100 basis points.

Falko Friedrichs, Analyst

Thank you very much. And my question is, how should we think about the future of the NeuMoDx platform within your company? And do you still believe you're the best owner? And then my follow-up would be on QIAstat-Dx and whether you can remind us of the next steps when it comes to the test menu expansion.

Thierry Bernard, CEO

Thank you, Falko. On NeuMoDx. The first consideration is that we acquired that platform because we believe in it, and we strongly believe that it's probably the best platform in the market for many features, ease of use, speed, versatility, especially the ability to run a laboratory-developed test in parallel to a regulated test in a very random access. This is the only platform able to do that. However, as we have disclosed, we have experienced stability issues at the launch of the platform, which is normal in this market. And therefore, we have given priority to fixing those stability issues over the last 2.5 years. As a result, we are experiencing delays in submitting and approving assays in the U.S. market, which is still by far the main market for infectious diseases PCR testing. NeuMoDx is doing well in Europe. We see non-COVID assays achieving double-digit growth. At the same time, it is our duty to systematically and constantly review the performance of our product portfolio, market shares, growth, and return on capital invested. And there is no dogma at QIAGEN. It is not because the product is part of our five pillars of growth that it will be part of our priorities forever. The product and the team need to deliver. And so, we are currently reviewing every kind of options for NeuMoDx. This is what we can say at the moment. QIAstat-Dx, the menu is going on, and I would differentiate two kinds of development. The traditional menu to be competitive in syndromic testing is already available for QIAstat in Europe. I refer here to respiratory, GI, and meningitis. We are going to bring those assays as well in the U.S. The next step is to develop a completely differentiated assay that does not exist in our competition portfolio. And I refer here to what we call the complicated UTIs. Once we have launched that assay in Europe first, we will continue the development and registration of more traditional assets such as direct identification of blood culture positive, already research use only in Europe, pneumonia, and then we will go probably to other kinds of samples, whether we are talking joint or other kinds of samples. This is the roadmap for QIAstat, a solution where we believe we can really take the number two position in that market, which is a very growing market expected to be around close to $5 billion total market size by 2026.

Jack Meehan, Analyst

Thank you everyone. I want to focus on QuantiFERON. So first, could you just talk about how you're looking at the competitive landscape and some of the differentiation for the test? Second, are there any macro sensitivities you see here? And maybe finally, just the level of confidence this can sustain double-digit growth into 2024?

Thierry Bernard, CEO

So Jack, thanks for the questions. Obviously, the first thing about the differentiation of QuantiFERON. The major growth driver that we have decided to protect and grow since 2016 where we started the discussion and negotiation with DiaSorin for automation. Many people are aware of the partnership with DiaSorin. Some people sometimes forget about the partnership also with Hamilton and Tecan for the front-end automation of QuantiFERON. And therefore, as of today, there is no more automated workflow and easier to use than QuantiFERON. And from the back-end automation available in a very sizable installed base of the Liaison Diasorin either excel or excess. Number one. Number two, the number of publications around the quality, the value, and the clinical superiority of QuantiFERON is unprecedented. We are talking here about 20 years of public health, medical education, and publications. Third, for the product itself, we continue to invest in R&D. As you have seen, for example, over the last three years, we moved from the QuantiFERON third generation to the fourth generation by adding CD8, which seriously increased the sensitivity of the test. This is what explains the success of QuantiFERON, continuous organic and inorganic investment to expand its market penetration and where do we see the main potential for market penetration? It's still on the skin test. We believe that the skin test market, even in the U.S. is between still, let's say, 30% to 40% penetration. So, there is significant room to grow. So we are not complacent despite being the number one. We continue to invest. We continue to push QuantiFERON in many countries. You have seen two years ago, the guidance in Brazil in favor of QuantiFERON. You have seen some emerging countries in Asia Pacific adopting also QuantiFERON. So, there is no complacency, but there is a strong leadership, sustained by R&D investment partnership, and this is what is fueling once again, the 25% growth of Q3. We are confident that we can maintain a double-digit growth for this product.

Matt Sykes, Analyst

Congrats on the quarter in a tough environment. Just two quick questions. I'll ask both upfront. But just first on R&D., that 10% level, if we kind of look at what it could end up for '23, probably be about 100 basis points above where you were for '22 and probably 200 above the year before. Just wondering, is that 10% sort of the level we should be thinking about R&D investments in terms of percentage of sales as we think into '24? And then secondly, the spread in non-COVID product growth in Europe versus the Americas. Is there anything we can read into that from a customer type or a product or segment that accounted for that difference in growth?

Thierry Bernard, CEO

Yes, thanks for the question. You can go ahead, Roland, if you want.

Roland Sackers, CFO

Probably can take the R&D question. And Matt, I think it's very straightforward. We clearly right now see good opportunities to drive some R&D activities, given also our overall profitability, and that thing is going quite well along even in a more difficult environment. I would assume now looking into next year that we are probably next year, somewhere between 9% and 10%. I don't think that we will have next year, any need for staying, let's say, 10-plus percent. So, I do think there is some leverage here. Nevertheless, we continue of course, to invest and expand our menu.

Thierry Bernard, CEO

Thank you, Roland. And on the spread on the non-COVID growth, I don't think that there are major differences between American and European customers, but we have also a difference in our portfolio at the moment. So, the non-COVID in North America is very much driven by QuantiFERON by digital PCR, especially in the biopharma. This is where we have the main concentration of biopharma customers, and this is where we are taking significant market shares, but also NGS. Whether in Europe, where you have compared to the U.S., a greater revenue for non-COVID on QIAstat, for example, you have a great harmony for non-COVID on NeuMoDx. You have also had this impact. Obviously, we are also growing our market shares for QuantiFERON Europe year-on-year at a lower level than the U.S. We are also growing our market share in digital PCR. So, it's rather basically adjusting the status of our portfolio rather than differences of customers. I would end up saying that we focus now at QIAGEN, as you know, since 2021, clearly, on the non-COVID. This is our core business. We know that we have a range of products available if COVID surged again anytime, but the focus is really on the non-COVID.

Casey Woodring, Analyst

Maybe one for Roland, just can you walk through the debt repayment schedule, how you're thinking about that and implications for interest income and interest expense, maybe give us a level set for 2024 that we can model?

Roland Sackers, CFO

Certainly, Casey. I believe I covered the details during the call, but to summarize, we saw about $400 million in repayments at the end of September, which is likely to affect our net interest expense in the fourth quarter compared to the third quarter by approximately $5 million. Looking ahead to next year, the impact on EPS is expected to be around $0.02 to $0.03, depending on where interest rates go. There are additional repayments planned for next year, including $100 million in June and $500 million in November 2024. Additionally, we might have another $500 million due in December 2025.

Andrew Brackmann, Analyst

Maybe just on the Sample tech business. You've obviously made a lot of investments there in automation over the last handful years. Can you just give us an update around what you're seeing in those customers who have upgraded? And I guess, how should we be thinking about additional investments in automation for that business going forward?

Thierry Bernard, CEO

Thanks, Andrew. I think it was the right decision when we started, let's say, five years ago to systematically upgrade our automation. As a reminder, QIAcube became QIAcube Connect. EZ1 became EZ1, and all the time, adding new features. As we said in today's presentation, the next steps are QIAsymphony, where we are not only adding new connectivity features but we are increasing the volume input, which is fundamental to better answer our already existing customers in liquid biopsy and take more customers. This was a fundamental strategy to enhance our market shares and confirm our leadership. And we see customers for manual customers before sometimes being obviously moving to those automation platforms, automated platform. The next steps, but it's a bit too early to speak in details about it today, is to think about higher throughput automation, but we will come back to you in due term.

John Gilardi, Vice President, Head of Corporate Communications and Investor Relations

Okay Thierry, operator, Roland, thank you very much for your time today on the call. If you have any follow-up questions, please do not hesitate to reach out to Phoebe, me. Thank you very much again for your interest in QIAGEN. Bye-bye.

Operator, Operator

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