Qiagen NV (QGEN) 2002 Q2 法說會逐字稿

Please stand by for the conference call. The call will begin momentarily. We are checking in additional participants. We thank you for your patience and please stand by. To all the participants on hold for the Qiagen conference call, we are still waiting to check in additional participants at this time. We thank you for your patience. We should begin in approximately one minute. Please stand by, the program is about to begin. Good day, all science are now on conference line. At this time I would like to turn the conference over to your host, solveigh Mahler.

Thank you very much, Joshua. Good morning and thank you, everybody. Thank you for joining Qiagen 2002 second quarter earnings call. I'm Dr. Solvay Mahler, Manager of Investor Relations at Qiagen. With me on the call are Dr. Metin Colpan, and Peer Schatz. The conference call will cover 20-minute presentation, be followed by a Q&A session. We will be using a presentation during the conference call which can be downloaded from the investor relations section of our home page under www.qiagen.com. We understand that many people have time restrictions.

Therefore, we really would like to ask you to limit your questions to a maximum of two during the Q & A sessions. During the call, we will be making forward-looking statements, such forward-looking statements are subject to risk and uncertainties. For the description of such risks and uncertainties, please refer to the discussions and reports that Qiagen has filed with the U.S. Securities and Exchange Commission. Now I would like to hand over to Dr. Metin Colpan for a short product and market overview. Metin?

Thank you, Solvay. This meeting, Colpan speaking. Good morning, ladies and gentlemen, or good afternoon, wherever you are. We ended the quarter where we had communicated on our July 3rd conference call. Qiagen's revenues increased 10% to $72.7 million, and excluding the effect of charges related to the Genovison acquisition, operating income decreased 17% to $12.2 million. Our consumer products for separation, purification, and handling of nucleic acids grew strongly in all customer segments and recorded an overall growth of 20--over 20%. But our financial result for the second quarter suffered from a significant contradiction in U.S. pharmaceutical spending.

Let me give a brief summary of the second-quarter, 2002. Surprisingly and disappointing contradiction in pharmaceutical R & D spending, was most visible in the U.S. market We, as many industry analysts see this contradiction as a temporary condition. Sales of our instrumentation and synthetic oligonucleotide business impacted heavily during this quarter. The good news is, our core consumer business remains strong, and we are gaining market share.

We have a strong product pipeline, and the new products are well received from our customers. On slide 5, you see the three business categories of Qiagen. Our core and solid consumable business represents 72% of revenues. Our instruments and synthetic DNA business represents approximately 23% of our business. Our Qiagen's consumable products are today the standard for nucleic acid handling, separation and purification in life science research and development. Molecular diagnostics and gene therapy.

During the second quarter, our consumables showed a strong growth by approximately 21%, and gained market share in each of the key markets we address. The competitive landscape has not changed. And Qiagen remains the absolute market and technology leader in this field. And we do not observe any price erosion due to competition in our core business area. Without customers in public funded research organizations, the academic customers representing approximately 50% of our revenue base, and roughly 50% of our business is represented by customers in pharmaceutical and bio-technology companies. The geographic distribution of our revenues are shown on slide 7. We have approximately 55% of our revenues from customers in the United States, and approximately 45% outside of the U.S. market. Unfortunately, the U.S. market was weak with only 5% growth.

In contrast to the weakness in the pharma and bio-techmarkets, our academic customers base in the U.S. has recovered significantly after the release of public funding, and with a growth rate of over 22%, showing a better-than-expected performance. In the U.S. market, we have been mainly affected by the significance slow down of pharmaceutical and bio-technology research spending. Our European and Japanese markets are strong and growing with more than 21%, supported by a strong customer base in the academic markets. Unfortunately, our sales from instrumentation and synthetic DNA oligonucleotide products, are more significantly affected by the large customers of pharmaceutical and bio-technology research, spending slow down in the United States. The majority of our customers are using Qiagen's consumables manually, in their day-to-day experimental market.

Approximately 10% of our consumables are run on automated platforms, this gives us a very high potential to further penetrate this market by instrumentation, and increase the solid consumable business. We believe in the future integration of enabling technologies, automation and application know-how is the key to success in the life science market. Customers want a complete solution with an overall guaranteed performance, with liability and reproduceability, and very important, solid after sales support and service. Qiagen is in the unique position to have market leading expertise in all these areas, in comparison to other companies serving the life science market. Being recognized one of the best companies in the industry. In the future, the marketing and positions of integrated solutions will be mark--major focus activity for Qiagen.

The agreement with Glaxo-Smithkline, which we published this morning is the confirmation of this strategy. In this agreement, Glaxo-Smithkline will use the PAC system in it's clinical trials for patient sample collection and analysis. The pre-analytic system improved the quality of genetic analysis of patient samples, by integrating sample selection, nucleic acid stabalizaton, and nucleic acid purification, into an easy-to-use integrated solution.

Standardized sample processing, is key for the routine use of genetic analysis in clinical settings, and having a significant market potential mainly in molecular diagnostic and clinical trials. The pre-analytic solution requires a breadth of opportunities and expertise to develop a robust and reproduceable system, having know-how in chemistry, biology, manufacturing, automation, and applications. Pre-analytics have launched products in applications for processing of viral RNA, total RNA, and genomic DNA from blood, and currently Pax is developing product and product calls for federalization and processing of RNA from tissue samples. We believe these products will become standard tools in molecular diagnostics in gene expressions studies in clinical trials as well as in research.

Let me briefly summarize the second quarter. We believe it is important to remember that the short-term contraction in the overall markets have not -- has not adversely affected our strategic momentum. We have taken several strategic actions to grow our business. Key points about Qiagen are a strong market position and a strong brand equity, propriety technologies, a large and focused sales force, and strong market and technology leadership. With this, I will now turn program over to Peer, who will detail you our financial results.

Yes, good morning. Good afternoon, and welcome to this call. I'lll try to walk you through some of the financials. I will be referring to the slides that we posted on our web site. As usual, there is a slide presentation available there. I hope you were able to download that. We will be very happy to send it to you, should you not have it. Please send us an e-mail, and we will return it with the presentation. On page 14, we have an outline of the second quarter, which shows revenues of $72.7 million, a growth of 10% over the same quarter last year.

What was certainly very significant was the drop in EBIT margin. The EBIT fell to 17 from 22, that's obviously quite significant. I will refer to that a little bit later. The contraction on the top line was certainly quite significant. We would not want to see a lot of quarters with this type of a growth rate. We have typically seen growth rates more than twice that. The growth rate last year was two and a half times. Approximately this growth rate. And certainly, there were certain segments growing faster and slower.

And I think this quarterly performance warrants going a little bit deeper into the numbers, and analyzing exactly what had happened. We will do that in a few seconds. A few words on the -- on the revenue distribution, maybe, first. On slide 16, I'll skip back to the -- to financial performances later. We drew up a chart, because I think this is something that we saw very difficult to understand without an outline, and details on the company, and where we are generating business. There were a lot of ideas of big pharmaceutical companies stopping to do research. There were a lot of ideas that there would be viruses of research and development spending contraction all throughout the world.

And I think this slide can address these types of scenarios to show how insulated, basically, the various business areas are that Qiagen addresses. What you see here on this queue basically is the three customer segments. You see also the three basic product areas that we have. And you see, by far, the largest chunk of our sales, mainly about 44% of our sales comes from consumables that we sell to academic customers. So almost half. Instruments are quite insignificant in the academic area, as well as oligonucleotide and synthetic dna. Only 2% of every dollar that we generate in revenues comes from these types of customers and academic sectors.

It is a very, very solid, very strong customer base, and as we demonstrated also in the second quarter, it showed very reliable and strong growth. The big pharmaceutical -- the big pharma companies which are mostly in excess of $5 billion market capitalization, which more or less is probably north of 3 to 4,000 employees in the -- in the research area, these are companies that generate mostly -- well, somewhere in the range of 30% of their sales, and you see, consumables are about 18% of every revenue dollar that we generate come from big pharma companies in the consumable product area.

But the instruments certainly very important, and synthetic dna as well, compared to the academic sector and bio-tech, than a similar profile, but much smaller. This is actually quite interesting because if you look at this chart, you can basically take your choice of scenario. This chart allows you to isolate the various issues. Basically, if one does not want to believe in pharmaceutical research, let's try to paint the scenario, and it has been painted, in which pharmaceutical research goes to zero. This would mean basically hundreds of thousands of jobs being lost, it would mean tens of billions of dollars of market capitalization being erased. It would many about 30% lower sales at Qiagen. This, as a total, is obviously a very significant number. If you look at our 2003 guidance, we guided about 20% lower than the original estimates, actually a little bit more than that. So you see that we are clearly trying to paint a picture which should include most conservative estimates.

I think there are a lot of companies that have, in the meantime, reported, that--see the sun coming up again, later on in this year, but for the sake of our forecast, this is not what we wanted to paint. So I think the good news is, if we show a few more quarters of top-line growth comparable to what we had in the second quarter, it would mean that big industries would be erased over a very short period of time. It would mean that research and development spending, in the health area, would basically go to very, very low numbers, if not to zero, which is certainly, I think, something that is very difficult to believe, and certainly over long period of time. So if we go to the individual expense line, first of all, cost of sales came in as we had expected at about 67% of sales. I think what is important to note, and we will refer to that later, is that the company certainly has a very high operating leverage, meaning that, the fixed expenses and costs that we have in our PNL are very significant portion.

Actually, if we look at it on a very short-term basis, the pure variable costs are probably around 10%, or even less of our -- of sales. So the high-fixed cost, also in the cost of sales area, depressed the gross margin to 67% despite the product mix, and moving more toward the higher-margin consumables. This is something that we were not able to fully compensate. Again, I think that it is not unreasonable to assume that should the machine run at the rpm that it is built for, that we can easily show above 70% gross margin on all three product areas, but clearly, we had been anticipating a higher revenue base in this second quarter. If we look at the expense line, R & D is essentially flat. Sales and marketing was increased in anticipation of a higher revenue base. Came in at 26% of sales. Should have been around 23. So, actually under our previous assumptions, had we made the top-line estimate, which we obviously did not. Admin increased mainly because of certain expense allocations from our manufacturing sites, they were allocated temporarily to admin.

Should stay flat and reduce again. Again, I think at revenue levels, maybe one and a half times larger than what we are today. We should see single digits as a percentage of sales. There were charges as expected due to the Genovison acquisition. We detailed those in, quite some degree. Also in the press release, I separated them out. Certain charges are tax deductible. Certain charges are not tax deductible. I will get to that in a second. I would like to -- well, first of all, the operating margin came down obviously as we had said before from -- down to 17% of sales, as margins dropped down from 22% last year.

I'll talk about that in a second. Also with some backup data. Maybe one thing to note on the second quarter of 2001, so, the same period last year, we had a extraordinary gain for those of you who had been on the call, or who had followed the company at that time, there was an extraordinary gain of $1.4 million U.S. dollars based on the fact that an asset moved within the group, and again was recognized of $1.4 million. So when do you a quarterly comparison, prior year compared to this year, this is certainly an extraordinary gain that has to be excluded. It's below the operating income line. Tax rates were at 42%, which is higher than normal. Because certain components of the acquisition charge are not tax deductible. If you exclude the $1.2 million in U.S. dollars in nondeductible R & D charges, you will get 37% of the tax rate, which is the tax rate that we normally have, and also project for the future. Now a few words on the operating income, again.

And for that, I will turn to slide number 18, which is something that -- where we just try to project a little bit what our -- what our mission now is. The reason for the swing on the operating income side is our operating leverage, as I said before. This graph here just gives a glimpse of our thinking. If you look at the fourth quarter, at the first quarter of 2002 bar, the dark bar shows the pre-revised revenues estimates. The lighter bar, the estimates, or the actual revenue or also now the estimates going forward starting Q3. You see that -- the second quarter of 2002 was expected to have higher -- higher revenues. And the expenses were increased in anticipation of these higher revenues, not quite as we had originally planned to increase expenses, but had been increased compared to the first quarter.

And this is what led to this operating margin contraction that you see happening in the second quarter of 2002. This is the difference between the -- the top line, the dark line, the operating margin, pre-revised line and the lighter line, the operating margin revised line. That is the difference in operating margin that you see, also detailed on the right-hand axis. That is the difference that hit us and hit the bottom line.

Now going forward with the revenue estimates that we now have compared to the revenue estimates that we had previous to our announcement on July 3, you see that there's obviously a discrepancy that has to be made up through the fact that our expense base, which is now built, currently today built for a larger revenue base than we actually have, has to grow slower, and ultimately we'll catch up with the right revenue level.

For which it is actually -- has been built. And that is why you see the operating margin inching up. Now we had an operating margin of 24%, previously -- 23, 22 normally. It is not usual that we have 17%. I think going forward, it is not unusual for a company with 70% operating -- gross margin to have operating margins in excess of 30%. It is clearly something that we are targeting. There is a lot of operating efficiency going forward, and we will try to make best use of it. This is -- from this chart here you see clearly our mission over the next few quarters, to bring that operating margin back up. A few words on our -- on the various expense areas we are more or less holding. We are not going to cut costs. I have seen statements that we might have to cut costs, this is not the case. What we will be doing is we'll be holding certain expenses more into the future. We will be increasing R & D spending.

For instance, we have a commitment toward a major stakeholder group, namely our customers, that expect us to have the right technologies and products out there, a few years down the road for their next generation applications, and this a commitment that we will value very much and also follow. We will hold back certain expenses in the sales and marketing area, as well as in the administrative area. This should allow us to move back at the operating margin. A few words on the balance sheet. Inventory is at 170 days, which is too high. It is up from 150 in the prior quarter, and target is 120. It is up because the lower-expected sales level.

Very simply, we had been expanding our inventory level to accommodate for higher revenue levels, and hand our manufacturing plans laid out for that. We expect this to reduce over the coming quarters, as our manufacturing plans now are adjusted for a more conservative top-line growth. Accounts receivable, 62 days. Also here up from 59. Still good on an industry comparative level; however, we have done better. And it is clearly our objective to move that number down again. Reason for the higher number, however, is quite clear. We had significant sales in the last half of June as we discussed in our last conference call. As these receivables are not yet due, and to be paid. They are still outstanding. Expect this to come down to the mid-50s. This will probably be a number that we will feel more comfortable with, which certainly is quite excellent in -- on an industry standard level, but, it is our target and we have seen that before.

Now to summarize a few accomplishments that we have had, I think what is quite unique -- you know, there has been so much overshadowing of the -- of the accomplishments of Qiagen also in the second quarter. You know our core business grew extremely strong. We have today 80 different applications in nucleic acid extraction, purification and handling. They're covered by more than 800 applied [INAUDIBLE] license patents I think this is something that, is so often underestimated and grossly underestimated. The challenge to address so many different pockets of the market with individual applications and optimized solutions. And this just demonstrated by the very clear leadership, in terms of revenues that we generate vis-a-vis anybody else, vis-a-vis the whole competition group out there, which I think is quite dramatic. This is not unusual in the tool space to show these very long-term, very strong leadership positions, and this is certainly something that we have captured. There is a clear market in technology, leadership, and, again, in front of the customer, this is extremely valuable.

So we are clearly seen as the preferred partners, [INAUDIBLE] next generation or new applications. As you saw from the second quarter alone, this landmark alliance we that entered into with Roche Diagnostics for their next generation diagnostic platforms, which include our automation and consumables solutions. By the way, you might want to note here, that the automation solutions were key for Roche to enter into that alliance with us, because the two have to fit seemless together, the automation and the chemistry and the application solutions, what Metin described before, this is a great example of this being a necessity to have. In addition, we had a few smaller alliances with [INAUDIBLE], with Axima. We have developed, and are now supplying the next generation [INAUDIBLE] systems, the nucleic acid purification components which we are seeing a great acceptance from their customers.

Very exciting, and I think this is going to become more visible when we announce the first products, a small but very interesting application -- acquisition on Norway, of Genovison, our magnetic particle technology portfolio is now world-class and leading in this sector. It allows us to open a lot of new opportunities for Qiagen and nucleic acid purification in general. Xeragon, the acquisition there, and opening of our new manufacturing facility which might be now a little bit overshadowed by the fact it is about -- about three quarters too large in terms of sales, actually should have been about the level that we now are expecting for the first quarter of next year, or the second quarter of next year. And we were added to the Nasdaq Biotech index. So, I think there are a lot of -- I think strong accomplishments that we had in the second quarter.

But certainly, we are extremely disappointed about the overall financial picture that we had to announce yesterday. And preannounce a few weeks ago. It should not mask the fact that most of the cylinders of the company are actually firing very well. And I think this will clearly be more evident and visible in the course of the next few quarters. With that, I would like to hand back to Solvay. Thanks.

Thank you very much, Peer. We are now looking forward to discussing your questions. I would like to open the q & a session by handing over to the operator. Joshua.

Very good. At this time, if you would like to ask a question, please press the 1 on your touch-tone phone. You may withdraw your question at any time by pressing the pound key. Again, to register your site for a question, please press the 1 on your touch-tone phone. It will be one moment while we queue our first question. We will take our first question from the site of Daniel Mahony with Morgan Stanley. Please go ahead.

Good afternoon, everyone. I've got two questions. One is quite a small financial question which is, if you just talk a little bit about the foreign exchange expense that came through this quarter, and what we should expect for the rest of the year. And second question is really on the synthetic DNA oligonucleotide business, where pricing seems to be relatively weak out from the market. I think in [INAUDIBLE] it was reported a week or two weeks ago, was pretty disappointing year-end year growth. Could you talk about what's going [INAUDIBLE] right now, what you think might happen for 2002, and what the outlook might be for 2003 if that seems to be some sort of a shake-up in that business?

Okay. I'll take the first part of the question. The loss on the currency side and the PNL is basically a noncash loss on an intercompany receivable that we had. Going forward, this is -- I guess best to project for -- at zero. Well, there will always be fluctuation on currencies, but currency forecasts are surprisingly diverse. You know, we pull in, I think from the six or seven major institutions, currency forecasts, there's a huge deviation between them. And we use a certain average for our internal, or certain guidance for our internal numbers. I think best way to project currency is zero. On the top -- on the top line, currency impact was negligible in the second quarter, which was great news, that's why we didn't really detail it in the press releases, or in the slides because of the impact being so -- so small. Metin, do you want to comment on the oligonucleotide side?

On the oligo side, I think we have to separate the oligonucleotide into two segments. Number one is the standard oligonucleotide, very often called the plain vanilla, and other ones are the modified or fluorescent oligonucleotide. What we have is that a company came along from the United States, and dropped basically the average selling price for standard oligo which is calculated on a per base level from approximately 22 to 25 cents a base, to approximately 16 or even below 15 cents a base. This was an offer from this company, not being a oligonucleotide suppliers, and what happened at the end, they have not generated more or less any revenue, yeah, but immediately created a huge price erosion on the whole market, and definitely in Invetragen, Qiagen, Sigma Genesis, and all the other, all the oligonucleotide suppliers have been heavily impacted by that. And depending on the product share, if you have a very large oligonucleotide -- standard oligonucleotide base, then you are affected more strongly with it if you have a higher share, of let's say labeled oligonucleotide. This is the actual situation in the market, which we see probably, it will be overcome because customers having tried in extremely low cost oligo, and have not been satisfied with the quality, and also with the support of the oligonucleotides. It's not just making a oligonucleotide. Number 2, going forward our strategy is definitely focused on the higher value oligonucleotide, which is the lomers for making DNA errors, and number two on the labeled oligonucleotides, and very much strongly combine it, and strategically, as I talked about the integrated market approach, with the existing sample prep products which we have, because every Qiagen user of a consumable at the same time, is probably an oligonucleotide user, and this gives us a very, very strong position in the market, and we are going to capture this. We hope that the oligonucleotide market will recover partially, but definitely it will become very interesting on the labeled oligonucleotides, mainly if we look into these very strong growing market of gene expression analysis on RNA levels, and also genotyping on DNA level. And this is definitely this is a market segment which we go further into, rather than playing -- trying to further invest in the standard oligonucleotide business.

Can I have a follow-up if I may on that? When you look at the custom [INAUDIBLE] you gave us a breakdown on synthetic DNA, can you [INAUDIBLE] is it mainly that six [INAUDIBLE] form of which you're going for the fluorescent oligos or academia for the standard oligo?

That is revenue based. No it means, big pharma and bio-tech, it is also standard oligos. But, in this segment, in big pharma and bio-tech we have also the very long oligonucleotides to making DNA erase, yea, and what you see from our picture if you compare it with with our consumables, that we are under represented on the academic market, which is very large number of customers with smaller revenue per customer, but at the same time, a very -- a much more stable market than the volatile markets in the big pharma or bio-tech sector.

And what would be the breakdown on standards versus specialized in the oligo business. 50/50 right now or --.

Are you there?

Hello.

Did you hear that question?

Yeah, -- well, the breakdown on the standard oligonucleotide versus the modified, it fluctuates very highly, but in terms of the value, the modifies and lomers, are quite a significant portion, it might be around 50/50, depending on the period.

Thanks a lot.

Okay.

We will go next to Nick Turner with Jeffries.

Hello Peer and Metin. I wonder if you can just clarify maybe, what we were talking about with the last question of which was, looking at your U.S. Sales, if my math is right, which I am not going to claim anything on. If would appear to me that oligo consumable sales in the U.S. declined around 39% on the -- on the comparable quarter, where as there was some [INAUDIBLE]in the rest of the the world about 6.5. So, that would be my working out. Could you give me some indication of how that breaks down if, in fact, you are claiming that the labeled oligos and the lomer business, that Qiagen focuses on, actually enables you, to have at least some degree of protection from the price -- the price fall, and from your [INAUDIBLE] competitor. I mean other words, could you break down for me what the fall in oligo and instrument sales were in the U.S. in the quarter. And then secondly, when -- when you gave your presentation in London, Peer, you showed a slide which implied there was a strong run-up in U.S. dollars sales across all of market sectors toward the end of the second quarter. I wonder if you can tell me if that has now fallen back below your guidance lines, shall we say, back to the levels that typified the quarter?

Okay. I am not quite sure in if I understood the second part of the question, but the first part of the question was in terms of the individual product areas, and how they grew, or how they did not grow more. Again, the consumables showed growth of -- in excess of 20%, and on the instrumentation side, that's where we have the very significant drop in the United States. I think the number that we gave in the third -- in the July 3 conference call, was about 30 to 35% negative growth on the instrumentation side. And instrumentation about as big as the oligonucleotide side. And the oligonucleotides on a corporate level were only slightly negative, which is actually not too bad in terms of the market dynamics, if you have a market which clearly is going into -- into this type of a price decline that was very, very ruinous basically. I think the one participant that started this price decline recorded revenues of only a few hundred thousand dollars on that, while the whole industry basically lost, I don't know, how many -- $10 million of revenue opportunities. So it is -- you know, those are the two dynamics that we have in this area. So instruments were actually more heavily negative, and we were focusing a little bit on the oligonucleotide because this is obviously an area where there is a lot of information out there on, but the instrumentation side, this a capacity-expanding investment, so people buy that when they expand their capacity, and they mainly buy it in the pharmaceutical sector, and that is a double whammy. So those -- those two impacts hit -- hit that product area quite significantly. Your second question, if you could reiterate that.

Yes, when you presented in London, you showed a graphic that detailed a [INAUDIBLE], I guess, weekly sales across the pharma, bio-tech, academia sectors, which showed a fairly strong run-up in actual dollar -- U.S. dollar sales, in all of those particular business areas. i.e., pharma, bio-tech and academia, at the end of the second quarter, and I was just wondering if going forward, you are now still observing momentum -- the momentum acceleration that was evident at the end of the second quarter, or if as was the case at the end of the first quarter, this has now died down, maybe because of some sort of changed spend in dynamic, which sees major expenditure at the beginning of the quarter rather than spread throughout it.

Well, again, if we take July and multiply it times three, you know, we get a revenue estimate which is 20% above of what we expect for Q3. We clearly expect that there is a slow down, of the revenue in the first, first few weeks. It came a little bit later this year than it normally did, so we have a nice continuation. It also had to do with some of the marketing campaigns that we ran, where we were able to get quite some conversion and also excitement. So normally what you would see is that, this would go down to lower levels, and then move along. I think there's, it's not possible to extrapolate one month of -- of a quarter, other than what we said before that reiterated the guidance also for Q3 now, to the same levels that we had announced or projected a few weeks ago.

Okay, thanks. One -- one very brief other question would be, that you previously guided on relatively strong growth in the second half of the year, due to sales momentum being built, following the introduction of new products at the end of last year, and June the 1st half of this. Do you still stick with that? Are you seeing new products being taken up by your customer base or are they -- development -- they are still being held back by the reduced spending within the pharmaceutical sector.

That's an excellent question. And I think that the way we have built that, is that we assume that there is a solid uptake of our consumable product, our core, 72% of our business is consumables. We don't expect that to necessarily show any slow down in uptake of new product areas, and I have seen statements that there's a big risk in terms of new products introductions in the second half of the year, based on these new productions--new projections that we put out. And this is not true. As we said in the last -- July 3 conference call, we are basically assuming that the uptake is extremely weakened because of the pharmaceutical industry, just focused on other things at the moment, and a lot of these product areas are going into new -- into the pharma area. While we are quite excited about them, and it's not something we want to put into the revenue projections right now. There are some different -- you know, different shades of that. For instance, our clinical robotics. I think, one question that some of you reserved -- observed very correctly, is that we split out three product at three customer areas but where is the clinical diagnostic industry. And it is actually spread out between the pharma and the bio-tech and even the academic area. If a university buys something for their internal hospital and clinic, it is very difficult for us to distinguish. And there are a whole host of new products that are introduced for that product--that area, which is clearly growing very rapidly. So it has nothing to do with pharma or bio-tech. The [INAUDIBLE] announcement, and financial performances of clinical service labs have shown their growth is actually very intact, and molecular applications are increasingly being used. Probably there's not a day now, where you see some kind of a molecular announcement in clinical or related or nutritional or quality control or whatever, molecular application that might involve our products going forward. Again there are different shades of new product introductions that we have, but I think at this time, there is -- you know, I think there is a certain degree of conservatism that we want to put out in terms of how rapid the uptake is mainly in the pharma area.

Thanks

We'll turn next to the set of Cheri Walker with Deutsche Bank. Please go ahead.

Good morning.

Good morning.

I guess it is afternoon for you.

Hi, Cheri.

Hi, I was wondering whether you'd would be willing to drill down a little bit into the consumables, what's really being affected. Is the slow down in instrumentation sales affecting some of the high true put formats?

That's a good question. I think the answer you also saw from certain other announcements from other companies out there, while there is an installed base of instrumentation that isn't necessarily being expanded at the moment in the pharma sector, they are using those instruments actually quite well. And we are not -- we are not necessarily seeing a big impact in that area, if at all. The consumables, again, are growing quite well off in the pharma sector. This a--this was also the reason -- I think this was a fallacy that we very often saw, is that people assume that our products only can be used on instruments, which is obviously not true. We only have about 1% of our user base using -- if at all, using our products in an automated fashion. Now they do generate a larger percentage of our revenues, but most of the customers are happy, and will always be happy using our products on a manual base, simply by petting, and they get such a significant performance advantage, that they don't necessarily have to go into -- into automation solutions.

And one should remember that approximately 90% of our revenues -- not -- sorry, 90% of our consumables are used in a manual fashion, even if it maybe the same product may be used on an instrument.

Okay. Could you also give us some insight into what's going on so far this summer, the same sort of macro trends continuing?

It's very unclear now, Cheri, at the moment. I think if we have a picture, I think we would try to keep it to ourselves, frankly at the moment. Not that it is negative. Actually, you are seeing, as I said before, certain industry participants starting to see recoveries, and, you know, this is not what we are projecting in our -- in our numbers going forward, and our revenue target certainly we are projecting quite some interesting cases, but it -- the more and more you think of it, the more and more this whole situation is missing some logic. And you know, while I probably can continue for a few quarters, it will have to return. There is just no alternative. And I think that awareness is starting to sink in, and you start hearing that from people in the pharma sector, that there is just so much time that they can start shifting things around or so, but the pipelines are not full. I think a lot of you on the call here also follow the pharma industry, and there is not necessarily a huge deficit at the moment on the preclinical side. Now you can be cut for a few quarters, obviously to improve financial performances, but, even again, if it goes down to zero, I think, with the horrific implications, this does not necessarily impact our business for only--for more than 18 months or two years, in terms of the top-line growth. It would just start reigniting once that industry segment basically isn't there anymore. But you are starting to see interesting -- interesting news. I think you are starting to see, also, a -- some sort of a reignition of the -- of the spending of the bio-tech area. I think one thing that recently came out -- there was an Ernst & Young piece, or a Pricewater House piece that came out recently, showing the venture capital investments in the bio-tech industry, basically being up, and very strong. I think this is something that is lost in the noise at the moment, but there is a very strong, also, new bio-tech funding, or mezzanine funding going into the bio-tech sector, so we are not necessarily seeing weaknesses there. Now we can't obviously paint -- you all see the doom and gloom scenarios, and a--I think they're coming more from the financial markets, frankly, than they're really coming from industry insiders in here, because of the fact that the two pieces, preclinical and clinical research and also revenues, the third component, they have to fit together and they have to work seamlessly together. And, you know, that, I think, most industry insiders are fully aware of.

Great. And then just -- you mentioned something quickly about Xeragon, and sounded like good news, that things were ahead of schedule. What sort of revenue can we expect from that going forward? And is that revenue going to be included in the oligo line?

Yeah, Xeragon, the acquisition that we did in April, synthetic RNA company, that it moved recently to Maryland and to our facilities. We established manufacturing facilities there which are state of the art. I think that we are now moving that into our sales and marketing organization. Starting selling these products on a routine basis. The guidance that we gave was a million dollars for this year and $4 million for next year. I think this is, probably what we want to stick to at the moment. It is obviously a very hot market. As you know very well, there are opportunities there in excess of that. But I think we would first like to see this running smoothly, before we then give an updated guidance on that.

Great, thank you.

Thanks.

We'll turn next to Erika Whiticker with Merrill Lynch. Please go ahead.

Hi, there. I've just got a couple of questions. First of all, you talk about year-on-year growth of consumables at over 20%. I was just wondering what the quarter-on-quarter growth was? Also, -- and if you can say how you are including the Xeragon sales. I am not sure which part of your different product areas that the Xeragon sales from the first quarter would have been included. Secondly, I was just wondering if you could reiterate your R & D spend for '02, and beyond, because I think we are tracking it at just over 9% of sales at the moment in the first two quarter. And finally, in terms of sales acceleration expected in the second half of this year, and in '03, if you could just go over specifically what will be driving that acceleration, if it is mainly the acquisitions like Genovision, et cetera.

Okay, I think I've got -- I got the first three and the last one. The revenue acceleration. We'll first start with Xeragon. Xeragon a synthetic nucleic acid.

Yeah.

We will put that into the synthetic nucleic acid line.

Oh, no, sorry. What I was asking, was in the first quarter you acquired it, so there were Xeragon sales would you have made to them as a third party of $2.3 million or whatever it was in the first quarter. And I was just wondering what product groups that -- that those sales would have been in, in the first quarter if you hadn't acquired them. And taking that into account, what the consumables growth quarter-on-quarter is. I want to make sure I understand the growth of the different areas.

Those products that we supplied to Xeragon were RNA manufacturing instrumentation based on liquid handling solutions.

Okay.

Xeragon is pretty combatable with our Operon manufacturing platform, that's the reason why it was so synergistic with our environment. And, we leveraged the Xeragon technology onto our Operon, high trooper platforms that we have for the parallel synthesis. Those revenues would have been in that area. So basically, it would handle instrumentation.

Okay.

In terms of the R & D spend, we are currently at about a little bit over 9%, which is a little bit on the low side. We probably want to keep that, you know, rounding to 10, it can be up to 10.5, it can be down to 9.5, that would be the range that we would feel comfortable with. We are currently under some space restrictions. We are moving in Europe into our new European sites in a few weeks, and vacating others and terminating leases. Certain facilities. But one of the buildings that we are currently semi occupying is actually an R & D building which, when we move out, will actually vacate space for R & D people. In terms of the consumables top-line growth quarter-over-quarter, you saw that, you know, there was obviously a small growth on the top line of the consumables. It was not very big. There was a contraction on the instrumentation and synthetic DNA side. Normally, the second quarter has a low top-line growth. This time, we had expected it to be higher, because the first quarter was already weak due to the academic spending being quite low, and so that is why, you know, it - it -- it actually in every quarter, there was a different massive effect that hit us from two different customer sectors. So that is why I think that consumable quarter-over-quarter comparison is not really representative, because different parts of the customer base being --in quite some--some weakness. The academic market revived quite significantly, as we said in the second quarter. What is actually quite interesting is that, there have been additional fundings released into the academic sector which are not yet available for cash spending, but all of these bio-terrorism research and related fundings are expected to flow in, in the second half of this year, at least to a certain percentage. In terms of the acceleration, acquisitions are not really too important for our top-line growth. You know, for Xeragon, we expect it to be next year 1.5% of our sales. Genovison should contribute about 3% of our sales. So these are not big revenue drivers, and we will obviously then extrapolate and calculate out the organic growth rate of our businesses. The consumables business basically is an organic business. The unique thing about Genovison is that it was the first time that we actually acquired a company that had nucleic acid purification consumable technologies, and so, you know, apart from that, everything in the nucleic acid purification space has been organic and not acquired. Obviously, with the stock where it is at the moment, we are severely limited. We certainly will not -- it will not be easy to make accretive transactions. But it is something that we owe to our customers, as I say, to have the best technology and products out there, and should technology opportunities come along, we will try to find a way to make it accretive and to benefit all stakeholders. I think that was --.

Yeah, that's great. Thank you.

Thanks.

We'll turn next to Sam Williams with Lehman Brothers. Please go ahead.

Thank you. Actually. I can only think of one question that hasn't been asked. If you could also, which you may not be able to do, break down pharma -- the pharma spending on instrumentation between Q1 and Q2 in actual dollar terms, if that's possible.

As we said, the pharma spending in the United States on the instrumentation side, was minus 35%. So, we had revenues from instrumentation, there was about a shortfall of about $4 million due to the instrumentation, and about $4 million due to the synthetic DNA side. If you take that a as a ballpark number. That is how that number came about.

Okay. Thanks a lot.

Thanks.

We will turn next to Krista Bahr with DZ Bank. Please go ahead.

Not Krista, it's Colique Petrifuques. Hello. Just a question regarding the consumable save per instrument, which in former times you communicated to be around $30, $35,000 U.S. dollars. And now if you could take in -- let's say 500 instruments out there, you would come to a consumables per instrument of under $20,000 if that -- if that -- is that right and does it somehow reflect that instruments that you sold are not fully used?

I can take this question The instruments we supply to the market are typically not fully used except a few exceptions, where they really run to 25 days a week -- more or less around the clock. But these are really exceptions. Typically an instrument is exploiting, I would say, 25% of its total capacity. And the average number of consumables per instruments, and this is going through all kinds of instruments which we have out in the market. Your figure was on the really upper side. I would say the number is something in the range between $20 to $30,000 dollars per instrument in an average. We have customers who are running $150,000 dollar worth of consumables on the instrument. We have customers running only $5,000 dollar worth of consumables on the instrument. And at the same time, we have customers who have run $50,000 consumables on the instrument. Let's take an example in the human genome sequencing side. And now this is definitely dropped down to a very low figure, as a confirmative sequencing, and these customers are now using the instruments for other applications, but at the lower level. And, therefore, it -- it is not the right figure to say, okay, this is the total number of place instruments times $30,000, and then you end up at a certain number. It is not like in a routine diagnostic setting where you have a workload which is constant. In the research, you have up and downs in the [INAUDIBLE]

Okay, second question comes to the losses on foreign currency transactions. I mean, $1.2 million for this quarter, compared to $140,000 the quarter before. We have to calculate with additional $1.2 every quarter or --

No, no, that would not be nice. No. It a--it-- Currency gain -- the currency gains and losses that we have are mainly due to intercompany loans. This could be, for instance, that a -- a -- a U.S. company which nominates dollars -- or a European company denominated in Euros, lends Euros to a U.S. Company, and when they come back, they're worth less, and they you have to look at accordingly. So it's a noncash expense, you'll see it from the cash flow statement that there are no implications to that. That the magnitude of this is actually quite significant, and has to do with the restructuring of the loan agreement on an international basis for tax optimization purposes. We didn't go into great lengths and detailing of it in these press releases, but not something would you see going forward. Normally, as I said, typically, for budgeting purposes, what you should assume is that today's currency rates are the best rates going forward, the best estimates on rates going forward. I am sure you can get a lot of very expensive advice from them down the hall, but this -- this is what you typically use for budgeting purposes or projection purposes, namely zero -- zero currency impact, losses or gains.

Okay. And last question concerning the Glaxo-Smithkline agreement. You are talking about clinical trials that are done using Pax products. And could you just tell us something about the number of patients, or tests, that are done during the tests -- during the clinics. Does it have impact on the -- on the -- on the Pax guidance that it is about $4 million for the year?

Yeah, no. The -- the actual numbers on these agreements are quite significant; however, you know, on an annual basis, this one agreement, we are not allowed to talk about the numbers, but assuming it were in the multi-million dollar amount, then we would obviously have to disclose something on that. But if it were around a million or a little less, then it probably will still slip under the radar screen. Now if we -- if we -- if we look at this agreement, why did we announce that? We just thought it was extremely interesting to note that there are -- we are seeing pockets opening up left and right where preanalytical solutions are being used.

Sure.

We talked about the Lyca instrument agreement, the laser micro dissection solutions, where we combine collection--stabilization and purification for certain analyses of tissue, for instance. And here we are talking about the monitoring of patients that might be -- you might have 50 patients up in Seattle, and 50 patients down in Florida, and the problem with all of these genetic analyses was, that, this standardization was lacking on the collection and that's why the data was basically useless very often. And now with these standardized collection purification procedures, you are getting extremely high-quality expression profiles, which are used in toxicology or progression analyses in clinical trials, and this a big benefit. This is why we also announced that we actually saw or seeing that CRO's and big pharma companies are actually aggressively moving into this. Now how big is the market? It's one of many pockets. That's why -- you know, it's -- it's -- if you look at how many clinical trials -- how many patients are in clinical trials, a lot of you will know this a lot better, but the number I have is about a million patients at any time throughout the world, a little less, like 900,000. If they are on a routine basis to do these type of analyses, and every collection stabilization purification solution costs, you know, whatever it costs, around $10, depending on the assay, it can be a big market opportunity. But these things move slow, and it is important that we see these major pharmas moving into this type of assay.

Which is also to add-which is important to add is, it is a confirmation that one of the leading pharmaceutical companies is going to use the PreAnalytiX product in the clinical trial. And one has to address that it was the major issue, because clinical trials are completely run by standard operating procedures, that means to change a standard operating procedure just by changing the collection tube, it is a major effort. It has to go up the whole management letter, that the top person at Glaxo-Smithkline has to approve it, that they can change the standard operating procedure, and this is just starting, of course, with phase I clinical trials, and later on with the increasing, or the progress of the drug development process. It will move into phase II and phase III, and that's where the interesting part will come. But I think it is a very, very important confirmation that the pharmaceutical industry is willing to standardize its clinical trials by use of such products.

Again, before we go into the numbers, it could be a big number. We are not projecting that. If you go and do your research, you will find out that maybe only a few hundred thousand assays will be done every year, at the moment, but there's basically no alternative to using our number. And we feel comfortable with the PreAnalytiX guidance that we gave.

Okay.

That's just one of the uses. Thanks.

Thanks.

We'll turn next to the line of Stephanie Phillip with HSBC. Please go ahead.

Well, I have to admit that by now, all my questions have been answered. Thank you very much.

Okay.

We'll go next to Chris Redhead with West Ld. Pleas go ahead.

Hi, guys. Just a quick question, a macro question really. In terms of the -- you know, we have seen this sort of contraction in the growth in pharmaceutical spend. Are you saying that there's a change in emphasis in terms of the research. I noticed there is some talk about switching R to D. But if you look at the R constituent of it, are you, in your conversations with, presumable which your having with pharmaceutical companies, are you saying there is a change in the kind of direction those companies are moving in, in terms of going away from large-scale bulk genomic analysis to something that might be considered as much smarter.

Yeah, I think that's--that's certainly visible. That, however, moves fully into our direction. I think as we have detailed a few times in the past, we have never really been too active in this extremely large scale -- you know, these huge genomic applications, the genome sequencing, was a business, and we did sell into it, but it's not a huge part of our business. Much larger and much more interesting for us, because of the complexity and the technology requirements, is the functional genomics area. And this is certainly something that we're seeing. So we see within the DNA purification area, you know, that certain pockets, let's say, used for the genomics application, certainly showing slower growth, and we're seeing strong growth in the typical types of purifications that would be going into functional genomics areas. Also, a lot of our products are used in just plain research. As you, you know, not really higher through automated, but this is often indicative of the big percentage of sales in the academic area, which is very retail in an application here and an application there. Always very sensitive. Always very diverse. And this is what -- what one might see as well in this, and we are also seeing quite good growth in these types of applications in the R & D -- pharma R & D area. So I thin it was--it's a natural progression which is actually working in our direction, and right now it is probably less ignited than it should be, because of the earnings pressures that were in some of the pharma industries. However, with -- and actually an interesting note, now with all these consolidations going on, with the experiences that we have from Glaxo-Smithkline, from Novartis, [INAUDIBLE] and also other mergers, is that, actually is a benefit for the reorganization, and this should actually accelerate the allocation of assets and people to the next generation-type research. It is often also used as an excuse or a rationale -- or basically a good moment -- excuse me, maybe a little exaggerated, but a good moment to move the people into newer types of formations for next generation research. So we are actually not at all concerned about this. I think most people supplying it to preclinical areas. We also supply to the development areas we talked about before, but in the preclinical areas, particularly mergers and acquisitions do not necessarily have a negative impact, at least from the past experiences that we have seen.

Thanks.

Thanks.

Our next question comes from the line of Luko Orshni with One Investments. Please go ahead.

Yes, actually I have two questions. The first one, at the beginning of your presentation you said, that given the current market conditions, you are not definitely going to do any restructuring of -- of your -- of your business, despite the short-term growth, the short-term decline you have seen in some areas. The question -- the question I have is, at what level of for -- should we see another two or three quarters of slow down? At what -- how many quarters of slow down do you have to see before you start to -- to -- to reduce your cost -- your cost base? That will be my first question. The second question is, on the -- is there any color that you can give us on the working capital, which has increase especially on the receivable, what you can do in the short term in order to reduce the over proportional of growth of working capital?

Absolutely. Now I think one of the luxuries that we have -- and I think something that again is a little bit lost in the noise here is the fact that actually grew 10% which is certainly not what we are used to, and not what we want to see, and it is not what our products deserve as an overall company. We should be growing faster than this. However, it is still a growth rate of 10%, which is a few times faster than most other industry participants in this sector, certainly at this size. So it is not that we are, you know, stagnating or a shrinking company. I think this is -- this certainly not the case. What we are expecting, and also going forward, this is built into the projections as we put out on July 3, is that the company will start moving up, and is moving up as per those projections into revenue levels that will allow then the operating margins to move back to levels that we have previously. This will probably take about three to maybe four quarters as -- as we have detailed. And then, you know, if there is obviously a stagnation on the top line, and the revenue growth does not come, which I don't think we have reason now to believe, then obviously I think a company with this revenue base, with this gross margin, should allow operating margins in excess of 25%, and then we have a clear goal, in just to making this machine even more efficient, than what it is today. It is -- operating margins are always a function of growth also. If you have a very rapidly growing company, at any given point in time, the operating margin will be lower, because the company is expanding, its expense and its assets base for an infrastructure that should carry the company six months out. If the revenue level is six months out, that is anticipated as higher, the expenses would be higher, meaning today's operating margin is lower. If the growth rate is lower than the operating margin, it does not are to carry expenses that are for a larger infrastructure, a few months out. Now the second part of your question again, if you could just give me --

It's just. What can you -- what are you -- sorry, what are you actually doing, in order to keep working -- because you said you have a target of reducing working capital.

Absolutely.

And I just want to know -- have a little bit more color on how you are achieving that ,and what --

Right. Well, working capital is today about $115 million. It is up from $110 million in the last quarter, from $120 million in the fourth quarter of 2001. The two largest components or three largest components of working capital, are inventory, accounts receivable, and also the cash positions that we have. I think to start with the latter, Qiagen has always been very conservative in the level of cash it wanted to take on to its books. We today have somewhere in the range of $60 million in cash in the bank. We have accounts receivable of about $50 million, and, again, this is over 60 days, and this is certainly not what we want to see going forward. I would like to see that number in the mid-50s. And that is quite fast on an industry standard, but we have been there before, and depending on the company, and the geographic mix, it should be possible. Where we have most to do, and this is where we have to roll up our sleeves, is on the inventory side. Inventories have gone too high, because we have been manufacturing for a higher revenue base, which didn't come, and, you know, manufacturing is a huge machine, it's like an oil tanker. If you start it, it doesn't really -- you know, you can't really stop it on a two- to three-month basis, because you have built your expenses, and your whole manufacturing planning on it. So clearly, this is something that we can guide a little bit lower, and can put a little bit more time into it. That's the largest position that we have, I guess. On the accounts payable and accrued liabilities, which would be the liabilities side of working capital, I think those have not really changed in the last few months. And I don't think there is too much to do there. So first answer would be inventories. And we are working on a supply chain management project, where we are centralizing inventories for total Europe, in various phases, that is should allow the decentralized inventories that we, for instance, carry in the UK or in France to -- to be given up and centralized inventory to be run, and distribution to happen throughout Europe from one inventory site.

And you believe that decentralizing inventories, you will have lower inventories?

Centralizing inventories.

You're going to centralize it?

Actually just around the corner -- well, in Milan, for instance, we do not have an inventory. This was our test project for the centralization of inventories, and we have been running now in Italy without a local inventory very successfully. And we are basically shipping out of our German site at the moment into Italy. Logistics work fine on this basis, and it's not -- and we are now preparing for the similar distribution possibly to be mounted in the UK and France. And we have certain time lines that are not quite final on that, but it is going to happen on the short term.

And in your -- in your calculation and your model, how much of reduction of inventories can that create?

As I said, we have 170 days of inventory out there at the moment, as a multiple of cost goods, and I think that a number of about 120 days, which would be not unreasonable. Now it still looks quite good on an overall level, but also on an inventory comparison level, but I think this target should be achievable over a two-year rise. If we take ten days out of it every quarter, this would already be great. I think the second quarter is pretty overstated. And if we look at the -- the inventory turns that we had in the -- in the first quarter of this year, it was 150 days. So, you know, I want to move that down from that number. So take five days or ten days off every quarter, and then move that out once this is has been implemented. And we will make sure this is communicated at that time.

Yeah. Are you slowing do you know bit production to readjust to the new level of business?

Absolutely. So we readjusted the manufacturing plans. We made sure that the infrastructure expansions happen according to the a -- to the -- to the revised updates that we have. So that has been revised, yes.

Okay. Well, thank you very much.

Okay, thanks.

We will turn next to the line of David Woodyet with Harris Bank. Please go ahead.

Yes, just two questions. On the balance sheet, I notice there was a large positive change in the item shareholder equity for accumulated other comprehensive loss. I was wondering if you could explain what that was. And then, in the intangibles, I assume that a large increase was due to the acquisition, but could you break down the intangibles between goodwill that won't be amortized, and other intangibles that still will be amortized.

Sure.

And let us know what the -- what the quarterly amortization charge is, and where it shows up on the income statement.

Okay. The accumulated, other comprehensive loss is, as you know, is a mix of currency impacts, as well as unrealized gains and losses. For us a larger component of this was also currency related in the second quarter, as we had quite dramatic movement in the second quarter on the currency side. This number reduced to -- to -- to the level we have here. In terms of the intangible assets, the -- the majority, as you say, correctly, is the acquisition of Genovison, which was a $28 million acquisition, so you see these two numbers adding up, compared to the first quarter, where you had $7.5 million of intangibles now up to 38. The -- the additions that we have -- with Xeragon and Genovison, and with the acquisition of Genovison, the goodwill that we have in there is -- I would have to flip back to the assessment that we did. It was around $18 million, and the goodwill that we had on the acquisition of Xeragon was, I think, about $1.6 million. So these two numbers -- that would be about $20 million' worth of goodwill in this balance sheet, and the rest would then be intangibles that we amortized over approximately seven years. Now we will be detailing that in the 6K statement. So these numbers could be approximations, and we will certainly have the precise number in there.

Ah ... Okay. What was the amortization expense in the second quarter. Let me ask it that way or what will be the -- roughly the total company amortization expense on a quarterly basis, going forward.

A depreciation was about $6.5 million.

Not depreciation. Amortization of other intangibles.

Right. I am just splitting -- splitting the two out because in the 6K, they are typically lumped together. So depreciation was $6.5 million and amortization about $700,000.

Per quarter?

In the second quarter, yes.

Okay, thank you.

Thanks.

We will go next to Daniel Mahony again with Morgan Stanley. Please go ahead.

Hi. I just have a quick follow-up, can you quickly remind us of the new clinical [INAUDIBLE], could you quickly remind us of the lift rate for that, and give us a feel on how many you might have sold already in July, and what the auto[INAUDIBLE] looks like?

Sure, Metin? Do you want to take that?

Is the number of instruments in July was -- it's quite large because the instruments is just running out of the door as we speak, and mainly going to the early test sites, which have been better testing these instruments and going -- also being the first customer. I think it is really too early to really have a solid feeling for how the instrument will be received. What we see only from the response is very, very positive; therefore, we definitely expect a major impact on the clinical side, but it is not a purchase order. At the end, after the purchase order, and after the instrument is installed, and the customer is trained, we can really tell you how the impact will be.

And the next price is right around $100,000, isn't that?

It is more than that. It is depending very much on the configuration you need. It is the lowest price, is roughly around $100,000, which is the basic instrument, but it can go up to $160,000, $170,000 if you want to have bar code reading, positive sample tracking, and all these features, you would need if you run it in a clinic -- let's say diagnostic setting, whereas if you want to use it more on the research side, maybe bar code reading or positive sample track is not necessary.

Great, thanks a lot.

We have no further questions registered at this time.

Okay, then, I would like to close this conference call by thanking you all for participating. We hope to welcome you again in our Q3 2002 earnings conference call on October 29th. If you have any additional questions, do not hesitate to contact us. Again, thank you very much. Bye-bye.

That does conclude today's teleconference. You may disconnect your lines and thank you for participating.