Qiagen NV (QGEN) 2007 Q4 法說會逐字稿

Good morning. My name is Rich and I'll be your conference operator today. At this time I would like to welcome everyone to the Qiagen fourth quarter and 2007 year end conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. (OPERATOR INSTRUCTIONS)

Thank you. It is now my pleasure to turn this over to your host, Solveigh Maehler. Ma'am, you may begin your conference.

Thank you very much, Richard, and hello everybody. Welcome to Qiagen's fourth quarter and full year 2007 earnings conference call. I am Solveigh Maehler, director of investor relations at Qiagen.

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

We issued a press release last night announcing Qiagen's financial results for the fourth quarter and fiscal 2007 end of December 31, 2007 and describing the company's recent business highlights.

A copy of this announcement as well as the presentation we will be using during this conference call can be downloaded from the Investor Relations section of our home page at www.qiagen.com.

This conference call will cover a 20 minute presentation followed by a Q&A session. 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. The call will be archived on our website.

Before I turn over to Peer Schatz, please keep in mind that the following discussion and the responses to your questions reflect management's view as of today, February 12, 2008. As you listen to the call I encourage you to have our press release and presentation in front of you since our financial results and detailed commentaries are included and will correspond to the discussion that follows.

As we share information today to help you better understand our business, it is important to keep in mind that we will make statements and provided responses in the course of this conference call that state our intentions, beliefs, expectations, or predictions of the future. These constitute forward-looking statements for the purpose of the Safe Harbor provisions. These forward-looking statements involve certain risks and uncertainties that could cause Qiagen's actual results to differ materially from those projected.

Qiagen disclaims any intention or obligation to revise any forward-looking statements. 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 Schatz. Thank you.

Yes, thanks Solveigh. Good afternoon everyone in Europe and good morning to those joining from the U.S. Thanks for joining this call. We are very pleased to report that the fourth quarter 2007 and also the full year were very successful for Qiagen. We made great strides strategically, operationally and financially.

Revenues topped our guidance and came in at over $210 million, a 67% growth rate and brought us to $650 million for the year. Earnings per share came in at $0.16, well above our guidance and brought us to $0.63 for 2007.

Roland will give you some details on our newly issued guidance for 2008. We expect again a strong year of growth and profitability.

What is very important is that this was another year in which we increased our technology leadership and our market leadership. We are proud to again report industry leading innovation success, 4% of sales coming from products introduced in the last 12 months and 17% in the last three years.

These are not mere add-on product but fundamentally some new technologies and solutions. Again, these numbers are a class of their own in our industry and we're very proud to report that the pipeline going forward is very strong. We really expect it to get even better and I'll talk about this pipeline a little bit more later.

In terms of product mix, as you see here on the next slide, the mix is pretty similar to what we saw in previous quarters, about 90% of our sales in this quarter, or the full year 2007, 89% of sales coming from consumables product, which grew about 30%. Consumables showed a strong, continued growth rate as well.

We're seeing strong growth in Europe and Asia across all customer segments; the U.S. is good growth primarily in applied testing and molecular diagnostics. Asia is mostly molecular diagnostics and showed very strong growth which we expect to continue for quite some time.

On slide number five we have the breakdown on our growth rates. Our organic growth rate is--came in at 12%, 4% from new products, again a very strong number once again in the fourth quarter and for the full year, and 6% came from volume. The acquired businesses within rolling 12 months, these were primarily eGene and Digene, added 22%.

In terms of sales, about half of our sales are now in molecular diagnostics, a run-rate of about $400 million. HPV is a little bit more than half of that business and other real-time PCR assays and sample technologies the remaining. All areas within that customer segment are showing great growth and we expect this business to perform very well compared to our projections.

Our sales to customers in academic research, about a quarter of our sales, showed a good performance with strong growth and particular in Europe. And our applied testing business is growing very rapidly, over 20% across the world, and we just increased the size of our sales force here. We have some great products and particularly in [veterinary] diagnostics rolling out.

In sales into pharma, remember this is the use of our product for companion diagnostics development and clinical trials monitoring as well as preclinical use, we showed solid growth in the high single digits.

Now let me share with you some highlights of the year 2007. You might recall that we were very excited about 12 months about a product called QIAcube, which you see here on slide number six. Right out of the box basically within days it won numerous prizes including the very prestigious ALA New Product Award, as you see here on the ribbon.

I'm very proud to say that we blew through our targets with this product and are now on unit run rates well into the four digits in terms of units. Again, if you recall we had said about a year ago that we might sell a few hundred products in 2007. It has become something of a life science product in the lab almost like an iPod with tremendous utility.

Now we doubled up this year again with the second ALA New Product Award in a row. This excel is extremely rare. The award went to QIAsymphony which you see here on slide seven. QIAsymphony is a quite revolutionary new product, a truly modular molecular processing platform. On slide seven you see the QIAsymphonySP which we launched in January and which will start shipping in Q2.

On slide eight you see it with the reaction setup module clicked onto it. That module will be available in about a year.

The QIAsymphony takes the samples from raw biology, for example a blood tube or a tissue sample, through to purified analyte DNA/RNA and proteins. The reaction setup module performs the assay setup and can include a readout.

The QIAsymphony could very well be one of the most versatile and powerful systems in molecular biology so it's tough to condense the specs onto one slide. However, I tried that and on slide nine you see some of the features that this product offers.

It has a primary tube to result capability. It's fully modular, a truly, very innovative feature. The QIAsymphonySP module, which we launched here in January, allows primary tube to purified analyte DNA/RNA proteins. About 40 different applications are available on the system at launch, extremely easy to use and what is quite revolutionary, random access, allowing users to run multiple different applications per run. At the same time they can actually reload samples and reagents during processing, also here an extremely innovative and new feature. This product will start shipping in April of 2008.

Now this was a very, very extensive project. In almost complete secrecy we developed this product. About 400 man-years went into the development of this product. Three Qiagen development sites were involved in this project and we were supported by 12 external development partners. In terms of size, cost, this was the largest development program ever undertaken at Qiagen.

On the next slide, here's a product that we think could be something like the next QIAcube, the QIAxcel. This product revolutionizes gel processing, something that is done in basically every lab; over 30,000 labs fit this mold.

The system is quite inexpensive, about $19,000 and can completely automate the processing and readout of applications that normally would be done on cumbersome gel systems. And the best is that the cost per run is actually about the same as the manual procedure and significantly less, often a lot less expensive than current alternatives. And it is very, very fast.

What amazes me every time is to see a potential customer's reaction when the results pop up after three minutes, fully digitalized and with a superb resolution. This system allows faster time to results than any other nucleic acid separation method, comprehensive digital result documentation, high performance in conventional gel electric freeze resolution and quality, less manual interaction than any other method, and saves precious samples.

On slide number 11, last, not least, a new version of widely placed EZ1, the Qiagen EZ1 Advanced. This system is a very widely place nucleic acid sample processing solution from Qiagen. It is an absolute standard in forensics and clinical settings. It is actually often seen highlighted on CSI and similar shows and even has a small side role in one of the episodes.

It just got even better with UV decontamination sensor control door lock and fitting cabinet, a bar code reading and process documentation add-on, connection of multiple units and plug-n-play, up to 24 samples can be processed in 18 minutes, 4-digit insulations worldwide and equivalence data available. So we're building on an enormous installed base of these systems and just made the automation solution a lot better.

So as you can see overall, a great suite of automation products and there are many new consumables as well and we'll talk quite a bit the pipeline--quite a bit about the pipeline on Thursday at our Analyst Day in New York. But for now I'd like to hand over to Roland for a discussion of the financials.

Thank you Peer and good afternoon everyone in Europe and good morning to those joining from the U.S.

As you can see from our earnings news release, Qiagen reported another year of strong results in 2007. In addition, we positioned the company for continued success, the executing in all major priorities and goals for the year.

Let me turn now to our financial performance overall for 2007. Afterwards I will also briefly address the first quarter and then provide you with our guidance for 2008.

We are very pleased with the outcome in 2007 as we exceeded our financial goals; we even surpassed the guidance we had provided, which had been increased during the year. So our new guidance (inaudible) third quarter numbers were $614 million to $635 million. We came in significantly higher at $649.8 million.

Currency helped us somewhat. Using the same currency base as generally (inaudible) first 2007 this would be $632 million so that's the high end of the range. These numbers endorsed the solid growth we achieved in both consumables and in instruments. Volume on new product introductions remained a key theme throughout the year.

Adjusted diluted earnings per share for the year ended December 31, 2007 increased to $0.63 per share from $0.56 per share in 2006. This is a 13% year-over-year increase and significantly higher than our increased guidance, which we gave at the time of the Digene acquisition announcement.

Despite the impact of the integration activities, we were able to demonstrate a strong performance and deliver the highest quality products and services to our customers.

To enhance comparability and to show underlying performance, we exclude from these adjusted figures any acquisition, integration or relocation related charges as well as amortization of our acquired IP and equity-based compensation. Of course we also report our financials including all such charges and costs as well.

Turning to a breakdown by product line for the full year 2007, as you may recall, we have allocated the value of newly acquired products as follows:

The consumables line includes sales from all molecular diagnostic assays including HPV tests and under instruments, we include all instruments related to molecular diagnostics including instruments related to HPV testing.

We had strong growth in both consumable and in instruments this year. They delivered 34% growth on our Constant Exchange Rate base in consumables and 35% growth in instruments.

Growth in both sample and assay technology was solid in all market segments and product lines.

We had an innovation rate of approximately 4% based on revenue growth coming from new products launched within the last 12 months, which included sample and assay technologies in research in the areas of epigenetics, gene expression, micro RNA, proteomics, applied testing and molecular diagnostics as well as innovative platform solutions.

In terms of the category Others, the numbers are the factor-in material but we show them for the sake of completeness.

In more than one way 2007 exceeded our expectations. They achieved an adjusted operating income of $164.3 million, an increase of 36% over the same period in 2006. This despite the ongoing Digene integration, so we feel our operating margin of 25% represents solid performance here.

With operating income line pulling through to the net income line, we show you on this slide that the achieved net income of $111.5 million and an increase of 31% over 2006.

The most significant impact to our operating cash flow in 2007, they relate to our acquisition of Digene. The interest expense on our new borrowings decreased our cash flow from operations by approximately $16 million and approximately $28.5 million of cash was used to sell acquired accrued liabilities.

Our increase in sales resulted in increased account receivables while we continue to maintain a DSO below the industry average.

Working capital of $482.2 million in 2007 also reflects the impact of the acquisition and compared to the $566.7 million in 2006 primarily for two reasons, one, our use of cash for a portion of the purchase price and two, an increase in accrued liabilities from the acquired company.

Aside from the impact of the acquisition on our working capital, we had an improvement in our inventory days and DSO. [With 115] being our target for 2007, we had 143 inventory days for the full year 2007. Likewise on DSO, with a target of 60 days and an industry average of 64, we were able to meet our target of 60 days for the full year 2007.

Before I turn to our guidance for 2008 I would like to spend a moment focusing on some of the key figures for the fourth quarter of 2007. We reported consolidated net sales of $210.2 million, an increase of 67% over $125.9 million for the same quarter in 2006. This was also higher than (inaudible) and estimates.

On an adjusted basis fourth quarter operating income increased 55% to $51.8 million in 2007 from $33.5 million in 2006 and fourth quarter 2007 adjusted net income increased 31% to $32 million from $24.4 million in 2006.

Adjusted diluted earnings per share was $0.16 in both the fourth quarter 2007 and 2006. This was well above our guidance of $0.13 to $0.14 and of course (inaudible). At the same time we were able to achieve operational leverage and the necessary efficiencies.

On an adjusted basis, our effective tax were developed positively in 2007. Overall for 2007 our adjusted tax were a decrease from 32% to 29%. Among the factors that contributed to this was a larger revenue share in Asia where the tax rate is lower than many of our other markets. We believe Asia to be a significant building block of our geographical expansion and so we continue to put in place the appropriate measures to expand our business scope here.

Switzerland remains an important factor to the lower tax rate as well especially as it pertains to instruments as this is where our instrument business is conducted.

So now to our guidance for 2008. For the fiscal year 2008 we are forecasting revenues to be in the range of $875 million to $905 million using January 31, 2008 currency rates, a growth rate over 2007 of 35% to 40%.

We also expect to maintain a strong organic growth rate of approximately 12%. This is for the Qiagen business, ex-Digene and ex-eGene.

In terms of operating margins, we believe we can achieve a significant increase quarter over quarter in 2008, which would mean an adjusted operating margin excluding acquisition, integration and relocation related charges as well as amortization of our acquired IP and equity based compensation in the range of 28% to 29%, starting the year [probably] around 26%.

In addition to the integration synergies, we also expect a significant impact to come from price increases, which are typically in the range of inflation, our ability to leverage our global sales and marketing organizations and volume leverage.

One impact that is partially offsetting this margin improvement is driven by the weakness of the U.S. dollar. Even if our operating income as well as our earnings per share are predominantly protected by a [natural hatch] on a relative basis as percentage of revenues we do foresee a small impact on our operating income margin. The impact is expected to lower our operating margin by approximately 100 basis points. But this is already included in our range of 28% to 29%.

So overall, a remarkable strong operating margin improvement is expected for 2008.

In terms of adjusted earnings per share, we are initiating our 2008 guidance range of $0.76 to $0.80 per share.

On the note of integration, let me provide some more detailed insight into the cost synergies to be expected in 2008 from the most recent, namely Digene, acquisition. We have been able to execute on our cost synergy plan, which is based on consolidation and leverage of our core competencies. Head count synergies in the administration area account for a significant portion of the overall 2008 target, however the number of positions included in the synergy target has arrived to a reduction of future budgeted head count and current open vacancies, allowing Qiagen to maintain a considerable resource basis in all areas of the business.

Production savings were driven mainly through our supplier consolidation and efficiencies achieved at the manufacturer level as well as our better utilization rates.

By combining R&D programs, Qiagen has been able to harmonize several projects originally undertaken by Digene.

Vital to Qiagen's goals is a coordinated and focused sales and marketing effort. Qiagen and Digene sales forces occupied common territories across Northern America so by combining sales forces and sharing customer accounts, travel and related costs were significantly reduced. The company also took a critical review of marketing plans in 2008 therefore allowing Qiagen to realize substantial synergies without sacrificing long term objectives.

Qiagen intends to continue with the highly successful TV advertising campaign but with a much more strategic focus in certain key markets.

As with all business combinations, significant savings are possible in the G&A areas. Qiagen has already completed phase one of the ERP system rollout across a (inaudible) business with all customer ordering now processed during the principle customer care centers in Valencia, California and Germantown, Maryland and our European distribution channels.

Phase two of the rollout will be completed during 2008 with the final result to providing extensive benefits across the globe.

The administrative burden of the two public companies will be significantly reduced through the combination under one shared operation with realizable savings particularly in the areas of statutory compliance and professional fees. Due to the very close proximity of Digene's facility to Qiagen North American headquarters in Germantown, a second building lease was cancelled resulting in significant 2008 savings.

So as you heard from Peer, we remain well on track with the entire integration process. For 2008 we expect that our efforts as described will result in total cost synergies of approximately $35 million to $45 million. As this is an ongoing process, we anticipate the full effect to be realized in the third and the fourth quarters of this year.

On the next slide we have listed a number of assumptions to frame some items more precisely for the year. First of all our organic growth, as I mentioned, we are looking for approximately 12% for the Qiagen business, ex-Digene and eGene, which of course will increase once Digene and eGene will be reported as organic.

On adjusted operating income for 2008, including the Digene/eGene acquisitions, you should expect the following:

123R expenses between $12 million and $15 million built mainly by the legacy Digene equity-based compensation plan. You will note that this is a slight up to what we had mentioned before, which is driven by the fact that some of the expenses were reported already in the fourth quarter, 2007.

Amortization of acquired IP of approximately $60 million.

Integration and acquisition related charges of approximately $12 million to $15 million.

As most of you know we have significant operating activities in Europe, primarily in Germany. Due to the tax reform in Germany and the aforementioned expansion into Asia, we expect a significant positive decrease of our corporate tax rate down to 26% to 30% for the year 2008. We will use the additional profit out of the decrease in tax rate to boost our research spending and sales channel activities without any impact to our EPS number.

And finally the weighted average number, fully diluted share outstanding will be 210 million shares.

Before I hand back to Peer, I would like to go ahead and give you some assumptions for the first quarter. We are to forecasting revenues to be in the range of $198 million to $205 million. In terms of adjusted operating income for 2008, you should expect 123R expenses between $2.5 million and $3 million, amortization of acquired IP of approximately $15 million, integration/acquisition related charges of approximately $6 million to $7 million and the tax range to be between 26% and 30%, and an adjusted EPS of $0.15 to $0.16 per share.

The weighted average number of fully diluted shares outstanding will be around 210 million shares.

With that, I would like to hand over to Peer.

Yeah, thanks Roland. Again, we're very pleased with the financial performance in the fourth quarter of 2007. We exceeded our guidance for the year once again. We showed record innovation and success in bringing that innovation to our customers and translating that in turn into shareholder value. We positioned the company for strong growth as a highly focused leader in all customer segments we serve.

We're executing well on expanding our company and my thanks go out to all our employees throughout the world for their contributions in building this company, integrating new opportunities and expanding our leadership opportunities.

Our outlook is strong; we heard Roland's outline on the guidance. With our pipeline, our current position and with our talented and committed team throughout the world, we look very positively into 2008 and the years to come.

With that I'd like to hand it back to Solveigh.

Thank you very much Peer. We are now ready to take your questions. To open the Q&A session, I would like to hand it over to the operator. Richard?

Thank you. (OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster. Once again that is star-1 to pose a question. Your first question comes from Quintin Lai of Robert W. Baird.

Good afternoon. This is actually Matt Notarianni in for Quintin. Congratulations on the quarter.

Hey Matt. How are you?

Good, how are you?

Good.

Good. So just to start, Q4 growth looked really strong and I was just wondering if we could have a little color. If there were any one-timers that might have happened in the quarter, if there was any seasonality we should be thinking about as we look into 2008?

No, I think the quarter was pretty straight forward in that direction. We had a very solid underlying performance, very good growth across the board, across all customer segments. Every customer segment had geographic regions that performed particularly well but more long-term trends and good momentum in the fourth quarter. The quarter had about as many days as the prior year, I understand. Roland, confirm?

That's correct.

And so it was on terms of business days pretty comparable. So no real changes.

Yeah and just to add on that I think what we really have seen as well on the regional side as on the product side all over the place, significant growth rates on Q4 compared to Q3 2007, so I think overall a very strong trend despite or independent from certain products or regions.

Great, thanks. And just my followup, where are we in terms of kind of the Digene integration timeline and are there any specific metrics that we can use to kind of gauge progress on that?

Sure. This is obviously a very high priority project at our company and we're monitoring that very closely. We have more than 50% of all milestones achieved. We had some major milestones that came into effect on January 1st as you can imagine. One of the major ones was the IP conversion moving over to the SAP systems from the legacy Digene systems and our teams worked incredibly hard and were very successful in making this transition very smooth.

We still have about six months in front of us for the majority of the integration, a few projects such as the complete IT integration also of manufacturing, will take a little bit longer than that because they have to be validated. These are regulated products and we therefore have to go through certain validation steps. But these projects are in general all on green status.

We have currently only a very small percentage of the project on yellow, none of them material in a major way, and there's only one project currently that has a delay, which is also an immaterial project. So we have a pretty good status at the moment on the integration project.

Great. Thank you very much.

We're putting a lot of resources on it as well so there's a very high level of attention and we have a lot of management talent working on this to make this as quick as possible for our customers.

Thank you. Thank you very much for that color. Just going back to kind of the timing and you mentioned shipping dates, will you guys see any impact with the earlier timing on Easter this year?

I think for 2008 I think it will have a certain impact but it is included in the guidance I gave you for the first quarter on the revenue side. Clearly Easter and holidays are this year in the first quarter, not on the second quarter so it makes a difference but again it's included in the guidance mentioned before.

Great. Thanks again and congratulations.

Thanks Matt.

Thank you.

Thank you. Your next question comes from Maykin Ho of Goldman Sachs.

Hello.

Good morning Maykin.

Hi, how are you? If I look at the fourth quarter, things seem to be going very well including the core business. It seems to be growing a little bit faster than expected. Would you like to shed some light on that? What are some of the drivers?

Sure. You mean the legacy Qiagen business?

Yes.

Okay. Well it really came across the board. We have seen a very strong performance in, if I start out with the research business, very strong performance in Europe, which continues to be very strong. We're certainly, I'd say probably the fastest growing research supply business in Europe at the moment and are seeing great successes there.

The pharma business was in the high single digits in the fourth quarter so nothing really new there. Where we're seeing very good traction is in applied testing and as we talked about a year ago, our efforts to increase our presence in veterinary testing are really paying off. We're pulling in some very nice business relationships in this area. Some of them are very material and we launched our [KDAR] product line with veterinary assays that are addressing some very high and unmet needs in this space using molecular tests for a number of diseases.

BVD is a bovine virus which is causing great damages to the agriculture business in a lot of countries in Europe. Blue tongue disease is another one that is coming up, so we have a number of really very important products that are putting very high growth into applied testing.

Forensics also growing very strong and the molecular diagnostics business at legacy Qiagen is growing very, remarkably well. We have seen great successes there also thanks to a very good team on the ground doing a great job in building that business.

So it was really across the board and I gave you some of the highlights.

And that's nice to hear. But then as you look at your guidance for the first quarter of 2008, it seems to be lower than the fourth quarter. Should we expect some seasonality going forward because we haven't seen that that much in the past or is it part of currency?

Well there are two factors or three factors in there. One is as Roland just described before, there is--there are a reduced a number of business days in the first quarter compared to the fourth quarter of 2007. The second, there's--certainly currency is currently playing an impact, a slight impact and the third is always the first quarter is one where new products are rolling out and I think it's good to be conservative.

Thank you very much.

Thank you. Your next question comes from Bill Quirk of Piper Jaffray. Bill, please go ahead.

Okay.

Can you hear me?

I think we lost--yeah, Bill?

Can you hear me? There we go.

How are you?

Sooner or later I'll figure out how to use the new buttons on this phone. Good afternoon. First off there, can you give us a little more color on the Digene business and qualitative color is just fine? I was just trying to get a little better handle on the U.S. versus Europe. I guess my suspicion here is that Europe probably outperformed and I would obviously love to hear that.

Right. The--just maybe a note on the side, the Digene business that was acquired is now operating fully under the Qiagen name so it's not a division or a sub business or so. It has been completely integrated into the Qiagen molecular diagnostics business. We kept the Digene name for the HPV test so the product is now called the Digene HPV Test as a product name.

In general, you're absolutely right with your assumption. The European markets are growing a lot faster percentage-wise in terms of demand for HPV testing but at the same time they're coming from a much smaller base and that's clearly one of the great opportunities that Europe has. It's a very different market than the United States. A lot of development is happening in various countries, a lot of different stages of market development, but coming from a small base, growth rates are very fast, yes.

Understood. Thank you for that. And then secondly, Roland, you may have missed it or you may have mentioned it and perhaps I missed it. I think you alluded to some potential plant consolidation in the U.S.? Did I hear you correctly? Are we going to consolidate the Maryland facilities into a single I guess U.S. based headquarters?

No. We of course will keep both plants especially as the Digene plant of course has an FDA approved facility but in terms of expansion, we were able to cancel one lease--additional lease agreement which was planned as we can now utilize additional space which was on the Qiagen headquarter so given that we were able to cancel a new lease.

Okay. That was the legacy Digene plant built out--

Exactly.

--you were talking about 12 months ago. Okay, great. Thanks very much guys.

Thank you. Your next question comes from Dan Leonard of First Analysis.

Good afternoon.

Hey Dan.

Peer, I might have missed it in your prepared remarks because I was cut off a couple of times, but you mentioned that the assay module on the QIAsymphony will launch in a year. Did you mention what menu you would introduce on that module?

No, Dan, we didn't. This is currently still something that we have not disclosed yet. I'd maybe just like to point to our about 120 assays that we currently have on the real-time PCR platform basis and also of those a very sizeable percentage actually have regulatory approval in various countries of the world. And so this is most likely going to be one of the components of the platform.

The QIAsymphony also is a great medium throughput platform for some markets, sever as a front end to hybrid capture HPV detection and we'll talk a little bit about that on February 14, our Analyst Day.

So it is really a very important flagship product for our medium throughput strategy, which certainly for real-time PCR but also for some markets it's extremely important. HPV testing is as you know a very high throughput assay and the QIAsymphony has a sweet spot, up to 250 samples a day, 300 samples a day in that area. So that is the sweet spot of a very broad menu breadth requirement and we think QIAsymphony exactly fits that need.

Okay, thank you. And then my second question is for Roland. Roland, can you walk me through the components of your fourth quarter revenue growth, organic versus currency versus acquisition in specifically the fourth quarter?

I think overall I think looking at the presentation, organic growth for the year was 12%. I think we have (inaudible) allowance organic growth for the quarters before with all the (inaudible) at 11% so you can do the math by yourself The fourth quarter was a little bit higher than 12% and in terms, if you look at consumables and instruments it was fairly (inaudible) as well. I think looking at the presentation you will see a (inaudible) split up on that.

Okay, thank you.

Thank you. Your next question comes from Patrick Fuchs of DZ Bank.

Hello everybody. I had a question regarding the margins of the Digene product of (inaudible). As the patent rights on HPV sometimes are running out one after the other, do we expect there an impact on the cross-notch in there or maybe to 50 to 100 basis points or is that too much?

Another question on the trade receivables at 21% of revenue, is that figure we can calculate going forward or are you expecting there to improve significantly one step in the next year or so? Thanks.

Thanks Patrick. Yeah well the question was on the HPV patents and on the time basically, how long they still run and some of the--the interesting thing here is that it's important to have a panel. We have exclusive rights on certain of the high risk virus subtypes, 52 and 68, and they run another eight years or so, so it's not really a near term uptake year so it's not really a near term issue in terms of patent expiry.

Not on patent expiration in terms of margin. I mean if patents are running out, I'm sure I know about the patent protection of the hold panel but part of it, the patent protection runs out and this should help the margin, isn't it?

Well, you know in many ways if I would take a test I would like it to give me complete coverage and a test that doesn't give me complete coverage has significantly reduced utility and so I don't necessarily think that that would lead to a reduction on the overall price of the assay.

In certain markets, price pressure will be or is more of an issue than in others and for a high throughput assay, this will be experienced over time but again, for certain subtypes we have very strong positions that run a very good time still.

Okay.

Hello Patrick. The (inaudible) question was a [wind-up] on cash flow development 2008 compared to 2007 especially if you want (inaudible) and first of all let me start with that I do believe that our forecast or the operational cash flow for 2008 though significantly higher than 2007 for several reasons.

I mentioned during the call that of course especially in 2007 we have seen a significant decrease in cash because of the payoff of core liabilities. For example, all of our cash we paid the bank a fee, for example out of--for the legacy Digene bank so there was a lot of cash which went out of our operational cash flow which of course will not happen again in 2008.

But also the (inaudible) capital side, we do believe that we'll see an improvement in inventory days down to 140 days. On the (inaudible) it's a little bit harder to say because we do expect improvements in North America and in certain European countries but as we do see a significant growth rate especially in Asia, going significantly below 60 days it's not as easy to achieve. So keeping the 60 days I think is already a good goal for 2008.

Okay. Thank you.

Thank you. Your next question comes from Peter Lawson of Thomas Weisel Partners.

Hi Roland. I'm wondering if you could just talk through the costs synergies, how those are panning out, is that still $35 million to $45 million and how confident are you to be at the top end of that range?

I think every day I'm more confident. We did [spare] matching before. We did a very significant steps as of December 31 especially now we do have one phase to the customers on all the processing is using one IP system, one core center, one service solution function. I think that is very important and a big driver and also a necessary step to gain even more cost synergies.

So I would currently say that we probably have--we're well on track even to the higher end of the cost synergies and I think what really is helping us that we are still ahead of the time table and clearly have made significant steps within the last couple of months. We still have a significant team up and running. We still have more than 50 people (inaudible) project (inaudible) and I think that gives us a significant confidence to be on track.

Thank you. And what are the 2008 assumptions for the interest income expense and other income?

Let me come back to you on that.

Okay. And then I guess, Peer, where are you positioning the QIAsymphony? Is that really just for reference labs or is it just a front end for HPV and is there going to be a PCR module at some point?

Excellent question, Peter. The system is a molecular processing system that will be placeable into every medium throughput laboratory even into the low high throughput laboratories and down into the high low throughput laboratories so it has an enormous bandwidth.

Due to the fact that it is random access and continuous load, you can basically run this system at very high speeds, almost up to the speeds of the fastest systems that are around today and at the same time it is coming at a price with utility and bandwidth that allows it to go into very low throughput laboratories.

So the number of laboratories into which this theoretically can be placed is quite large. We're talking many thousands of labs.

So the primary placements are probably going to be in the clinical area and the pharma area and the applied testing areas. We also have forensic packages for instance and veterinary packages that will be launched with the platform. And we'll also certainly have clinical modules and depending on the regulatory status would be available for that use as well.

So there are--it's really a broadly usable instrument. I even see it in academic labs. We today have quite a few thousand instruments placed out there in the market and this product is coming at a great time as people are now expanding utility or expect to expand utility in this area and we think it's the right spec set.

What's the revenue do you think for 4Q or expectations for 2008?

You know I think we want to be quite conservative in the first year out of the box so we're starting shipments in the second quarter sometime and the lead time is a little bit longer than on a QIAcube, which is a $15,000 instrument. Here we're talking about an instrument which is about five times as much which is still very affordable for many laboratories, is a typical instrument pricing range and this--so we guess the lead time will be a little bit longer, between three and six months versus the QIAcube, which can basically be sold almost with one demo.

So we're staying a little bit conservative on the number of units for this year but it's a very important product and I expect it to be around for many year and very important for us.

And is this going to eventually have sort of a PCR motion thrown in there?

Well what we're showing here is the modular add-on of a reaction setup module and that is 95% of a complete integrated system. But I won't go into details on what our plans are for the complete integration at this point in time, I hope you understand but the system you'll see already provides tremendous utility as it is right there and it is however a modular system.

Okay, I understand. Thank you so much.

Thanks Peter.

Thank you. Your next question comes from Derik de Bruin of UBS Warburg.

Hi, good morning.

Hi Derek, how are you?

I'm well, thank you.

How are you?

The QIAsymphony looks extremely impressive. I wish I would have had one in the lab. Could you walk me through what your plans are in terms of how you're going to play in the diagnostic labs? Are you going to get it FDA approved, (inaudible)? Just some feel for that and then as a followup to that, can you just give us what you're looking for in terms of diagnostic approvals, pipeline and milestones for 2008?

Sure. Well, the QIAsymphony as I said is a flagship instrument in the medium throughput labs. We have high throughput versions which can go significantly higher than this and we'll talk a little bit about that on Thursday. And we have low throughput systems that are small and compact for smaller laboratories, for lower throughputs.

But the sweet spot of the testing markets is typically the medium throughput range, somewhere between 50 to 300 or 250 samples. That's where you typically have the throughput. The problem is that most of the systems today are batch systems that basically require you to load 48 or 96 samples and then just run everything before you reload and with a different application.

For smaller labs that have four tests of this, three tests of that, two tests of that coming in, they always had to wait for the batch to finish. That's why continuous load is so important. It's really a very important feature that we added and random access so you can actually prioritize samples over other samples.

This is a tremendously powerful feature because it allows us to increase the bandwidth and add more tests onto the platform that for instance would be lower throughput tests and at the same time due to the speed, we can even go into the low high throughput areas so it's a tremendously powerful area.

Most--the placements of these systems, we'll clearly also be targeting clinical labs and we'll be doing the respective work to get there and the assays are being optimized onto these platforms and I expect this to be a cornerstone of our molecular diagnostic strategy going forward.

The question was on the pipeline for 2008. We have a number of products in the pipeline, most notably on the real-time PCR portfolio. As we all know the ASR exemptions are expiring or are in the process of expiring and we're on full steam with regulatory approvals for a number of real-time PCR assays that will get [510XA] approval--510K approval in the second half of the year and in the months thereafter so we're in close discussions with the agency on that.

So there are a number of programs in that area. There are a number of programs in--where we'll actually already see releases in Europe. The HPV genotyping product is coming out late 2008, early 2009. That's going to be a fascinating product. We have some early data on that. We have a long list that we will be discussing on Thursday that we can also make available then. I don't want to steal all the thunder but 2008 is going to be a big year.

But we'll have especially big years in 2009 and 10.

Great. And just one final question. What are you doing in terms of possible acquired infection market and MSRA?

Well one of the products that we talked about previously was a multiplex PCR panel using our QIAplex technology. That is targeting hospital acquired infections. We are going to make it a little bit more interesting than just hospital acquired infections. The panel already fits. We have a preliminary research use only version of it, which was launched about a year ago but what we have now is a lot more interesting and has a quite a bit different content on it.

So that is in the pipeline. We expect a launch; I'd have to get the date, I don't have it in front of me right now but depending on the approval processes, we could have it as early as early 2009 in Europe and then depending on the approvals in the United States, shortly after that.

Great. Thank you very much.

Thanks.

Thank you. Your next question comes from Daniel Wendorff of Commerzbank.

Yes, good afternoon gentlemen.

Yes, hi Daniel. How are you?

Very fine, thank you. Great set of results.

Thanks.

And I have three, no actually two main question areas. Maybe I should start with the first regarding the HPV and DNA tests. You mentioned Europe already and can you walk me a bit through the reimbursement situation which you currently see in Europe?

And the second question also related to the HPV and DNA testing market, could you elaborate on the current situation regarding the patent dispute with Third Wave? I lost a bit of track on that. Maybe you should start with that?

Okay. Well to start with that, we've typically had to [polish] not to communicate on these patent disputes. We have a very clear position. We disclosed those in our August second quarter conference call. We made it very clear that we believe we have a strong position on the intellectual property dispute with Third Wave and also on the dispute with Roche GenProbe.

We have been sued by Third Wave for antitrust; reasons and that lawsuit was dismissed in a summary judgment a few days ago. We had always claimed that we believed that we have been operating in compliance with all rules and regulations and laws.

The intellectual property lawsuit will continue. We decided to take that onto the next level. That was a deliberate decision. It was a legal way of doing that by basically saying that we would like to leave the court--the court that we were currently arguing the dispute in front of and move it to the next higher level. That's pretty standard procedure that was announced by the other party as one of many announcements around this process.

The next step is in simply taking it to the next level and there are a number of steps that have to be undertaken to get there. So that's the process from our side. And again we feel quite comfortable that we have a strong position here.

And regarding the market environment in Europe and how far advanced are the countries regarding the reimbursement of the test?

Excellent question. Big differences county by country; it remains that we're seeing The Netherlands move with great strides. Finland, Italy has now accelerated in certain areas. Even in some other countries that I've mentioned you'd be surprised that they're actually catching up.

As you remember a few months ago we showed various arrows of various stages of development that different countries have. Now we're following that very closely with advocacy teams and spending a lot of time and effort to support the opinion leaders in this area and support also in the formulation of guidelines using our data and also our expertise in this area so we're very close to these processes and we expect it to be a crescendo now over the next--over the course of 2008. We might actually see some states setting clearer guidelines. We saw a recommendation even in Germany in November recommending HPV screening and that will be cross-fertilizing each other and on the European arena over the next few years.

Okay and do you have to run separate trials for some countries or is that not really an issue?

That's not really an issue--

Okay.

--because our products are already approved--

Okay.

--in Europe. What we are doing is that we're supporting certain test sites where people are simply are running limited trials to show the efficacy and also the ability to perform HPV testing in a routine manner and that has to be demonstrated and localized in limited trials and that's what we're supporting with our products and some of these have gone remarkably well. And the feedback was great.

So I'm very convinced that we're going to see an increasing trend. We are starting now with advocacy work in Europe a lot more than it was previously done. Roland talked about new TV ads. We're testing a few other advocacy methods here in Europe. This is of tremendous importance and we're doing whatever we can do to accelerate the adoption of these tests.

Okay. And maybe one question then for Roland also and you elaborated that during the presentation but I'm not quite sure whether I got that right. The run-off costs were high in Q4 versus what you guided for with Q3 results. And this higher portion is also now reflected in a lower than originally forecasted exceptional expense rate in 2008. Did I get that right?

Absolutely right. It's exactly what happened. Certain 123R expenses we had to record it the fourth quarter 2007 where we had guided before that it could be in 2008 so we would use 2008 and (inaudible) savings was in the fourth quarter 2007.

Okay, thank you.

Thank you. Your next question comes from Matthew Scalo of Canaccord Adams.

Hi guys. Just two quick questions here for Peer. Now you've got two quarters of Digene, or almost two quarters in the financials. Have you seen a pull through effect or a boost in growth on the legacy molecular diagnostics business?

Yeah absolutely. It's very beneficial in terms of being able to talk to customers in our laboratory sales force and having the complete suite of solutions available for them, also further applications. So it increases the number of messages that we can interact with customers on.

And it also allows us with a number of customers to have a number of strategic discussions around a broad portfolio of solutions in molecular testing.

So there is definitely a cross-fertilization which we'll continue to see going forward. We just started integrating the sales force in January, the first of this year, and so they kicked off with a tremendous sales meeting, hugely successful sales meetings in the beginning of the year in Florida and Spain and in Malaysia now this week and so it's--the feedback that we're getting is great.

And I would assume that would positively impact organic growth, meaning you had 12% organic growth in 2007. You're guiding to 12% growth in 2008 and I'm just curious as molecular diagnostics becomes a larger portion of your business, I would assume that organic growth would also expand.

Yeah, I think you're absolutely right in that assumption and if you look at the long-term guidance that we gave that that is also reflected there. We definitely see those opportunities of combining prior portfolios and technologies. We said that would kick in, in a more major way, in 2009 and thereafter when the first combined products and fully harmonized solution packages start emerging.

We think there's tremendous utility for customers in these technological combinations and that hopefully will also result in very strong organic growth.

Okay. And can I just go back to prior guidance when you acquired Digene, you gave 2008 a range of $260 million to $270 million. Are we still looking at that range or has that scaled up a bit?

This was a very good forecast that we gave back then and we're well on track with those plans as we disclosed them back then.

Okay. Thank you very much guys.

Thank you.

Thank you. Your next question comes from Un K. Kwon-Casado of Pacific Growth Equities.

Hi, good morning.

Good morning.

I just wanted to confirm something you said earlier, Peer. The QIAsymphony, will that be amenable as an upfront to the rapid capture for HPV?

It has many different functions. It can process any type of sample also from large volumes into almost any target analyte. And in that, there could be uses in the medium throughput area which is mostly in Europe and some other countries that don't run higher throughput HPV testing that might want to run an upfront QIAsymphony on the downstream hybrid capture based assay, for instance, an HPV based--HPV assay.

So the answer is yes, that it is definitely a very nice fit.

Okay. And if so, would you have to file a PMA for that specification?

Absolutely and these--every time you put something onto an instrument, these are multiyear processes. To develop an instrument is an extremely complex task, especially the regulatory approval, very rightly so. It's a very onerous and long procedure. And we--if we would launch a product like that in the United States, again for those who join our Analyst Day on Thursday you'll see that we have very clear solutions for the various markets that we're in.

The medium throughput HPV testing market is primarily in Europe so and that's an area where the QIAsymphony has tremendous throughput because--has tremendous utility because these types of customers don't want to buy a system just for one assay. They want to run different types of tests on a platform that they buy and that's where the QIAsymphony provides utility.

Great. Thanks very much.

Thank you.

Thank you. I would like to turn the floor back over Solveigh for any closing remarks.

Thank you very much, Richard. I would like to close this conference call by thanking you all for participating. We hope to welcome you again to our first quarter 2008 earnings conference on May 6, 2008.

If you have any additional questions please do not hesitate to contact us.

Again, thank you very much and have a nice day. Bye-bye.

Thank you. Bye-bye.

Thank you. This concludes today's Qiagen fourth quarter 2007 and year end conference call. You may now disconnect.