Qiagen NV (QGEN) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Qiagen’s 3rd Quarter 2005 Results Conference Call. At this time, all participants have been placed on a listen-only mode. They will be open for questions, following today’s presentation.

It is now my pleasure to turn the floor over to your host, Dr. Solveigh Maehler. Ma’am, the floor is yours.

Thank you very much, Ashley. Good morning and hello, everybody. Thank you very much for joining Qiagen’s 3rd quarter 2005 earnings conference call. Qiagen experienced a solid 3rd quarter 2005, with operating income exceeding Company’s expectations, and EPS being in line with the Company’s projection. I am Dr. Solveigh Maehler, and I am director of investor relations at Qiagen.

With me on the call are Qiagen’s CEO, Peer Schultz and Qiagen’s CFO, Roland Sackers.

The conference call will cover a 20 minutes presentation, followed by a q-and-a session. We will be using the presentation during the conference call which can be downloaded from the IR 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 2 questions during the q-and-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 US SEC.

Now I would like to hand it over to Peer. Peer?

Thanks, Solveigh. Thanks for joining the 3rd quarter conference call. It was a quarter where we showed a very strong operating margin – exceeding our targets and exceeding also even full-year targets that we had in force toward the end of the year. This allowed us to come inline on EPS.

Direct sales were strong. Our sales forces throughout the world had been reporting well in the 3rd quarter. We did, however, have 2 OEM partners that were expected to purchase a significant amount of product in this 3rd quarter – that delayed their product introductions that included Qiagen components.

The core business at Qiagen remains very strong. We had 15 percent growth in consumables in this 3rd quarter, driven by very high success in innovating. Our innovation engine is working very well, and it contributed new products launched in 2004 – of almost 4 percent of sales. So 4 percent of sales were generated from products that we introduced in 2005. I think that’s about 3 times the industry average for that ratio.

So, organic growth was very strong – driven by innovation. High single-digit organic growth – especially the direct sales forces that we have throughout the world have been performing very well.

On Slide 4, you have the usual breakdown of the revenues. Consumables continued very strong. We had great success with our launch campaigns in the 1st, 2nd and also in the 3rd quarter. The 4th quarter launch campaign just kicked off a few days ago. I think it’s the most interesting product launch campaign of this year.

Instruments were down -- mostly driven by OEM product sales delayed, as I described before. We are continuing to move down this OEM component. It has been moving down over the last few quarters, and going forward, we expect that to decrease further.

We are focusing the Company. That is visible in the other segments. We exited contract manufacturing, as we described in the 2nd quarter conference call. This slice continues to become smaller.

On Slide 5, also here – the usual slide – on the customer breakdown. In academia, we saw solid performance in most countries. The NIH closed their purchases – or slowed down their purchases very early in the 3rd quarter, accelerating them going forward, as expected.

The Japanese market remains weak. So there’s really nothing new, there. Pharma was strong – and surprisingly strong in the US. Very good performance in that market. Soft, therefore, Europe. Also, here, nothing really new – a trend that has been continuing for some time, now. We’re focusing on growth opportunities in the various segments that we address with our products and services.

In Slide Number 6, you see that we are, in molecular diagnostics, on a very interesting strategic path. We are expanding our assay portfolio significantly. We have today about 120 assays. A very growing portfolio of assays that we are providing for human and also other testing products. These are standards in our markets. We have a number of alliances in molecular diagnosis. About 25 alliances, where we either distribute or co-develop products.

If we look at the sales breakdown in this area – 80 percent of our sales in molecular diagnosis go to end-users. This is a revenue component that we control very well. We have our own sales forces. It’s growing rapidly, and we have direct interactions with our customers, and can predict very well how their sales are expected to be, going forward.

Fifteen percent of our sales are of existing products or slightly-adapted products that we sell to customers or partners as OEM products. This is less predictable, but typically has a history of sales to those partners, and in a certain degree, we know quite well what the next few quarters are.

Five percent of the sales – so, a very, very small component of our molecular diagnostics business – which by itself is about 20 percent of our sales. So, 5 percent or 1 percent of the Company, approximately, are co-developments of specialized products with partners. This is an area certainly less predictable and subject to all kinds of development risks. But clearly, a very small part of our diagnostics business.

If we look at the diagnostics market overall, we very often get questions of what it actually is. We’ve therefore put in a slide here showing the overall diagnostics market, with the various segments that contribute about $30 billion of sales, today. You see molecular diagnostics is about 6 percent of the overall diagnostics market, but it’s clearly expanding. The whole diagnostics market is changing. Increasingly, diagnostics are being used to not only facilitate diagnosis, but also influence therapy decisions. This is especially the case in molecular diagnostics, creating a market that is growing far above average.

If you look at the next slide, Slide Number 8, the molecular diagnostics market in detail – you see that it has a number of subsegments. The two large ones are viral infections and blood banks. So there are a number of different subsegments with different growth opportunities in this market. About a $2 billion market in 2006, of 65 million tests being performed. The estimated market growth, for the long-term CAGR, is about 15 percent.

The big segments are viral infections and blood banks, as I said. Specifically, if you look at this slide, you see that pathogen testing is clearly the major part of this molecular diagnostics market. So going forward, it’s clearly a very important part of this new trend.

In addition, molecular testing techniques are being used in what are called “applied testing” markets. Also, here, we’ve been getting a lot of questions regarding the meaning of this term “applied testing.” So we tried to put down a chart here on the next slide – Slide Number 9 – that shows you the various segments of applied testing.

It is a clearly more fragmented market, with very diverse opportunities in veterinary, food, forensics and other areas. But it’s growing very rapidly, and we see a great opportunity to use molecular testing techniques in these markets, as they emerge.

A great example of pathogen testing being used in both human and also applied-testing segments, is Avian Flu. Qiagen today is a provider with a complete solution portfolio, and probably the largest provider selling to Avian Flu diagnostics, today.

We have a complete portfolio of screening, assays for animals and food. As also, now we’ve launched and we announced that yesterday – quite a novel approach of doing testing – which can be used in humans – using a two-layered approach that I’ll describe in a few minutes.

We also launched yesterday or announced yesterday, a number of protocols that have been developed using Qiagen products as standards. Examples – certainly – the WHO. But also other organizations are referring to using Qiagen components as part of solutions -- homebrew testing solutions -- that are being used around the world.

We were the first company to introduce these types of tests. We have the broadest portfolio, and clearly it is going forward as quite a significant opportunity. We’re very committed to supporting this effort in this area. But it is a pathogen-testing application of which we actually have quite a few in our portfolio. By far, the majority of our about 120 assays are being used in pathogen testing.

To describe what is different about our approach with our new Avian Flu tests – there are different approaches to doing testing. This is shown on the next slide – Slide 11. The new RHSH5 influenza test, with an H5N1 feature – is actually very novel. It combines or uses a so-called two-layer approach – capturing all the influenza, AB viruses. Then a sub-screening or the sub-detection component, detects, specifically, the various subtypes that are known today as H5N1.

This allows a highly sensitive diagnosis to be performed. It captures more mutations. It allows full screening, yet still remaining very, very specific on detecting the certain subtypes that are known, today. So it’s a lot more sensitive and broadly applicable. And a lot less prone to not detecting mutations, compared to the direct detection method that you see above, where basically the H5 virus itself was being detected.

Another thing that we very often get questions on is the tiny [biotech] market.. We decided to put a little bit of information on it in this presentation, and also describe how we’re moving, in this market.

The Chinese biotech market today is very, very attractive. It’s not very big, yet. In terms of life-size grants, in terms of also overall activities, it’s certainly smaller than many European countries. But there’s a tremendous dynamic in that market. The commercialization, R&D, is greatly encouraged by governments/

There are two main segments of focus – one biomedical. China’s expected to be the world’s largest pharmaceutical market by the year 2020, based on estimates. Biotech is clearly a key driver, and they’re focusing on diagnostics and pharmacogenomics in that market. Clearly, diagnostics – after the outbreaks of SARS and now the bird flu – have a very high degree of focus. And certainly, the economic impacts are a good reason to continue investing in those areas.

The second area is Ag Biotech. They’re building the largest Ag Biotech capacity outside of North America. So there’s quite some aggressive spending going on, and very high growth expected, going forward. We’re seeing a tremendous move of Chinese that had been working abroad, back into China. Today, 1 of 3 scientific publications is published with Chinese co-authors.. So, a lot of exciting growth opportunities in that market.

We have a number of activities already in place, today – which we created – actually most of them over the last few months. This is shown on the next slide – Slide Number 12. We have an established focused local marketing presence and office in Shanghai. We have strength in our distribution channels, and we have a local brand activity through the acquisition of TianWei Times, which is performing very well.

In addition, like in every other country, we have a distribution channel for diagnostic products. This is for where our [Fuji] VIATeC kicks in. We acquired – I’ll talk about that in a minute – a leading molecular diagnostics company in China, which is gaining rapidly share, and has a substantial sales channel of about 150 sales people in China, supplying diagnostic products to diagnostic customers.

The development and manufacturing base, which I would consider state of the art – also for international standards – and a great regulatory base for us to expand from.

On the next slide – a few words on this company, [Sanjian Fiji] VIATeC , located near Hong Kong. Very, very high-quality in manufacturing, and also in development. We were very impressed with what we saw, there. It is a company very focused on PCR-based diagnostic products. It also sells into veterinary and quarantine-testing applications. Clearly, obviously a focus on human applications, as well. It was the first company to introduce an Avian Flu product, which is the only company today – we believe – which is approved by government for veterinary and food testing.

It’s a great fit, we think, on the next slide. A few of the advantages of this transaction. It gives us great resources in China. It gives us a manufacturing base. It allows us to take a very well-established portfolio and expand beyond China, with great opportunities in all of Asia, but also in other developing countries. Very, very synergistic with what Qiagen is doing.

We were able to acquire this company at a very attractive price of about 2 times sales, going forward. Which is a fraction of what these molecular diagnostics companies are going for, at the moment. There was a very interesting process on that, and we’re very happy that this company is joining the Qiagen family. Clearly, the 3rd quarter was a quarter where we also did a lot of acquisitions. There were 3 transactions that we entered into in this 3rd quarter.

I promised you some time ago some information on a case study of how we were doing integrations. The first company that is coming out of the 12-year post-launch or post-acquisition period is Molecular Staging. Most of you will remember we acquired Molecular Staging about a year ago. A company with a very attractive patent portfolio of about 180 patents in the area of whole genome amplification, which is used to immortalize samples, or create more DNA where DNA is scarce, to allow better testing to be performed.

This market has performed as we expected. It is today an about $12 million market, with the current applications. I’ll get to that in a minute, where I’m qualifying that. We think there are more opportunities, going forward. Growth is about 20 percent.

Qiagen is really standardized. While genome amplification in that space, using Qiagen and the special molecular staging technologies. Today, we have a very high market share in this segment.

We’ve said that the business will do about $6 million in fiscal 2005, and I’m happy to say we’ve actually reached already $6 million at the end of September. The products were launched in January. New products were now launched in the 4th quarter product launch, allowing a much broader application for these products.

We are focusing on the kits. There was a service component, as you remember. The kits became a much larger share than we originally intended or originally were planning for. Clearly, it was a very, very positive development for us. The kits area is one that we were intending to focus on.

Future whole genome amplification markets are diagnostics. We have the first activities in that area already underway. Identity testing and paternity and forensics and all the damaged DNA in tissue banks and serum plasma metabolism.

I would say 1-year post-deal, a very good report card. We exceeded our targets for this business. We’re doing a lot of integrations at the moment, and I can tell you that these integrations are going very well. And we’re very happy with the technologies that we acquired over 2004. They are strategic – not opportunistic – strategic. They are accretive and they combine extremely well with our core business. And have the opportunity to leverage our growth, going forward.

With that, I’d like to hand it over to Roland.

Thank you, Peer. Let me take you through some of the key financial highlights for our 3rd quarter 2005.

On several levels, the 3rd quarter proved to be another period of solid performance for Qiagen. Especially in terms of organic growth and gaining operational momentum. The guidance that we provided to you outlined our expectations for revenues in the range of $105-107 million. Revenue for the quarter was $101.8 million. This is using identical FX rates, as used for the Company’s guidance. Also, we still showed a respectable 13 percent in revenue growth. Our OEM instrumentation and contact with such business was soft, with [inaudible] of approximately $2 million in revenue.

Viewing the 3rd quarter, excluding acquisition, integration and such related charges – which are also excluded from our guidance – we achieved an operating income of 27 percent. Which exceeded the guidance we provided of 24-26 percent. And diluted EPS of $0.12 – which is solidly in the middle of the range we had forecasted between $0.11 and $0.13. On an adjusted basis, we had EPS of $0.12, with an increase of 20 percent over Q3 2004.

Cash EPS, computed using cash from operations divided by number of fully-diluted shares, was $0.13. [On a total] as an impact on our top line figure, more importantly to note is that there was relatively no impact to the bottom line. A factor that we have [inaudible] in the past, and that we would like to go into a bit more in-depth on the next slide.

One can see that in terms of revenues in non-US currencies, there is a foreign currency impact of slightly over 3 percent. We applied a Euro-dollar exchange rate of 130. As you all know, this past quarter, the dollar did – in fact – get stronger. So the average growth rate was around 121 for the euro. In addition, the FX effect was also [inaudible] this past quarter. This impact can be seen in this top line figure. But operating income and net income are protected by the natural edge.

Overall, the third quarter and number of [inaudible] following story. We have a strong earnings engine driving our overall performance. Without considering constant currencies, our net sales of $98.7 million this quarter compared to $90.4 million for the same period in 2004, still reflects a respectable growth rate of 9 percent.

In terms of our operating income, we demonstrated 24 percent growth over Q3 2004 – and likewise, with our reported net income, a very strong growth of 40 percent. From 12.6 million in Q3 2004, to 17.6 million this past quarter. As well as the diluted EPS and an increase of 33 percent to $0.12 from $0.09 for the comparable period of 2005 and 2004.

Now, taking our financial performance numbers and excluding acquisition, integration, restructuring and related charges. As well as amortization and acquired [inaudible] for better comparability. We reported operating income for the 3rd quarter 2005 of $27.4 million. Still a solid increase of 14 percent over the same period last year. For [inaudible] our reported net income – excluding the aforementioned charges – increased 27 percent, to $18.6 million – from $14.7 million for the comparable 3rd quarter in 2004.

Finally, diluted EPS – excluding the aforementioned charges – increased 20 percent – to $0.12, from $0.10 for the comparable period of 2005 and 2004. In Q3 2005, our consumer-ware business – which accounts for approximately 89 percent of our total revenues – grew at 15 percent. We feel this growth rate is sustainable.

Instruments revenue [inaudible] overall by 14 percent, this quarter. Our total notes [inaudible] contributed a solid 9 percent growth. Our instrument sales consist not only of [inaudible] instruments, but also sales of instruments to 3rd parties. Mostly diagnostic companies, so called [Rams Heads].

As we mentioned on the earlier quarterly talk, we do continue to see a delay in OEM orders. And to which degrees this will be recognizable still in 2005, remains uncertain. Also, our other segment constructed by approximately 56 percent – which represents now a less-than 2 percent of overall revenues. Therefore, only a small portion of our overall revenues has been continued in our commitment to focus on our core business, and execute on our strategies to growing our core competencies.

Important to note is that we see no currency impacts quarter-over-quarter on the respective growth rates in each of our business units. We are consistently delivering strong gross profits, as the reported growth rates of 15 percent this quarter. These numbers are well to highlight our gross margins, where we have been able to reap the efficiencies on the [inaudible] out of our [inaudible] business, and by converting customers to upgraded products. Even here our CE-labeled products. This highlights that we continue to focus the Company by cutting back on such areas as lower-margin service businesses.

Focusing of our businesses also means having clear efficiencies and running them. Depicted on the slides, showing our margin development, is a clear comparison of the 3 key drivers of our profitability for Q3 2004 and Q3 2005. In terms of our operating margin, we have been able to exceed our guidance on sales and margin, on a level that’s G&A cost. We believe we have a good pace going forward, for this.

Qiagen continues to have a very solid cash position – with over $211 million in cash and cash equivalents and current marketable securities. This strong cash proposition gives us the ability to act quickly through technology opportunities and accretive acquisitions, as we have seen over the past few quarters. This remains part of the execution of the strategic planning we underwent last year.

I think we can confidently say we have been leveraging our strategic momentum – evidenced by the various announcements of the product launches, licenses and cooperations – which firmly place us in all the key global markets – especially the Asian markets, right now.

Just to highlight our operating cash flow of $19.2 in Q3 2005 versus the 3rd quarter 2004, where we had an increase of $8.7 million. We have an operating cash flow margin of 19 percent. Looking at our free cash flow for the quarter, we see an increase of $16.6 million for the quarter, and a strong cash EPS of $0.13 per share.

One of our key strategies in expanding our positive cash flow position is active management of inventory levels and days sales and accounts receivable. We guided for inventory turnover of 154 days at year-end, and came in, inline, with 151 this quarter.

Also experiencing a slight decrease related to last quarter is receivables DSO – where we had guided for 63 for year-end, and came in better than guidance. So we believe these results are a positive trend and will continue, going forward.

On February 15th, and again on August 9th, we provided guidance of our expectations for the last quarter and for the year. Organic growth will continue to be a significant contributor to our revenues. Especially in Q4. Although we had guidance for $111 to 113 million, we now expect in light of the continued delay in [inaudible], as well as a stable-yet-softer Mark in Japan, our new revenues, expectations for Q4, to be $106-108 million – implying a growth rate of $0.12 – so, 12 percent.

Given this expected revenue range, we estimate that FX impact could put us in a $101-104 million at the current exchange rate for the quarter.

In light of our strong performance for the first 9 months, and our expectations that we will be able to keep operational margins stable, we remain confident in reiterating our full-year EPS guidance of $0.44 to $0.47. This, despite our revised revenue guidance for the 4th quarter.

A quick glance at our employee numbers shows that overall, we had increased our headcount by 2 percent versus last quarter. Last year reflective of an increase in our ad counts with our sales and marketing divisions, where we had an overall growth of 23 percent since the 1st quarter of 2005 – to reach 1,531 employees globally. We have expanded capacity, which will not sway us from keeping this organization lean, by maintaining a strong focus on our core competencies, and ensuring we drive innovation forward.

So before I hand it back to Solveigh, I think Peer wants to summarize for you what has been a very exciting quarter and first 9 months, for us.

Yes. Thanks, Roland. There were obviously a lot of things that happened in the quarter. But if we look back, it was a quarter where we had a solid performance. Clearly, movements in partner sales were unfortunately low margin sales. Overall, it’s a rather immaterial part of our business. About 1 percent of our overall sales.

In fact, two of these sales were in the 3rd quarter. Clearly, it was an issue. But it didn’t impact our EPS. It is not impacting our outlook for the full year. Going forward, clearly, these sales are coming. We have 25 partners that are in the pipeline. It’s a very small part of our business. These are 2 of the largest ones that are going through this delay period.

But the profitability is maintained. We actually exceeded our profitability levels in this 3rd quarter. We are quite positive on this being a trend, going forward. Also, looking into 2007.

This is driven by an organic growth rate, which is one of the strongest in our industry. Our innovation engine is working very well. We have a very strong pipeline that came out in 2005. I gave you the percent of sales that were generated from products that came out in 2005. I think this gives you a great indication of where these products are going, going forward. And our growth rates are going forward.

We’re clearly the market and technology leader in our space. We have a very well-defined space. This is an attractive area to be in. We’re addressing market opportunities that are considered some of the fastest-growing opportunities in life sciences, overall.

With that, I’d like to hand it over to Solveigh, to open it up for q-and-a. Thanks.

Thank you very much, Peer. We are now looking forward to discussing your questions. And I’d like to open the q-and-a session by handing it over to the operator. Ashley?

Thank you. The floor is now open for questions. [Operator instructions].

Sam Williams, Lehman Brothers.

Just on Japan. I just want to be clear, there. You’re saying that it’s soft but the outlook is improving. And I’m assuming the $2 million you’re shaving off Q4 is coming out of consumables. But you had a pretty good consumables in Q3. I’m just wondering – if it’s not getting any worse, and you didn’t have any impact in Q3, why are you shaving some off Q4? [inaudible]

Well, we’re not shaving it off the consumables, Sam. We’re shaving it off the overall number. Japan remains a market which is very difficult. It is facing continuing budget pressures on the public spending area. What we’re seeing is that a lot of pharmaceutical companies are actually exiting their research out of Japan. So the pharmaceutical sector is not a growth segment, at the moment. And certainly biotech has always been only a very small activity in Japan. The only areas of growth we see are diagnostics. And in some areas of academic spending. But overall, it’s not an attractive market at the moment.

Now, going forward, we remain positive. The outlook is positive. If you talk to people, they keep on saying that this market is going to come back. But we’ve seen that now for 2 or 3 quarters in a row, where Japan always came in on the low end of our internal estimates. Thereby, [inaudible] to some of the other markets that we had in other areas. So therefore, I think at this point in time, we just want to stay conservative on the Japanese outlook, and assume that it will be flat, going forward.

That’s very clear. Then if I may, I have a couple more questions. That’s clear, on Japan. I just wondered, in terms of the consumables growth – you did 15 percent. If you took out the acquisitions, [artists] and molecular staging, and if there are others. Then tell me. If you took those out, what would be the growth? But including new product launches. I’m just talking about just taking out acquisitions.

Yes. Very often, these acquisitions have synergistic effects. So it’s often difficult to measure. We did also have a collaboration with [artists] prior to the acquisitions. If you factor everything out, it’s in the very high single-digits, if not double-digit percent. So if you’re a little bit more conservative in how you account for it, it would be [inaudible] to 9 percent. If you would factor in the sales that we would also have been doing with [artists], it would have been about 10 percent.

Got it.

The 3rd quarter did, by the way, have a day less than last year. So…

I’m sorry – I missed that.

That’s an important one.

Okay. I missed that – what you just…

Again, spending days are important for our industry.

Oh, yes.

There were 1 or 2 more spending days in the 2nd quarter, and there was 1 less spending day in the 3rd quarter than in the previous year. That immediately means that if you have one more day where you can generate sales, that gives you essentially 1 percent organic growth rate. That’s why we factor those out and usually go on a daily level. There, we’re seeing it about 10 percent – depending on how you account for it.

Got it. My last question is just actually on the acquisition revenue. You gave us an estimate earlier in the year as to how much assets would contribute in the 2nd half. I think it was 5 million. I’m just wondering how much is that skewed toward Q4, and will we see… Are you going to benefit a huge amount more from these acquisitions in Q4 than you did in Q3, because the revenues were ramping up? Can you give us a feel for that?

I think overall, it’s been quite busy all through, and it’s still busy with integration work. In all-in-all, we’re launching the [inaudible] I believe of a fairly distributed over this organic time period, in this second part of the year. But I don’t see specially [inaudible] certain ramping up. But it wouldn’t be as dramatically as you might be thinking.

It’s not material.

Then Roland, one other one for you. Can you just give me the constant currency exchange rate that you were applying? When you look at your Slide 26, that constant currency you’re talking about on sales of 101-104 for Q4. I just want to know what are the exchange rates you were using?

Sam, for the 4th quarter or for the 3rd quarter last year?

No. For the 4th quarter of this year, on Slide 26. You’re giving us a range and constant currency of 101-104.

Yes. I more or less used the US-euro dollar [8.17 1 18].

The question was what the original number was.

Yes. Exactly.

The 108. What…

The 106 to 108. Now I’ve got you. It was used on the FX rate, which we used in February. That was for the euro-USD, for example – 130.

That’s what I need to know.

Peter Welford, Merrill Lynch.

Two questions. The first question is just on the guidance you’ve given. Am I right in saying that if we use current exchange rates as of today, then, you’re saying your guidance for 2005 is for full-year revenues of basically just less than 400 million for the 395 to 400? Is that the guidance? If we exchange… if the rates don’t change from that?

The second question is just on the employees. We’re seeing quite a pickup in the number of sales and marketing reps over the last few quarters. We saw quite a decline in the number of employees in the early part of this year and late part of next year. Now it’s picking up again, toward historic levels of 2003 and 2004.

I was wondering where you see that going, and whether you see further increase in the headcount now, beyond this level?

I’ll take the second question, first. The sales force is in areas you were correct to point out – where we are expanding. And there are two reasons for that. Number one is, we created the diagnostic sales force and focused initiatives in that area.

This is quite a significant sales force, focusing only on diagnostic customers. Partially from existing sales people at Qiagen. Partially, we hired new people for that.

Number 2 is, we created applied-testing-focused sales forces. I described those markets. They’re very interesting and very dynamic, at the moment. We believe they warrant a specialized sales approach.

Number 3 – we did move more aggressively on the sales force front. We think that this is a market of change in the market. We have one of the most-focused and very well-trained sales forces. And we decided to expand that. Especially also in Asia, for instance – where we previously did not have our own sales people. We now have our own sales force. Especially in Asia, that’s one of the bigger contributors.

Taking the first part of the question. The actual revenues for the first 9 months, based on the year-to-date comps and exchange rate – were around $294 million. Taking the exchange rate of today, and using it for an actual guidance for the 4th quarter, would mean 101-104 [inaudible] we are coming close to $400 million, based on actual rates. Taking the guidance rates, we are between $05 and 407 million, then.

This is a year of wild currency swings. So, you know, we were planning a 130, and we’re now looking at 117. At 50 percent of our sales. So, clearly, that has an impact.

But what is really nice about the model is, if you look at the EPS and also the margin side, this is why we feel quite comfortable also on the EPS side – and margins. Because that model is very well-hedged. We almost have a natural hedge in our P&L and balance sheet, today.

Daniel Mahoney, Morgan Stanley.

Just really 2 questions. One – Peer – could you just remind us perhaps historically, and then what you did in Q3, in terms of what percentage of sales from new products were, with new products that were launched over the last – say – 3 years? I know that’s a metric you used internally.

Have you also mentioned that the Q4 product launch, you’re quite excited about, compared to the others that have happened this year, which have generated sort of [inaudible] sales already in Q3?

Could you just allude to what some of those products are, and as to what we can expect perhaps on the product launch pipeline for over the next couple of quarters?

Good question. The revenues of new products that were launched starting January of 2005, generated – in the 3rd quarter – almost 4 percent of overall sales. So this is historically a few times more than what you would normally see.

The typical company in this industry has been 0.5 and 1 percent of sales after one full year. So, we’re clearly on a good track, in terms of putting the right products out to our customers.

In terms of the 3-year number – that’s a number which we… There are various targets in the industry. I’d say some of the low-end would be in the single-digits, and the high end would be in the 20s. We’re clearly targeting the high end.

Qiagen has always been one of the most innovative and most successful companies in bringing new products out into the market. This is something that we’ve greatly increased now, over the last 2 years. We fundamentally changed the way we innovate. This year was actually the first year where we brought that even more-improved system to market. And it has clearly shown in the revenues.

To me, this is one of the most-satisfying ratios that we have seen this year. I think it’s a great indicator of potential future success.

I wouldn’t really want to give the 3-year number, precisely. I think this is quite a confidential number. But we’ll think about how we can put that out. It is clearly moving in absolutely the right direction. I think we’re best-of-class in the space.

The pipeline is especially strong, going forward. We have increasingly been successful over the course of the year. The 2nd quarter launches were very successful, where we launched a complete suite of linked SRNA and gene-expression assays. The 4th quarter is now in the area of RNA extraction. We have some novel technologies that we introduced for the extraction and [hammering] of RNA.

We also launched the 2nd generation of whole genome amplification products. Those products we described before, used to multiply their sample amounts.

The year 2006 is going to see some of the products that came out of this strategic reorientation that we did in 2004, that were a little bit more longer-term. So I think it’s going to be a very interesting year, as well, in terms of the pipeline.

I wouldn’t want to get too specific on those. Development always has risks and opportunities associated with it, as saw in this 3rd quarter. We are in very exciting developments with a number of products. I think [inaudible] show results when the products come out.

Just to clarify that. Your goal is to try to get into the 20-percent or 20-to-25 percent of sales. Going from new products launched in the past 3 years. You’re not there yet, but perhaps by the end of ’06, you might be, [inaudible] coming along.

This would clearly be the target. Again, this would be a target, even for hardware companies. Where you have a 3-to-4-year lifespan, sometimes – for a lot of products. So a lot of the instrumentation companies in our space have somewhere in the teens. For a consumables company to reach that, it has to be extremely good. This is what we’re targeting. So I think the new opportunities that are out there – the focused segments that are opening up for our products – allow us to be successful in that way.

So that would definitely be a nice target to reach in the near-term, now.

Brian White, Deutschebank.

[inaudible] to dwell on the OEM business, but judging by its life as importance to the Company and to your profitability, is there a strategic reason why you continue with it? Or have you thought about phasing that kind of business line out?

Yes. It definitely is… These are attractive projects. They have long-term very attractive [net personalities] and revenue opportunities. I’m not at all nervous if a development project is a little bit slower or faster, and the product introduction comes a little bit earlier or later.

The fact that we had two major intended product launches [inaudible] and it clearly had an impact and was visible in our numbers, they’re low margin. And it didn’t have an impact on our EPS. So internally, I’m not too concerned about that.

They will come, at some point in time. These are major players in this space. At least one of them is a very large company.

It’s a small part of our business. As I tried to highlight, we are only generating about 1 percent of our sales from these co-developments. The business, however, is strategically important. Because in many segments, we do not have a channel. Or there’s a company with a very, very good assay or great expertise or great technology, where we think we’d rather be helping this Company, and are willing to invest time and money, to do this – together with a partner, make them successful. This is the key to our model.

I don’t think that we would at all exit that type of business. It is, however, extremely rare. You’ve known the Company now for 10 years. This is the first real time where this really has an impact. Even so, it didn’t even have an impact on our EPS.

I think it is critical. It’s critical for us to have these types of partnerships. [inaudible] to be involved with these types of opportunities. They are very attractive, and we are making money on that with these types of opportunities.

Just in terms of… you mentioned market share gains definitely in the release. I wondered if you could remind us what your market share is of the D&E [inaudible] market. And if you see any competing technologies around the corner which [inaudible] dominant position.

In terms of – if you look at the sales that we added to our business over the last year, the organic growth rate – the sales that we added… We’re adding more sales than most of the competitors combined have. So this clearly shows that we’re gaining share against the homebrew methods.

It’s difficult to quantify. It depends very much on which country you are. To do a global number is a little bit misleading, but it could be anywhere around a third. More developing countries are substantially lower. But about a third, I’d say, is the penetration against home brew.

Just in terms of competing technologies – anything?

No. We’re not really seeing anything in the marketplace which is anything mentionable. We think that the standardization is where the industry is going, right now. It’s not really about a technology, any more. This is an industry which is moving around and using technologies in an efficient way.

I think in the 90s, we were all concerned about finding the right technology. In this decade, we’re figuring out how to use the technologies efficiently. In the next decade – starting 2010 – I think that technologies are going to really generate the maximum utility.

So this is, I think, a phase of the market that we’re in. It’s looking toward standardization. This is where we, today have about 1,000 patents. In front of a customer, it doesn’t really make sense to talk technology. He doesn’t care. He wants to have something that works. That’s where we clearly excel.

Aaron Geist, Robert W. Baird.

Most of my questions have already been answered. Can you take a stab at where you think the instrument business will go in 2006? I’m trying to back into some of the numbers that you gave in terms of your 1 percent of revenues coming from OEM, and the falloff in the back half of the year from OEM. And the BioRobot business being up 9 percent.

Can you talk a little bit about some of the other instruments? The EZ-1, and potentially where you see that instrument business, without OEM, going into 2006? Thanks.

Yes. I’ll hand it over to Roland for the numbers. What we call the BioRobots are all our Qiagen-branded products. Over the last few years, we’ve had a number of OEM partners buying instrumentation products from us. Components. We have seen decline up in an area where we have aggressively added new partnerships. We’re very loyal and committed to the existing ones.

This percentage has decreased, over time. We’re focusing on bringing Qiagen products onto an automated format, to the market. That component has continued to increase.

The year-over-year comparison has been tough. The 3rd quarter 2004 was a very strong instrumentation quarter. So therefore, there were a number of elements that had to be meted out. I’ll hand it over to Roland, maybe, for an idea on how this could be [underserved].

Aaron, on the BioRobots side, actually most of the emphasis is that we’re doing very well. So as you mentioned, about EZ-1s, M48, and also the BioRobot 8. It [inaudible] showing quite nice growth rate. Together, it’s measurable for the accounting for 9 percent growth rate in the 3rd quarter.

I believe both are going forward, as this is similar growth rates. Probably even going back to the 2-digit growth area. If I’m looking only on the market – how the markets are developed – going into the molecular diagnostics, this is higher growth for us in molecular diagnostics. The demand for automation there.

In a way, we are also providing solutions to this market. And seeing the implementation as an important part. I will [inaudible] as a growth rate, where we believe in 2006, we see probably a 2-digit growth rate. Of course, we will give detailed guidance in 2006 – at the beginning of the year 2006.

On the OEM business, it is a smaller component of the overall instrument business. I believe, going forward, we will definitely go back on the track that we had before. These delays, of course, will give a quite nice ramp up. But then of course going back to a level... So overall, I think it will be an important part of our growth rate, going forward.

Can you talk about the contribution from OEM in 2004?

I think margin-wise, as you can see clearly in the 3rd quarter, and it was before in the quarters before – margin-wise, it’s really not one of automation. A major part of our profitability. We’re more a load-margin business.

On the total revenue base, it is, as Peer mentioned, something between 1 and 2 percent – depending a little bit on the [quarterly].

It was a bigger year on OEMs, this last year, as you saw. We had a good quarter. So it fluctuates a little bit, but it’s not really material.

One last question. Could you give us what you think the negative FX impact was on the R&D line? R&D came in a little bit lighter than what we had anticipated.

We [inaudible] as we are looking on our operational expenses, and overall. And make sure that we have a natural edge.

As you know, we have more sales and marketing activity in the US, and larger R&D activities, and also on the production side, [inaudible] in Europe. So we try to level this out. The impact really is there on the R&D side. We have probably something like 80 to 90 percent of our R&D capabilities here in Europe.

Maykin Ho, Goldman Sachs.

I have two questions, if I may. One is that we’re heading from some of the pharma companies that they are reducing the capital expenditures. Can you comment a little bit on that, in terms of impact to your business? Number 1. And Number 2 – if you look at a few years out, how much do you think [inaudible] Japan and Asia will contribute to your revenues?

Yes. The latter, I think, is the million-dollar question. Starting with the first is the capex spending. You saw different views come out from different companies in the 3rd quarter. In general, we see capital spending was this year not really too much of an issue – with most of the pharmas we [inaudible] into. But looking at Qiagen, we are in such a… Our instruments are… We’re not competing against instruments, per se. We’re addressing a new application. Most people don’t have an automated sample preparation solution. So they’re starting to move into that. They’ve standardized around using Qiagen products, and now they want to put them onto an automated system.

This does not necessarily put us into the brutal competition for capital, for replacement demand – for instance. Where you could wait – let’s say – another year, before you could buy an instrument. We have not seen that, and we’re typically not [inaudible] too much affected by the overall capital spending. It’s more fluctuations, but then more product-driven and product-introduction driven, and new-capability driven that we see.

The second question, on Asia. We’re not really sure. It’s clearly driven by – well – China’s the big one, there. Now, if you look at what happened in the last 2 years and the growth of the activities in China, it’s phenomenal. You have major research institutes that were not there 18 months ago. Suddenly, you have a hyper-modern, tremendously equipped laboratory, with state-of-the-art research being done with people from all over the world working there.

So this type of momentum is very difficult to predict, going forward. We made our investment. We, I think, have a very good position in China, to capture the upside. We have local activity with TianWei – a local brand. We have the Qiagen activities. We have a diagnostic channel. It could grow quite rapidly.

Some people say it will become the largest pharmaceutical market by 2020. I don’t know if that’s true, or if it’s being a little bit too aggressive, but it could move up into the direction of Europe. That is currently 35 percent of our sales. And we’re coming from a very low base.

Japan is about 10 percent of our sales. This could be a major jump, going forward. But I wouldn’t’ really be too aggressive on that. I think we’re taking it one year by investing. We’re there. We’re present. I was there last week, and continue to be very impressed by our partners working there, and the level of activity and our customers. But I wouldn’t really want to put a number on it over the next 3 years.

Does that answer your question?

I’m sorry. Yes. I said thank you.

At this time, I would like to turn the floor back over to Dr. Solveigh Maehler for any closing remarks.

Thank you very much, Ashley. I would like to close this conference call by thanking you all for participating. We hope to welcome you again to our Q4 results conference call, most likely to be held on Tuesday, February 14th 2006.

If you have any additional questions, please do not 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. Bye.