Qiagen - Earnings Call - Q3 2021
November 4, 2021
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. I am Cassie, your PGi call operator. Welcome, and thank you for joining QIAGEN's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their internet site. To prepare for remarks, we'll be followed by a question-and-answer session. Please ask only one question. If you would like to ask a question, please press star one on your touch-tone telephone. Please press the star key followed by the zero for operator assistance. At this time, I would like to introduce your host, John Gilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.
John Gilardi (VP of Investor Relations)
Thank you very much, and welcome to all of you to our conference call today. The speakers we have are Thierry Bernard, Chief Executive Officer of QIAGEN, Roland Sackers, our Chief Financial Officer. Also joining us is Phoebe Loh from our Investor Relations team. Please note that this call is being webcast live and will be archived on the investor section of our website at www.qiagen.com. Today, we have an updated format for this call. We have decided to streamline the prepared comments and want to have more time to address your questions. So we'll first have some remarks from Thierry and Roland, summarizing our results and strategy update, and then move into the Q&A session. A presentation with details on our performance and financial information is available in the IR section of our website, along with the third quarter release.
We will not be showing the slides during this call, but you have them as reference material. Before we begin, let me cover, as usual, our Safe Harbor statement. This conference call discussion and responses to your questions reflect management's views as of today, November 4th, 2021. We'll be making statements and providing responses to your questions that state our intentions, beliefs, expectations, or predictions of the future. These constitute forward-looking statements for the purpose of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For more information, please refer to our filings with the SEC, which are also available on our website.
We will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP. Additionally, all the references to earnings per share refer to diluted EPS. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is available on our press release as well as in the presentation.
I would like to now hand over the call to Thierry.
Thierry Bernard (CEO)
Thank you, John, and welcome to our conference call today. Thank you to everyone for joining. Before I begin, allow me please to first acknowledge the efforts our teams are continuing to make around the world as they balance the volatile demand for COVID-19 testing solutions with the return of regular business. Our teams around the world have done an excellent job of effectively managing the shifting demand as the pandemic has progressed, and they have responded quickly to the ever-changing needs of the market. It is through the ongoing action of all our QIAGENers that we have delivered another very strong and clean Q3 quarter. Now, on to our key messages for today. First and foremost, we have delivered a solid quarter with strong sales growth and adjusted EPS.
As you have seen in our release, net sales grew 10% at constant exchange rates to $535 million, and this is well above our outlook for sales to be at the same level as in the third quarter of 2020. Our results were driven by better-than-expected sales in COVID-19 product groups, but also very strong trends in non-COVID demand. In the past, we have seen these product groups inversely related as COVID testing increased, demand from products used in regular research and testing was decreasing. However, in the third quarter this year, we saw strong demand for QIAGEN solutions across both areas. Variant surges and diverse levels of vaccinations have contributed to uneven recovery trends across the globe, and we are seeing mixed demand coming from the various regions.
As we move through the pandemic and COVID testing demands remain volatile, we are focused on executing on the sustainable growth of sales in our non-COVID product groups. So we are extremely pleased with the 17% CER growth delivered by these groups in the third quarter. Those results are again proving that QIAGEN remains relevant but not dependent on COVID-19 testing. Adjusted earnings per share were unchanged in the third quarter compared to the year-ago period at $0.58 at both CER and actual rates. This is well above the outlook for $0.52-$0.53 per share CER. If we look at the first nine months of 2021, sales grew 25% at CER. Sales were up 28% at actual rates to $1.67 billion due to positive currency movements of around 3 percentage points against the U.S. dollar.
Non-COVID product group sales grew 27% CER as demand continued to grow steadily throughout the year. Adjusted EPS for the first nine months of 2021 came at $1.88 per share CER again and $1.91 at actual rates. Our second message: our five pillars of growth continue to perform well as we make good progress on our 2021 ambitions. In Sample Tech first, substantial demand for non-COVID sample preparation consumables delivered mid-single-digit CER growth in the third quarter. This builds on our long-standing leadership in this important first step in any molecular biology lab process. We continue to expand our portfolio of consumables, and we continue to launch new instruments to drive sustainable sales in Sample Tech. The best example this year is the EZ2 Connect fully automated sample preparation platform that we are planning to launch this year.
On QIAcuity digital PCR, our system continues to be used in a growing number of applications. An example related to COVID, for example, is wastewater testing in surveillance to the COVID-19 pandemic. Customer response for those systems remains extremely high as we work to further expand our application menu. QuantiFERON tuberculosis, our leading test for modern latent tuberculosis testing, led our five pillars' growth with 48% CER over the same quarter of the prior year. We are therefore extremely confident to at least reach our target of $255 million in-- $255 million for the year 2021. As you have seen, we continue to complete our portfolio in QuantiFERON with the launch of our QIAreach QuantiFERON-TB test. This is a breakthrough test which will enable modern latent TB testing in low-resources areas but very high burden, allowing expansion of QuantiFERON-TB to those markets.
In quarter three, demand for QIAstat syndromic testing system and for NeuMoDx core lab PCR platform remains high, especially for respiratory testing as multiplex tests are being increasingly utilized for diagnosing influenza-like illnesses as we move into the flu season. As an example, in response to a rising demand for low-plex testing, we have just released the QIAstat diagnostic respiratory four-plex CE-IVD test to aid in the identification of the common seasonal respiratory infections: flu A and B, RSV combined with SARS-CoV. For NeuMoDx, we have just received a U.S. government grant to increase production of COVID-19 test consumables in our Michigan site.
All of our five pillars of growth delivered solid sales in the third quarter, and we are on track to deliver on our sales target for 2021. They are all positioned for future growth as they not only serve the continuous need for COVID-19 research but also enable important non-COVID-related discoveries and diagnostics. We continue to execute on a robust pipeline of menu expansion and new product launches, which put us on a very strong trajectory to build additional value in our portfolios. Our third message: we maintain a very steady level of profitability in the third quarter and strong cash flow growth during the first nine months of 2021. We are moving forward with investment to accelerate our pillars of growth that are strengthening, of course, our growth prospect.
And our final key message for today includes our upgraded outlook for the full year. We have upgraded the 2021 sales outlook to reflect the result for the third quarter. This is very consistent with what we said in July when we removed the volatility of COVID testing demand from our 2021 sales outlook. We are increasingly confident in our full-year target for over 20% CER growth in non-COVID product group and preparing for solid growth beyond the pandemic.
With that, I would like to hand over to Roland.
Roland Sackers (CFO)
Thank you, Thierry. Hello, and thank you as well from me for joining this call. Let me begin by walking you through our sales in more detail. As Thierry mentioned, non-COVID product group sales grew strongly at 17% CER to $376 million. These sales were supported by improving customer demand across all regions, especially for QuantiFERON-TB Sample Technologies and NGS genomics products. COVID-19 product group sales declined 4% CER to $159 million over the year-ago period, but nonetheless saw strong sales from ongoing demand for respiratory testing in Europe and other areas outside the U.S. This was supported by solid growth for OEM reagents and enzymes, as well as the QIAprep& Solution.
In the third quarter, double-digit CER gains in consumables and related revenues more than offset a modest decline in instrument sales, which faced a challenging comparison to the 2020 quarter that included significant demand for COVID testing instruments. Now, to give more detail by product group, Sample Technologies declined 6% CER against a very strong third quarter in 2020. Here, mid-single-digit CER growth in non-COVID products offset lower year-over-year sales at COVID-19 testing. Diagnostic Solutions had another quarter of excellent sales, growing 35% CER over the same quarter of 2020. This was led by QuantiFERON sales, which grew 48% CER. Diagnostic solution sales were also supported by continued demand for the QIAstat syndromic solutions and ongoing expansion of NeuMoDx systems for core lab PCR testing. We saw continued recovery in regular testing activities in the third quarter, and that includes our oncology business.
Sales of precision medicine assays and revenues for companion diagnostics co-development projects grew at a double-digit CER rate. In the PCR Nucleic Acid Amplification product group, sales grew 2% CER over a pandemic-driven third quarter of 2020. Higher sales of consumables and placements of QIAcuity digital PCR more than absorbed a decline in other instrument sales in this group. Genomics NGS grew at 44% CER and driven by robust sales in our universal next-generation sequencing consumables for both life science and molecular diagnostics applications. QIAGEN's Digital Insights delivered sales growth of more than 20% CER for our bioinformatics solutions, notably with a double-digit CER gain in clinical applications.
On a regional basis, the Americas delivered 9% CER growth. These results were driven by 19% CER growth in the U.S., which was led by QuantiFERON-TB, and more than 30% CER growth in the PCR Nucleic Acid Amplification and genomics NGS product groups. In the EMEA region, sales grew 6% CER, influenced by ongoing demand for COVID-19 testing solutions. Growth in these regions was led by double-digit CER gains in the United Kingdom, Italy, and Switzerland. The Asia-Pacific-Japan region experienced strong demand with regional sales growth of 20% CER over the third quarter of 2020, a period when we saw lockdowns in many of these areas. Sales in China rose 16% CER based on improving trends for non-COVID products. Japan, Australia, and South Korea also contributed higher sales.
Moving down the income statement, the adjusted gross margin declined to 66.6%, or about 3 percentage points below the third quarter of 2020. This decline included an inventory markdown of $6.2 million for COVID-19 antigen tests. We did not adjust for this markdown. Research and development expenses rose to 9% of sales from approximately 7% of sales in the prior year as we continue to make significant investments into the test menu for QIAstat, non-NeuMoDx, and QIAcuity instruments, and across all of our five pillars of growth. Sales and marketing expenses, as well as general administrative expenses, were largely unchanged as a percentage of sales compared to the year-ago quarter.
I would also like to note that while we have experienced some effects of global supply chain disruption, our teams have secured safety stock and secondary suppliers where needed. So we have not seen any significant constraints up to this point but are closely monitoring the situation.
Operating income rose to $132 million in the third quarter of 2021 from $45 million in the prior year. Keep in mind that in 2020, results included $104 million of expenses for the discontinued tender offer. Adjusted operating income declined 3% to $165 million from $170 million in the third quarter of 2020. This was due to the increase in research and development expenses during the third quarter of 2021 as we focused efforts on test menu expansion. As a result of these efforts, we saw a decline in adjusted operating income margin to 30.8% of sales from 35.2% in the year-ago period. Reported EPS was $0.58 per share CER in the third quarter of 2021, and this included a $30 million gain on the sales of milestone-related shares received from Invitae Corporation as part of their purchase of our minority investment in ArcherDX. This entire gain is excluded from adjusted results.
Adjusted EPS was also unchanged at $0.58 per share. I want to note that these results included a reverse impact of about $0.02 per share related to the inventory markdown. Turning to cash flow trends for 2021, we saw dynamic performance in both operating and free cash flow in the first nine months of 2021. Operating cash flow increased 134% to $441 million from $188 million in 2020. This reflects higher net income and adjustments from non-cash items. Operating cash flow included a decrease in operating assets and liabilities, primarily due to increased inventories to meet the increase in demand and decreases in accrued and other liabilities on accounts payable. Results in 2021 also included cash paid for income taxes of $97 million compared to $32 million in the year-ago period.
Also, the third-year period included total cash payments of $190 million for costs related to the discontinued tender offer and $50 million of cash payments for restructuring activities that were initiated in late 2019. As for free cash flow, we saw a 198% increase to $302 million in 2021 from $101 million in the same period one year ago. This increase absorbed higher investments in purchases of property, plant and equipment in 2021, primarily to expand production capacity for our pillars of growth at sites in Europe and the United States. The solid cash flow will enable us to further invest into our pillars of growth while also seeking to increase returns to shareholders, and on this point, we just completed a $100 million share repurchase program at the end of October.
As discussed earlier, we are upgrading our full-year outlook to reflect the higher-than-expected sales for the third quarter for COVID-19 product groups, coupled with an increase in ongoing strong demand for non-COVID solutions. For the full-year, net sales are now expected to grow at least 15% CER and adjusted EPS to reach at least $2.48 per share, also at CER. Based on exchange rates as of November 1, 2021, currency movements against the U.S. dollar are expected to create a positive impact of about 2 percentage points at net sales growth and about $0.02 per share on adjusted EPS. These expectations take into account continued investments into our five pillars of growth during the remainder of 2021 to further accelerate profitable growth beyond the pandemic in the coming years.
I would like to now hand back to Thierry.
Thierry Bernard (CEO)
Thank you, Roland, and as John said in the introduction, I think we are on track to a shorter call to allow more time to your questions. So let me provide you with a quick summary before we move into the Q&A. First, as we said, our QIAGEN all over the world delivered another very solid quarter with strong sales growth and adjusted EPS. This was due to better-than-expected, of course, sales in COVID-19-related products, but, which is our focus, very strong strengths in non-COVID demand. Our teams all over the world continue to execute and deliver on our commitments. Second, our five pillars of growth are performing well, and we are on track to achieve our 2021 sales target. Many of our pillars of growth are in still early phases of their life cycle, which proves that we still have a solid runway of sustainable growth ahead.
Third, QIAGEN has a very strong level of profitability and a healthy cash flow in 2021. And this is providing resources to invest in our business while at the same time increasing return to shareholders. We are looking for investments that will create value and are aligned, obviously, with our strategy. And as a last point, we have upgraded the full-year 2021 sales outlook to reflect the stronger-than-expected third-quarter result and are moving ahead with convictions about the strength of our portfolio.
With that, I'd like to hand back to John and the operator for the Q&A session. Thanks a lot.
Operator (participant)
Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star, followed by one on their touch-tone telephone. If you wish to withdraw your question, you may press star, followed by two. To ensure we can accommodate as many people as possible, please limit yourselves to only one question and, if necessary, one follow-up. Your microphone will also be muted after finishing asking the first question. Anyone who has a question may press the star, followed by the one at this time. One moment for our first question, please. And our first question will come from Falko Friedrichs with Deutsche Bank.
Falko Friedrichs (Analyst)
Thank you very much. Good afternoon, everyone. So I will try my luck with this question. So over the past few days, there have obviously been a lot of rumors in the press about potential takeover, mergers, etc. Is there any way you can comment on anything? And then related to that question, can you just confirm that you are still fully confident into your new strategy, the five pillars you laid out, and these rumors are in no way related to less confidence in your strategy from your side and therefore your potential engagement in any sort of merger talks, for instance? Thank you.
Thierry Bernard (CEO)
Thanks for the question. It's a fair one, and I think Roland and I can take it with our two perspectives that are, by the way, clearly aligned. First and foremost, as we have said many times, QIAGEN is and will always remain very open to strategic talks. Always. As long as it obviously creates value for our shareholders, first, but not only shareholders. Create value for our QIAGENers, create value for the brand that this company has been creating for the last 30 years and for its obviously continuous development, and as usual, obviously, not only the managing board, Roland and myself, but also our board, we have proven this in the past, will always exert our fiduciary responsibility if there is something that could create, once again, a positive answer to those criteria that are just listed.
What I can tell you is that as of today, those rumors are just rumors. They have no more value than what was said some months ago around Quidel or other companies, and we remain focused on the execution on the five-pillar growth strategy. This has not changed, and we still have the same confidence. I think that today in this call, we have shown you that not only those five pillars are developing well, but they create, obviously, potential growth for the future. First. Second, obviously, from a capital development standpoint, we remain at QIAGEN very interested to look at any kind of opportunity for what we qualify as bolt-on acquisition, as long, first of all, that it reinforces either the five pillars of growth or the core business.
What I mean by this is that we will not do acquisition to spread QIAGEN thin again. This has to be very clear, and second criteria, as long as the valuation of our target makes sense for our, obviously, profitability. Those are the criteria, but we are very active here as well. Roland, do you want to chime in here?
Roland Sackers (CFO)
As you said before, I think we are very much aligned.
Thierry Bernard (CEO)
Can I answer your question?
Falko Friedrichs (Analyst)
Assume there's not much more you can say about it anyways at this point.
Thierry Bernard (CEO)
Not a question of saying more or less. It's just what we are focusing on. It's not a question of saying more on the specific rumor, which is a rumor.
Falko Friedrichs (Analyst)
Okay. Understood. Thank you.
Operator (participant)
Our next question comes from Tycho Peterson of JPMorgan. Please go ahead.
Tycho Peterson (Analyst)
Hey, thanks. Thierry, I'm going to ask two quick ones. First, on QIAstat, just curious if you can give us any kind of update on customer mix, how many of these placements are capital versus reagent rental, how you're thinking about the respiratory rollout, how meaningful that four-plex panel could be. And then second, on supply chain, I understand you're not seeing constraints now. Obviously, there's been a lot written about customers having issues on, let's say, a shortage. Are you starting to see any improvements there, and are you also able to pass on some of the higher resin costs, shipping costs, things like that in terms of pricing? Thank you.
Thierry Bernard (CEO)
Thanks, Tycho. So on the first question for QIAstat-Dx, obviously, we are still seeing sales that are heavily driven by the COVID-19 and therefore the respiratory panel. This creates a favorable trend to much more capital sales than placement. I think this is one of the main lessons of this COVID pandemic. It has boosted capital sales instead of placement. First point. At the same time, and especially in Europe, we are pleased when we see the development of our conversion of customers to the other panels available, and especially the gastrointestinal panel. The third topic of satisfaction for us is that we are on track as we speak with the submission of the gastrointestinal panel in the U.S. by the end of the year and the launch of the meningitis panel in Europe for the end of the year as well.
On the four-plex, you need to understand the strategy. The four-plex is not to answer demand from the current QIAstat install base. The four-plex on QIAstat is to make sure that if there is a combination of a strong flu season together with a constant COVID-19, that we will offer a solution to customers that will not want to do a large plex but just focus on the traditional respiratory winter pathogens, flu A and B, RSV, and COVID in this case. So it's to extend the QIAstat reach and not to replace existing consumption of large plex customers with a four-plex. This has to be clearly understood. This is the way you should see it. I hope it answered this first part of your question, Tycho.
Tycho Peterson (Analyst)
Yes, yes, it did.
Thierry Bernard (CEO)
On the supply chain, Roland alluded to it in his part. The situation is quite simple for QIAGEN. Last year, we were very transparent on some bottlenecks that we encountered, and we gave you timelines on when they would be solved. We spoke about bottlenecks on some raw materials, specifically, for example, Proteinase K or guanidine. We solved it around the third quarter of last year. Then we told you that we experienced some issues in plastic supply, like the rest of the market, by the way. And we always told you that we believe we would solve the plastic supply by end of Q1 of this year. This has been achieved as well. Thanks to our effort and the effort of our purchasing team by either adding suppliers or renegotiating some of our contracts.
So, of course, we are not 100% immune to all the disruption we see in the supply chain all over the world, but we are well protected at the moment, and we follow that with extreme attention. It has happened, for example, in July that we were like all the other companies impacted slightly by the fact that the Pudong Airport in China closed for a couple of days, but it had no material and meaningful impact on our Q3. So I would say supply chain under clear monitoring, but also clear control at the moment. Does it answer your question, Tycho?
Tycho Peterson (Analyst)
Are you passing on pricing? Are you passing on pricing?
Thierry Bernard (CEO)
Yeah, I mean, you know.
Tycho Peterson (Analyst)
That's part of it, yeah.
Thierry Bernard (CEO)
Yeah, that's right. Thanks for reminding that. You know that we have always been very clear, Roland and I, over the last calls, to say that QIAGEN has a very controlled policy as regard to price increase. This is a mechanism that happens every year. And this year, obviously, we are also paying specific attention to making sure that we are passing part of the freight increase cost that we are seeing on our own P&L also to our customers. So we are extremely monitoring this. We will continue in 2022, and it's a double policy, Tycho. It's not only making sure that you are passing price increase, but it's also monitoring the discounts that you are doing during the rest of the year because discounts happen, let's be very clear, but you have to clearly monitor that to make sure that your net-net price impact remains obviously positive.
Roland, would you like to add something to that?
Roland Sackers (CFO)
No, I would say that, of course, we expect also for next year, rather compared to this year, given rather a larger inflation environment, that also our pricing increases are probably to a large extent reflecting that.
Tycho Peterson (Analyst)
Okay. Thank you.
Operator (participant)
Our next question comes from Daniel Wendorff of ODDO BHF.
Daniel Wendorff (Analyst)
Yes, good afternoon or good morning, and thanks for taking my question. It is related to your genomics portfolio, which, as far as I understood, without real major support from one-offs in Q3 now, achieved quite a strong performance in my view. Can you talk a bit more about what is driving this, any specific products, any specific movements? So that would be helpful. And maybe a short, to be answered question as a top-up here. Your margin was down on adjusted EBITDA rather more than I would have expected quarter on quarter. Can you explain this, please? Thank you.
Thierry Bernard (CEO)
Perfect, Daniel. I propose to take the genomic question, and then Roland will continue with the margin as we have very clear data on this as well. You have to remember, Daniel, that our genomics portfolio is comprised of mainly two main activities. One is what we call our universal NGS, universal NGS chemistry. These are panels, regulated panels or custom panels that we are selling on many kinds of instruments, be them Illumina instruments, Thermo sequencers, BGI sequencers. This is mainly driven by the recovery of oncology testing demand because most of our applications are in oncology in that field, and we see, indeed, oncology testing demand coming back, not yet to a fully pre-COVID-19 pandemic level, but recovering quite strongly, and so we are well positioned to answer here.
Second, those sales are also including our sales in what we call our QDI, the QIAGEN Digital Insights portfolio. This is our bioinformatics sales. And once again, those sales are mainly directed to next-generation sequencing customers and mainly also directed to oncology application. In 2020, clearly, this was an activity at QIAGEN, and we disclosed that that was impacted by the COVID allocation of resources. This year, it's recovering, and recovering growth for our QDI sales. So it's healthy, not only dependent on COVID. Of course, we have a COVID surveillance NGS solution, but this is not the main part of our portfolio here. Does it answer your question?
Daniel Wendorff (Analyst)
Yes, very good. Thank you.
Thierry Bernard (CEO)
Roland, the margin?
Roland Sackers (CFO)
Yeah, absolutely and thanks for asking the question, Daniel, because I think there are a couple of components to be quite specific on. I would say overall, actually, the margin impact this quarter clearly comes from the gross margin side and we are roughly, let's say, 210 bps down compared to the quarter before and as I tried to explain, 130 bps out of the 210 comes from the markdown of antigen inventory and I would consider that as clearly something that is, I would call it, probably quite unusual, but therefore, I explained it quite well. The remaining 80 bps comes actually out of what I would call out of the COVID environment and has to do with two factors.
First of all, I would say in the third quarter compared also to the prior quarters, we have seen probably somewhat higher contributions within the COVID product revenues coming from the PCR solution as well as from our consumables by QIAGEN, meaning our enzyme businesses. Why, as we also said in the prepared remarks, sample was a bit lower than that. So I think there was also a certain portfolio difference within the COVID portfolio within the third quarter. So overall, it's quite obvious that. Behind that, there is probably a third reason, but related to that, you recall that we clearly heavily invested into automated and scale-up solutions for our QIAstat businesses. As we had last year, earlier this year, still, as you know, much more demand than supply. We believe going forward, with now having larger opportunities, more automated solutions, that shouldn't be the case.
But therefore, of course, we had investments, and of course, that is not running on a reasonable utilization right now. So I would say that has an impact to name and having an impact on the gross margin for the quarter.
Daniel Wendorff (Analyst)
Very good. Thank you.
Operator (participant)
Our next question comes from Derik de Bruin with Bank of America. Please go ahead.
Derik de Bruin (Analyst)
Hi. Apologies, I joined late, so apologies if someone already asked this. But what are you embedding for your COVID-19 expectations in Q4 and right now for 2022? Just to, I mean, obviously, it's been a bit better recently, but just would love to know your go-forward thoughts.
Thierry Bernard (CEO)
Derek, I mean, thanks for the questions and no worries. We have not changed what we said early July this year. So we are not taking any assumptions for Q4 or for 2022 that are related to a higher surge of COVID again. So we keep the same assumption that we gave you early July. And the way I would propose you to see it is that we will always make sure that we will adjust our output capacity so that we can answer any new surge. So it will always come as a bonus, but we don't want to have our numbers depending on that volatile number. So no change for Q4 assumption, no change for 2022 assumption. If there is something, it will come as a bonus.
Derik de Bruin (Analyst)
Got it. And in terms of your pharma and academic customers, and particularly as it relates to instrumentation, are you seeing any sort of signs of a pickup in fourth-quarter demand, the typical year-end budget flush, any unusual spending dynamics as we sort of head in there? I mean, obviously, a lot of these customers are flush with cash, and just wondering if you're sort of seeing an incremental pickup in some of these markets. Thank you.
Thierry Bernard (CEO)
We have seen because there are two ways to see it. First of all, on companion diagnostic, you have seen the rather good results that we have posted in Q3 with a good double-digit growth and interesting results. We are also encouraged by a new trend that we see in companion diagnostic, which is the rising demand of pharma towards our digital PCR solution. So the way you should see QIAGEN now in companion diagnostic is probably the only company able to offer a solid PCR solution for companion diagnostic, NGS solution thanks to our partnership with Illumina and our U-NGS portfolio, but also now digital PCR. So this is promising for the coming months and years, obviously. The other kind of dimension, obviously, is the direct life science sales to pharma. We have not seen any specific push. It depends on the geography.
I would say in Q3, on the contrary, we have seen Europe a bit slower than expected. Why? Because labs and even pharma orders were a bit slower than expected. We see it recovering now in Q4. So no major disruption to our normal trends here.
Derik de Bruin (Analyst)
Thank you very much.
Operator (participant)
Our next question comes from Scott Bardo of Berenberg. Please go ahead.
Scott Bardo (Managing Director)
Yeah, thanks for taking my questions. The first question, please. Thierry, you alluded to it a little bit, but M&A chatter has accompanied the QIAGEN case for many years now. So the question is, is this disruptive or distracting internally? And how do you keep your employees and leading managers focused and committed to execute to the best ability inside the organization amid all of this rumor? The second question, maybe pulling your roll-up, please. Historically, we've been accustomed to a mid-term guidance framework for QIAGEN. Is this something the organization is working on? And perhaps you can highlight, if so, when we might have that delivered to the capital markets. Thanks.
Thierry Bernard (CEO)
I propose that once again, thanks, Scott, we can take this apart. How we keep focus or our employees' focus through those rumors? I believe because our QIAGENers, first of all, are extremely mature. They know the governance of our company. They know the perfect alignment between the board and the managing board on those questions. They know that if a strategy comes and that makes sense for the criteria I described before, okay, that could be possible. But they know that that's not the priority at the moment, that if we continue to deliver and deliver and deliver on many dimensions, quarterly sales, obviously, but also development of R&D portfolio, then we have every opportunity to remain an independent company. And they know that. So basically, I think refocusing the company onto the five pillars of growth also helped to increase that sense of focus.
Basically, we are extremely open in our communication with them. I don't see any clear problem of execution here. Again, as we have said in the call and in the first answers, we are just talking about rumors here. On the midterm guidance, remember in our QIAGEN Day, December 8, we gave you some pretty precise, also midterm guidance on many dimensions. I think we have given you some clear indication, but Roland, you might want also to chime in here.
Roland Sackers (CFO)
Yeah, thanks for that, Thierry. And yeah, I would say a couple of observations here. First of all, just to remind everybody in the call, on the non-COVID side, since 2019, nothing has changed in terms of guidance or forecast or even midterm planning. Other than that, from time to time, we actually upgraded our forecast and guidance as well. We have seen volatility, unfortunately, and therefore also adjustments to our guidance last quarter because of the COVID impact. And I would say we all agree that COVID remains volatile. So I would say our focus right now is driving on what we now do since nine quarters quite successful, our non-COVID business. Be ready if COVID creates more demand to deliver on that. I think that was clearly a high priority for us and is still.
But creating here a better forecast and visibility just within the QIAGEN world is not an easy target. So we have to find a solution for that, and that is the ongoing discussion. Scott, we're having actually internally how we can do so and then the way to reasonably present that to the outside.
Scott Bardo (Managing Director)
Thanks, guys.
Operator (participant)
Our next question comes from Jack Meehan of Nephron.
Jack Meehan (Equity Research Analyst)
Thank you. Good morning, good afternoon. Thierry, I was hoping to get your thoughts on the China region. There's been a lot more noise in the diagnostics world related to more centralized purchasing and also efforts to promote local manufacturers in the region. I was curious what you're seeing and how you feel like QIAGEN is positioned if that becomes a bigger deal.
Thierry Bernard (CEO)
So first of all, we have to highlight the magnitude of numbers. QIAGEN has been in China for long, and we want to stay in China. It's a very important market. It's a growing market. However, our exposure to China remains limited. That doesn't mean that we are belittling the importance of this market, but we are talking about an overall revenue of slightly below $100 million compared to a company which is now surpassing $2 billion. That set the stage. Second, you probably are aware that I've been working and living in China for years, and the trend towards growing nationalization of healthcare in China is not new. It has started many years ago. And true, it's becoming now more and more, let's say, pressuring foreign companies at different levels. Pressure towards local manufacturing and development. It's not just local manufacturing anymore. You have alluded to some purchasing decisions.
It's what we call the VBP, the Volume-Based Procurement System, which is trying to push pricing down. And you have seen the example of what has happened recently in the Anhui province in China. So what are the assets of QIAGEN in front of such a trend? First of all, you probably know that we have a local facility for local development and manufacturing. It's in Shenzhen. So we can also localize products. Second, we probably are one of the few, if not the only company in China to have a second brand. Not only do we have QIAGEN China, but we have a second brand which is fully Chinese called Tiangen. And there are clear firewalls between our activities on QIAGEN China, headquartered in Shanghai, and Tiangen, headquartered in Beijing. And I think it's the right strategy.
There is no question that for the coming weeks and months, this trend will accelerate, and therefore, it's critical, and we are already reshuffling those questions into our Chinese strategy for the coming years, so we are clearly on it. At the same time, again, we need to see also what is our real exposure to this market in revenues at that moment.
Jack Meehan (Equity Research Analyst)
Great. Thank you. I also wanted to probe you a little bit on the trajectory for NeuMoDx and QIAstat forward. Any preliminary thoughts around what the 2022 contribution could look like? And as we just look at the third quarter numbers for both products, revenue was pretty stable sequentially. I think every other molecular competitor that's reported showed sequential growth. I was just curious about the utilization you're seeing for those instruments and why it might have been more constrained versus what peers have reported.
Thierry Bernard (CEO)
Yeah. Thanks for the question. I think the way you should look at it is, first of all, considering the overall demand for COVID. Those two solutions, Astat and Pneumotics, very clearly, and as we disclosed in 2020 and 2021, are still heavily impacted and driven by COVID respiratory usage. And so, the context. If you look just at the U.S., in January, at the peak of the contamination and the pandemic, the overall companies active in molecular biology were shipping 1.5 million tests per day, PCR tests in the U.S. When you go to end of June, this number came down to 350,000 PCR tests shipped per day in the U.S. And that's the same trend in the rest of the world, so we obviously had to adjust our output for both systems, and then, starting mid-July, we are faced with a surge of demand.
The first decision, obviously, was to call back some of our contractors. And I remind you that not to load QIAGEN with fixed costs that would not be sustainable in a post-pandemic. We are massively using contractors. So first was to call back contractors to basically phase the demand again. But the second criteria was to make sure that we were delivering on the existing installed base, not to create customer frustration rather than extending first the installed base. And I think that was the right choice. And now that we are coming into Q4, we can again look at extending the installed base. For the prospect for the future, we keep the same message. This is a menu play. Both are a menu play. They were not depending before the pandemic on COVID-19. And they will be in QIAGEN portfolio for many years.
And as you know and as you have seen, we have delivered on our commitment for 2021. We said today again that GI will be submitted for the U.S. for QIAstat before the end of the year, that meningitis will be delivered in Europe before the end of the year. And so this is what we continue to execute. The same for NeuMoDx. We said that we would have CT/NG, for example, in addition to GBS and our LDT portfolio registered this year in the U.S. We are on track to do that. In the U.S. as well, as you have seen, we received that grant from the U.S. government to continue to expand the manufacturing capacity of NeuMoDx. Roland, in his presentation, said that we have just opened in Hilden what we call the large-scale line of QIAstat.
So now we are going to have, obviously, a better automation to deliver higher volumes. Last but not least, on QIAstat, we said to you that we would deliver in H1 of next year a higher throughput reader. We are perfectly on track to launch it. So basically, we said that excluding, obviously, the headwind of COVID-19, those two pillars of growth are on track for a double-digit growth rate, and we maintain that assumption.
Operator (participant)
Thank you. We will take our last question from Dan Brennan with Cowen. Please go ahead.
Daniel Brennan (Senior Equity Research Analyst)
Great. Thank you. Thanks for taking the questions. Maybe just a two-parter. One, just short term. I don't know if you disclosed for the fourth quarter, what should we be thinking about for the base business kind of ex-COVID and COVID-19? And then I have a follow-up.
Roland Sackers (CFO)
Yeah. Happy to take that, Dan. As Thierry laid out in his remarks, we use the same assumptions for the fourth quarter guidance in terms of COVID business, which we were using in July when we had given our guide for the third quarter. So right now, we rather expect, based on the assumption, probably kind of a 30% drop in COVID revenues compared to the fourth quarter of 2020. If you then calculate that back, look at the overall guide, that probably gives then an overall non-COVID business, let's say, at mid to high single digit.
Daniel Brennan (Senior Equity Research Analyst)
Great, Roland. Thank you for that. And then maybe looking at the underlying trend on a two-year basis isn't appropriate for your business, or maybe COVID just makes that you have to look back more than two-year average. But if we look at what your base business has done the last couple of quarters, you grew 17%. Thinking about mid-2Q quarter, the last year up against pretty easy comps. And when you average it out, it looks like you're kind of implying a low single-digit average growth on the base business in Q4. And this quarter, you grew about 4%. I'm just wondering, is the base slowing down? Is that math kind of not appropriate given that you're expecting kind of double-digit growth on the base next year? Just trying to understand that. Thank you.
Roland Sackers (CFO)
Yeah. First of all, have in mind, if you look at the growth numbers for the fourth quarter of the non-COVID, I just given, have in mind that the fourth quarter last year was extremely strong for the non-COVID business. There was a jump from the third to the fourth quarter last year for around about $50 million on a non-COVID side. So again, that is something what you have because there was a lot of recovery impact in the fourth quarter last year on non-COVID. So I think that actually the comparables for non-COVID are difficult in the fourth quarter. I think looking forward, and again, guidance we always give probably early next year, it has to do with the strength of our five pillars of growth.
As Thierry said, we feel quite strong about all five of them. We hope that the trend continues with the menu expansion, which we are clearly planning, although even beyond that. Some of them are quite early in the life cycle. So I would say we are optimistic about that. So one thing we don't know is, and where things right now are getting normalized, is that in the past, if COVID was up, non-COVID was somewhat down. We see that now, as everybody, particularly the labs, trying to go back to normal, that non-COVID goes stronger, and sometimes even COVID adds to that. Nobody knows what that new trend will be next year. You can have certain assumptions. So I think right now, we do not want to lean out of the window too much, rather deliver on what we said before. We have now nine quarters in a row where we, again, did quite well on the non-COVID side.
Let us continue that.
Daniel Brennan (Senior Equity Research Analyst)
Great. Thanks, Roland.
Roland Sackers (CFO)
Thank you, Dan.
John Gilardi (VP of Investor Relations)
So I think with that, we're going to end the call right on the hour. And thank you again for your participation. If you have any questions or comments, please don't hesitate to reach out to Phoebe and me. And we're always available and can get Thierry and Roland for you as well quickly. Thank you very much.
Thierry Bernard (CEO)
Thank you.
Operator (participant)
Ladies and gentlemen, this concludes the conference call. Thank you for joining, and have a pleasant day. Goodbye.