Qiagen NV (QGEN) Q3 2021 Earnings Call Transcript

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Qiagen NV (QGEN -1.06%)
Q3 2021 Earnings Call
Nov 4, 2021, 9:30 a.m. ET

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I am Kathy, your PGI call operator. Welcome, and thank you for joining QIAGEN's Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. [Operator Instructions] 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.

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John Gilardi -- Vice President of Corporate Communications & IR

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 Investors 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 a reference material. Before we begin, let me cover, as usual, our safe harbor statement. This conference call discussions and responses to your questions reflect management's views as of today, November 4, 2021. We'll be making statements to 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 aChief Credit Officer rdance with generally accepted aChief Credit Officer unting 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 in our press release as well as in the presentation. I would like to now hand over the call to Thierry.

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

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 solution 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 dedication 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 percent 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 increase demand from products used in regular research and testing was decreasing. However, in the third quarter this year, we saw strong demand for QIAGEN solution across both areas. Variant surges and diverse level 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 percent 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 way above the outlook for $0.52 to $0.53 per share CER. If we look at the first nine months of 2021, sales grew 25 percent at CER, sales were up 28 percent at actual rates to $1.67 billion due to positive currency movements of around three percentage points against the U.S. dollar. Non-COVID product group sales grew 27 percent 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 made good progresses on our '21 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 connectivity, fully automated sample preparation platform that we are planning to launch this year. On QIAcuity digital PCR, our system continued 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 system remains extremely high as we work to further expand our replication menu. QuantiFERON tuberculosis, our leading test for modern latent tuberculosis testing, led our five pillars growth with 48 percent 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 3, 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 lowplex testing, we have just released the QIAstat diagnostic respiratory 4-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 puts us on a very strong trajectory to build additional value in our portfolios.

Our third message, we maintain a very stable 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 prospects. 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 stronger-than-expected results 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 percent 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 -- Chief Financial Officer , MD & Member of Management Board

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 percent CER to USD376 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 percent CER to USD159 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 a significant demand for COVID-testing instruments. And now to give more detail by product group. Sample technologies declined 6 percent 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 of COVID-19 testing. Diagnostic solutions had another quarter of excellent sales, growing 35 percent CER over the same quarter of 2020. This was led by QuantiFERON sales, which grew 48 percent CER. Diagnostic solutions 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 assets 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 two percent 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 percent 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 percent CER for our bioinformatic solutions, notably with a double-digit CER gain in clinical applications. On a regional basis, the Americas delivered 9 percent CER growth. These results were driven by 19 percent CER growth in the U.S., which was led by QuantiFERON-TB and more than 30 percent CER growth in the PCR Nucleic acid amplification and Genomics NGS product groups. In the EMEA region, sales grew 6 percent 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 percent CER over the third quarter of 2020, a period when we saw lockdowns in many of these areas. Sales in China was 16 percent 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 percent or about three percentage points below the third quarter of 2020. This decline included an inventory markdown of USD6.2 million for COVID-19 antigen tests. We did not adjust for this markdown. Research and development expenses rose to 9 percent of sales from approximately 7 percent of sales in the prior year, as we continue to make significant investments into the test menu for QIAstat, NeuMoDx and QIAcuity instruments and across all of our five pillars of growth. Sales and marketing expenses as well as general administration 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 were needed. So we have not seen any significant constraints up to this point, but are closely monitoring the situation. Operating income rose to USD132 million in the third quarter of '21 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 percent to USD165 million from USD170 million in the third quarter of 2020. This was due to the increase in research and development expenses during the third quarter of '21, 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 percent of sales from 35.2 percent in the year ago period. Reported EPS was $0.58 per share CER in the third quarter of '21, 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 an adverse impact of about $0.02 per share related to the inventory markdown. Turning to cash flow trends for '21, we saw dynamic performance in both operating and free cash flow in the first nine months of '21. Operating cash flow increased 134 percent to USD441 million from USD188 million in 2020. This reflects higher net income and adjustments from noncash 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 and aChief Credit Officer unts payable. Results in '21 also included cash paid for income taxes of USD97 million compared to USD32 million in the year ago period. Also, the third year -- the prior year period included total cash payment of USD190 million for costs related to the discontinued tender offer and USD50 million of cash payments for restructuring activities, that were initiated in late 2019. As for free cash flow, we saw a 198 percent increase to USD302 million in '21 from USD101 million in the same period one year ago. This increase absorbed higher investments in purchases of property, plant and equipment in '21, primarily to expand production capacity for our pillars of growth at sites in Europe and the United States.

This 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 percent CER and adjusted EPS to reach at least $2.48 per share also at CER. Based on exchange rates as of November 1, '21, currency movements against the U.S. dollar are expected to create a positive impact of about two percentage points on net sales growth and about $0.02 per share on adjusted EPS. These expectations take into a Chief Credit Officer unt continued investments into our five pillars of growth during the remainder of '21 to further accelerate profitable growth beyond the pandemic in the coming years. I would like to now hand back to Thierry.

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

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 QIAGENers, 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 product, but which is our focus, a very strong trend 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 investment 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 results 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.

Questions and Answers:

Operator

[Operator Instructions] One moment for our first question please. And our first question will come from Falko Friedrichs with Deutsche Bank.

Falko Friedrichs -- Deutsche Bank AG, Research Division -- Analyst

Thank you very much, and 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 -- Chief Executive Officer , MD & Member of Management Board

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 tools, always. As long as it obviously creates value for our shareholders, first, but not only our 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, we'll always exercise our fiduciary responsibility, if there is something that could create, once again, a positive answer to those criteria that I've just listed.

What I can tell you is that as of today, those rumors are just rumors, they have no more values than what was said some months ago around Quidel or other companies. And we remain focused on the execution, on the five pillars 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 deployment 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, is now 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 -- Chief Financial Officer , MD & Member of Management Board

As you said before, I think we are very much aligned.

Falko Friedrichs -- Deutsche Bank AG, Research Division -- Analyst

I assume there's not much more you can say about it in any way at this point, right?

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

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 -- Deutsche Bank AG, Research Division -- Analyst

Okay, understood, thank you.

Operator

Our next question comes from Tycho Peterson of JPMorgan. Please go ahead.

Tycho W. Peterson -- JPMorgan Chase & Co, Research Division -- 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 peptides, consumables, etc.. 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 -- Chief Executive Officer , MD & Member of Management Board

Thanks, Tycho. So on the first question for QIAstat, 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 lesson of this COVID pandemic. It has boosted capital sales instead of placement, first one. 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 Gastroenterol panel. The third topic of satisfaction for us is that we are on track as we speak with the submission of the gastro 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 fourth place, you need to understand the strategy. The 4-Plex is not to answer demand from the current QIAstat installed base. The 4-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 play customers with the 4-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 W. Peterson -- JPMorgan Chase & Co, Research Division -- Analyst

Yes. Yes, it did.

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

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, Prot K, Proteinase K or granite. We sold 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 efforts and the efforts of our purchasing team, by either adding suppliers or renegotiating some of our contracts. So of course, we are not 100 percent 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 magnitude 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 W. Peterson -- JPMorgan Chase & Co, Research Division -- Analyst

And anything on pricing? Are you -- part of it...

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

Yes. Yes, that's right. Thanks for reminding that. You know that we have always been very clear, Roland and I, over the last call 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 of 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 discount 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 -- Chief Financial Officer , MD & Member of Management Board

No, I would say that, of course, we expect also for next year rather compared to this year, given a rather larger inflation environment, but also our pricing increases are probably to a large extent, reflecting that.

Tycho W. Peterson -- JPMorgan Chase & Co, Research Division -- Analyst

Okay, thank you.

Operator

Our next question comes from Daniel Wendorff of ODDO BHF.

Daniel Wendorff -- ODDO BHF Corporate & Markets, Research Division -- Analyst

Yes, good afternoon, 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 -- Chief Executive Officer , MD & Member of Management Board

Thanks 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 chemistry. These are panels, regulated panels or custom panels that we are selling on many kinds of instruments, be them Illumina instruments, thermal sequencers, BGI sequencers. This is mainly driven by the recovery of oncology testing demand because most of our application 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. Second, those sales are also, including our sales in what we call our QDI, the QIAGEN Digital Insights portfolio, which 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 especially in that Q3 because we have posted more than 20 percent growth for our QDI sales. So it's a healthy pipeline. It's a healthy activity. It's 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 -- ODDO BHF Corporate & Markets, Research Division -- Analyst

Yes. Very good. Thank you.

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

Roland, on the margin?

Roland Sackers -- Chief Financial Officer , MD & Member of Management Board

Yes, absolutely, and thanks for asking the question, Daniel, because I think there is 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 is clearly something what I would call probably quite unusual, but so 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 a somewhat higher contributions within the COVID product revenues coming from the PCR solution as well as from our customers 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 -- and behind that, is probably the third reason. But related to that, you recall that we clearly heavily invested into automated and scale-up solution for our QIA stat businesses as we had last year, earlier this year, still, as you know, much more demand and supply.

We believe going forward, with now having a 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 is an impact to name and having an impact on the gross margin for the quarter.

Daniel Wendorff -- ODDO BHF Corporate & Markets, Research Division -- Analyst

Very good. Thank you.

Operator

Our next question comes from Derik De Bruin with Bank of America. Please go ahead.

Derik De Bruin -- BofA Securities, Research Division -- Analyst

Hi. Apologies. I joined late, so apologies if I -- someone already asked this. But what are you embedding for your COVID-19 expectations in Q4 and right now, for 2022? Just -- I mean, obviously, it's been a bit better recently, but just would love to know your go-forward thoughts.

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

Derik, 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 boone, 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 would come as a bonus.

Derik De Bruin -- BofA Securities, Research Division -- 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, at 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 flushed with cash and just wondering if you're sort of seeing an incremental pickup in some of these markets? Thank you.

Thierry Bernard -- Chief Executive Officer , MD & Member of Management Board

We have seen because -- there are two ways to see it. First of all, on Companion diagnostics, 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 toward 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 solutions, thanks to our partnership with Illumina and our UNGS 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 -- BofA Securities, Research Division -- Analyst

Thank you very much.

Operator

Our next question comes from Scott Bardo of Berenberg. Please go ahead.

Scott Bardo -- Joh. Berenberg, Gossler & Co. KG, Research Division -- Analyst

Yes, thanks for taking my question. The first question, please. Thierry, you alluded to it a little bit, but M&A chatter has aChief Credit Officer mpanied 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 in Roland, please. Historically, we've been accustomed to a midterm 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 -- Chief Executive Officer , MD & Member of Management Board

So I propose that, once again -- thanks, Scott. We can take this, Roland and I. 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, OK, 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 on to the five pillars of growth also hope -- helped to increase that kind of focus. And basically, we are extremely open in our communication with them. So I don't see any clear problem of execution here. And again, as we have said in the call and in the first answers, we are just talking about rumors here. So on the midterm guidance, remember in our QIAGEN Day, December 8, we gave you some pretty precise, also midterm guidance on many dimensions. So I think we have given you some clear indication. But Roland, you might want also to chime in here.

Roland Sackers -- Chief Financial Officer , MD & Member of Management Board

Thanks for that, Thierry. And yes, I would say, a couple of observations here. First of all, just to remind everybody on 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 guidances right. We have seen volatility, unfortunately, and therefore, 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 is -- 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 on entirely how we can do so and then the way to reasonably present that to the outside.

Scott Bardo -- Joh. Berenberg, Gossler & Co. KG, Research Division -- Analyst

Thanks guys.

Operator

Our next question comes from Jack Meehan of Nephron.

Jack Meehan -- Nephron Research LLC -- 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 -- Chief Executive Officer , MD & Member of Management Board

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 trends toward growing nationalization of healthcare in China is not new. It has started many years ago and true, is becoming now more and more, let's say, pressuring foreign companies at different level. Pressure toward local manufacturing and development. It's not just local manufacturing anymore.

You have alluded to some purchasing decision. 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 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, questions, such as OEM-ing solutions to local Chinese partner, doing more development locally will become 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 -- Nephron Research LLC -- Analyst

Great, thank you. I also wanted to probe you a little bit on the trajectory for NeuMoDx and QIAGEN for here. Any preliminary thoughts around what the 2022 contribution could look like? And as we -- I just looked 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. So 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 -- Chief Executive Officer , MD & Member of Management Board

Yes. 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, Stat and NeuMoDx, very clearly and as we disclosed in 2020 and '21, 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 cost that will not be sustainable in a post-pandemic, we are massively using contractor. So first was to call back contractor to basically face 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 revenue play, both are revenue 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 QIAGEN 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

Thank you. We will take our last question from Dan Brennan with Cowen. Please go ahead.

Daniel Gregory Brennan -- Cowen and Company, LLC, Research Division -- Analyst

Great. Thank you. Thanks for taking my question. 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 in 4Q? And then I have a follow-up.

Roland Sackers -- Chief Financial Officer , MD & Member of Management Board

Yes, 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 have given our guide for the third quarter. So right now, we rather expect, based on that assumption, probably kind of a 30 percent 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 a mid- to high single digit.

Daniel Gregory Brennan -- Cowen and Company, LLC, Research Division -- Analyst

Great, Roland.Thank you for that. And then maybe like looking at the underlying trend on like a 2-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 in the last couple of quarters, you grew 17 percent. This quarter, you're thinking about mid- to high single next quarter. The last year, you're up against pretty easy comps. And like when you average it out, it looks like you're kind of implying like a low single-digit average growth on the base business in 4Q, and this quarter, you grew about 4 percent. So I'm just wondering, like is the base slowing down? Is that math kind of not appropriate, given that you're expecting kind of double-digit growth on that base next year? Just trying to understand that.

Roland Sackers -- Chief Financial Officer , MD & Member of Management Board

Yes. First of all, have in mind, if you look at the growth numbers for the fourth quarter for non-COVID I've just given, have in mind that the fourth quarter last year was extremely strong for the non-COVID business. It was a jump from the third to the fourth quarter last year from round about $50 million on the non-COVID side. So again, that is something what we have because there was a lot of recovery impacts in the fourth quarter last year, non-COVID. So I think that actually, the comparables for non-COVID are difficult in the fourth quarter. I think looking forward, and again, guiding to -- we always give this -- it's 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, that trend continues with the menu expansion, which we are clearly planning also even beyond that. Some of them are quite early in the life cycle.

So I would say we're optimistic around 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 grows stronger and sometimes even COVID adds to that. Nobody knows what that new trend will be next year. Now 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 non-COVID side. Let us continue that.

Daniel Gregory Brennan -- Cowen and Company, LLC, Research Division -- Analyst

Great, thanks Roland.

John Gilardi -- Vice President of Corporate Communications & IR

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 -- Chief Executive Officer , MD & Member of Management Board

Thank you.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

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