Qiagen NV (QGEN) 2005 Q2 法說會逐字稿

Welcome to the QIAGEN second quarter 2005 results conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Solveigh Mahler, Director of Investor Relations.

Good morning, and hello, everybody. Thank you very much for joining QIAGEN's second quarter 2005 conference call. QIAGEN experienced the successful second quarter 2005 with revenues being in line with the Company’s projections, operating income exceeding, and earnings per share coming in on the high end of the Company’s expectations. I’m Dr. Solveigh Mahler, Director of Investor Relations at QIAGEN. With me on the call are QIAGEN’s CEO, Peer Schatz, and QIAGEN’s CFO, Roland Sackers.

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 homepage at www.qiagen.com. The time of the conference call is set at one hour. We therefore would like to ask you to please limit yourself to only two questions during the Q&A session. If you have any additional questions or need any further information, please don’t hesitate to contact us after the call. As always, we will be more than happy to answer all your questions and provide you with any information you might need.

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 U.S. Securities and Exchange Commission. With this, I would like to hand over to Peer.

Yes. Thank you for joining today’s conference call. We released the results of our second quarter yesterday after market close. It was another very strong quarter for QIAGEN. We came out in line on the revenues and exceeded on the operating income line and came in on the high end of our earnings per share guidance that we gave in early May.

What was particularly exciting was a very strong organic growth rate. We’re growing at 13% organically with the consumables, and the outlook is really very, very strong. We have a very strong pipeline, also, in terms of new product introductions. The new product introductions for the first half of the year have been exceptionally strong, and I have some updates on that as well. Also, we’re executing very well on our strategic plan in terms of the external opportunities. The close on six acquisitions alone since April are all in our core focus area, and there’s a tremendous pipeline of growth opportunities still to come. So, we’re executing on our plans. We’re expanding the Company. We’re clearly setting standards in the spaces that we’re addressing.

In terms of the revenue breakdown, the chart that you’ve seen a few times here also reflecting this time the second quarter 2005 -- Consumable growth came in at 15%. Strong new product lines, and, again, I’ll have some updates on that. Exciting acquired product lines. We were extremely fast in integrating some of these acquired product lines, most notably for molecular staging and RNA. I have some updates on that as well. There’s an exciting track record going forward, and we’re very, very well on track to reach our guidance for the full year of 2005, as we’ll lay out a little bit later.

In terms of instrumentation, our BioRobots are continuing very strong growth rates. It’s almost double digit in terms of the BioRobot instrumentation sales. We are phasing out some of the OEM products, which are general liquid handling instruments. They have nothing to do with the molecular biology applications that QIAGEN addresses. That is bringing the overall growth rate of instrumentation area to about 5%.

In terms of geography, I have some highlights here. Europe was exceptionally strong. It came in at 28% growth. North America came in at about 11% growth. The rest of the world was about 2% of sales, and in Japan, we’re continuing to see a challenging environment in Japan, Japan representing about 7% of our overall revenue base.

In terms of the customer segments, as shown here on the next slide, the academic sector, representing approximately 45% of revenues, is very solid in most countries. The NIH continues to be quite slow. The European markets, however, have shown very, very strong growth in the second quarter, and we’re expecting a robust environment also for the second half of the year. In Japan, we’re continuing to see a difficult market environment in the academic sectors. We are probably doing better than many other companies in this space; but, clearly, compared to the growth rates that we are seeing in the other market segments, a much lower growth rate in Japan. In terms of the pharma and biotech sector, which represents about 35% of our overall sales, a very, very clear selling focus that we actually boosted in the second quarter with the pharmacogenomics initiative. We’re an extremely strong and very strategic partner to our pharmaceutical customers in this area, and this is something that is becoming more and more clear. The U.S. is showing very exciting growth in this area. Europe is slower than the United States. Japan continues also here to be a challenging environment, mostly driven by very intensive M&A activities among Japanese pharmaceutical customers. Again, Japan is about 7% of our sales.

Where we’re seeing very exciting opportunities is in applied testing. Applied testing, which encompasses biodefense, forensics, veterinary applications, food testing and all kinds of different areas of applications of molecular biology that are emerging now -- Forensics continues to be a very, very strong market for us with very strong growth rates in that sector as well. We launched a lot of initiatives in 2005 addressing applied testing market segments. We created also a specialized sales development force in this area. We’re hosting a major biodefense day with leading biodefense participants in August, there are a number of veterinary diagnostics initiatives that are running, and the forensics activities continue very strong.

Diagnostics are approximately 20% of our sales with a very strong outlook. It’s clearly an area of focus. The acquisition of artus increases QIAGEN’s value in a great way for our partners. We have seen a whole string of new opportunities emerge after this acquisition, as we’re now able to provide a complete and integrated solution, more or less off the shelf, for people in molecular diagnostics or interested in entering.

On the next slide you see what QIAGEN’s growth formula is really all about. Number one is organic growth rate. We’re a Company driven by innovation. We’ve created a lot of initiatives over the course of 2004 as well as also into 2005 that are boosting that organic growth rate even more. We have been very, very successful in the new product introductions in the first half of the year, probably more successful than we’ve been in a very, very long time. So, I’m quite optimistic on the outlook for 2006 and ’07 in terms of the organic growth rate as well. On top of that, clearly, a very intensive M&A acquisition opportunity quarter. We’ve been very active in end licensing and creating also externally funded and externally derived growth opportunities. On top of that, there were six acquisitions that we completed since April, clearly a very successful phase, also in terms of bringing in great new technologies that are synergistic and catalytic at the same time. Molecular staging is very successful. We integrated that within three months. The products rolled out in January. It’s clearly a success product for QIAGEN. It has built a great base, also, for future expansion in this area. RNAture has been launched. Within three months we launched the product, three months after the acquisition, now in July. We’re very hopeful for that as well. Artus was acquired in June. It gives us great base in the area of molecular diagnostics. Tianwei is already doing very well in China. We have a lot of initiatives we’re able to boost from that base. Next, I’ll talk about LumiCyte as well, and SuNyx as well also. Clearly a very active presence also in terms of M&A opportunities. In addition, the strategic initiatives that we have are also in the area of dissemination. We’re clearly seeing molecular biology moving into many different areas of application. New customers, i.e., same customer organizations, new departments, new and emerging market segments overall, such as in applied testing, and also geographic expansion of our business model is clearly an area of focus.

If we turn to the new product initiatives that we put out in 2005, you see here some examples of the products and how we go about them. Along the three lines of dissemination systems biology and standardization and integration, we launched a whole slew of products that were extremely exciting and, in some cases, have a number of products actually behind them. Here you see, for instance, the Qproteome line as one product. We’ve seen very, very exciting growth. Our new product introductions from this first half of the year greatly exceeded our expectations.

Internal growth is complemented by external growth opportunities as well. As you see here on the next slide, we are using that momentum that we’re creating through our organic engine and creating extremely focused sales and marketing activities that you see here. For instance, separate Diagnostics sales force activities are being started, separate Applied Testing sales focuses and Forensics, Veterinary and Manufacturing. We launched a Pharmacogenomics sales initiative. We are a key member in the Personalized Medicine Coalition. In terms of systems biology, a second megatrend that we see, we have launched a complete line of protein fractionation products under Qproteome. We added RNAture, added very interesting technologies in the area of genotyping and acquired quite a few companies. I’ll talk about that in a minute. In terms of the standardization megatrend, we’ve created a number of new alliances. We have created the first regulated product in our sector with the 510(k) for the PreAnalytix packaging RNA product. We also created some interesting further alliances beyond that.

In terms of our vision and mission, I’d like to give you a small case study on how we go about identifying opportunities and using our internal innovation capabilities to augment them. If we look at our mission statement, you see here that QIAGEN is really about creating indispensable solutions that set standards enabling access to any content from any biological sample. How did we go about this when we addressed the protein sample preparation market? I think it’s a nice case study, because clearly there’s been a lot of activity here.

As you see here on the next slide, we mapped the various preanalytical protein submarkets in terms of growth and size. We also factored out a few of the market segments that we do not want to participate in or do not believe that they are markets with interesting differentiation potential. Conventional chromatography, for instance, is a market that GE addresses in a very, very strong way. In the other markets we created, more or less within the last nine months, a complete product offering that is addressing protein sample preparation for Proteomics customers. In January, we launched a protein fractionation product line that is today the largest and broadest protein fractionation product line there is in the market. It was boosted in July with an additional four kits. In terms of in vivo expression, we launched a rejuvenated product line, also now here in the July product new launch offering, the in vitro translation product offering the same, and affinity chromatography we rejuvenated, our leading high express product line, which is clearly a standard in the market for affinity chromatography.

This left two market segments open. One is crystallization; the other one is Mass Spec sample prep. In terms of crystallization, we identified a unique leader Nextal, which we acquired in late June. This has become a very exciting new pillar of our Proteomics sample preparation strategy. In addition, the Mass Spec market, clearly a key market for a player in Proteomics, was open, and we found two partners that were able to bring very, very unique technologies to QIAGEN for Mass Spec sample preparation.

To understand how this fits in, we see here on the next slide what Mass Spec sample preparation is all about. If people do MALDI Mass Spec, there are typically three types of MALDI Mass Spec application they’re working with. One is standard MALDI Mass Spec, the second is LC-MALDI, and the third is ESI. If we look at the different sample preparation techniques that are used in these different sectors, you see it’s an extremely tedious sample preparation process. We identified that particularly in the LC-MALDI area and also in the standard MALDI area, as SuNyx and LCI brought phenomenally new capabilities to our customers in terms of sensitivity and ease of use.

This is, for instance, shown here on the next slide, where the work flow is shown. Traditionally, customers had to go through a multi-step procedure which typically ended up in poor efficiency and low sensitivity. Running fractionations, purifications, 2-D gels, tryptic digestion, [indiscernible], spotting and drying on the chip, and then ultimately going into the analysis was extremely cumbersome and created loss of sensitivity. LumiCyte for standard MALDI and SuNyx for LC-MALDI dramatically reduced the number of steps and increased the sensitivity to allow a totally new dimension of customer capabilities using these types of MALDI techniques. So, overnight, we created more or less a complete portfolio for MALDI users in terms of sample preparation. They are extremely catalytic with our Qproteome fractionation product lines, and they’re extremely catalytic also with some of the other protein sample preparation products that we’ve been launching over the last few months.

If we look at the deal structures for these deals, you see that we’ve been able to acquire these assets at extremely attractive prices. These companies are growing at very, very rapid rates, the products were just introduced, they’re very research intensive companies, and yet we were able to acquire them at multiples of about three times sales. So, great assets with very attractive valuations. We think that these will be great growth drivers for QIAGEN in the periods to come.

On the next slide, I would like to talk briefly about PreAnalytix. Preanalytics is experiencing extremely strong momentum at the moment. The product line is doing phenomenally well in terms of both development and also in terms of sales. It’s clearly setting an extremely powerful standard in the research but also increasingly in the diagnostics sector. On May 18, we achieved the first 510(k) clearance of such a product. It was a de novo clearance, something extremely important for both BD and for QIAGEN and certainly also for our customers. In addition, we launched the globin reduction protocols with our partner Affymetrix. This is extremely important because it allows the use of arrays using blood samples. Clearly whole blood is a very attractive diagnostic specimen, and therefore having the availability of a sample preparation process that allows arrays to be used on whole blood is extremely important. In addition, we launched a complete automation protocol for PreAnalytix products in Q3 2005 and have a very robust pipeline for the second half of the year and also in 2006 in terms of combination products of collection and purification to come. Clearly, standardized preanalytical processes are expected to grow very rapidly also going forward. We therefore decided to streamline the PreAnalytix distribution channels and make them more efficient to allow people to also access these products through the volume purchasing agreements that they currently have in place for BD products. This is shown on the next slide.

As you see here, the original model that we had was for QIAGEN to produce the kits and BD to produce the tubes. And, the new model is not changed. The regulatory status is clearly now that we have regulated products in addition to research use only products, and the sales channels that we expect to use going forward is for BD to sell the regulated tubes and for QIAGEN to sell the regulated kits as well as also the research use only kits as well as also the research use only tubes. Why are we doing this? We were able to standardize the use of a new technology which was extremely successful, and we’re very pleased with the sales performance of these products. Clearly now, the next phase allows for a growth in the clinical practice standardization of these products for use as a diagnostic tool.

We’ll talk a little bit about the financials as well, and I’ll hand over to Roland for that. Thank you.

Thank you, Peer. Let me take you through some of the key financial highlights for our second quarter 2005. As Peer mentioned, QIAGEN experienced another positive quarter in 2005. Reported revenues and earnings per share were in line with Company’s guidance, and our outlook for 2005 remains positive and strong. In other words, we are well on track as we pass the half-way mark for the year. The guidance we provided you on the 15th of February for the second quarter 2005 outlined our expectations for revenues in the range of $101 to $103 million US, an operating margin between 22% and 24% of revenues, and diluted earnings per share of $0.10 to $0.11 per share. We came into the revenue range with $100.4 million US in net sales. Calculated with the same currency rates we used in our guidance figure, it’s actually $101.9 million, so clearly in the middle of our guidance. As we mentioned in February and again in May, we applied a EURO/dollar exchange rate of $1.30, and, as you all know, this past quarter, the dollar did in fact get stronger, so the average rate is more around $1.25 to the EURO. In addition, the foreign currency effect was also felt with the yen and the Swiss franc the past quarter. This impact can be seen in the top line figure, but more importantly to note is that there is relatively no impact to the bottom line, a factor that we reiterated in the past where it’s evident how the natural works hedge for our trust. Also to note here is that our net sales figure does include a revenue stream of only a few hundred thousand dollars from artus, so that’s primarily organic growth in the second quarter. During the second quarter, excluding acquisition and restructuring and related charges, which are also excluded from our guidance, we achieved an operating margin of 25%, which exceeded the guidance we provided of 22% to 24%. And, diluted earnings per share of approximately $0.11 a share also at the high end of the range, which we had forecasted to be between $0.10 and $0.11. On an adjusted basis, excluding acquisition, restructuring and related charges as well as amortization on acquired IP, we had earnings per share of $0.11 with an increase of 2% on the second quarter 2004.

Let me break these numbers down for you now. Comparing reported net sales of $100.4 million US this quarter to $98.6 million US for the same period in 2004 reflects a growth rate of 2%. However, excluding our synthetic DNA business unit, which was sold at the end of the same quarter last year for better comparability, we would demonstrate a solid growth rate of 13% based on net sales of $88.7 million US for the same quarter 2004. In terms of our operating income, including acquisition, restructuring and related charges as well as amortization on acquired IP would provide a number for the second quarter this year of $21.6 million US compared to $22.9 million US for the second quarter last year. Excluding these charges for better comparability, however, reported operating income for the second quarter 2005 was growth by 2% to $25.4 million US. Reported net income including the aforementioned charges showed a very strong 57% to $13.8 million US. Excluding these charges, it increased 11% to $16.4 million US from $14.6 million US for the comparable second quarter in 2004 and 2005. On a constant currency basis, this would translate to a 6% growth. Finally, diluted earnings per share, excluding the aforementioned charges, increased 10% to $0.11 from $0.10 for the comparable periods. Again, on a constant currency basis, earnings per share growth would be the same at 10%.

In the second quarter 2005, our consumables business, which accounts for approximately 88% percent of our total revenues, grew by a solid 15% and on a constant currency basis by 12%. As Peer mentioned before, we are still on track for the 70% growth rate for the financial fiscal year 2005, and we feel well on track by having met our numbers for the first and second quarters with 11% and now with 15% growth rate respectively. Completing this past quarter, we see clear indication that demand from pharmaceutical customers is still improving. A major growth area for the consumables business continues to be molecular diagnostics, which is showing increased penetration along with a strong introduction of new product lines. Instrument revenues growth rate is 5%. Instrument sales consist of sales of BioRobot instruments and sales of instruments to third parties, mostly diagnostic companies, so-called OEM sales. As we mentioned on the Q1 call, we do continue to see a delay in OEM orders. However, our BioRobot sales are remaining strong. Our Other segment includes services such as plasma DNA contract production for gene therapy customers. In full, this segment [contract] by approximately 7%; it really only represents approximately 2% - therefore, only a small portion of our overall revenues as we continue in our commitment to focus on our core business.

We continue to deliver solid top line successes. Throughout our [indiscernible], we can see a slight decline of operating income by 6%. This is due to acquisition related charges. QIAGEN's adjusted operating margins improved by 2% to 25% of net sales. Clearly, here we even exceeded our margin targets. Excluding one-time charges and based on constant currencies, our operating margin achieved 25% of revenues as well. Net income as reported improved by 57% and 49% with constant currencies. EPS on an adjusted basis with actual and constant currencies increased by 10% to $0.11 per share. We have steadily increased our R&D spending quarter over quarter. We typically allocate approximately 9% to 10% of our total operating expenses to this area because we believe that part of QIAGEN’s ongoing success is based on innovation sold internally. It is a critical balance we keep between investing and organic growth, and discounting the acquisitions, we have rolled out a series of news announcements this quarter. This demonstrates our commitment to strategic components and extensions of our products.

We also have a very solid cash position with more than $208 million US in cash and cash equivalents. This strong cash flow gives us the ability to act quickly to technology opportunities and accretive acquisitions, as you have seen this quarter. This remains part of the execution of the strategic planning we underwent last year. I think we can confidently say we have been gathering strategic momentum already in Q1 and now in the second quarter evidenced by the various announcements for product launches, licenses and collaborations, which firmly place us in all the key global markets. Just to highlight our operating cash flow of $24.9 million US in the second quarter 2005 versus $26.5 million US in the second quarter 2004, and looking at our free cash flow for the quarter, we see a decrease from $22.9 to $22 million US this quarter. To put this in perspective, even though we had a higher net income this quarter, we had less working capital in comparison to last year’s second quarter because of the increase in the tax payables in the second quarter 2004 by more than $6.2 million US. We continue to show a strong cash EPS of $0.17 per share. One of our key strategies in expanding our positive cash flow position is active management of inventory levels and day sales and accounts receivable. We see a significant improvement in our inventory days in comparison to last quarter and in comparison to the first quarter 2004, which we believe is a very positive trend and will continue going forward as well. The guidance for inventory turned over 165 days and came in at 135 days. This significant reduction has to be to the credit of improvements in the streamlining and centralization of our logistics. Also, a slight decrease already to the last quarter receivables DSO, where we had guidance for 63 days and came in on target. So, we believe that generally this is a positive trend here.

Part of the challenges in building a company in line with our long-term strategic vision is not only identifying and acquiring products to meet the future needs of our customers but also entails adapting and adjusting to the way we market and sell them in the short term to fit in with our long-term goals. As Peer already noted, one area we are seeing this is in our PreAnalytiX joint venture. This operational impact clearly will revisit distribution solutions already explained. Let me give you some more color on the financial impact for 2005 and beyond. The revenue shift will be in the range of 2% less revenue in the second half of 2005 and the fiscal year 2006. We will continue to follow the PreAnalytiX joint venture agreement that outlines a split of 50/50 in the profits. Important to highlight is that QIAGEN anticipates no change in EPS income by revenues for the second half of 2005 and for fiscal year 2006 would be reduced by approximately 2%. To put PreAnalytiX assets as well as those of the artus acquisition and some other adjustment in perspective and what this means for our guidance, we prepared a slide that demonstrates these expected revenue shifts. As noted already, we expect artus to contribute a solid $5 million US in revenue to our Q3 and Q4 results this year. [Indiscernible] revenues will contract by $4 million US and $2.5 million US attributable to the PreAnalytiX joint venture and changes in the way we are recognizing revenues for contract production activities. We noted in our press release that this area, which is not part of our core business, had been offered as a service to our customers but the service itself was performed by partners on the guidance of QIAGEN and with use of QIAGEN technology. We have decided to modify the format under which such services are offered, and this will change accounting for such services and the resulting QIAGEN not longer recognizing revenues on these services offerings. QIAGEN expects the effect of this change to reduce revenues for the remainder of 2005 by approximately $2.5 million US, but we do not expect any impact on earnings per share, as we will still recognize these transactions as an agent net. Our revenue expectations therefore for Q3 are between $105 and $107 million US and for Q4 between $111 and $113 million US. The bottom line here is that our expected EPS remains unchanged while we continue to ensure we remain our focus on core activities and free up any resources in other areas to put them better at work in our dynamically growing markets such as molecular diagnostics.

To provide you with an overview on how the events, particularly the extent of our acquisitions, impacts our guidance, we feel very comfortable that we have provided you at the beginning of the year remains solid achievable. I have a slide here that lists these events. Our guidance for the second half of the year of approximately $218 million US in revenues would require year-on-year a growth rate of 14% in our underlying business. This contribution from Molecular Staging, which was an acquisition in September last year, all the way to artus recently announced, you should be able to see that our strategic is working on seeking deals that not only provide innovative technologies and are profitable in themselves but also provide excellent synergies and are relatively straightforward to absorb into our business. These are providing to be truly accretive acquisitions. With our new guidance for the Q3 and Q4 revenues growth of 16% or 18%, one should be able to see that we are well on our way to achieve the needed 14% year-on-year growth to achieve our targets. The various [indiscernible] shows that overall we have reduced our [indiscernible] by 5%, whereas last year at this time, largely reflective of our strategy in [indiscernible], but this also reflects personal absorptions from our recent acquisitions.

So, before I hand it back, I think Peer wants to summarize for you what has been a very exciting quarter and first half year for us as well as conclude with our -- Therefore, I would like to hand it over to Peer.

Those 1,495 employees I think have been doing a phenomenal job in this second quarter of 2005. It was an extremely solid second quarter, in line and exceeding our guidance with a very strong outlook for the second half of the year. A good financial performance and extremely strong innovation performance in the first half of the year, evidenced by an increasing organic growth rate. A strong strategic momentum as well. I think in this last three months, we’ve been doing more acquisitions than QIAGEN ever did in its history, and they’re all extremely synergistic, extremely core to QIAGEN. We will see going forward that they will be highly shareholder value enhancing.

We are disseminating also our market leadership into new areas. There are a lot of sales and marketing initiatives and exciting new growth opportunities outside of research and even outside of diagnostics where our products are required. So, following our core message into new opportunities, we’ve created a number of very strong alliances with leading partners in the life science and diagnostics field. There have been a number of announcements, and there are certainly a lot more in addition to that. We are really just starting. In 2004, we took the time to lay out what we wanted to do, and in 2005, we’re executing. Clearly, this has been now the start of this program. We’re very excited about the future opportunities for QIAGEN and are well on track to meet our 2005 goals.

With that, I’d like to hand back to Solveigh.

We are now looking forward to discussing your questions. With that, I’d like to open the Q&A session by handing over to the operator.

[OPERATOR INSTRUCTIONS] Brian White; Deutsche Bank.

I have a couple of questions, one on [indiscernible] and one in Japan. Just with respect to the gross margin development, do you still anticipate an improvement due to increased production utilization? Secondly, I wasn’t quite sure in terms of your adjusted guidance for ’05. Are you still maintaining your operating margin guidance for Q3 and Q4? Then, separately, just in terms of Japan, we’re suddenly hearing elsewhere that the situation in Japan appears to be improving. Given that Q2 was still fairly slow for QIAGEN, what do you factor in for the rest of -- Are you forecasting a rebound, or do you still expect Japan to be reasonably slow for the rest of the year?

I’d probably take the first two questions. Regarding the gross margin, we definitely expect a further better utilization, expecting our growth rates going forward. We currently are running on an equipment utilization of approximately 60% to 65%, so this gives us a lot of possibilities for the next three to four years without further investments just to ramp up our gross margin, first of all. Second, of course, we ought to be able to increase our [indiscernible] as we did in the past by at least inflation rate. Also, this would help us in improving our gross margin year over year. To your question number two on our operating guidance. There is definitely no change on the profitability guidance for the third and fourth quarters this year. We remain optimistic in our guidance for 2005, and there is no change at all. Japan, of course, is a market which had shown a flat growth rate, and, in the second quarter, we were quite cautious also in forecasting this into our numbers. So, we also remain this cautious view for the third and fourth quarter. We at QIAGEN don’t expect a negative impact out of Japan for the third and fourth quarter, but it might be a positive impact.

Brian, I think we’ve been expecting Japan to come back faster. There’s no question about that. We have been doing better in Japan than most other numbers that at least I’ve seen on the industry in the past, and that’s starting, also, from the beginning of the administrative procedure change that kicked in in Q2 2004. But, clearly, it is not contributing to the top line growth the way it should. Where we are seeing some great opportunities are in the area of forensics, for instance, or diagnostics. The Japanese police system has standardized around the use of QIAGEN products. The diagnostic industry is taking up these products, actually very rapidly at the moment. Actually, the PreAnalytiX product was first approved in Japan before it was approved by the FDA and also by European authorities. There are certainly pockets of growth, but the general life science academic research area and also the pharma research area, both due to different reasons, are still soft. I think that’s no different with other players. It might not be as bad as it was a few months ago with other companies, but clearly nobody’s seeing very rapid growth in Japan yet.

Sam Williams; Lehman Brothers.

I just wondered if we could look at slide 28, actually. I just wanted to make sure I’m clear on this. You’re saying the revenue guidance for the second half of $218 million -- is that including or excluding the acquisition revenue that is listed below?

It includes, of course, the numbers. If you see under artus on slide 27 that $218 is the middle out of $105 and $107 plus $111 to $113, so I just took the middle out of this. To show that the underlying growth rate we need for the second quarter to achieve our growth rate is 14% organic growth rate. If you see that already in the second quarter, for example, there’s 13% growth rate in our consumables business, I think what we would like to demonstrate is that the targets for the second part of the year are very achievable for QIAGEN and even we could show some positive things here.

Okay. And, I also just want to be absolutely clear on the P-Alliance. Can you just explain the changes there a little bit to me? I’m clear on PreAnalytiX, but if you could explain that?

P-Alliance is very straightforward. P-Alliance is a group of companies who are performing DNA production for certain customers who are normally QIAGEN customers. But, QIAGEN in the past did just the marketing and the quality control and more like the collection. We changed, so we were the principal. We modified this because all production and storage was done by other partners. We only had a small part in the whole business. We modified this so that going forward we’re just an agent. As an agent, you can’t recognize -- you just can recognize a certain profit part of it. It’s really a net cost view going forward. Therefore, there’s also no impact on EPS.

Right. Okay. And, then I wonder if you’ve done the numbers. You can just give us your like-for-like operating and net income growth year on year, if you actually exclude the operating revenue in the first half - in Q2 of ’04, if that’s possible.

Yes. We didn’t do it here on the slides because we call this part of costs, of course, and then in certain areas they’re quite integral into the QIAGEN number. So, to really be giving a fair presentation reasons, we didn’t exclude it completely on the expanse side. But, of course, it would have important positive impact. So, you’re absolutely right; it is not excluded here, as we would believe it wouldn’t be a fair presentation because we had to work with too much assumptions to do so as this was fully integrated. But, as we all know, the cost structure we had before, there would be a positive impact if you would be able to extract it.

Okay. Fine. Then, just one quick pair. On Qproteome, what was the --? It’s not critical because it’s only going to contribute $2 million. But, just so I understand, how is Qproteome --? Is there any way you can quantify for us how it was doing in Q --? I know you launched in January, so in Q1 it wouldn’t be expected to do any revenue much at all. But, for Q2, is there any way of annualizing what you were doing at the end of Q2?

Yes. It’s certainly on track to do the number that is here in the chart for the second half of the year. It is very rapid growth, and we launched 12 kits in January and an additional 4 kits now in July. We feel very confident based on the number in the second quarter that this number can be made or actually even exceeded. I wouldn’t want to break out the exact number. If you run the numbers, it would be somewhere in the range of $1 million for that whole product line in the second quarter. But, clearly, it’s showing faster growth, so you can assume it’s a little bit below that. But, it’s showing very fast growth. I would say Qproteome is really just one product within -- I think that was really the intent of this one slide, highlighting the different market segments. The way we went about this was not just putting additional product into the shelf and have our sales force sell it or buy something and tell our sales force to sell it, but we went about looking at this market very strategically. What do people do when they think about protein sample preparation? There were about 60% of the opportunities we addressed with internal resources and 40% through acquisitions. The Qproteome line should benefit from a complete sample preparation line for proteins as well. Mass Spec is also synergistic with fractionation. If we have a focus group now in this area, and a number of people came to QIAGEN with these deals that we did, there is an additional opportunity for us to boost the coop probably on revenue. We feel very confident about the $2 million, but I wouldn’t want to quantify them down to the dollar at this stage.

Aaron Geist; Robert W. Baird.

Can you talk --? I have four quick questions. The guidance that you gave back in February talked about 12% year-on-year growth for the instrumentation, which at this point with the first half of the year behind you, would be a significant acceleration in instrumentation growth for the back half of the year. Can you talk about the margin impact given that, from my understanding, a lot of this is supposed to come from this OEM customer that you’re seeing delays with?

We saw very -- Again, the first quarter, we saw a very high growth rate on the BioRobot product line. In the second quarter, it was just off 10% on the BioRobot line. Normally, the second quarter is not a very strong instrumentation quarter. Instrumentation quarters are typically, in some cases, the first quarter, but especially the fourth quarter and, in some cases, the third quarter this year. We also had a number of new product launches in July that make us feel very confident about the automation sales for especially the fourth quarter. Most notably we launched what we call the Universal BioRobot, which is a plug-and-play system that on a 96-well format. The BioRobot 8000 upgraded with an extremely broad application portfolio on it, while traditionally they were more tailored to certain applications and less flexible. Based on that and based on the pipeline that we have, we think we’ll have a very good second half of the year on the automation top line. That’s not unusual compared to previous years.

Would you say that the instruments that you sold in the quarter are going into the traditional end market that you’ve seen? You know, 45% academia, pharmaceutical and biotech at 35% and the diagnostics about 20%, or there’s a delta there where more instruments are going into one end market than another?

Where we’re seeing very strong growth is in diagnostics. In some areas, as you know, we have co-marketing relationships with large diagnostic companies. In some areas, we went through validations of the MDX systems. They clearly were validated now and as certain regulatory hurdles that have passed and has been also tested now with a number of systems. The pipeline is extremely strong also in the diagnostics sector, both for the smaller systems as well as also for the high-end products. I would say academic markets are less aggressive currently in terms of capital spend. We’re seeing good growth, especially in the U.S., in the pharma sector, and globally, diagnostics.

Would you say that we should anticipate a partnership or collaboration with some of the Mass Spec instrument manufacturers, given that you’re now looking at standardized MALDI Mass Spec sample prep?

Yes. We already have -- LCI has a number of relationships, and the LCI product is compatible with the leading MALDI Mass Spec systems that are out there. SuNyx also has a broad compatibility list as well. LCI has some more or less formalized relationships already in this area that we’re currently in discussion on how we can disclose and market. We think it is a huge benefit for the players in the MALDI instrumentation field. We’re clearly showing dimensions of sensitivity increase. Sample preparation is what QIAGEN is all about. It fits very nicely with some of the other upstream sample preparation products as well. Yes. Clearly, this is an area of discussion at the moment.

You talked about $4 million of technology-related sales into the U.S. market last year in the second quarter, 11% growth excluding that and about 7% growth by our calculation including it. Can you tell us what you’re expecting for the back half of 2005? Is it more 7% or 11% in the U.S. market?

Yes. We are clearly seeing -- 2004 was a year where we realigned and refocused the Company. We clearly are razor sharp defined now. We have some smaller things here and there that we closed in on now; for instance, with the contract manufacturing area. But, today we feel extremely comfortable with the level of focus that we have. Going forward, I would really look at the underlying growth rate that we have in the U.S. and being 11%. The team is performing exceptionally well there. We have a great group of people that have really brought up the organic growth rates quite a bit. We feel quite good about using these types of numbers also on a going-forward basis.

One last question, if I could, to Roland. The new guidance, or the reiterated guidance, does that include the impact of FX in the second half of the year?

For validity reasons, we used the old constant guidance we gave in February 2005. Otherwise, I think it would be just mixing up things. We calculated with the currency we guided in February.

And, at this point to the back half of the year, what’s your estimation in terms of the negative impact of foreign currency?

I think the impact probably for the third and then fourth quarter could be dependent, of course, especially in the U.S. dollar/EURO ratio, could be comparable to the impact we have seen in the second quarter.

Okay. That will be about 1.5% negative. Actually, positive. Okay.

Again, most important, Aaron, and I think you’re raising a very good point, we don’t expect out of currency any impact now on profitability, as we definitely have a completely natural hedge.

So, for the back half of the year, you would assume about a 1.5% negative currency impact, if currency rates remain the same as they are right now?

Yes.

Peter Welford; Merrill Lynch.

I’ve got three very quick questions. Firstly, can you please quantify the actual dollar impact on the revenues and also the net income line due to foreign currency? You usually give the actual dollar numbers, with or without the foreign currency relative to last year. The second question is can you just outline to us the exact amortization of inquired intangibles and exactly what they relate to; i.e., are those purely the acquisitions you made during this quarter? And, thirdly, can you tell us, please, where PAX is actually booked in the top line; i.e., when you take out that 2%, exactly which of the consumables instruments and other that 2% is actually coming out of?

I’m probably taking the first two. For the first question on the impact in the second quarter on currencies, on the top line, it’s approximately $1.5 million US. If you break it down, it comes mainly from the U.S. dollar, which is approximately $1 million. The other impact comes from Japanese yen and Swiss francs, which are currently approximately $500K together. We don’t see any larger impact on operating income as well as on net income off currency. We don’t see a big gap. On intangibles, I think for the second quarter, pretax it is about $730,000 US; after taxes about $760,000 US. For the first quarter, actually it was $575,000 pretax and $373,000 after tax. It goes, as you know, completely through the P&L, depending on the kind of intangible it is. For example, if you have a customer database, you’re writing off about [indiscernible] it goes to selling expense. If it has any cost of sales issues, it goes to the cost of sales. But, this is something which you also will see later on in our 6K and defined in detail.

In terms of the area where it goes through, the sales that Roland was referring to, those 2% are consumable products.

Martin Wales; UBS.

Two questions. The first one is you talked a bit about what you expect for Qproteome. I wonder if you’d talk a bit more broadly about what proportion of sales you anticipate your protein sample preparation from it as a total contributant in 2005 and 2006 and give us some field of the trend. Just how important do you see this becoming for the business? The second question is rather duller, I’m afraid. Precisely what exchange rates are you predicating your guidance on? Just remind me what exchange rates you quoted in February, please.

The first question on the protein line. This product line is growing very rapidly. We have a certain base of products, most notably in the recombinant protein expression and purification area, where we have the QIAexpress product lines and some time. They’re clearly a standard there. But, some of these new areas are growing very rapidly. It would clearly be our goal to see this area of protein sample preparation be about 10% of our sales, not necessarily in 2006, but maybe some time on a quarterly basis in early 2007 maybe. This is showing clearly a very strong ramp rate. With some of these opportunities like Nextal and the Mass Spec sample preparation lines growing at very high double, if not even triple, digit growth rates, we could be there a lot earlier. So, I wouldn’t really want to commit to these numbers beyond 2005, which we put into the press releases, but they’re clearly showing rapid growth rates, and we could be in the area of 10% in a foreseeable time frame. Roland, you want to refer to the currency exchange rates that we put out in February?

What we used in our February guidance as the exchange rate is more or less currency rates which were in fact in January because this is obviously what most of the banks expected for the 12 months going forward. Hence, for example, for EURO/U.S. dollars, it was $1.30.

I would like to close this conference call by thanking you all for participating. We hope to welcome you again in our third quarter results conference call on Tuesday, November 8, 2005. If you have any additional questions or need any further information, please don’t hesitate to contact us. We will be more than happy to answer all your questions and provide you with any information you might need. Again, thank you very much, and have a nice day.

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.