Qiagen NV (QGEN) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Qiagen N.V. fourth quarter earnings conference call. At this time all participants have been placed in a listen-only mode. The floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Dr. Solveigh Mahler. Ma'am the floor is yours.

Thank you very much. Good morning and hello, everybody. Thank you very much for joining, Qiagen's fourth quarter and full year 2002 earnings conference call. I'm Dr. Solveigh Mahler, Manager of Investor Relations at Qiagen. With me on the call are Dr. Metin Colpan and Peer Schatz. The conference call will cover a 20 minute presentation 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 session.

During the call, we will be making forward-looking statements. Such forward-looking statements are subject to risks and uncertainties. For the description of such risks and uncertainties, please refer to the discussions and reports that Qiagen has filed with the US 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, Solveigh. Good morning ladies and gentlemen, or good afternoon. This is Metin Colpan speaking. In Q4 2002 we achieved our growth and revenue targets as expected. Our net sales have increased 10% to 78.4% in Q4 2002. Excluding the effect of one-time charges, the operating income increased to $15.9m.

These one-time charges consist of a previously announced charge of closing Qiagen's Seattle facility, and related items from the acquisition of Sawady Group of companies, which Peer will explain in the financial section.

For 2002, our revenues have increased 13% to $298.6m, and excluding the effect of one-time charges, the operating income has increased to $56.8m.

2002 was definitely a year of strategic positioning for Qiagen. We are focusing on our core market for nucleic acid purification and separation and handling,-- and genetic analysis, and are capturing and penetrating these markets, once dominated by home-grew methods.

During 2002 we have significantly expanded our technology and application portfolio, addressing directly customer needs, with an unparalleled breadth of products. In slide five, you see Qiagen's worldwide product breakdown. 72% of our revenues are generated by our strong Consumable business, which shows a robust and strong growth, and had very positive trends. The Oligonucleotide business, which is representing 13% of our revenue base, has flat revenues, with no growth, and contributed loss due to drastic price erosion in this market. Whereas the [indiscernible] Oligonucleotide business for genesilencing, is very attractive and contributing a positive performance.

We expect and believe that the Genesilencing business will become a very attractive market for the future. Instruments, on the other hand, have been very disappointing in 2002, with a negative growth rate, but However, it has picked up significantly in Q4, and exceeded our expectation. Instruments, as you see, represents roughly 11% of our revenue base. With new instruments and applications, we believe we will see a positive contribution from the instruments business and the combination of consumables and Instruments in the future.

As I said before, Consumables continues to show a strong growth, with 22% growth rate in 2002. From our experience, Consumables are a very stable market, with a very high growth potential in the future, by replacing home-grew (ph) methods, with Qiagen consumables, and have a very attractive margin.

Our future strategy is to expand the portfolio of nucleic acid purification products, and combine these with specific bioreagents to address important applications needs of our lifescience customers, with unparalleled quality, reproducibility and service.

To leverage our leadership in genomic DNA and RNA purification, and to address the need of genics suppression profiling in functional genomics, we have signed an agreement with EPOCH Biosciences to have access to their quantitative PCRD detection technology.

You see this on slide nine. These Quantitect probes and dedicated assays will give our customers a very attractive application combination of nucleic acid sample preparation, and genetic analysis for real time PCR quantification. These Quantitect probes and assays are an important part of our whole Genesilencing and functional genomics strategy, in combination with Xeragon's RNA Oligonucleotides for Genesilencing.

In Genesilencing, after the gene is silenced with an RNA Oligonucleotides, the RNA has to be purified with Qiagen's RNEZ products from tissue or blood, manual or automated, and have then to be detected with a quantitative assay in combination. With Qiagen's broad product line, we offer a complete application solution for this very fast growing functional genomics market segment. CHECK

Despite the contraction of the Instrument business in 2002, and the disappointment with our Instrument business, Qiagen BioRobots did fair (ph) significantly from other Instruments. We believe Instruments are an essential part of our future strategy, and will give us the expertise and leadership to address the most exciting market in the lifescience industry -- rom functional genomics to molecular diagnostics.

Our BioRobots are focused on specific applications, and are combined with our Consumables as an inseparable unit. This allows to address customer needs, with a combined integrated solution of hardware, software, instrumentation and consumables, whereas instrumentation competitors sell hardware and have no integrated solutions, including the consumables for the specific application.

In 2002 we have completed our Instrument portfolio. Before 2002 we had only high throughput(ph) BioRobot instruments, mainly the 9000 and 8000 series, and had no instruments for the low throughput and high throughput segments. With the acquisition of GenoVis a visVis a vis a vis a vision in Oslo, we have completed our portfolio from low throughput to medium throughput to high throughput instrumentation platforms.

The [EZ1] for low throughput sample preparation, which you can see on slide 12, is able to separate one to six samples in approximately 15 to 20 minutes. This is addressing the unmet customer need for a reliable front-end solution in molecular pathology laboratories, as well as industrial laboratories where a reliable sample preparation has to be available any time.

These instruments, which sell for approximately $28,000, is able to purify approximately 20 samples in one hour, which is definitely sufficient for these type of applications. And the instrument will only be supplied with predispensary agents for specific nucleic acid purification applications. This is going to be a unique instrument, and also a unique solution for a very broad range of customers, which we have not addressed with a specific solution--up to now.

In 2002 we have also launched the BioRobot 8000 MDx, which is a dedicated instrument for the high throughput sample preparation needs in molecular diagnostic laboratories. This expands Qiagen's market leadership in molecular diagnostic sample preparation, and further supports [indiscernible] to create the standard for molecular diagnostic sample preparation.

This instrument is showing a tremendous response from the molecular diagnostic laboratories, and creating a very attractive position, and with every placement we are increasing our consumable sales into this marketplace.

With this I will now hand over to Peer Schatz, who will describe to you the dynamics of our markets, and walk you through our financials.

Hi, all, thanks for joining the call. I will try to walk you through some aspects of the financials, without going into too much detail.

First, I'd like to start out a little bit with the money flows. I think then a major area of focus of everybody looking at the life science supply market. We believe that there are some significant deviations in terms of what is seen to be happening and what is actually happening in the market, as we understand it from our hundreds of thousands of customers, and 500 to 600 people in sales and marketing throughout the world.

First let's break down our customers. We do about 50% of our sales in academic accounts, about 35% in pharma and 15% in biotech. Molecular diagnostics is spread out between all three of them, as academic accounts sometimes also have a very large crossover group in molecular diagnostics or routine molecular diagnostics.

The academic accounts, as we see them, are clearly refocusing and moving over to what are the next generation molecular biology applications. A very strong growth in functional genomics, also proteomics areas. And the complexity and the cost also of the analytical techniques is increasing rapidly. Also increasingly samples are not cultivated samples or synthetic samples, but they are natural samples from patients, and therefore the handling of these samples is increasing tremendously in complexity. The market is moving in our direction, in other words.

I think one area where so much focus has been given on in the last few weeks and months, is the NIH budget. To be very frank, we at Qiagen do not really see that as an issue. The NIH budget is a $27 billion part obviously, with funds going out all over the place, but it is not spread out evenly. We're living in a market economy.

I think what is extremely important is to understand what exactly is being funded. This money is not given pro rata to every supplier depending on his revenue portion that he contributes into the lifescience [indiscernible] space.

There are tremendous deviations and momentums within the budget that we think are very attractive for Qiagen. Actually, when we saw the focus areas published late last year, we doubled the number of sales people that are covering the various NIH focus areas, as we believe that our products will be highly attractively placed within that new NIH budget.

The NIH budget is, for us, not a concern for its growth rate. I think an important number to analyze is what we've been growing at NIH over the past few years. The answer, I think, is one that will surprise many, we've been growing at a fraction of the growth rate of the NIH overall growth rate. Growth rate at the NIH was in the low/mid single digits, vis a visvis a vis a vis a vis-a-vis a visvis a vis a vis a vis a growth rate of the NIH budget which was in excess of 15%.

I think this is a very surprising piece of information for many, but I think it's absolutely critical. And for people who go in and analyze the individual segments of the NIH budget, it will be absolutely understandable and clear.

We have not been fueled in a very significant way by the NIH in the past. We think actually, however, that we have a great opportunity to do so in the future.

While we're not projecting it in any way, we think that the focus areas have shifted away from these large scale genomics works. They have shifted away from applications that are less interesting for Qiagen as market opportunities, and moving over - and this is also vis a visvis a vis a vis a visible from the focus areas as the NIH has published them, and also recent press releases have reiterated - over to very hot areas for Qiagen product. Clinical samples analyze, for instance, in genic suppression oncology, and infectious disease research, and so on and so on. We listed a few of the focused areas that Qiagen products are expected to show a very exciting during (ph)the year 2003, and 2004 and thereon.

So the NIH budget, as you see on slide 18, is not just one big money flow going into every supplier in a pro rata way. But there are many different areas and segments of the market. I think it is very difficult normally, I think suppliers can do that with a grip to the market, and understanding where the individual customers are and what exactly they're doing.

You will see that certain areas suddenly are showing tremendous growth, and certain other areas are flatter. We tried to do this is a very schematic way, obviously, the size of the columns does not relate now to the absolute revenue. But just to show you in a very schematic way how we are thinking of it. We have identified what we believe are very hot areas, and are making sure that our products are uniquely positioned to capture that growth rate.

Again, this is something that we are not projecting going forward, as we will talk about guidance going forward, but we think that there is a significant upside opportunity.

Now obviously with all that said, I think it is very easy just to take an overall growth rate and a certain percentage going forward, and move into a very easy explanation of this being allocated pro rata. But this is not the case. This would be the case for a supermarket selling 30,000, 40,000, 50,000 different products, but Qiagen with 300 products in a very focused application area, is certainly subject to a different momentum.

Big Pharma. I think one surprising piece of information in Q4 is that Big Pharma is actually doing fine, and starting to come back. It showed the second fastest growth rate in the fourth quarter in the United States, in the mid teens again. We're seeing very positive vibes coming out of the Big Pharma companies. Now I don't think that -- well we've always been quite clear that we don't believe in the 10-year doom and gloom in the pharmaceuticals industry, but what we saw in the second quarter this years was a short-term contraction to make EPS targets. I think this is starting to be confirmed by pharmaceutical companies in their earnings conference calls, and also in their outlooks for the year 2003 and thereafter.

Again, when we go on to guidance, we are not assuming that there will be a roaring comeback of the pharmaceutical market in the next few years, for purposes of our guidance. But for purposes of our product positioning, and also for purposes of our sales and marketing approaches, we are clearly in a best position to capture the up side, as it very well could happen.

The biotech markets, one set has been a little bit weaker in Q4, but the outlook there as well is quite comforting for the year 2003. We check think that the growth rates of the top 20 biotech companies, as they're projecting them in their conference calls and guidances for the coming out, even assuming a discount that R&D's often use as a buffer for earnings projections going forward, we think the growth rates are certainly the mid teens. But also here, this is not an assumption that we want to build into our guidance going forward.

The geographic distribution of our sales shows you that the North American slice is growing significantly slower than the European. Again this has to do also - and this is not for the full year - with the significant contraction that we saw starting at the end of Q1 and into Q2, and dropping very sharply then in June of last year. This continued into Q3 and started then picking up in the fourth quarter, but the growth rates are here on a full year perspective.

Geographic distribution of net sales shows you why it's so important for us to focus on this North American market and its money flows; it'st is 54% of our sales.

So to sum up a little bit the financial aspects of 2002-- or just the overview aspects of 2002--we showed that the company has been in a position to significantly strengthen its technology portfolio. We re-adjusted the sales and marketing focus to what we think is next generation molecular biology work, and this is showing first fruits.

This is a major effort, and Metin gave you just a short glimpse of some of the products that were introduced over the last year, but there were dozens of consumable products, there were instrumentation products. The sales and marketing message-- -- we're fine tuned to what we think are the next generation molecular biology hot spots. And we think Qiagen products are uniquely position in those.

If we look at the numbers in detail, we gave you quite a lot of information here, just to make sure that the pro forma and US GAAP numbers can be matched to each other, and everybody understands how they are derived. You see on slides 24 and 25 the fourth-quarter numbers, on slides 26 and 27 the full-year numbers.

Just to note, I've been getting some questions regarding the tax rate that we showed in the fourth quarter. The effective tax rate -- on a pro forma basis was 34%. This is not (ph) to do with certain charges, especially on the goodwill and intangible side, they're not tax deductible, that's why the tax rate looks a little bit different to the year's cap reported numbers. If you factor those out you go into the normal ranges that we typically saw. For the full year it's actually 37%, which is exactly the guidance range that we give on a long-term basis.

I'm also getting a lot of questions relating to currency, and it's quite amazing. I've seen estimates that there should be enormous increases in revenue because of currency changes. Actually, if one looks at the accounting of revenues, one uses an average of the year actually, and backs out prior quarters. That's the way the accounting works, Accounting 101, and that's the way also we account for our revenues.

If you look at the chart on slide 28, you will see that the revenue portions that we have -- and by the way the average was certainly not the same number that we saw at the end of the year. Obviously the dollar showed significant weakness. We do have a lot of euro sales, as you see here from this bar chart on slide 28, there are a lot of euro sales in there.

However, the average currency exchange rate over the period was certainly much, much lower than the exchange rate that we saw at the end of the year. It has certain balance sheet implications. checkInventories and receivables, and I'll talk about those a little bit later.

The cost of goods sold, you see on the other side. Now the great thing about this -- what we wanted to show with this chart is simple there is a great match now in the meantime, between the top line and the cost of sales and expenses. And this is something that we feel is very important going forward. The best currency hedge is always to match inflows and outflows. We're moving in that direction. There's still slightly a gap, as you see from the lines. In a best-world scenario, the percentages would match, but this is not quite the case here. But the gap is significantly smaller since we established our US manufacturing facility over the course of this year.

Slide 29 shows you the employee base. A slight increase, vis a visvis a vis a vis a vis-a-vis a visvis a vis a vis a vis about a year ago there were some changes due to the closing of the Seattle facility, where the majority of the cuts in R&D came from. There were some reallocations in the marketing space. Moves into the sales and marketing area, and these types of things. But you clearly see that in most areas we're trying to make sure that we get the best efficiency out of what we think is a highly talented and often long year employee base.

Now I just had to put in one slide, because I think it is important just to address some of the questions that one sees and unfortunately also has to read very often.

Number one is the pharma markets are weak-a statement that is written very, very often, and also continues to be - or seems to be - something that will continue into eternity. The fact of the matter is that the pharmaceutical market in our fourth quarter actually increased quite rapidly. It came out as we had projected, also as had been indicating in the third quarter, where we already showed single digit growth in the pharmaceutical sector. In the fourth quarter it was mid teens.

Some might say it might be too early to show a trend, we're also remaining conservative for the purpose of our guidance. But we're clearly focusing our sales and marketing guns at the pharmaceutical sector. We think it will be very important over the near future.

The second question we very often get, capital expenditures are difficult at the moment. General capital equipment is very difficult to sell. Yes, generic capital equipment may be, but solution-based capital equipment, as we sell it, and at Metin has described before, is actually doing quite well. The instrumentation sales increased 35%, vis a visvis a vis a vis a vis-a-vis Q3, and they were comparable to what we saw in 2001. And this is quite significant if one looks, as we will do in a second, at intra-year development of this product area.

So we think that the instrumentation space, especially some of the new instrumentation products that we have introduced, low throughput and molecular diagnostics are the key words here.

We do not sell general metal. People might say, well I'll wait a few years until I buy one, or a new one, but most people do not have a solution for automated sample preparation. And especially in those two areas, there is no alternative to using these types of systems.

A few words on the guidance for 2003. We think that it's very important to understand Queen's business, and we certainly value all the effort that is put in by our investors and our analysts to understand the fundamentals and go very deep into what is driving the company, and also what is influencing the company going forward, what opportunities we have, and how we can exploit them.

We think that in terms of guidance, we're probably best served in looking forward into 2003, and just assuming that we will show similar growth rates to what we saw in 2002.

We think that the first quarter will be comparable to the fourth quarter this year, maybe slightly higher. And our target that we can put out is to have an operating margin in excess of 20%. Now we already showed that in Q4, we had an operating margin over 20%. This is for us and extremely positive impact. We significantly restructured and were also able to reduce costs in areas such as the Oligonucleotide manufacturing.

We're approaching break even on a monthly basis, and significantly lowered the burn that we have from that area. But also in other areas. Going forward the rather low margin genotyping service business that we were selling, and that we decided to discontinue, this product area - or the removal of this product area should have a positive effect on the margins as a percentage of sales.

One chart that I want to leave you off with, which I think is one that is sometimes - or in my view - not often really emphasized, and I think it is the critical message that we have to say. Obviously 2002 was difficult, but I think looking at Qiagen, our core competency, our 1000 patents applied for, issued and licensed patents, our 300 products, are consumable products that have recently been voted by the scientists at the most useful kits in molecular biology.

The reputation that we've built in this area with our consumable products, recently voted the most appreciated company in terms of reputation in the life science supply space, exceptionally satisfied customers. These are statements out of our recent market surveys that were done by third parties.

This consumable business has actually increased growth rates on a quarter-to-quarter basis, vis a vis 2001. Now if we go back to 2001, the growth rates for the overall business were seen to be highest going into 2002. But, we were expecting some contributions from the Oligonucleotide and the instrumentation businesses, as we had also detailed it.

The Consumable business actually showed higher growth rates on average in 2002, as it did in 2001. Now it's very difficult for me to really see a dramatic flank or a weakness position here in this Consumables business. We are very excited about it going forward, and especially going into 2003, with the new opportunities that are out there.

And this growth rate was there despite the most difficult times that were often interpreted into certain areas. The pharmaceutical sector showed a very significant impact on the instrumentation, and also on the Oligonucleotide spaces. Yes, we might have been able to see a little bit higher growth in the consumable space, but we're actually doing quite well, looking at these numbers in that core space.

And on the next slide, on slide 33, you actually see this emphasizes that 72%, 73% of our sales are actually doing better than in the prior year. On the left hand side you see the growth just shy of 20%, and slightly above 20%for the full year 2002. So the large sphere is moving up towards the right. We're focusing on our core consumable space, the instrumentation and the consumables business, that are flanking necessary exciting business, we think, going forward, the instrumentation business certainly. But they showed the weakness that was obviously a difficulty for us during this year. So that's why we're actually going into 2003 with quite a good feeling.

And looking back, it was actually quite a strategically exciting year, we signed some major deals. The acquisition of GenoVis a visVis a vis a vis a vision, with hindsight, we think was a fantastic transaction for Qiagen. The products are already out there. The alliance that we signed with Roche, very, very important in the molecular diagnostics area for Qiagen. And there are just a whole host of other developments that we think are providing a great platform going into 2003.

With that, I think we can open up to the Q&A session, but before we do that, just a short mention.

We have been making forward-looking statements that are subject to risks and uncertainties. And for a description of such risks and uncertainties, please refer to our 20-F or 6-K filing that we made with the SEC.

Solveigh?

Yes. Thank you very much, Peer. We are now looking forward to discussing your questions, and we really would like to ask you again to limit your questions to a maximum of two during the Q&A session, to give everybody the chance to ask a question.

I would like to open the Q&A session by handing over to the operator.

Thank you. The floor is now open for questions. If you do have a question, please press one followed by four on your touch-tone telephones at this time. If at any point your question has been answered you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your question, to please pick up your handset to produce optimum sound quality. Once again, to ask your question, please press the one followed by four on your touch-tone telephones at this time.

Please hold while we poll for questions. The first question is from Aaron Geist of Robert W. Baird. Please state your question.

Good morning and good afternoon, depending on where you happen to be. I have two questions. The first question is, can you talk a little bit about the synthetic Oligonucleotide business, and give us an appreciation for the contribution from siRNAs in the quarter? Excluding that business and excluding that pick up, where do you think Oligo's would have come in?

Okay, the first question was, our Oligonucleotide business, what the status is. We are clearly focused on making sure that this business returns to profitability. I think we can show some very exciting successes in that area, and I think we will continue to improve the profitability in that business. While the revenues have not shown significant increases, the margins have significantly improved, and we're approaching the break even number on a monthly basis.

Would you say that the margins have improved because of the contribution from SIRNAs (ph), or the contribution has improved primarily due to manufacturing and improvement and efficiencies for the plain Oligo's?

No this is just the DNA Oligonucleotide area, which is not only plain Oligo's, but I think there were a few things that happened in this fourth quarter. Obviously improved manufacturing technologies, we improved manufacturing infrastructure. We created additional efficiencies. We have a smaller employee-base in this area now, that can manufacture a higher capacity. We almost quadrupled the output of our traditional synthesis instrumentation. .

The other side was the product portfolio changed more towards the higher value-added products that can be uniquely combined with Qiagen products, such as [stock] Oligo products, arrays, and these types of things. So this makes us now, moving that into this direction.

For the full year 2002, the contribution from the Oligonucleotide space was pretty significant. Unfortunately in our red number we had a -- I saw numbers out there that the contribution was between $8m and $11m on the profit, and this is certainly a number that, looking at a business doing, approaching, $40m in sales is very significant.

Now it can happen in a very steep way for a certain period of time, but then the job is to turn it around. I think our team is well under way to be able to do that. Again, there are other options that one can look at in that business, and we're not saying we're not looking at it, but our primary job is to ensure that this business moves back to profitability.

Now the RNA business is one that for strategic reasons I would prefer not to split out the number, as it is still a very sensitive business and the information would, I think, be important to other players. But we are very excited about the number. It has gone up almost three-fold on a quarterly basis, since the time of the second quarter. And this growth is expected to continue into the year 2003. so we feel very comfortable with the estimates that we have out there for the year 2003 that we originally set, which is in the range of $4m. That is certainly a number that I think was put out there with a lot of caution, and with less information of what the dynamics of this market really are. And I think we will not change at this state, but it is certainly not on the (ph) aggressive side.

Thank you very much, that was my first question. I'll go on to my second question if I may. Can you give us a little more color on the Instrumentation business, the bounce back from Q3 to Q4? Can you talk about which instruments saw significant traction, and who were the primary purchasers of those instruments and the application that they were using those instruments for?

Well it came really across the board. The low throughput instrumentation was launched in a certain test market, in the [HLA] in the late third quarter. But now as a Qiagen product in January of this year. So that's not in there. But the growth really came across the board, from pharmabiotech (ph), but specifically also molecular diagnostics, and the MDx product is picking up. The growth, vis a visvis a vis a vis a vis-a-vis a visvis a vis a vis a vis Q3 was, as we detailed before, 34%, so it's 34% higher number compared to Q3, the pick up. Even though it is always big in Q4, it's larger this year than it was previously. And just from the feeling that we got in the automation business, also the leads that we had out there at the end of the year, we feel very comfortable that this is on a very solid footing.

So it was across all product areas. Less so the very -- you know, just the pure [indiscernible] purification for sequencing applications, this is much less of a focus area. But more of our high tech instrumentation, the M series, the [indiscernible] systems that we acquired with GenoVis a visVis a vis a vis a vision and launched as Qiagen products, with Qiagen Consumables, they also picked up in sales quite significantly in -- the fourth quarter.

Could you talk a little bit about the bundling of those instruments, and the associated reagents for consumables? Metin, at the beginning of the call spoke about the solutions-based approach for many different end markets. Can you talk a little bit about the bundling of those instruments and those products and the response that you're seeing in terms of recurring revenue on those instrument platforms?

I think I will take the first part and then hand over to Metin.

I think you're hitting exactly the important button. An instrument is not a standalone product, it creates a recurring revenue stream. There are many customers where it's not a nice to have, to have an instrument, but it's a necessity. And the customer needs an automated solution for us to be able to access these markets. The fact that we're the only company with an integrated approach, where we have the consumers (ph) proprietary, consumers abroad portfolio, and an instrument, creates the selling proposition there. So we always look at that as an integrated offering. And the way we market it, I think I'll hand over to Metin for that.

I think in broad term, we have to see at the moment two areas of application. Number one is genomic DNA purification from blood or tissue, going into genotyping type of applications, that may be on a micro-array or a real time PCR, or these type of applications. That's one product which is combined in this case. Any BioRobot with the consumable product to purify DNA and -- or in this case genomic DNA. And the genomic DNA purification is depending on which biological sample you are starting with. We offer a broad range of different products for these type of applications.

The other broad area of application is definitely RNA purification, from tissue or blood samples of cell cultures, which is also going to micro-array application, and through (ph)gene expression profiling. And we have observed that there is a stronger trend right now moving more into RNA and RNA analysis rather than in the classical genotyping analysis. But definitely both markets are growing at a very high rate. The trend, or what we are trying to achieve is, to offer for all kinds of applications, the right instrumentation solution, in combination with the right consumable.

And if I take the EZ1, which is handling let's say between six samples in one shot, and you may run it maybe two or three times a day, you are talking about 18 samples then per day. That is definitely not a high throughput, but in this case, because of it¦s a predispense reagent, which sells for approximately $5, immediately we're talking $90 revenues per day, for a $28,000 instrument. Whereas, on the BioRobot MDx side, we're talking about a $2 preparation, but suddenly these customers are running 200, 300 samples a day.

We have then also the same instrument, the MDx, going into a smaller laboratory, which are running only 96 samples a day. And this is basically the attraction of the instrument strategy: to offer the throughput range, because have now customers who having the MDx are very interested in the EZ1. And the reason for that is, if they have just received maybe 115 samples, how do they handle it? The BioRobot MDx just goes for 96, and what will the remaining 17?

The remaining 17 can easily be run on the EZ1, which was through predispense reagents. And this is, I think, the attractions which are coming from the academic, but mainly on the molecular diagnostic side, and we see a tremendous interest also coming now from the industrial side -- pharma and biotech, who doesn't want to deal with this routine sample preparation, with varying quality as they do it narrowly.

Thank you very much.

Thank you. Your next question is coming from Karen Bremner, of Shaker Investments (ph). Please state your question.

I was just wondering if you could comment a little bit on the DSOs and inventory levels, which seem to be up this quarter?

Yes, sorry, I forgot to address that. I think there are three factors for, if we start out with inventories. Three factors for the inventories.

Number one is, we moved over to as part of our overall logistics optimization, to using sea freight between Europe and the United States. As you know, we've started up our manufacturing side in Maryland, and certain components, and in some cases also raw materials are transferred from suppliers that we have in Europe or Asia, over to the manufacturing side in the United States.

Previously we were shipping via air freight, and now with the manufacturing, the quantities have gone up, and we explored the possibility of using sea freight, which is significantly cheaper.

The problem with sea freight is that you need about another three to four weeks, especially in these times with customs and because of all these war risks, are quite lengthened. You have an additional binding of capital.

The second factor is the currency. Now this is a case where one uses year-end currency rates to describe the balance sheet, as it is calculated year end, and therefore valued at year end. And if the euro increases in value, which -- and obviously most of our inventories are denominated in euros-- then you see a significant increase from that. So there was also a major contribution of currency that is in this inventory number. Vis a visVis a vis a vis a vis -a-vis a visvis a vis a vis a vis are calculated on an average rate over the period.

We clearly think that that's still a little bit too high, which we've been operating at too high levels ever since Q2, Q3. But it is not something that we're extremely concerned about. We see the ability to move it down over the course of the year 2003. And again our target would be to have it significantly lower than this, maybe in terms of inventory days about 20% to 30% lower.

There was also a significant instrumentation build-up, for launches of certain instrumentation products. We recently (ph) launched the [Highlife] (ph) systems that we do in alliance with GenoCom (ph). We also have systems from Zymark that have been purchased under our agreements, and so there's also an instrumentation portion in there.

The DSOs are pretty comparable to what we saw early in the year. Last year we were down at 55 days, now we're slightly above 60 days on the DSOs. Or 59 days vis a visvis a vis a vis a vis-a-vis a visvis a vis a vis a vis 50 days a year ago.

Last year we were exceptionally low. We always had numbers as low as the high 40s, 47, 48, and as high as 65. So it is on the higher end. But on fourth quarter normally - and last year was a little bit of an exception - in the fourth quarter normally you have higher DSOs as the collection department do not work over Christmas, New Year, depending on the type of customer.

So we think that a number that will clearly come down as we see it over the course of the first and second quarter, as we currently foresee.

Thank you very much.

Thank you. Your next question s from Derik de Bruin of UBS Warburg. Please state your question.

Hi, good morning. A few questions. Could you talk about the gross margins? They improved significantly from the third quarter to the fourth quarter. And I was just wondering what you're anticipating going into 2003. I know you briefly said that you were looking for gross margins somewhere round the 67% That's the first question.

Okay, shall we take the second one right away?

Okay. The second question is, you previously said EPS guidance for the year at 33 or 35 cents, I'm just wondering what you're now forecasting in that area? And I guess I just wanted some more color on the different revenue breakouts for the different segments. What the absolute numbers are for the different business lines this time, and some color on what the growth rate was for the different segments, between this year and last year? Thank you.

Starting with the gross margin question. Yes, the gross margin is one that we're quite excited about. The gross margin does not include any positive impacts from selling or discontinuing the Rapigene (ph) business, that continued to operate through the end of the year. And going forward there might be a positive impact on other gross margin as a percentage of sales, but not in the fourth quarter.

The positive impacts really came from better utilization of our assets, mainly in the United States, where manufacturing is ramping up. We are building now a significant portion of our sales base in the United States, directly in the United States, and vis a visvis a vis a vis a vis-a-vis a visvis a vis a vis a vis earlier in the year, where we've had the infrastructure, but were only manufacturing a smaller portion.

The second factor was also in the Oligonucleotide business. We saw improving gross margins from that side, also a move upward. Going forward, I think that the gross margins, as we saw them here, they are still subject to the product mix, and also subject to changes in things like currencies.

What is interesting is the fourth quarter, despite the big increase in the euro, which still has the overhang, most of the overhand is still in the manufacturing area. To still show such a good gross margin I think was -- just gives a little bit of a glimpse of what we're working on.

So going forward I would probably not see any change to what we have been considering on the longer term, which was in the area as you mentioned.

For the EPS I think we would really leave it now at the top line growth rate estimates for the year 2003, as we detailed -- And also the operating margin targets. And I think the EPS numbers then can be just calculated depending on how other impacts are seen in the business, or as a percentage.

The second question was related to the product break downs, as we saw. And I thought that was actually a very interesting shot when we sat down and decided what we wanted to talk about. The slides on page 32 and 33 give you a very, very detailed breakdown of what the individual growth rates were in the individual businesses. They give you both the percentages of sales, and they also give you the growth rates of the prior quarters over the past two years.

I think that is one that I think we should have put out earlier. I think we have a very, very strong statement that has been lost a little bit. But our core consumable business is actually extremely strong at slightly over 70% of sales, growing at 22% per annum, 20% approximately in the fourth quarter. Obviously well underway.

Did that answer your question?

Well I guess I was just looking for -- I'm just looking for a more relative number, more absolute numbers.

According to your last breakout from the third quarter, the instruments were about $8m, so I'm just looking for -- 34% of that would be about $10.8m, is that the right breakout on that number? I just wanted some real numbers to do, rather than trying to interpret it from the chart.

Well if we look at the number that we had in the fourth quarter for instrumentation, I think our estimates were around $8m or so, so in that case your number would be correct.

Okay, thank you.

Thank you. The next question is from Daniel Mahony of Morgan Stanley. Please state your question.

Hi, Peer and Metin. I've just got a couple of questions. First of all it's just quite a simple one, should we expect any restructuring charge in Q1, or have we seen it all in Q4? Q1 of 2003 that is.

And secondly, can you give us a bit more color on growth rates of DNA prep reagent kits, and RNA pre reagent kits? Particularly as Gene expression analysis seems to becoming more of a focus at various institutions, including the NIH. And can you give us a flavor for whether revenues from RNA kits are actually becoming material in terms of maybe in the region of $20m of sales and growing, sort of, 40%, 50% right now?

I'll take the first half and Metin, if you could take the second.

Restructuring charges are not very pleasant for anybody, and we certainly believe that we're on a very good footing now. We've consolidated our US sites, closed our smallest site and moved it into our newly established facilities. We still operate three facilities in the United States, in [indiscernible] a big sales and marketing entity, which is very, very important. And we certainly value the capability of. Foror instance, our tech service, our customer service and the inside sales function that we have there, very, very much. This is considered one of the most important assets at Qiagen, certainly in terms of customer satisfaction, for us a very critical element.

So these are things that we think will certainly be valuable for many years going forward, as assets and also as [indiscernible] for Qiagen. So as we see it right now, we don't see the need to do so on the short term, but going forward, there can always be situations where the market changes and we restructuring to ensure that we can make the best of our long-term opportunities.

Now in terms of - and this is very helpful that you bring this up - we did disclose a charge for the fourth quarter in the range of up to $12m. We have not quite covered everything yet.

There is about $1m in restructuring charge that will flow over into Q1 for accounting reasons. We were not able to take that, but it's certainly very immaterial if at all. So this is still an estimate at this time point, but it's certainly not on the high end.

I'll take the second part of the question, which is the dynamics of the DNA preparation and RNA preparation segments. In general, if we talk about total genomic DNA purification and RNA purification, and compare them, they are growing at comparable size. Maybe RNA is growing a little bit faster. But if we look to the DNA side, the DNA side is less fragmented in terms of samples and procedures than the RNA side. And therefore it is easier to capture. We have definitely very strong dynamics on the DNA purification for diagnostic application and genotyping application, and forensic applications. That's one part. Whereas, on the RNA -- and then it is coming from all kinds of biological specimen. And then there is a very broad range, or a very big chunk of revenues coming out of genomic DNA from blood, which is mainly diagnostic application and genotyping applications.

And then on the RNA side, we have a much more fragmented market. There are certain markets in RNA which are more or less not growing at all, which are on very slow growth, single-digit growth, which is [messenger] RNA purification.

Everybody talks about gene expression profiling, but the market is mainly dominated by Qiagen products, and the Qiagen total RNA product does the job much better than a [messenger] RNA purification.

If we further (ph) go into this market, then we have definitely RNA preparations from blood, and then we have it from all kinds of tissues. There are pockets in this which are growing at a very high rate, close to 50% to 60%. But overall both markets, DNA and RNA, are below 50%. I would like to have it at 50%, maybe it will go into this direction, depending on how the functional genomics market develops. But both are very, very attractive markets, with very profitable products.

If I may have a quick comeback on that? You talk about more of the interesting applications, ie genomic DNA and RNA, but when you look at the -- going back 10 years, the plasmid DNA preparation kits that actually made Qiagen famous, presumably those are growing close to high single digits? How would you characterize those sorts of tests?

That is right. But with the plasmid purification market, which were introduced in 1986, that's now a very long time, this product is still doing well. Yes, it's high single digits, or mid single digits. And we have already penetrated the world market by roughly 70% with this product. I think you cannot expect from a product which has penetrated the world market by 70%, to grow at high double-digits.

I think that's a very important statement. If we look at the plasmid market, with that penetration, this is the only market where we're really in excess of 30% penetration or so. Simply because for many years it was our only product. Qiagen was up to '91, 92, really focused on that product area, so got a head start. It's a very small market compared to some of the others, but it just shows that over time, a very, very significant portion of home-grew can be replaced with the commercial product.

We have never said that we're targeting 70%, but as this number is out here, and we've never really shown that, it has been at this level over the last few years actually. But this penetration is possible, and can be achieved in market segments. We've believe there are many other market segment that are even significantly larger, where such penetration could be possible.

Thanks a lot.

Thank you. The next question is from Sam Williams of Lehman Brothers. Please state your question.

Hi, thanks for taking the question. Two question, coming back to guidance. I got cut off the call actually and had to come back on, so apologies if you've already touched on this. Your previous guidance for operating margins was 24% for 2003, and that required expenses to shrink from 49% of sales to 43%. Can you give us some guidance on where that's going to come from? And the second question, coming back to try and dissect out the growth within the BioRobot, the 34% growth, how does that break down between the new products that you launched in Q3 and Q4, and the bog standard, if you like, the older BioRobot line?

The first question was regarding the operating margin. Depending on the calculation, if we use that number that you just used, the 24% operating margin, there are efficiencies coming from different areas. And if we look at our expense base at the moment, and look at companies larger than us in our space, you will see that there is a significant room for further reduction in operating expenses. I think the fact that we're now above 20%, even in this environment in Q4, with the uncertainties, the NIH budgets that have not been approved until a few days ago, I think is a surprise. And we did 24% of sales in Q4 of 2001, and were regularly above 20% in that year. So this is not something unusual.

We clearly saw in 2002, that due to the sales reductions we did not just cut our expenses, our employees are extremely valuable to us, and built over many years in many cases. We just simply slowed the growth of the expense growth. If you look at the absolute dollar spending, it's remained relatively flat in the last two or three quarters. So that said, going forward, the major savings are certainly in the selling, marketing and admin area, where in both areas at least a couple of percent could probably be seen as do-able over the next few quarters.

Okay, and then on the Robots, the instruments?

The Robots, while we do not break out the individual growth of the Robot. But just as a trend, it was really across the line. We saw growth for instance on the 3000. This was actually very strong in Q3, and approximately comparable in Q4. We saw a very strong growth in Q4 of especially the MDx instrumentation, which was amazing. Molecular diagnostic market is in an amazing momentum, and we are very often bench-marked I think with General Lifescience supply companies. I've even seen very basic filtration companies or other companies being benchmarked with us.

But Qiagen [indiscernible] is selling all of 20% of the sales in molecular diagnostics, it might actually be a tick more than that, depending on how it's defined. And that industry is on a roll and is expecting very substantial growth going forward as these types of diagnostic routines are becoming more and more standard. More and more assays are moving into the market.

And we're really the only player in town that can provide the right up-front solutions for this area, so we try to be the best partner for the whole diagnostics industry, be it the service providers at [Labcorp Quest], or comparable companies. Be it a Roche or an Abbott or be ita smaller biotech company developing a diagnostic tool such as [indiscernible] -- or companies like [Acumetrix] that are already moving in that direction. They all are using our samples preparations and we're proud to help them on that. And that area is growing very significantly.

Also in the fourth quarter we actually sold five times higher revenue number in the fourth quarter in instrumentation products and diagnostics than we saw in Q3.

It seems to me the companies in the instrumentation space that are doing well, are those that are launching new innovative products. Maybe that's quite obvious, but I'm just wondering, are we seeing a spurt now in your growth in instruments because you've just launched these new products? And have you taken up a lot of lowhanging fruit that's now going to maybe dry up a little bit, or what does the order book look like going forward? I believe you haven't got any major instrument product launches left for the rest of this year, if I'm right?

There are a whole suite of different segmented products out there, and again solution -- the consumable is really the key there. You have a market segment that is still working manual with the Qiagen products, and you introduce an automated version and protocol and that it runs on a system, and immediately you create a new opportunity for automation consumable packages. * The consumable is at the core and the automation solution is just a necessary add-on to be able to fulfill capacity and also reliability needs.

I don't really think so. If we look at how many diagnostic labs are out there, worldwide, you know, we probably have our system standing in 0.5%, 0.25%.

This market is so virgin and so early in its development, that I'd say one good quarter of sales of an automation product selling 20 instruments in one quarter into a diagnostic area, these are not bog sales, typically there are just one or two, maximum two, to a customer. That would not represent in any way just early adopters buying this and then immediately hitting the granite of slow moving other customers. So we don't really see that going forward.

Again, you know, while we might be making statements here that are quite positive in terms of our outlook on automation going forward, this is not built into any revenue estimates that we gave.

The automation products in 2002, as you see from the chart that we gave - and I was coming back to that one - you see that the automation products on the full year were actually zero in terms of growth rates. Actually here you see negative 6%. So assuming that the same thing continues, we would have a comparable thing next year.

And frankly, and Metin certain agrees, we don't think that this is what we will see over the course of 2003, but it's too early probably to assume that everybody is right to fully accept a more positive outlook on this type of a solution.

Which is also, I think, important to make a comment on it. Automation in our industry is mainly driven by the right application and the right consumable. Just having a piece of steel doesn't drive automation at all. And immediately if you have the right consumable and it is targeting exactly customer need, then also the customers will by the instrumentation. And then continue to buy the consumable.

Therefore the focus is mainly to get the chemistry and the application ready, and in parallel development the automation solution for it.

Okay, let me ask you one quick last question. I've heard reports that pre-analytics [tubes] are turning up in hostels on the continent. Any idea when pre-analytics might start impacting the bottom line?

Well you have some good sources there. Yes, we are definitely seeing the genomic DNA product, but especially of them and RNA products popping up. And we're seeing a very significant take off ia (ph) in the viral protocols that we have. So there is clearly -- there are also [party] first diagnostic products that are being launched that are using these systems, and I think our outlook for this business is confirmed for 2002, and we think that 2003 will be quite exciting for it as well.

In terms of an exact date of when it will be -- it is currently being used in hospitals, you are correct. In terms of when it will become a standalone, just a routine system with a diagnostic routine behind it, which is not an ASR, and integrating everything as an approved product, there are various efforts in that direction. Also various timelines already running, but I think we'll give more guidance on that when we get closer to the official launches.

Okay, thank you very much.

Thank you. The next question is from Cheri Walker of Deutsche Bank. Please state your question.

Good morning. First just a quick housekeeping issue. Can you give us a rough idea of what capex was in the quarter, and what we should expect in '03.

Then the second question, sort of an extension of the last. I'd love to hear Metin and Peer comment on the conversion that we're seeing in molecular diagnostics, and what you're seeing in low hanging fruit in terms of the viral load? And what you think the timeline is before we start seeing other diagnostics tests in [indiscernible] and molecular-based, RNA-based?

Metin, do you want to take the molecular diagnostics, then I'll take the other one?

Okay. On the molecular diagnostic side, definitely virus load was the low hanging fruit, or is the low hanging fruit, and is doing quite well.

But you have to remember that virus load monitoring is running for more than 6-7 years. And the important and let's say clinically interesting molecular diagnostic tests are -- people are working across the world on different types of genetic markers, to use it for clinical applications. We are coming from quite small numbers, but I think they are growing at a very high rate.

There is definitely -- for example in the United States, that all newborns should be tested of cystic fibrosis on genetic [marker] cystic fibrosis. I know from applications running in larger hospitals, to check for blood clotting factors, on the factor eight, factor two, factor five. And these are applications which are coming along.

We see more and more applications on the oncology side, colon cancer is a very good application, where you have to run at the moment 27 genetic markers on [Low C]. And these are, I think, applications which clinicians are using as a research application at the moment, therefore we don't count that as molecular diagnostic. It's very difficult to basically -- if John Hopkins University orders a product, is it diagnostic use or is it research use? And we count it as a research use. But I would expect over the course of the next five years, virus load monitoring will be probably over exceeded by genetic testing for all kinds of diseases.

And besides that, what we see is a lot of what we call esoteric viruses. Viruses which are running at a low rate, herpes, [ekstein bar], the [vestmein] virus is a major issue in the United States, and these tests will all be based on molecular applications. Therefore we see that as a very, very exciting area, but molecular diagnostics is not only the focus of the company. There is a lot of opportunities and also low hanging fruit in the functional genomics area. Very often, the method and the application and the product need is the same. In one case it's research and in the other case it's molecular diagnostics. Sometimes it's very difficult to distinguish between these two applications.

Great, thank you.

The second part of the question Cheri was the capex for the quarter. We ended in the cash flow statement as of September 30 we had approximately $43m in purchase of property, plant and equipment, and at the end of the year it was 58. So these are the final tranches just of the capex that are now concluded. We moved into the facilities and therefore reallocated a few payments into purchase of property, plant and equipment. We will, by the way, file the 20-F in a few days I guess, so it will be fully available then.

Okay. Well since most of the built-out has been completed, what should we expect in '03, more maintenance cover?

No, I think that the capex will return to levels that we saw prior to the infrastructure build-out. And this will probably be in the range of 7% plus/minus a percent (ph)of sales.

Thanks.

Thank you. Your next question is from Maykin Ho of Goldman Sachs. Please state your question.

Hi, most of my questions have been answered. I have just one more question on acquisitions. I think if you look in the last 4-5 years you guys have done a number of them. I think some worked out very well, others not as well. What is your thinking now on potential areas that you need to boost? And whether you are looking at acquisitions as another vehicle in the next 12 months?

I think there has been -- this is clearly an area where we have been active in the last 12 months. I think the acquisitions that we did this year are indicative - especially the GenoVis a visVis a vis a vis a vision acquisition. This is absolutely home country, and DNA or RNA purification was the key technology that we were able to acquire there. Within months we were able to introduce it as a Qiagen product brand - it is Qiagen product - and hit the street running with our sales force, who know exactly what to do with this type of a system and consumable.

So right now I think in times like these, I think we think that the key growth is in our core areas. We do not see any need whatsoever to diversify. The core competency that we have is -- well the market is moving in exactly the direction of our core competency, with the increased efficiency needs with the complexity of sample preparation increasing in these types of things. So I do not really foresee Qiagen moving into any transforming acquisitions whatsoever.

But if anything comes along in the area of sample handling, stabilization, separation, purification and the automation thereof, we will be highly interested in it. I think this has always been our message, but we would not really expect 2002 to see a string of acquisitions, certainly, probably not comparable even to 2002.

Does that answer your question Miss Maykin?

Oh yes, thank you very much.

Thank you. The next question is from Stefanie Philipp of HSBC. Please state your question.

Hello everybody, and thank you. I have two questions. The first is, to be honest I have quite some difficulties in understanding how you calculate your growth rates for the different segments. It would be quite helpful if you could give me the previous figures, and maybe also the pre-quarter figures for Consumables, Lab Automation, and Oligo's, that would be quite helpful? And the [indiscernible] question was also already answered, so that was it.

Okay. Well we have the growth rates and the percentages of sales, which played out in the individual conference calls. So what I'm going to do is just reiterate what we saw as percentage of sales in every area.

Well it seems that you actually changed the split, compared to 2001. I looked it up on what you said in 2001 as a split of different business areas, and I just do not reach these 22% growth in Consumables.

Well we'd be happy to do that again. The way acquisitions factored in and consolidations from prior periods. And this all has to be looked at overall. But what I can give you is what we put out in the various conference calls for the last year in terms of numbers.

The Consumables business in Q1 2001 was 67% of sales, in Q2 65%, Q3 70%, Q4 64%. Q1 was 73%, Q2 72%, Q3 72% and Q4 70%. And if that's the number that you're focusing on, you will base it on the year-end figure that you have. You will get approximately $170m of consumable sales last year, and about $215m for this year. And that would put the growth rate of a little bit over 22%.

Okay.

but just in light of the setting out, we'd be happy to walk everybody through these numbers, it's basically compilation also of the presentations that we have deposited on our website. And this presentation has that percentage of sales as well in it. And if we can maybe do that offline we'd be happy to discuss that and walk you through it.

Okay, that would be great.

Thank you. The next question is from Erica Whittaker of Merrill Lynch. Please state your question.

Hi there. I've just got two questions. First of all, some of your competitors have talked about weakness in government funding of academic science, and the future in Japan.

Our competitor, or is there companies out there that you --

Oh, Applied Biosystems has mentioned that they're expecting weakness in government funding of basic research in Japan and some European countries, which I presume is Germany, one of them. And I'm just wondering if you could comment on that, what you see out there?

And also, I had a question, I'm wondering -- We've talked a bit about [interference] RNAs this afternoon, I was wondering if you're planning to get involved in RNA kits for creating interference RNAs rather than having to have these custom made? Just being able to make -- I think there are some companies who supply kits for the researchers, I'm wondering if this is an area where you're thinking of getting into?

Maybe for the first part of the question, Applied Biosystems is a company we admire, but it's not a competitor. I think it's that we're very synergistic with Applied Biosystems products. So I think that the markets are very different in different areas. Every country has its own dynamics. We saw stellar growth in some European countries this year, weakness in the United States on the academic side, especially in Q4 with the NIH budgets being in limbo And there's only a certain percentage of prior year spending being [accessible].

So all of these things made it very, very difficult to really understand the market, and it cannot be put into one-liners. For instance, NIH is weak that's why everything is bad, or, Japan is weak, that's why there will be weakness there. I think especially Japan, is an area that we feel quite confident about. There have been significant programs approved in Japan. You never really know until the money really flows, but it's currently out there in terms of expectations. Also over the longer term it's actually one of the most attractive and fastest growing academic spending outlooks that we have probably worldwide. But it's one of these things, you take it when the cash hits your bank, or at least our receivable comes in, then it's for us an attractive growth area.

So in Germany there are different funding flows as well. Germany is a country that is a little bit weaker, but was weak all throughout 2002, with a few exceptions. But also there the -- I think that will be more than offset by other countries. We saw very fast growth in countries like France or Italy and Canada. It's much more complex.

I think what [indiscernible] is just to understand that. For instance the NIH budget being a certain growth rate for next year, pretty much means nothing. It probably means that certain numbers are going to move on a more general level, and that more people would be hired, but it doesn't really mean anything in terms of individual suppliers.

It's much more important to go in and really understand what spending is actually allocated to. $23b or $27b for the NIH including overhead, is not just one check that is written and split up among all suppliers.

And the same is true for Japan and also other countries as well. So there are individual differences, but Japan actually is one where we feel confident. Our numbers show that the - and this has just been done recently in the last few day actually - the outlook has been very strong for the [indiscernible] academic spending growth.

Okay. And the RNA Interference kits?

Yes, you are referring probably to these vector (ph) based kits, with some companies having no access to the IP portfolio of RNA Oligonucleotides, are trying to create some wind in this area. If you really look to the customers and the applications, I would assume that 95% to 98% of all applications and assays are run by RNA Oligonucleotides. Which is much more convenient, number one, but it is much more directed because the biological function is this small short Oligonucleotide. It is not an [Investor] (ph) which then is transcribed in the cell into an RNA, and that may cause a certain function. And therefore we are definitely looking into this segment.

We may come up with a similar product as a flanking product, but I believe that for the foreseeable future, it will be based on RNA Oligonucleotides. What we will come up with is what we call Genesilencing Oligo Sets, where we have basically prevalidated Oligonucleotides on the shelf where you buy it for a specific gene just for 10 assays, for example. And you don't need to order a customized Oligonucleotide.

Great, that's where you can make invitro with [T7] [indiscernible]

No, no, no, we are talking about chemically synthesized Oligonucleotides. The [T7] versions and the [indiscernible] versions and so on, these are scientifically very interesting, but we don't believe that it's going to be a product and a reliable product also in the future. There are so many factors involved in it, therefore if you're doing this type of research, you will probably go and pick an RNA Oligonucleotide to be on the safe side.

Okay. If I may, can I just ask one question about the fourth quarter over third quarter balance in the growth. You said it was higher than you normally see when, for example, pharma budgets are released a little bit in the fourth quarter. What was the degree of difference that you saw?

What we saw was typically probably somewhere in the range of 20% growth, vis a visvis a vis a vis a vis-a-vis a visvis a vis a vis a visvis a visvis a vis a vis a visQ3. And this year we said it was 34%.

Okay, and that is in the pharma segment?

Well as Sam asked before, it really came from all different type segments, so the molecular diagnostic segment was very strong. And that was certainly probably one of the largest contributors to this very -- this over-proportional increase.

Okay. Thank you very much.

Thank you. The next question is from Patrick Fuchs of DZ Bank. Please state your question.

Hello. Just a short question. I wanted to ask what is the amount of products that you are currently producing in the US in 2002? And what is the change to 2003, especially in quarter one, where you have let's say where the influence of the currency figures? Second question is, with GenoVis a visVis a vis a vis a vision you also acquired [HLA] (ph) business intended to spin out of [indiscernible]. Can you explain where do you book this [HLA], and what is the amount? Thanks.

The questions regarding the -- the first question I forgot?

The first question was, which amount of products are produced in the US, and what is the change for 2002 to 2003?

We are moving up the effectively manufactured products to over $100m in the year 2003. And this is if you say about half of our sales come from the United States, and 75% of that are consumable products. You see that that's a very, very significant portion. And we typically only leverage the products where we have a smaller revenue base, and therefore won't optimize the large sizes or these types of things in these different -- we do those in Germany and Britain, or in Switzerland or Norway in some cases. We ship them over to the United States as finished goods.

So that's really one of the major contributors going forward, and it's happening on such a steep ramp at the moment, that it's difficult to really show on a monthly basis what it was, because you've had to factor out on estimated revenues. But we have moved product by product and then just took a larger share of it, larger share of the product portfolio more or less on a monthly basis. So right now we're already on a very, very significant portion.

And the second question was the amount of the [HLA] in diagnostics business, and where do you book it, in which sector?

Well the GenoVis a visVis a vis a vis a vision business had DNA purification products that were instrumentation, [indiscernible] purification consumables, and had [HLA] products. And they are allocated a accordingly to Consumables, Instruments and also the Other section. So it's within all three of those, split up. It's not a big number, however. As I described before, it's about $2m a quarter the three products, and some of them have now been transferred over to Qiagen and are sold as Qiagen products with our consumables. And therefore the number is even south of that.

So for HLA diagnostics $5m or so for the year?

That would be a number that would be a little bit on the low side, I'd have to check the number exactly, but it's not far away from that, no.

Okay, thanks.

Thank you. The next questions is from Deruf Malik(ph) of First Analysis. Please state your question.

Good afternoon everyone. I wanted to touch base with you on, Peer, you provided a chart of geographic distribution or revenue growth for the whole year, and I was wondering if you could perhaps address that just for Q4, and also Q4 by your customer segment. If you could give me some color on academic, pharma and biotech.

I'm just checking the numbers again, but The growth rates that you had in the fourth quarter, just looking at individual areas, has been more or less comparable to what we had on an annual basis.

Geographies, or for -- for geography or for [indiscernible]

Geographies. So the US was around 10%, and the European countries were significantly faster in the high teens. And so worldwide you're now to the 13% approximately that we reported. So that's pretty much comparable. I'm just running through the numbers here, it's pretty much comparable to what we gave you as the annual projection. If you go through the last few quarters you will see a very similar effect. Q1 was a negative impact in the US because of the NIH. Our growth rate was lower Q2, the pharma companies in a major way, especially in the United States started contracting. In Q3 it was still more or less the same play, and in Q4 we disclosed the numbers for the full year, so it was more or less in that range.

Alright, and how does Pharma and Biotech do in Q4 say year-over-year comparison?

We don't really break out those segments. Not because it's something we can't or don't want to do, but we monitor obviously the segments. But just because the numbers are never really precise. You never really know if an academic account is a molecular diagnostics account. If you, for instance have a university hospital purchasing, we don't know does it go into the routine diagnostics or does it go into their clinical research, or maybe even just basis research. So that's why these segmentations are often very difficult if you only have a ship-to address. You can do estimates, but beyond a few percent, that's why we're advis a visvis a vis a vis a vised that we should really be giving that out. But the fastest growth rates are clearly coming from molecular diagnostics, from the pharmacy.

And I can't help emphasizing that we believe that the pharma sector has just reallocated its resources during 2002, and will continue to do so. It represents for us an attractive opportunity, which however, we are not putting into our guidance going forward as recovering.

The academic sector was just around double-digit range. And the biotech sector was one which was weaker, but it's so small, one big purchase can immediately lift it up well in excess of academic or pharma sector. So I wouldn't interpret too much into that. The biotech sector has so huge swings and growth rates, just because it is a smaller number

Right. I guess I was just trying to get an idea if -- for some reasons companies have suggested some weakness in Q4, and from pharma and biotech hurting their sales. I know you haven't seen that, and that could be a combination of new products and just your large sales force, which gets you in front of customers a lot more than other might. Any way to try and break out -- I know you don't do this, but maybe give some color on a breakout of say price, volume, acquisition, currency for the whole quarter?

Well we refrain from price increases that are in excess of inflation rates. We think that that has been a major contributor to the customer satisfaction. And also to our customer loyalty. If you sell a tool and you start changing prices in a way that might seem offensive, it can severely damage our reputation. And that typically takes a very, very long time to cure. So we always try to keep the pricing in a range that matches inflation, and have a very good justification that we also disclose.

So the volumes more or less equals price, minus the inflation rate of individual countries, which was not too high. We had barely 2% on average.

And acquisition contributed?

Acquisition contributed, it's a little bit difficult to add. On the GenoVis a visVis a vis a vis a vision side we basically used the technology to develop products as Qiagen, and then are now floating them so Q4 and Q1 2003 as Qiagen products into the market. So we combined some of their stuff with some of our stuff, and that only created a solution. So it is not really just slapping on the revenue base that GenoVis a visVis a vis a vis a vision had, but -- I mean the best way to describe it is, the HLA business, which is one that we have not really combined with our other products, and that's, as we said before, in the single digit millions. It's slightly north of $5m.

Right. And one thing I noticed, one comment you made, which I thought was pretty impressive. You said you'd doubled the sales people with NIH focus area last year. Strategically, as you look out over 2003 and 2004, what might you feel you might want to do with your sales force and your sales people? Do you want to expand and geographies etc, just to give some broad color overall?

Well thanks for throwing that ball. I think one thing I forgot was basically to say that while the NIH sounds like a huge number, the areas that I was mentioning are the NIH facilities in Maryland. And we've had $4m of sales in that facility. We disclosed that number actually in our financial -- in our filings with the SEC. So that number is actually our there. And assuming that 20% of the sales are typically allocated to the centralized NIH departments, and 80% allocated throughout the country as matching funds, as contributions to external researchers, you can assume that we have about $20m of NIH [indiscernible] sales throughout [indiscernible].

So that's about 7% of our sales. So you see that the growth rate of the NIH is really, really not the issue, the real concern that we have for 2004, it's much more important to understand what they're doing. Because we're getting such a small percentage of that pie. And immediately, if suddenly gene expression gets $1b additional funding, you know, this could -- these are huge numbers and huge impact on Qiagen going forward.

So that's the way we look at it. There actually we doubled the sales people, so I think we had actually one sales person there, and we have two, so we're not talking about big numbers. In terms of geography we had one sales person for the last five years. So there was not a huge buildup.

The geography I think is pretty well covered by Qiagen, and we feel comfortable we have some very good distributors in countries that we've [indiscernible] for Qiagen to do a good job by itself.

Alright, thank you.

Thank you. The next question is from Giusep Demont of Bank Vontobel. Please state your question.

Hello, I have two questions. One, can you give me the current impact on sales and EBIT for the full year 2002 and for the fourth quarter 2002? And then second question, is your guidance from sales growth based on local growth rate, and if not what assumptions do you have for the exchange rates in 2003?

Okay, a few questions currency related. In terms of the impact on our sales figure for 2002, we have to also compare these to our guidance that we originally gave. We have to really see that. I would like to compare that to the guidance that we gave in July. We detailed the currency impact for Q3, which was not significant. And when we reiterated the guidance for Q4, that's the number we also have here in the presentation, vis a visvis a vis a vis a vis-?-vis a visvis a vis a vis a vis the sales we actually did in Q4, vis a visvis a vis a vis a vis-?-vis a visvis a vis a vis a vis the guidance we gave about $600,000. Now we do have other currencies, you know, the Norwegian Kroner was quite radical this year in terms of its movements. We also have a significant Yen exposure. All these currencies are in some cases moving against each other.

The EBIT impact was negligible as well. I'd have to check for the fourth quarter, but I assume it would be in the range of $200,000 to $300,000. This is now a guess that I'm giving. I would have to -- we just finalized the figures, and completed the audit three days ago, so I have not had the opportunity to run an updated figure. But it would be around that range for Q4.

A negative impact?

Negative impact, yes.

And a positive impact on sales?

Correct.

Does that answer your question Mr. Demont.

Yes, the second question, your guidance for 2003 is that based on growth rates and local growth rates?

We think that at this time, that the currencies are in such a volatile environment, that we believe that the guidance that we give in terms of the top line growth should just be based on our longer-term currency forecasts. We are budgeting not near the current rate that we currently see, north of 107, but it is lower than that. And so we still have quite some reserve on the top line, meaning that the sales number would be in jeopardy if we would be following under one for instance, or under 1.2 I think is the budget for the second half of the year.

And in that case local growth rate would be the number that we are targeting here, as of today, yes.

Okay, thank you.

Thank you. The next question is from Chris Redhead of WestLB Panmure. Please state your question.

Hi, guys. Just a quick question. In terms of you said that there was some improvement in Q4, then clearly not to remind you, but last year you also indicated there was some improvement in Q1. which then sort of fizzled out in rather an unpleasant way. Just how sustainable do you think that's going to be going forwards, and are you seeing that it wasn't just simply a release of -- you know, that there was release of budget from pharma companies at the end of the year, and that's actually still positive outlook for growth in the first quarter of this year?

I think one thing to say, Chris, looking into 2003, we're projecting less than half of the growth rate that we were projecting going into 2002. Less than half. And if you have a Ferrari going at 150 miles an hour, and you hit a stone it sure hurts. If you have a tractor and you go at 10 miles an hour the impacts are less. That's (a). And (b), while we are saying that we see certain areas of growth, if you really look at the numbers, we're projecting nothing other than a growth rate comparable to 2002. 2002 was, as you pointed out, a very, very volatile year, where we saw major contractions and major changes in the marketplace. And we think we adjusted our forces into the right direction right now. And looking forward, we feel quite confident we're in a great place going into the year to provide a great opportunity for the company, and also our shareholders.

But this is not reflected in our guidance. And really these levels, one does not really have to -- I don't think it makes sense in changing any guidance that we have going forward.

No, I understand that, I was just saying -- the question really was, whether you think this -- you know, the trend that you're seeing is sustained or not? I know that you've been very conservative in terms of the 2003 guidance, which I think is sensible. But just in terms of you know, general -- What I'm looking for is the general market trends rather than --

Well as you might notice, the guidance that we gave is a pretty large [indiscernible] area in which it falls. So in terms of what we see for 2003, I think that the trends as we see them right now, we don't have crystal balls, we've been in this industry for a very long time, since the mid 80s, and we've had 25 quarters of very solid performance prior to Q2. And Q2 had a major impact, as we see it, and documenting it going forward I think with hindsight we were right in interpreting what is happening. I think that going into 2003 that we will show that if that is really right what we are seeing, that we will see sustained improvement.

The pharma industry - and this is a statement that one has to make - the pharma industry, which has seen a [indiscernible] came back, and it cannot stop doing research for a sustained period of time - period. And all of the statements assuming that the pharma industry will stop doing research or significantly reduce research, we thing bears no logic. And we clearly see that that market is probably going to -- there's a very high likelihood of being more solid than in 2002.

We see that the academic markets, from the description of what is happening, that they do so, a great degree of progress. Again, here we're not projecting an improvement, but only keeping it at 2002 levels. So things can always go wrong. We showed a significant improvement in the Oligonucleotide business, so our options are very broad there.

So at this point in time, how far can one see? We look five years out in terms of development, that's what we owe to our customers, and that's where our prime loyalty is frankly. We price ourselves of always thinking of our customer first, and ensuring that they have the best tools. Our customer clearly is directing us in the direction that we are going at the moment in terms of focusing on next generation functional biology and also molecular diagnostics applications.

Just one quick question in terms of your debt position and interest charge for Q4. it's quite high the interest charge for Q4, is that fair to say?

Under US GAAP, what you basically do once you move into a facility, that's when you start depreciating and that's when you start also expensing the interest under the interest expense line. So basically up to that time point it was in the prepayments capitalized, and at that point in time it starts flowing through that line item. So you are correct, that's a number that we're going to see going forward. We have -100m credit line, of which a significant portion has been utilized, about -90m as to the year end approximately. And what we have there is a [indiscernible] of 1.2%, and that is being expensed in that line.

Okay, that's fine. Great, thanks a lot.

Thank you. The next question is the final question coming from Aaron Geist of Robert W. Baird.. Please state your question.

I'll try to be very, very brief.

[indiscernible] today.

Recently Roche and Affymetrix forged a pretty significant agreement where Roche looks to Affymetrix to launch the next generation platform for molecular diagnostics. You happen to have relationships with both companies and partnerships, how do envis a visvis a vis a vis a vision that accelerating the adoption of molecular diagnostics in terms of traction for your consumable products?

We're very excited about this deal. We are very proud to have both companies as our partners, and both of them very successfully. Affymetrix launched a Qiagen solution for their systems this year, and is proving to be a fantastic partner for us. We hope that we are seen the same way by Affymetrix. At least the customers seem to be very excited about this seamless integration.

We think it's just a further indication. I think this industry is in a major momentum build up. It has moved slower than initially thought a few years ago. But when you suddenly see these sums starting to cross [indiscernible] for the diagnostic industry, which is certainly only a fraction of the therapeutic industry, many tens of millions of dollars for individual technologies, that just gives further excitement. Which Affymetrix product is a great example of, an extremely sensitive technique, a very, very powerful too that really lives off the quality of the sample preparation. And we showed that in the research market, and we're looking forward to show it in the diagnostic markets.

By the way, the product that Affymetrix sells are comparable to the pre-analytic parts.

Can you, in very broad brush strokes, give us an ideal of the molecular diagnostics revenue in 2002 of the roughly $300m in revenue? And what you anticipate in 2003 coming from molecular diagnostics of the estimated $335 or so million that you've guided to?

Again, we do not split it out for the reasons that there are just too many grey areas. We cannot allocate it very, very precisely. But we think that our revenue base is approaching 20%. And depending on how [indiscernible] allocates, it could be significantly more than that, it could be less than that.

So it's very, very difficult to say, and we just think that -- what we can certainly say is that our market share, vis a visvis a vis a vis a vis-?-vis a visvis a vis a vis a vis the home-brew methods, is very high. As molecular diagnostics cannot really work with home-brew methods in a routine way. Maybe for certain esoteric tests, but in a routine way this would be very, very difficult. So we're there with the right tools, and we're waiting to capture the upside.

How big could the growth be? We see some market studies showing humongous growth rates over the next few years, but this is something we're working on to facilitate should it happen, but I think at this point in time it really needs some of the larger players really higher up on these types of products. It's one of these markets that can accelerate very rapidly. The major difference to the research market is that if this happens it happens fast. And the growth rates are very fast, and the uptake can be very fast in that market. If a very broadly used diagnostic tool is introduced, and that by a major company such as a Roche or an Abbott or a [Bayer]. Then immediately one is talking magnitudes of faster market uptake than you would see in the research parts.

Thank you very much.

There are no more questions. I would like to close this conference call by thanking you all for participating. We hope to welcome you again on our first quarter 2003 results conference call on Tuesday May 6, 2003. If you have any additional questions, please do not hesitate to contact us. Again thank you very much and bye-bye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.